"A tax is intended for immediate expenditure for the common good and it would be unjust to require its repayment after it has been in whole or in part expended, which would often be the case, if the suit or application could be brought at any time within three years of a court declaring the law under which it was paid to be invalid, be it a hundred years after the date of payment. Nor is there any provision under which the court could deny refund of tax even if the person who paid it has collected it from his customers and has no subsisting liability or intention to refund it to them, or, for any reason, it is impracticable to do so."
 12. In Abdul Quader & Co. vs. Sales Tax Officer - , the vires of Section 22(2) of the Hyderabad General Sales Tax Act, 1959 which laid down that any amount collected by way of tax by any person otherwise than in accordance with the provisions of the Act must be paid over to the Government and in default of such payment, the said amount would be recovered from such person as if it were arrears of land revenue, was challenged. Their Lordships of the Supreme Court held that the impugned Section 11(2) of the Act was not within the competence of the State Legislature under Entry 54 of List II of Schedule VII of the Constitution and that the provisions of Section 20(2) being consequential to Section 11(2) would also fall along with it. Their Lordships added :
 "If a dealer has collected anything from purchaser which is not authorised by the taxing law, that is a matter between him and the purchaser, and the purchaser may be entitled to recover the amount from the dealer. But unless the money so collected is due as a tax, the State cannot by law make it recoverable simply because it has been wrongly collected by the dealer."


Kesoram Cements, Basantnagar vs Union Of India And Ors. on 31 December, 1981

13. In Sales Tax Officer vs. Tata Oil Mills Co. Limited - 36 STC 232 (SC) their Lordships of the Supreme Court held :
 "It would not, however, be permissible for the State Legislature to enact a law under entry 54 for recovery by the State of an amount which could not be recovered as Sales Tax or purchase tax in accordance with the law on the subject and which was wrongly realised by a dealer as sales tax or purchase tax. Such a law plainly would not be a law relating to tax on the sale or purchase of goods but would be one in respect of an amount wrongly realised by a dealer as sales tax or purchase tax. It looks perhaps odd that a dealer should recover in the course of business transactions certain sums of money as sales tax or purchase tax payable to the State and that he should subsequently decline to pay it to the State on the ground that the same amount is not exigible as sales tax or purchase tax. Whatever might be the propriety of such a course, the question with which we are concerned is whether the State Legislature is competent to enact a law under entry 54 for recovery by the State of an amount, which though not exigible under the State law as sales tax or purchase tax was wrongly realised as such by a dealer. The answer to such a question has to be in the negative."
 The decision in Abdul Quader & Co. vs. Sales Tax Officer (Supra) was quoted with approval.
 14. In Atic Industries vs. Assistant Collector, Central Excise - , their Lordships of the Supreme Court while setting aside the assessment to excise duty made by the excise authorities on the dye-stuffs manufactured by the appellants wherein directed the respondents to refund to the appellants forthwith the amount collected in excess of the correct duty of excise leviable in accordance with the principles laid down in the judgment delivered therein.


15. In Annapurna Match Industries, Cuddapah vs. Union of India and another - . The legality of imposition and collection of excise duty on matches manufactured by Annapurna Match Industries was assailed in a proceeding instituted under Article 226 of the Constitution of India. Refund of the excise duty so collected was also prayed for. A Division Bench of this court declared the imposition and collection of excise duty to be without jurisdiction and not authorised by law. Adverting to the claim of refund of the excise duty asked for, the Division Bench observed :
 "The respondent cannot be allowed to appropriate the duty so collected. As the duty was collected under a void provision the petitioner is also entitled to an Order for refund of the duty collected from him by the respondents."


16. In Union of India vs. Mansingka Industries Pvt. Ltd. - 1979 ELT 158 (Bombay), Mansingka Industries Private Limited, a company incorporated under the Indian Companies Act filed a suit in the Court of the Civil Judge, Senior Division at Jalgoan contending that the Union of India illegally recovered from it certain monies purported to be excise duties under the Central Excises and Salt Act. The suit was decreed. The decree was assailed by the Union of India in the High Court of Bombay of the ground that Section 40 of the Central Excises and Salt Act excluded the jurisdiction of Civil Court to recover duty illegally collected by the Government. Repelling the contention, Mukhi J., held that Section 40 of the Central Excises and Salt Act merely enacted immunity or protection against claims for damages against the Government itself or any of its officers for acts done in good faith and that questions of collection of illegal duty and/of its recovery or refund were not questions covered by the said section and that Section 40 of the Central Excises and Salt Act did not bar the jurisdiction of civil or criminal courts from recovery of duty illegally collected. In result, the appeal preferred by the Union of India was dismissed.


17. In Associated Bearing Company Limited vs. Union of India and another - 1980 ELT 415 (Bombay), following the earlier decision of the Division Bench of the High Court of Bombay in Union of India vs. Mansingka Industries Private Limited (Supra), a Division Bench of the High Court of Bombay held that the jurisdiction of the authorities under the Central Excise Act was to recover duty according to law, that if any duty was recovered on post-manufacturing expenses or on a price which was not permissible in law, such a levy clearly amounted to exercising excess of jurisdiction or acting without jurisdiction and could not be held merely an error of jurisdiction that it could not, therefore, be construed as resulting due to any inadvertance, error or misconstruction on the part of the Department for purposes of limitation as contemplated under Rule 11 of the Central Excise Rules, 1944, that once the recovery of the excise duty by the Department was held to be illegal, the provisions of Rule 11 would not be attracted, that a claim for such a refund could be entertained within three years from the date when the mistake of law was discovered and that there was no provision in the Central Excise Law under which a manufacturer could be denied the refund of duty illegally collected from him even though he had recovered it from the customers and had no intention to refund it to them and that the claim of refund of duty illegally collected by the Department could be entertained even in a proceeding under Article 226 of the Constitution.
 The Division Bench of the High Court of Bombay placed reliance upon paragraph 10 of the judgment of the Supreme Court in D. Cawasji & Co. vs. State of Mysore (Supra), extracted earlier.


18. In Maharashtra Vegetable Products Pvt. Ltd. and another vs. Union of India and others - 1981 ELT 468 (Bombay) a Division Bench of the High Court of Bombay again held, following the earlier decisions of its two Division Benches in Union of India vs. Mansingka Industries Private Limited (Supra) and Associated Bearing Company Limited vs. Union of India and another (Supra), that the excise authorities had no jurisdiction to take into account any post-manufacturing expenses for purpose of chargeability of excise duty, that if excise duty was wrongly collected on post-manufacturing expenses, it clearly amounted to exercising of powers without jurisdiction and outside the provisions of the Central Excises Act, that it wound not attract the bar of limitation prescribed under Rule 11 of the Central Excise Rules, 1944 for purposes of refund, that the amount of duty illegally collected was refundable even though it was recovered from the consumers by the manufacturers and might result in unjust enrichment, that where the constitutional validity of a levy was in question and the departmental action amounted to recovery of tax without authority of law, it could not be said that a suit was a remedy equally expenditious, efficacious and adequate as a proceeding under Article 226 of the Constitution and that the period of limitation for filing a proceeding under Art. 226 of the Constitution was three years from the date of the court declaring the law under which the duty was paid to be invalid.
 19. The Union of India applied to the Supreme Court for special leave to appeal against the decision in Maharashtra Vegetable Products Pvt. Ltd. and another vs. Union of India and others (Supra) and leave was refused by their Lordship of the Supreme Court consisting of the Chief Justice and Mr. Justice Eradi on 3-4-1981.


20. In Paper Products Ltd. vs. Union of India - 1981 ELT 538 (Bombay), a single Judge of the Bombay High Court held that if duty paid by mistake was declared by a competent Court to be invalid in law, it would fall within the purview of Section 72 of the Contract Act and the Government would be under an obligation to refund it.
 21. In Madras Fertilisers Ltd. vs. Assistant Collector of Central Excise, Madras & others - 1981 ELT 194 (Madras) it was held by Varadarajan J., that the Government was not entitled to retain the excess duty recovered or collected as there was a legal obligation on its part to return the same and as there was a corresponding legal right in the assessee to recover the same.
 22. In Prem Cables Pvt. Ltd. vs. Assistant Collector (Principal Appraiser) Customs, Bombay and Others - 1981 ELT 440 (Raj.) it was held by a Division Bench of the High Court of Rajasthan that the High Court could issue a direction for enforcement of fundamental rights to give constitutional relief by way of refund of money paid under a mistake of law and realised by the Government without the authority of law and that if a proceeding under Article 226 of the Constitution of India was instituted within three years from the date the mistake of law became known to the assessee, the amount could be refunded by issuing a writ of mandamus and institution of a suit in a Civil Court was not necessary for the purpose.


23. In I.T.C. Limited and Others vs. Union of India and Others (Supra) it was held that the revenue had no right to retain taxes of any kind illegally levied and collected if the same were not authorised by law and the aggrieved assessees claiming refund of such duties could not be denied the remedy under Art. 226 of the Constitution.
 24. In Assistant Collector of Customs : Madras and Others vs. Premraj and Ganapat Raj and Co. (P) Ltd. - 1978 ELT 630 (Madras) a Division Bench of the Madras High Court directed refund of excise duty to the assessee on the ground that the recovery of duty was without the authority of law.
 25. In Vazir Sultan Tobacco Co. Ltd. vs. Union of India and Others 1981 ELT 140 (Delhi) a single Judge of the Delhi High Court held that any duty realised in excess of what was permissible under the Central Excise Act, would be realisation outside the provisions of the Act and the time limit laid down for refunds in Rule 11 read with Rule 173J of the Central Excise Rules, 1944 would not apply in such cases and that where the Government realised the duty in contravention of the law the court was fully competent to allow the refund of the excess amount of duty under Art. 226 of the Constitution even though the claim of refund had been held to be time bared by the departmental authorities.


26. In Hyderabad Asbestos Cement Products Ltd. vs. State of Andhra Pradesh - 24 STC 487 the appellant therein was a public limited company carrying on the business manufacturing and selling asbestos cement sheets and other products with its factory situated at Sanatnagar, Hyderabad in the State of Andhra Pradesh. For the year 1959-60, the Commercial Tax Officer, in assessing the turnover of the Company allowed a deduction of Rs. 57,590.37 in respect of railway freight on articles supplied to outstation customers. The Deputy Commissioner of Commercial Taxes later revised the assessment and directed that the railway freight paid in respect of the goods sold be included in the turnover. In appeal the Appellate Tribunal set aside the order passed by the Deputy commissioner of Commercial Taxes. But the order passed by the Tribunal was set aside by the High Court of Andhra Pradesh and the order passed by the Deputy Commissioner was restored. A writ petition moved by the Company challenging the assessment was also dismissed. The company thereupon moved the Supreme Court. The Supreme Court held that under the terms of the contract there was no obligation on the part of the company to pay the freight and the price received by the Company for the sale of the goods was the invoice amount less the freight. In that view the appeals preferred by the Company were allowed by the Supreme Court. Adverting to the plea put forward on behalf of the State that the Company realised sales tax on the freight from its customers, their Lordships observed :


"If, apprehending that it may have to pay sales tax on the freight, the Company collected sales tax on the freight, the true nature of the contract between the Company and the purchasers cannot on that account be altered. The Company may be liable to refund the amount of excess sales tax to its purchasers. But that is a matter between the Company and the purchasers and the State cannot seek to levy tax on railway freight if it is not made a part of the price".
 27. To sum up, the excise authorities have no jurisdiction to levy excise duty except in conformity with and as empowered by the provisions of the Central Excise Act and the rules made thereunder. Any duty collected otherwise is without authority of law and is liable to be refunded to the assessee. The Union of India has no right to retain the duty so illegally levied and collected. In a proceeding instituted under Art. 226 of the Constitution of India questioning the levy of such illegal excise duty, the assessee is entitled to the consequent relief of refund of the duty so illegally collected when the illegal levy is quashed in the said and same proceeding, unless a plea of limitation is available to the Union of India in case the claim were to be enforced by way of a suit. The assessee's claim for refund of excise duty illegally levied any paid by him under protest stands on a still higher footing. (The discretionery jurisdiction of the High Court under Art. 226 of the Constitution cannot, however, be exercised merely for the purpose of obtaining refund of the duty declared to have been collected illegally in an earlier or a different proceeding). Even if the assessee passed on to his consumers, the duty illegally recovered from him, it is a matter between him and his consumers and the High Court cannot deny refund of the illegally levied and collected duty, to the assessee even if it results in unjust enrichment of the assessee.


28. On behalf of the Union of India, reliance is placed on the decision in Madras Aluminium Company Ltd. and Another vs. Union of India, 1981 ELT 478 (Madras). The petitioners therein filed writ petitions before the High Court of Madras questioning levy of excise duty on aluminium properzi rods and praying for refund of the duty paid under mistake of law. Adverting to the claim of refund of excise duty, Division Bench of the High Court of Madras observed :
 "There is one other impediment in the way of the petitioners claiming refund of excise duty in this case. The petitioners, after paying the excise duty as per the classification made ny the excise authorities, have passed on the same to the actual consumers and in fact, the actual consumers have borne the entire liability towards excise duty. The petitioners admit that they are not able to trace at this stage as to who are the ultimate consumers in respect of the goods which have suffered excise duty, in respect of which refund is now sought for by them. Though excise duty is levied at the production or manufacture of goods for home consumption, in substance it is a tax on consumption, and therefore, if at all it is the consumer who can claim the refund of the excise duty paid in respect of the article purchased and consumed by him and not the petitioners who produced the articles and who have recouped themselves to the extent of the excise duty paid to the State.
 .......................................................


.......................................................
 In respect of sales tax paid by the dealers and which has been passed on to the consumers courts have held that the money paid as tax primarily belonged to the consumers who paid it and not to the dealers (vide 16 STC 973 - IS, C.R. 735 and 30 STC 120). Therefore, the petitioners having passed on the excise duty, paid by them to the state, to the consumers, they cannot have any beneficial interest on the excise duty if and to be refunded by the State and the beneficial interest is vested only if all the consumers who had ultimately borne that burden. As pointed out by the Supreme Court in R.C. Jall vs. Union of India, 1962 Supp. 3 SCR 436 at page 451........


"Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. If the ultimate incidence of the excise duty is on the consumer than the ultimate benefit of the refund of excise duty should also go to the consumer and not to the producer or manufacturer. Thus, even in the event of the court being satisfied that excise duty is not excisable on the molten aluminium which is aluminium in crude from, the court is not bound to direct refund of the duty if it ultimately results in the unjust enrichment of the producer and unfair deprivation of the benefit to the consumers. As already stated, the petitioners are not in a position to say as to who are the ultimate consumer who had in fact borne the excise duty. Therefore, there is no question of the petitioners refunding the excise duty pro rata to the actual consumers. It is true this court can in its discretion direct refund of the excise duty illegally corrected from the petitioners. But in the circumstances of this case, where the petitioners cannot in their turn refund the excise duty pro rata to the actual consumers, such a refund will result in their unjust enrichment to the extent of the amount directed to be refunded and the court will be justified in refusing to exercise its discretionary jurisdiction to direct the refund of the excise duty collected from the petitioners.


It is well established that the right of the petitioners to get a refund of the excise duty is subject to questions of estoppel, limitation and the like. If peculiar circumstances existed and they showed that the amount the State has to refund really belongs not to the petitioners but to the consumers, then the court will be justified in refusing to direct refund. In this case, any direction to refund the excise duty to the petitioners will result in their retention of the duty collected by them from the consumers and the court will be siding an unjust enrichment by the petitioners by such a direction. Admittedly the petitioners have passed on the excise duty to the consumers and this was done on the basis that they have paid excise duty to the State. But for the payment of excise duty to the State the petitioners will not be entitled to or enabled to pass on the duty to the consumers. Therefore, if there is no possibility of excise duty being refunded to the actual consumers, the petitioners will have the benefit of both the collection of excise duty from the consumers and the benefit of refund from the State. Thus the court will indirectly and unjustly be enriching the petitioners by directing a refund of the excise duty paid by them. We are, therefore, satisfied that having regard to all the circumstances the petitioners are not entitled to get a refund of the excise duty if they are not in a position to trace the actual consumers and pay back the excise duty collected from them. The discretionary jurisdiction of this court under Art. 226 of the Constitution should be exercised for public good and not to facilitate the petitioners to make an unlawful gain at the instance of the public (consumers) on the one hand and the State on the other, and the exercise of the extraordinary jurisdiction of this court must advance the cause of justice and not subserve the object of the petitioners to enrich themselves unjustly by getting a refund of the excise


the object of the petitioners to enrich themselves unjustly by getting a refund of the excise duty from the State and retaining the same without refunding in to the consumers.


The Division Bench added :
 "If, in fact the petitioners have no beneficial interest in the amount paid to the State as excise duty, as they have already recouped themselves to that extent from the consumers the claim for refund can in law be taken to be a claim made on behalf of the consumers. As already pointed out, it is impracticable to trace the actual consumers of the goods produced by the petitioners with reference to which excise duty was collected and therefore the court is justified in not directing the refund of the amount to the petitioners but directing the retention of the amount by the State as a deposit with a view to ultimately refund the same pro rata to the actual consumers, as otherwise, a direction to refund the exercise duty to the petitioners will result in their unjust enrichment, and the court will be actually giving an unjust benefit to them. In this view, even if there is any excess collection of excise duty in this case as contended by the petitioners, the petitioners are not entitled to get a refund. The excess collections, if any, will be retained by the State as deposit for the purpose of payment out at pro rata to the actual consumers who come forward and prove their claim for refund".
 It may be noticed that the various decisions rendered by the Supreme Court and referred to earlier, recognising the right of the assessee to claim refund of duties or taxes illegally levied from him and the corresponding legal obligation on the part of the Union of India or the State to refund the same to the assessee were not noticed by the Division Bench of the High Court.
 29. Reliance was also placed upon the decision of a Division Bench of this court in G.S.G.A. & Co. vs. State of A.P. - 30 STC 120 wherein, adverting to a claim for refund of sales tax which was held to be illegally collected, it was held :


"Even if the court is satisfied having regard to all the circumstances that the petitioners are entitled to refund of the tax, the petitioners may still not be granted this discretionary relief if it results in retention of the sales tax collected by them from the public and imposes the burden of refunding the tax on the State which it had collected under a valid assessment order. The discretionary jurisdiction of this court should be exercised for public good and not to facility the individual to make an unlawful gain at the expense of the public on the one hand and State on the other. The extraordinary jurisdiction of the High Court under Art. 226 must advance the cause of justice and not subserve the ends of the individual for retaining the sales tax illegally collected by him..........
 More than anything else, one fact which must strongly weigh against the claim of the refund of sales tax by the petitioners is that the petitioners have already collected the tax and any direction in these writ petitions to refund such tax as they have paid would result in allowing them to retain the tax illegally collected from the consumers and thus make an unauthorised gain for themselves, while the State which is in charge of the public funds and which has collected the tax as per the final orders of assessment, would be now obliged to return the same for the personal benefit of the dealer at the expense of the public from whom he has collected the tax. The extraordinary jurisdiction of this court must not be allowed to be invoked and the discretionery relief granted for the benefit of a private individual in this manner at the expense of the public and the State. The discretionary jurisdiction of this Court under Article 226 of the Constitution must not be allowed to be exploited to defeat the ends of justice."


It may be noted that in the above case sales tax collected from the dealers and sought to be refunded was levied under valid assessment orders which became final. That circumstance weighed with the Division Bench in refusing to grant the discretionary relief. The following observations of the Division Bench are pertinent :


"If the assessment order is not void but is only erroneous in law, the assessee is obliged to get the assessment order set aside. Otherwise as laid down in State of Vindhya Pradesh vs. Raghunath Mannulal - 1952 - 3 STC 256), "if the sales tax authority has jurisdiction, and has exercised it, may be wrongly, then the aggrieved party cannot go to the civil court, but should go to the Tribunal mentioned in the Sales Tax Statute itself, if, on the other hand, this authority had acted without jurisdiction, then the aggrieved party must go to the civil court, because its grievance is a general grievance and not one under the special law. If the assessment order is merely erroneous in law, the assessment cannot claim refund without getting the assessment order quashed by availing himself of the alternative remedy provided under the statute. He cannot invoke the jurisdiction of a civil court for questioning the legality or propriety of the assessment order and if that order cannot be questioned, then the amount paid or recovered pursuant to that order cannot be directed to be refunded by a civil court. If that be so then this court exercising jurisdiction under Article 226 of the Constitution must necessarily take into account whether a party who has by his own laches has not chosen to avail himself of the alternative remedy provided by the statute for questioning the erroneous decisions of the assessing authorities by taking the matter in appeal or in revision and also by reference to this court and has allowed the assessment orders to become final, which assessment orders are not allowed by the statute to be questioned even by way of a civil suit, should be granted the indulgence to invoke the extraordinary jurisdiction of this court of the grant of the discretionery relief. Even this court cannot direct refund of tax paid in pursuance of such orders without quashing the assessment orders themselves. If the assessment orders have to be quashed, this court cannot shut its eyes to the long interval


If the assessment orders have to be quashed, this court cannot shut its eyes to the long interval between the orders of assessment and the writ petitions".


30. In Hyderabad Asbestos Cement Products Ltd. and another vs. Union of India and others - 1980 ELT 735 (Delhi), the legality of levy of excise duty on asbestos fibre was questioned and refund of the duty paid was prayed for in the Delhi High Court. A Division Bench of the Delhi High Court held that the imposition was valid. Having recorded the said finding, the Division Bench observed in paragraph 32 of the judgment :
 "In the petition there was also a claim for the refund of duty which had been paid. In view of my finding on the validity of imposition of the excise duty that question does not arise. Even if I had found otherwise a question may well have arisen whether an order of refund could be passed in favour of the petitioners. The reason is that excise duty and additional duty which has been imposed and as has been recognised by the Supreme Court is ultimately passed on to the consumers........................... ................................................. The benefit if any of the refund of illegally levied excise duty and additional duty should in all fairness normally belong to the consumers. In such a situation a question may well be raised that the petitioners cannot be allowed to unjustly enrich themselves by obtaining refund of the excise duty and additional duty which amount they have already recovered from the consumers when asbestos fibre was disposed of. This is on the equitable plea that if there is illegal levy and some refund is due the same should be disbursed to the buyers from whom the excise duty and additional duty was realised and not appropriated by the petitioners who in equity are not entitled to it".
 We are of the opinion that the above observations of the Division Bench of the Delhi High Court are obiter dicta.


31. In Ogale Glass Works Ltd. vs. Union of India and others - 1979 ELT (J 468) Bombay, the questions that arose for consideration were whether the cost of packing and packing materials could be included in the assessable value of glass and glassware manufactured by Ogale Glass Works Limited and whether the assessee was entitled to refund of the amounts of duty paid on the cost of packing and packing material. A Division Bench of the High Court of Bombay held that the cost of packing and packing materials could not be legally included in arriving at the wholesale cash price of the excisable goods manufactured by the assessee. The Division Bench, however, declined to grant refund to the assessee of the amounts excess duty collected from the assessee without the authority of law Mukhi J., speaking on behalf of the Bench observed :
 "It requires to be noticed that the amount comes to nearly Rs. 12 lakhs and the result of an order in their favour would be that the petitioners would be enriched to that extent without any real claim to that money in so far as the record shows that the moneys were recovered by the petitioners from their customers and then passed on to the respondents.
 ..............................................
 In the petition before us, I am unable to persuade myself that justice lies on the side of the petitioners and that this court will be doing justice in ordering the respondent to refund the amount of Rs. 12 lakhs to the petitioners when, to begin with, that money never came from the petitioner's pocket. It is true that the respondents may not have the legal right to retain that money, but in the circumstances of the case justice does not require that moneys moneys should be transferred from the respondents (who have no right to it) to the petitioners who also have no right to it".


It may be noted that the decision of the Division Bench of the High Court of Bombay suffers from the same comment levelled against the decision in Madras Aluminium Company Ltd. and another vs. Union of India (supra).
 32. In Hindustan Pilkington Glass Works Ltd. vs. Superintendent, Central Excise, Asansole & others - 1978 ELT (J 229) (Cal.) a single Judge of the Calcutta High Court held that refund of duty, though paid under a mistake, but without a protest, could not be granted in a proceeding under Art. 226 of the Constitution of India. The decision in Ogale Glass Works vs. Union of India (supra) was relied upon by the learned Judge.
 33. In Electric Lamp (India) Pvt. Ltd. vs. Collector of Central Excise, Calcutta and Orissa and others - 1978 ELT 84 (Calcutta) a single Judge of the Calcutta High Court held that a manufacturer who had already collected the excise duty alleged to have been paid in excess by mistake could not be allowed to have an unjust enrichment by claiming again refund of the same amount.


34. In Union Carbide Co. Ltd. vs. Assistant Collector of Central Excise and others - 1978 ELT 180 (Calcutta), a single Judge of the Calcutta High Court held that refund of duty paid under mistake of law could be claimed by way of a petition under Art. 226 of the Constitution, provided such petition was filed within three years. The decision in Electric Lamp (India) Pvt. Ltd. vs. Collector of Central Excise, Calcutta and Orissa and others (supra) was relied upon on behalf of the Union of India for negativing the claim of refund of excise duty on the ground that the assessee passed on the same to the actual consumers. Adverting to the said plea, the learned Judge observed :
 "Of course the facts of the instant case are different from the facts in that case, inasmuch as there was positive evidence that the manufacturer had realised duties from the consumers. Such evidence is not available in the instant case but it may be presumed that though as a matter of law excise duty is payable by the manufacturer, as a matter of fact it is passed on to the consumers. But that in my opinion is no ground to invoke the theory of unjust enrichment. If unjust enrichment is not to be permitted to a litigant, it should not also be permitted to the State. The State has no right to collect unauthorised tax or illegal tax. Good fiscal administration enjoins that all lawful taxes should be properly collected and taxes which are not due if realised by the State should be refunded. Such fiscal administration alone ensures the atmosphere of tax compliance. But a question of limitation also arises in this case."


35. In Birla Jute Manufacturing Company Ltd. vs. Union of India and others - 1980 ELT 593 (M.P.) two writ petitions were filed in the High Court of Madhya Pradesh by the manufacturers of Portland Cement questioning levy of excise duty on the cost of packing of cement in gunny bags from 1st Oct., 1975 to 8th Jan., 1976 and praying for refund of the excess excise duty paid by them under protest. A Division Bench of the High Court while holding that the cost of packing of cement in gunny bags was not includible in the assessable value of cement under Section 4 of the Central Excises and Salt Act, 1944, also directed refund to the assessees, the amounts of excise duty paid by the assessee under protest. Adverting to the decision of the Division Bench of the Bombay High Court in Ogale Glass Works Ltd. vs. Union of India and others (Supra) relied upon by the Union of India in support of its contention that the assessee were not entitled to refund, it was observed :


"It is not disputed that the duty on the cost of packing was paid by the petitioners under protest. If the petitioners are not liable to pay duty, they are also not liable to recover it from the parties to whom they sold the cement. The purchasers from the petitioners are entitled to recover that amount from them. The learned Standing Counsel for the respondents relied upon a judgment of the Bombay High Court in the Ogale Glass Works Limited vs. Union of India and others - (1979 ELT 468) in support of his submission that justice does not lie on the side of the petitioners in seeking refund. It does not appear whether in that case the petitioner had paid the duty under protest. When the petitioners in the instant case had paid the duty under protest and when the purchasers from them can claim recovery of the amount of duty which they may have paid as price to the petitioners, we fail to understand why justice does not lie in directing refund of that amount to the petitioners from the Government".
 We are in complete agreement with the view expressed by the Division Bench of the Madhya Pradesh High Court. We may add that the facts of, and the questions raised in, the present case are identical with those in the case referred to supra.


36. In Wipro Products Ltd. and another vs. Union of India and another - 1981 ELT 531 (Bombay) a division bench of the Bombay High Court expressly dissented from the decision of the Division Bench of the Madras High Court in Madras Aluminium Co. Ltd. and another vs. Union of India (supra) and preferred to follow the earlier decision of a Division Bench of the said Court in Maharashtra Vegetable Products Pvt. Ltd. and another vs. Union of India and Others (supra). The observations made by the Division Bench of the Delhi High Court in Hyderabad Asbestos Cement Products Ltd. and another vs. Union of India and others (supra) in paragraph 32 of the Judgment of the Division Bench were relied upon on behalf of the Union of India. Adverting to the same, the Division Bench of the Bombay High Court held :
 "In the first instance it must be noted that the claim for refund of duty was turned down by the Delhi High Court on the ground that the imposition was perfectly valid. The learned Judge observed that the benefit, if any, of the refund of illegally levied excise duty should in all fairness normally belongs to the consumers and therefore a question may well be raised that the petitioners cannot be allowed to unjustly enrich themselves to obtain refund. The learned Judge declined to record any conclusive finding as the question did not specifically."
 The following principles were laid down by the Division Bench of the Bombay High Court :
 (1) Since the excise duty is leviable on the manufacture or production of goods, the expenses and profits attributable to post-manufacturing and non-manufacturing operation are not includible in the assessable value under Section 4 of the Central Excises Act.


(2) If the levy of Central Excise is totally without jurisdiction and outside the provisions of Section 4 of the Central Excises Act, the bar of limitation prescribed under rule 11 of the Central Excise Rules is not applicable.
 (3) If the recovery is illegal and without jurisdiction, the claim for refund will not be governed by the Limitation Act.
 (4) if the duty is recovered without authority of law, the Government is bound to refund it even if the benefit is not passed on to the consumer.
 (5) If the recovery of duty is constitutionally illegal it would be futile to drive the citizen to a Civil Court instead of approaching the High Court under Art. 226 of the Constitution.
 37. Examined from a different angle, the plea of unjust enrichment of the Company put forward on behalf of the Union of India does not also merit acceptance. If only the Company had rushed to this Court questioning the levy of duty on the cost of jute bags and obtained a direction from this Court restraining the respondents from collecting the said duty, the respondents could not have collected the same, in which case the question of refund of duty would not have arisen. The Union of India could not have recovered the same from the company under any provision of law on the ground that the Company passed on the same to its consumers. The Company cannot be placed in a disadvantageous position by reason of payment of the illegally levied duty under protest.


38. It must also be noted that under Sub-Section (5) of Section 11-B of the Act inserted by Finance (No. 2) Act, 1980, the assessee is entitled to claim refund of any amount collected as duty of excise on the ground that the goods in respect of which such amount was collected were not excisable or were entitled to exemption from duty. It is further enacted therein that no Court shall have any jurisdiction in respect of such claim. Under Section 11-B(1) of the Act the claim for refund must be made to the Assistant Collector of Central Excise before the expiry of six months from the relevant date. The period of limitation does not, however, apply where any duty has been paid under protest. There is no provision in Section 11-B of the Act entitling the Assistant Collector of Central Excise to deny refund of the illegally collected duty of excise on the ground that the assessee passed on the same to his consumers. In other words, the doctrine of unjust enrichment is not recognised and embodied in the Act. We are, however, aware of the fact that Section 11-B of the Act does not govern the claim of the Company, as the impugned levy related to the period prior to coming into force of section 11-B of the Act. The only provision in force during the relevant period is that contained in Rule 11 of the Central Excise Rules, 1944 providing for refund of duties or charges erroneously paid. Rule 11 cannot be invoked by the Union of India where duty was collected without the authority of law, as noticed earlier.


39. Sri K. Subrahmanya Reddy, learned counsel for the Union of India places strong reliance upon the decision in N.S. Mills vs. Union of India - for negativing the relief of refund of the illegally collected excise duty to the Company. In the said case, the price of sugar was controlled by the State of Uttar Pradesh by a notification. Several sugar millers writ petitions in the High Court of Allahabad challenging the notification and obtained stay of operation of the notification, on their furnishing bank guarantee to the Court for the excess price. Ultimately the millers failed in their challenge of the notification and the impugned notification was upheld by the High Court. But, crores of rupees were funnelled into the millers' tills during the period when the writ petitions were pending by virtue of stay of operation of the notification. While dismissing the writ petitions, the Division Bench of the Allahabad High Court made the following directions :
 "We, therefore, direct that the Registrar will take immediate steps to encash the security and recover the amount so over-charged by the petitioners and pay the same to the State Government which will keep it in a separate account. The petitioners will furnish to the State Government, within a period of six weeks of this order, a list of all such persons to whom they sold the levy sugar of 1971-72 season, together with their addresses, quantity of such sugar sold to and the amount of excess price charged from each of them. The State Government will then refund to the persons concerned the excess amount realised from each of them, if necessary, after verifying the claim for refund of such amount made by such persons."
 Aggrieved by the above direction, the millers appealed the Supreme Court. All the pleas put forward on behalf of the millers were negatived by the Supreme Court and the following directions were made by the Supreme Court to benefit the ultimate consumers :


"A. The security by way of bank guarantee furnished by every appellant will be encashed by the registrar of the High Court and kept in short-term deposit in the State Bank of India.
 B. The Appellant will be given complete immunity from liability to any sugar buyer, wholesaler or other to whom sugar has been sold by the appellants at higher prices during the period covered by the High Court's stay order. If any exceptional case of claim were to be made by any buyer, it should be done by motion before the High Court which will be justly disposed of.
 C. The Registrar, under orders of the High Court, will directly or by making over to the State Government, receive and dispose of claims from the ultimate consumer for excess price paid on proper proof. If the State Government is to undertake this task, a proper, easy and cheap machinery for distribution to the real, last buyers will be produced before the High Court and orders obtained. The process should not be too expensive or too formalised.
 D. Wide publicity will be given about the project and method of returning small claims and the money sent by post or otherwise. The claims also would be received by post or otherwise and verified without delay.
 E. The interest accruing from the bank deposits will be used for the incidentals to work out the distribution.
 F. It will be open to the wholesaler to prove by vouchers the retailers and the latter in turn may prove who the ultimate buyers are the High Court may devise modifications of this scheme or direct the State Government to act on any scheme subject to the moneys reaching the real small buyers from the retailers.
 G. If any further directions in the mechanics of the scheme are felt necessary, the High Court will report to this court.


H. If, within one year from today, any amounts remain unclaimed they will go into a separate deposit in the High Court to be operated on application by any claimant.
 I. If any legislation dealing with the subject were to be made before the amounts are disbursed, the legislative scheme will pro tanto prevail over the directions given above."
 It may be noted that in the aforesaid case, crores of rupees were funnelled into the millers' tills on account of the orders passed by the High Court staying operation of the notification whereunder the price of sugar was fixed and controlled. That circumstance fully weighed with the High Court and the Supreme Court in making the Directions extracted above, lest there should be no judicial sanction of unjust enrichment of the millers.


40. The learned counsel for the Union of India also places strong reliance on the decision in Shiv Shanker Dal Mills vs. State of Haryana - 1980 SC 1037. The appellants therein paid market fee at the increased rate of 3 per cent under the Haryana Act No. 22 of 1977. The levy was challenged by the appellants and the Supreme Court by its judgment delivered on 4-5-1979 ruled that the excess 1% over the original rate of 2% was ultra vires. The decision of the Supreme Court case a consequential liability on the market committees to refund the excess amounts levied and collected. No such order was, however, passed by the Supreme Court presumably because the ultimate persons from whom the market was collected could not be identified. Subsequently the appellants sought suitable directions to the concerned market committees for refund of the excess amounts or market fee collected. It was argued on behalf of the market committees before a bench of three judges of the Supreme Court that although refund of excess collections might be legally due to the traders, many of the traders had themselves recovered the excess percentage from their next purchasers and that the traders themselves had no percentage from their next purchasers and that the traders themselves had no more right to keep such small sums than the market committees themselves. Their lordships of the Supreme Court adopting the procedure laid down in N.S. Mills vs. Union of India (Supra), devised a scheme of refund by the market committees and redistribution of small amounts to those from whom unwarranted collections had been made and the following directions were given :
 "I. Subject to the directions given below, all the sums collected by the various market committees who are respondents in these various writ petitions or appeals shall be liable to be paid into the High Court of Punjab and Haryana within one week of intimation by the Registrar of the amount so liable to be paid into the court.


II. A statement of the amounts collected in excess (1%) shall be put into this court by the dealers with copies to the various market committees aforesaid and furnished to the writ petitioners and appellants within 10 days from today, and if there is any difference between the parties it shall be brought to the notice of this court in the shape of miscellaneous petitions. On final orders, if any, passed thereon by this court, those amounts as so determined shall be treated as final.
 III. The Registrar of the High Court shall issue public notice and otherwise given due publicity to the fact that dealers who have not passed on the liabilities to others and others who have contributed to or paid the excess one per cent covered by these writ petitions and appeals may make claims for such sums as are due to them from him within one month or such other period as he may fix. The Registrar shall scrutinise such claims and ascertain the sums so proved. He will thereupon demand of all the market committees concerned payment into the Registry of such sums in regard to which proof of claims have been made. On such intimation, the market committees shall pay into the Registry the amounts so demanded by the Registrar within one week of such intimation. The amount shall be paid together with interest at 10 per cent per annum from today upto the date of deposit with the Registrar.
 IV. It shall be open to the Registrar to make such periodical claims on appropriate proof by claimants on the line stated above.
 V. He will devise the mechanics of processing the claims as best as he may and, in the event of dispute, may refer to the High Court for its decision of such disputes, if he thinks it necessary. Otherwise, he may dispose of the objections finally.


VI. If any further directions regarding the mechanics of the claim of refund or otherwise are found necessary from this court, the High Court will report about such matter to this court and orders made thereon will bind the parties.
 VII. If parties eligible for repayment of amounts do not claim within one year from today the Registrar will not entertain any further claims. It will be open to such parties to pursue their remedies for recovery for any sums that may be due to them.
 VIII. Each State Marketing Board will deposit within 10 days from today a sum of Rs. 5000/- before the Registrar for the preliminary expenses of publicity and other incidentals for the implementation of the directions given above. Any unexpended amount, at the end of one year, will be repaid to the respective State Marketing Board.
 IX. We further direct that the unclaimed amounts, if any, shall be permitted to be used by the respective marketing committees for the purposes falling within the statute as interpreted by this court in C.A. No. 1083/77."
 While making the aforesaid directions, Krishna Iyer, J., speaking on behalf of the Bench observed :
 "Article 226 grants an extraordinary remedy while is essentially discretionary, although founded on legal injury. It is perfectly open for the court, exercising this flexible power, to pass such order such as public interest dictates and equity projects."
 "Courts of equity may, and frequently do, go much further both to give and withhold relief in furtherance of the public interest than they are accustomed to go where only private interests are involved. Accordingly, the granting or withholding of relief may properly be dependent upon considerations as of public interest....."


It may be noted that refund of the excess amounts of market fee collected was not claimed in the proceeding in which the levy of the excess market fee was questioned and held to be ultra vires but was prayed for only in a subsequent proceeding. That circumstance must have weighed with their Lordships of the Supreme Court in making the directions extracted above.
 41. It may be recalled that in Sales Tax Officer vs. Kanhiya Lal (supra) a Bench of five Judges of the Supreme Court held that under plain terms of section 72 of the Contract Act the assessee would be entitled to recover back the money paid by him to the State under mistake of law and that equitable considerations could scarcely be imported when there was a clear and unambiguous provision of law which entitled the assessee to the relief claimed by him.
 42. As observed by us earlier, on 3-4-1981 their lordships of the Supreme Court consisting of the Chief Justice and Mr. Justice Eradi, refused special leave to the Union of India to appeal against the decisions of a Division Bench of the Bombay High Court in Maharashtra Vegetable Products Pvt. Ltd. and another vs. Union of India and others (supra) wherein the doctrine of unjust enrichment put forward by the Union of India was rejected.
 43. We, therefore, quash the order dated 11-8-1978 passed by the 3rd respondent confirming the levy of excise duty in a sum of Rs. 22,55,795.76 on the cost of jute bags in which excisable commodity of cement manufactured by the petitioner-company was packed and sold between 1-10-1975 and 8-1-1976. A writ of mandamus shall also issue directing the respondents to refund the same amount to the petitioner-company.


44. The learned counsel appearing for the Company also submits that the Company undertakes to reimburse its consumers or the ultimate consumers in respect of the amounts of excise duty collected from them on the cost of jute bags as and when claims are made by them without driving them to institute suits for recovery of the same. This undertaking given on behalf of the Company by the learned counsel for the Company, recorded by us in this judgment rules out any unjust enrichment of the Company at the expenses of its consumers. We, however, direct the company to take appropriate steps to see that this undertaking is made known to all purchasers of cement on whom the ultimate burden has fallan, so that they can avail themselves of the offer made by the Company to refund to them excess duty collected from them.
 45. The writ petition is accordingly allowed. There shall be no order as to costs.
 46. As oral application for leave to appeal to Supreme Court is made on behalf of the Central Government. We consider this to be a fit case for granting leave to appeal to the Supreme Court as the following questions are involved :
 1. Whether the post-manufacturing expenses are liable to be excisable to excise duty ?
 2. Whether the petitioner is entitled to refund of the amount of excise duty collected, in the circumstances ?
 An oral application for suspension of the operation of this judgment is made. We do not see any reason to grant stay. The amount will be refunded to the petitioner on condition that the petitioner executes a bank guarantee for the said amount in a nationalised bank.


Commissioner Of Income-Tax vs Bakelite Hylam Ltd. on 25 April, 1995

JUDGMENT B.S. Raikote, J.
 1. The Income-tax Appellate Tribunal, Hyderabad Bench "B", has referred the questions mentioned hereunder to this court for opinion under section 256(1) of the Income-tax Act, 1961, vide its order dated January 23, 1986, passed in R. A. Nos. 317 and 318/ (Hyd) of 1983 in appeals I. T. A. Nos. 605 and 620/ (Hyd) of 1982 for considering the following questions, i.e., question No. 2 in R. A. No. 317/ (Hyd) of 1983 and question Nos. 3, 4 and 5 in R. A. No. 318/ (Hyd) of 1983 :
 Question No. 2 in R. A. No. 317/ (Hyd) of 1983 :
 "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the sum of Rs. 47,104 representing fee for technical services constitute revenue expenditure allowable under section 37 of the Income-tax Act, 1961?"
 Questions Nos. 3, 4 and 5 in R. A. No. 318/ (Hyd) of 1983 :
 "II (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the commission paid to the managing director, Dr. W. R. Carrea, should not be taken into consideration for purposes of computing the disallowance under section 40(c) of the Income-tax Act, 1961?


(III) (4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee is entitled for deduction under section 80V in respect of the interest disallowed under section 40A(8) of the Income-tax Act?
 (IV) (5) Whether, on the facts and in the circumstances of the case the Appellate Tribunal was justified in holding that the amount of Rs. 74,124 was deductible?"
 2. This matter pertains to the assessment year 1978-79. The assessee is one, Bakelite Hylam Limited, Hyderabad. It is a registered company.
 3. Learned counsel appearing on both sides do not dispute that the question No. 2(1) R. A. No. 317/ (Hyd) of 1983, has already been answered by a Full Bench of this court in Praga Tools Ltd. v. CIT . Hence, following the same, we answer this question in the affirmative, that is to say, in favour of the assessee and against the Revenue.
 4. Likewise, learned counsel appearing on both sides admitted that even question No. 4 in R. A. No. 318/ (Hyd) of 1983 also is covered by the decision in Jaipuria Samla Amalgamated Collieries Ltd. v. CIT . Hence, following the same, we accordingly answer this question also in the affirmative, that is to say, in favour of the assessee and against the Revenue.
 5. Learned counsel appearing on both sides placed their respective contentions with regard to questions Nos. 3 and 5 (II and IV) in R. A. No. 318/ (Hyd) of 1983.


6. We now take up question No. 3 (II). This question pertains to the claim of the assessee that the commission paid to Dr. W. R. Carrea, the managing director of the company, was an allowable deduction. In respect of this Dr. W. R. Carrea, the Income-tax Officer worked out disallowance under section 40(c) of the Income-tax Act (hereinafter referred to as "the Act") as under :
 Rs. P.


"Salary                     57,339.00
Rent, etc., after deducting 1/3rd for office was 7,995.00
Medical expenses                 2,505.00
Commission                    28,670.00
                         ---------
Total                      96,509.00
   Less : Allowable              72,000.00
                         ---------
Disallowance                   24,509.00"
               ---------


7. In the appeal preferred by the assessee, the Appellate Commissioner agreed with the order of the Income-tax Officer disallowing the commission paid to Dr. Carrea. On a further appeal by the assessee before the Income-tax Appellate Tribunal, the Tribunal, having regard to the absence to the word "commission" in section 40(c) in contrast to section 40(b) of the Act, held that the commission paid to Dr. Carrea, the managing director, was an allowable deduction. It relied upon its own decision passed on an earlier occasion regarding the present assessee for the assessment years 1973-74 to 1976-77 and, ultimately, held that if the commission was excluded from the purview of operation of section 40(c) of the Act, there could be no disallowance of any part of the amount paid to Dr. Carrea.
 8. Learned counsel appearing on both sides brought to our notice, the relevant provisions of the Income-tax Act and also certain judicial pronouncements in that behalf, to drive home the respective points. Section 40(b) and (c) of the Income-tax Act reads as under :
 "40. Amounts not deductible. - Notwithstanding anything to the contrary in sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession',-. . . .
 (b) in the case of any firm, any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm;
 (c) in the case of any company. -


(c) in the case of any company. -
 (i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be,


(ii) any expenditure or allowance in respect of any assets of the company used by any person referred to in sub-clause (i) either wholly or partly for his own purposes or benefit, if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub-clause (i) shall, in no case, exceed -
 (A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of seventy-two thousand rupees;
 (B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of six thousand rupees for each month or part thereof comprised in that period."


9. Relying on section 40(b) and (c) of the Act, learned counsel appearing for the assessee contended that the intention of the Legislature has to be inferred from clauses (b) and (c) of section 40. He contended that so far as the firm is concerned, in section 40(b) of the Act, the Legislature has used the words "any payment of interest, salary, bonus, commission or remuneration" made by the firm to any partner of the firm, and so far as the company is concerned, under clause (c) of section 40, it has used the word only "remuneration" paid to the director by the company. The word "commission" was conspicuously absent from section 40(c) of the Act. Therefore, wherever a commission is paid to the director, section 40(c) of the Act does not apply and he, accordingly, supported the judgment of the Income-tax Appellate Tribunal.
 10. On the other hand, learned counsel appearing for the Revenue submitted that the word "remuneration" is wide enough so as to include any salary, commission, wages, wherever the same is paid towards the services rendered by the director. In the instant case, W. R. Carrea was paid this commission as remuneration for the services rendered by him. Therefore, the commission paid to Dr. Carrea was one covered by section 40(c) of the Act and it is accordingly disallowable. He invited our attention to a number of authorities to support his contention.


11. We have carefully considered the import of section 40(b) and (c) of the Act. Section 40(b) contemplates disallowance of the payments like salary, bonus, commission, or remuneration made to a partner of the firm and section 40(c) contemplates disallowances out of the expenses incurred by the company that if the expenditure has resulted directly or indirectly in the provision of any remuneration or benefit or amenity to a director. In order to understand the scope of section 40(b) and (c) of the Act, we have to notice the concept of the firm as a legal entity different from the company.


12. A person becomes a partner in the firm mainly for sharing the profits of the firm. Whenever the interest, salary, bonus, commission, etc., are paid to him, they are necessarily towards his share of the profit. So far as the company is concerned, either a director or an employee gets only a remuneration or a recompense for the services rendered by such employee of director to the company. In certain cases, such director or employee may be entitled to certain other benefit or amenities. From this analysis, it is clear that the Legislature has used the word "remuneration" in section 40(c) of the Act pertaining to the company. Such remuneration or a recompense paid to a director may be in different forms or under different names. The director may be paid remuneration in the form of salary or commission. Section 40(c) of the Act has three important limbs : (i) there must be an expenditure incurred by the company; (ii) such an expenditure must have resulted directly or indirectly in the provision of any remuneration or benefit or amenity to a director; and (iii) such an expenditure or allowance should be for the benefit of such director or relative or a person who has substantial interest in the company. If these conditions are fulfilled, then in whatever the form the recompense is given to the director, it is remuneration. The meaning of the word "remuneration" has been given in the Law Lexicon, complied and edited by P. Ramanatha Aiyer (1987 edition), as under :


"Remuneration" is a wider term than 'salary'.'Remuneration', means, a quid pro quo. Whatever consideration a person gets for giving his services seems to me a 'remuneration' for them. Consequently, if a person was in receipt of a payment or of a percentage, or any kind of payment which would not be an actual money payment, the amount he would receive annually in respect of this would be 'remuneration' (per Blackburn J., R. v. Postmaster-General [1876] 1 QBD 658, 663-664)."
 13. In CIT v. Calcutta Stock Exchange Association Ltd. , the Supreme Court while interpreting the word 'remuneration' has held as under (at page 228) :
 "The word 'remuneration', though it includes 'wages', may mean payment, which, strictly speaking, may not be called 'wages'. It is a term of much wider import including 'recompense', 'reward', 'payment', etc. It, therefore, appears to us that the learned Chief Justice was not entirely correct in equating 'remuneration' with 'wages'. The sub-section further requires that the remuneration should be 'definitely related' to the specific services. In other words, it would be shown that those services would not be available to the members or such of them as wish to avail themselves of those services, but for specific payments charged by the association as a fee for performing those services."


14. From the above decision, it is clear that the word "remuneration" is a wider concept and that includes all kinds of recompense to a person for the services rendered by him. In another case, i.e. Gestetner Duplicators P. Ltd. v. CIT [1979] 177 ITR 1, the Supreme Court was considering a case, in which under a contract of employment, the assessee has been paying to its salesmen in addition to the fixed monthly salary "a commission" at a fixed percentage of the turnover achieved by the salesmen, the rate of percentage varying according to the "class of article" sold and category to which each salesman belonged. In that context, the Supreme Court held as under (at page 12) :
 "The definition of 'salary' in rule 2(h) includes dearness allowance if the terms of employment so provide and excludes all other allowances and perquisites. It does not in terms exclude 'commission' as such and, in our view rightly, for, though ordinarily according to the Shorter Oxford English Dictionary 'commission' means 'a pro rata remuneration for work done as agent', in business practice commission covers various kinds of payments made under different circumstances. In Raja Ram Kumar Bhargava v. CIT [1963] 47 ITR 680, the Allahabad High Court has pointed out how in certain circumstances commission payable to an employee may, in fact, represent the salary receivable by him for the services rendered to the employer. At page 694 of the report, the relevant observation run thus :


"The word "commission", in business practice, covers various kinds of payments made under different circumstances. There are cases where a servant is employed by a businessman and, as a condition of his employment, it is agreed prior to the services having been rendered that he would be paid for his services at a fixed rate of percentage of the turnover or profits. In such a case, it is clear that the commission payable to the employee will, in fact, represent the salary to be drawn by him for his services. The payment on the percentage basis will only determine the measure of the salary.' It is thus clear that if under the terms of the contract of employment remuneration or recompense for the services rendered by the employee is determined at a fixed percentage of turnover achieved by him then such remuneration or recompense will partake of the character of salary, the percentage basis being the measure of the salary and, therefore, such remuneration or recompense must fall within the expression 'salary' as defined in rule 2(h) of Part A of the Fourth Schedule to the Act."
 15. From this ruling of the Supreme Court, it is clear that if a "commission" is paid to a director or to an employee, by the company towards the services rendered by such employee or a director, it would be a remuneration. In fact, in CIT v. Avon Cycles (P.) Ltd. , the High Court of Punjab and Haryana was considering the distinction between clauses (b) and (c) of section 40 as under :


"It may be observed that in section 40(b), the Legislature used the words 'any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm'. If the word 'remuneration' also connotes the concept of commission, it was not necessary for the Legislature to have used the word 'commission' in clause (b) of section 40. The Legislature advisedly did not use the word 'commission' in clause (c) of section 40 of the Act. . . . It is a well-settled proposition of law that if there is any ambiguity in a particular provision of the Income-tax Act, the statement of the Finance Minister, which formed the basis for the introduction of the Bill can also be taken into account. Reference in this connection may be made to the decisions of their Lordships of the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT and Indian Chamber of Commerce v. CIT . The Finance Minister in his speech gave reasons for the proposed amendment in clause (ix) of the Finance (No. 2) Bill, 1971, by which the provisions of section 40(c) of the Act were sought to be amended in the following words (see [1971] 80 ITR (St.) 93, 96) :


'I am firmly of the view that the fiscal instrument must be deployed to discourage payment of high salaries and remunerations which go ill with the norms of egalitarian society. I, accordingly, propose to impose a ceiling on the remuneration of company employees which would be deductible in the computation of taxable profits. The ceiling is being set at Rs. 5,000 per month. Together with the existing ceiling of Rs. 1,000 per month in the case of perquisites, the allowable overall ceiling on remuneration and perquisites, for the purposes of taxation, will be at Rs. 6,000 per month. In addition, I am proposing to reduce the tax deductible limits of daily allowance to employees while on tour.' The note on this clause of the Finance (No. 2) Bill, 1971, is as follows ([1971] 80 ITR (St.) 143, 146) :
 'Sub-clause (b) seeks to amend section 40(c) under which expenditure incurred by a company on the provision of any remuneration or benefit or amenity to directors, persons who have a substantial interest in the company and their relatives and the expenditure or allowance in respect of any assets of the company which are used by such persons for their own purposes or benefit is not allowed as a deduction to the extent such expenditure or allowance is, in the opinion of the Income-tax Officer, excessive or unreasonable. Under the amendment, the deduction on account of such expenditure or allowance will be further subject to an overall ceiling limit of Rs. 72,000 in respect of any one director or person who has a substantial interest in the company or relative of a director or of such person.' The speech of the Finance Minister and the note would suggest that the provisions were amended to discourage the payment of high salaries and remunerations to the persons mentioned in the section."


16. In the above decision, the High Court of Punjab and Haryana was considering a "commission" paid by the company to another firm in discharge of contractual obligations, for the services rendered by the firm in its business activity to the company. Their Lordships held that if any commission is paid to a third party-firm under some contractual obligation, that would not be a commission paid to a director, incidentally, the partners in that firm might be the directors. From this decision, it is clear that as per the statement made by the then Finance Minister on the floor of the House, section 40(c) was specifically inserted, so as to discourage payments of high salaries and remuneration or benefit or amenity to directors or to persons, who have substantial interest in the company or relatives and also the expenditure or allowance in respect of any assets of the company, which are used by such persons for their own purposes or benefit, by making such remuneration or allowance not deductible to the extent such expenditure or allowance was in the opinion of the Income-tax Officer excessive or unreasonable. Under the said amendment, the deduction on account of such expenditure or allowance was made subject to an overall ceiling limit of Rs. 72,000 in respect of a director or a person, who has substantial interest in the company or a relative of a director or of such person. Therefore, the object of section 40(c) was that under the guise of some other name, a director or a person having substantial interest in the company or his relative should not derive benefit more than the ceiling imposed by the section at Rs. 72,000. Finally, having regard to the facts and circumstances of that case, the High Court of Punjab and Haryana held that a "commission" paid to a third party under contractual obligation of the company would not be a remuneration. This decision would be relevant for this case, since it was held in that case "remuneration" includes


would be relevant for this case, since it was held in that case "remuneration" includes "commission" also. In fact, the principle laid down in that case has been approved by the Supreme Court in CIT v. Avon Cycles P. Ltd. - S. L. P. (Civil) No. 7477 of 1981 as noticed in [1983] 144 ITR (St.) 14 under the heading "From our reporter at the Supreme Court" under "Amounts not deductible": Amount paid by company to sole selling agent whose partners are its directors, which reads as under :


"26-9-1983 : Their Lordships, P. N. Bhagwati and V. Balakrishna Eradi JJ., dismissed a special leave petition by the department against the judgment dated May 12, 1980, of the Punjab and Haryana High Court in Income-tax Reference No. 56 of 1979, , whereby the High Court, on a reference, held that the commission paid by the assessee-company to its sole selling agent, a firm whose partners were also the directors of the assessee, was not paid to the directors of the assessee, but as commission to its sole selling agent and the partners who got a share in the profits of the firm got it as partners of the firm and not as directors of the assessee and that, therefore, section 40(c) of the Income-tax Act, 1961, would not apply to such payment : CIT v. Avon Cycles P. Ltd. (S. L. P. (Civil) No. 7477 of 1981)."


17. In the light of the above decisions, we hold that if a commission is paid to the managing director for the services rendered by him to the company, such commission is remuneration under section 40(c) of the Act. The same has also been the view expressed by the High Court of Calcutta in CIT v. Vikram Shridhar Shriram (sic). Applying this principle, we hold in this case that the commission paid to Dr. W. R. Carrea, the managing director of the company, would constitute "remuneration" for the purpose of computing disallowance under section 40(c) of the Act. Therefore, both the Income-tax Officer and the Appellate commissioner have rightly held that such commission was remuneration and the said managing director was entitled to such remuneration up to the ceiling limit of Rs. 72,000 prescribed under that section and as such, the Tribunal was wrong. Accordingly, we answer this question in the negative, that is to say, in favour of the Revenue and against the assessee.
 18. The other question that is required to be considered by us is question No. 5 (IV). This question relates to the disallowance of Rs. 74,124 out of the provision for gratuity of Rs. 3,07,792, which was also paid during the year. The provision was worked out as under :
           Managerial    Non-Managerial     Total
         Rs         Rs.       Rs.
Provision for
  1977 :    1,29,838      1,03,831     2,33,669
Provision for
  1976 :     20,798       53,326      74,124
        --------      --------     --------


--------      --------     --------
        1,50,636      1,57,156     3,07,792
        --------      --------     --------


19. The Income-tax Officer took the view that only the amount of Rs. 2,33,069 pertaining to the year alone could be allowed on the basis of the mercantile system of accounting and he disallowed an amount of Rs. 74,124 out of the total provision for gratuity of Rs. 3,07,792, on the ground that it related to the previous year. It was the assessee's case that the said shortfall in respect of 1976 was not anticipated and it was ascertained on the basis of the actuary's certificate only during the year. But this case of the assessee was not accepted by the Income-tax Officer and, therefore, he preferred an appeal before the Income-tax Appellate Commissioner, who confirmed an appeal before the Income-tax Officer. It is in these circumstances, the assessee preferred an appeal before the Income-tax Appellate Tribunal, which allowed the appeal, by holding that the gratuity fund was recognised by the Commissioner and the assessee was eligible on the basis of the provision made by it and also on the fact that the amount was actually paid during the year. The Appellate Tribunal took the view that when the assessee has actually paid towards recognised gratuity fund, the same is allowable under section 36(1) (v) of the Act and if such gratuity is towards liability of the previous year and a provision was made in the accounting year, the same also was allowable under section 40A(7) (b) (i) of the Act, on the basis of the mercantile system, which the assessee was following.


20. Learned counsel for the Revenue contended that the gratuity amount of Rs. 74,124 pertaining to the year 1976 was not allowable, since the same did not accrue in that year. The assessee could have provided for the same in the year 1976 itself. But, on the other hand, learned counsel appearing for the assessee contended that in the previous year, i.e., 1976, the shortfall in respect of such gratuity could not be anticipated and the same could be ascertained on the basis of the actuary's certificate only during the current year and the provision was made for gratuity of the year 1976 during the year and, therefore, it was allowable under section 40A(7) (b) (i) of the Act. Moreover, he submitted that it is also available because the gratuity was actually paid during the year as per section 36(1) (v) of the Act.
 21. In order to appreciate the rival contentions of learned counsel, it is necessary to note section 36(1) (v) of the Act, which reads as under :
 "36. Other deductions. - (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28. ...
 (v) any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund created by him for the exclusive benefit of his employees under an irrevocable trust."
 22. Section 40A(7) (a), (b) (i) reads as under :
 "40A. Expenses or payments not deductible in certain circumstances. -....


"40A. Expenses or payments not deductible in certain circumstances. -....
 (7) (a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason.
 (b) Nothing in clause (a) shall apply in relation to, -
 (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year."
 23. In the instant case, two things are admitted : (i) a provision was made in the present year towards the gratuity payable for the previous year and also for the current year; and (ii) the gratuity of the previous year was also paid along with the gratuity payable in the current year. In Shree Sajjan Mills Ltd. v. CIT , the Supreme Court noticed the intention of the Legislature while enacting section 40A(7) and section 36(1) (v) of the Act as under (at page 600) :
 "The intention of the Legislature in enacting the provision of section 40A(7) would be apparent from the Notes on Clauses of the amendment wherein paragraph 46, after referring to the provisions of section 37(1) and section 36(1) (v) of the Act, it was observed , inter alia, as follows :


'A reading of these two provisions clearly shows that the intention has always been that the deduction in respect of gratuities should be allowed either in the year in which the gratuity is actually paid or in the year in which contributions are made to an approved gratuity fund. A doubt has been expressed that the relevant provisions, as presently worded, do not secure the underlying objective and that a provision made by a taxpayer in his accounts in respect of estimated service gratuity payable to employees will be deductible in computing the taxable income in a case where the provision has been made on a scientific basis in the form of an actuarial valuation. In order to remove uncertainty in the matter, it is proposed to specifically provide in the law that no deduction will be allowed, in the computation of profits and gains of a business or profession, in respect of any reserve created or provision made for the payment of gratuity to the employees on retirement or on termination of employment for any reason. This restriction will, however, not apply in relation to a provision made for the purpose of payment of a sum by way of contribution towards an approved gratuity fund that has become payable during the relevant account year, or for the purpose of meeting actual liability in respect of payment of gratuity to the employees that has arisen during such year.'


24. This intention and the purpose of the Legislature was carried into effect by inserting sub-section (7) in section 40A by ensuring the overriding effect over the other provisions of the Act. Therefore, in interpreting or in trying to find out the meaning of that provision, one should, if possible, and in this case it is not at all straining, give effect to that intention and not to make a nonsense of that intention. Clause (a) of the said sub-section provides that no deduction will be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or termination of their services for any reason. The expression 'provision' has not been defined in the Act and is not used in any artificial sense but in its ordinary meaning. This is clear from the words (whether called as such or by any other name) occurring in the sub-section. According to Webster, 'provision', in its ordinary sense, means 'something provided for future use'.


25. On a plain construction of clause (a) of sub-section (7) of section 40A of the Act, what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as deduction in the computation of profits and gains of the year of account. The provision of clause (a) was made subject to clause (b). The embargo is on deductions of amounts provided for future use in the year of account for meeting the ultimate liability to payment of gratuity. Clause (b) (i) excludes from the operation of clause (a) contributions to an approved gratuity fund and amounts provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b) (ii) deals with a situation where the assessee might provide by the spreadover method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sub-clauses are satisfied.
 26. The submission of the assessee that if no provision is made by the assessee for gratuity, still the same will be deductible and section 40A(7) will have no application, would defeat the very purpose and object of section 40A(7) and render it nugatory."


27. From this law declared by the Supreme Court, it is clear that wherever a "provision" is made in the accounting year, towards the gratuity payable, the same is allowable under section 40A(7) of the Act. The same principle was followed by this court in CIT v. D. B. R. Mills Ltd. , wherein it was held that when a provision is made in the accounting year for such liability, the same is allowable. This court further made a distinction between any sum paid under section 36(1) (v) and any provision made under section 40A(7) (b) (i) of the Act and ultimately held that the assessee cannot claim such payment as allowable, without making any provision in the accounting year. In a similar case in CIT v. G. T. N. Textiles Ltd. , the High Court of Kerala held as under (as page 9) :
 "Clause (a) of sub-section (7) contains, subject to clause (b), a general prohibition against any deduction being allowed on the basis of a mere provision in respect of gratuity. The exceptions to the prohibition are mentioned in clause (b). Sub-clause (i) of clause (b) contains two limbs. The effect of the first limb of that sub-clause is that the prohibition under clause (a) shall not apply to a provision made in terms of section 36(1) (v). The second limb of that sub-clause in effect provides that the provision made during the 'previous year' shall be governed by the law as it stood prior to the amendment introduced by the Finance Act, 1975, with effect from April 1, 1973. This means that deduction on the basis of a provision made in the relevant previous year will be allowed, notwithstanding the amendment."


28. In Triplicane Permanent Fund Ltd. v. CIT [1989] 179 ITR 492, the High Court of Madras summarised the legal position with reference to section 36(1) (v) and section 40A(7) of the Act as under (at page 504) :
 "While considering the incremental liability arising in the matter of contribution made to the gratuity fund, this court, in the case of CIT v. Madras Rubber Factory Ltd. (No. 2) , restated the legal position on this point as under :
 'As pointed out by this court in CIT v. Sitalakshmi Mills Ltd. , it has now become well-established that where an employer has a gratuity scheme rendering him liable to pay gratuity to workmen and where having regard to the liability which might arise under the scheme, the employer obtains a scientific actuarial calculation under which the present discounted value of the gratuity liability is ascertained and where the employer charges his profit and loss account with the incremental value of the year and also makes a provision for that amount, the employer will be entitled to compute his net profits after deducting the figure of incremental liability. That the assessee will be entitled to deduct the incremental liability for payment of gratuity during the accounting year, if he had made a claim on the basis of actuarial valuation, is clear from the decision of the Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. CIT .'


29. A similar question also arose before this court in the case of CIT v. Andhra Prabha P. Ltd. , wherein it was held as under (headnote) :
 "That section 36(1) (v) of the Act provided for deduction of any amount actually paid by way of contribution to an approved gratuity fund created by the employer while section 40A(7) introduced by the Finance Act, 1975, with effect from April 1, 1973, prohibited deduction of a provision for gratuity, the prohibition, however, not extending to, (a) provision for contribution to an approved gratuity fund, or (b) provision for payment of gratuity for which a liability has arisen during the year. These two provisions did not cover the case where a provision was made for a future payment on a "scientific" method of calculation. The present claim being of a provision made for a future payment calculated on scientific basis, the amount was not covered by any of the specific provisions of the statute and hence, was allowable in the computation of the profits under section 28 itself.'


30. This decision was confirmed by the Supreme Court in CIT v. Andhra Prabha P. Ltd. . The Supreme Court in CIT v. Andhra Prabha P. Ltd. , pointed out that the legal position on this point has been analysed by this court in its recent decision in Shree Sajjan Mills Ltd. v. CIT . Thus, the Supreme Court in 156 ITR 585, after considering all the prior decisions, on this point, summarised the legal position as under (headnote page 587) :
 'The position till the provisions of section 40A(7) were inserted in the Act in 1973 was as follows :
 (1) Payment of gratuity actually made to the employee on his retirement or termination of his services was expenditure incurred for the purpose of business in the year in which the payments were made and allowed under section 37 of the Act.' Even after the introduction of the provisions of section 40A(7) in the Act in 1973, there is no change in the legal position so far as the actual payment of gratuity is concerned. Hence, the actual payment made towards gratuity liability is allowable in the year in which it is paid."


31. In the light of the judicial pronouncements referred to above, we are of the opinion that whenever an assessee, by making a provision for the gratuity payable for the previous year, has paid the same by making a provision in the accounting year, the same is allowable under section 36(1) (v) read with section 40A(7) (b) (i) of the Income-tax Act. By applying this principle to this case, we hold that the gratuity amount of Rs. 74,124 for which a provision was made and actually the same was paid in the accounting year, is accordingly allowable, and the Income-tax Appellate Tribunal is correct in allowing the same by setting aside the orders of the Income-tax Officer and the Appellate Commissioner. Accordingly, we answer this question in the affirmative, that is to say, in favour of the assessee and against the Revenue.
 32. In the result, this reference case is accordingly answered; we make no order as to costs.


Raghunandhan Reddy vs State Of Hyderabad Through Secy. ... on 17 January, 1962

JUDGMENT Jaganmohan Reddy, J.


1. In this appeal, the appellant seeks to challenge the Judgment and decree of the lower Court dismissing the suit filed by him for a perpetual injunction against the Government and for the return of the deposit amount of Rupees 2,949/- as earnest money.
 2. It appears that the Government in the Excise Department notified the sale by auction of the leasehold rights for 1364 F. of country liquor shops at Akbarjah Bazaar, Malakunta and Sultan Bazar localities in Hyderabad City to be held on 18-8-1954. The toddy or sendhi auctions for the same year were fixed for 23-8-1954. On the date fixed for the auction of country liquor, objections were raised by the intending bidders before the Deputy Excise Commissioner who was the auctioning Officer authorised under the rules that the auction notifications for the country liquor do not specify whether the Sabucha tax is leviable on the toddy brought into the city or not. It may be stated that Sabucha tax is a tax of Rs. 7-8-0 imposed by the Government on each pot of toddy or sendhi of 40 seers on its entry into the City of Hyderabad. The bidders stated that they sought this clarification from the Deputy Commissioner before the auction started, because the imposition or otherwise of this tax is bound to affect the liquor sales.


It is alleged that the Deputy Commissioner accepted this objection and adjourned the liquor auctions to 24-8-1954 by which date the sale of sendhi shops would have been held and the matter would have been by then clarified. Thereafter on 23-8-1954, the sendhi shop leases were auctioned subject to the sendhi contractors paying Sabucha tax and the next day, the country-liquor shops were auctioned on the basis of the Sabucha tax being levied on Sendhi. Plaintiff being the highest bidder, his bid was accepted and he deposited an amount of Rupees 2,949/-. Thereafter on 4-9-1954, the Excise Commissioner, purporting to act under Clause 10 of the proclamation of auction sales, set aside the auction held on 23-8-1954 an directed their reauction on 15-9-1954 without the imposition of Sabucha lax. Immediately thereafter on 7-9-1954, the plaintiff filed a petition before the Excise Commissioner saying that the auctions for toddy now directed to be held not subject to Sabucha tax are likely to affect, the liquor sales, inasmuch as Sendhi would be sold at a cheaper rate and the demand for liquor would correspondingly be decreased. He accordingly prayed that the shop rentals may be scaled down, but if the Excise Commissioner was not prepared to this, his offer must be deemed to be with drawn and the auction revoked.


The Excise Commissioner did not accept this stand taken by the appellant and by his letter Ex. P. 1 dated I5-9-1954 informed the appellant with reference to his application dated 7-9-1954 that his petition is not acceptable and in case of his failure to rent the shops in accordance with the rules and regulations and to pay to the Government amounts in time, proceedings will be taken against him. By Ex. P.6, dated 17-9-1954, he further informed the Deputy Commissioner that the petitioner's prayer was incorrect and as such he was directed to take action as per rules. Pursuant to these directions, the shops were re-auctioned at a loss of Rs. 31,9837- and the appellant was required by a notice dated 13-10-1954 to pay this amount within two weeks, which notice, according to the appellant, was received by him on 17-11-1954. Immediately thereafter a petition was filed before the Hon'ble Minister for Excise on the same day praying for the cancellation of that order and for directing the Excise Commissioner not TO collect any moneys as claimed. The Minister gave a stay order, but the matter was finally disposed of only on 23-8-1955 rejecting the appellant's contention. The Minister by the said order gave three months' time from that date staying the demand made on the petitioner at his request that if that time was given for filing a civil suit, he win file a suit and obtain a stay for collection of arrears. It was further observed that if within three months any order is passed by the Civil Court, the Commissioner should art according to the orders; otherwise, the amount should be collected from the personal property of the defaulter.


3. The case of the respondent Government was that the auctions were complete on its being Knocked down in favour of the appellant as the highest bidder and his contention that his bid was dependant upon the Sabucha tax has no force and at any rate, the auction of one cannot affect the other. It was also contended that inerely because the Excise Commissioner had a right to cancel the auction within thirty days from the date of the auction, it does not amount to a conditional acceptance of the offer. The respondent also took the plea that the suit was time-barred as the same has not been filed within six months from the date of the contract as contemplated under the Abkari Act.


4. On the pleadings, issued were framed relating to whether the auction of sendhi shops dated 18-8-1954 was postponed for the reason mentioned in para 1 of the plaint and any assurance was given to the appellant as stated in the same para; whether the suit contract was conditional or complete in itself and what is the effect of the Commissioner's right to cancel the auction within 30 days of the date of the auction; whether the plff.-appellant resiled from the contract and intimated the same to the Commissioner on 7-9-1954 and what is its effect on the suit contract; what Is the effect of the second auction on the suit contract and whether the plaintiff is liable to pay the loss sustained in the reauction in accordance with the terms of the contract; was the plaintiff entitled to the refund of the earnest money and was the suit within the period of limitation. On the first issue, it was held on evidence that no undertaking was given by the Excise Commissioner that We lease of the Sendhi Shops will be subject to the payment of the Sabucha tax and the bidders did not bid at the liquor auction on such express assurance and that there was no basis for the argument that the auctions hold on 24-8-1954 were subject to the imposition of Sabucha tax on sendhi shops leased out by auction held on 23-8-1954. On issues 2 and 3 also the lower Court held that the contract was a completed one and that the right reserved in the Commissioner of Excise does not make it incomplete and that further it was not shown that the appellant had resiled from the contract. The appellant was accordingly held liable for the loss of Rs. 31,983/- and that he was not entitled to a refund of the earnest money. On the question of limitation, the Court held that the suit was not barred by time, as the time spent in agitiating the matter


held that the suit was not barred by time, as the time spent in agitiating the matter before the Revenue Minister can be taken into account.


5. The only two points that have been urged in this appeal are firstly, that the contract was not a concluded contract when the appellant withdrew his offer and consequently there is no contract at all between the parties and the appellant is entitled to the declaration asked for and the refund of the money paid; secondly that the suit is barred by limitation having regard to Section 41 of me Hyderabad Abkari Act.


6. On the first point, it is admitted by both the parties that the appellant had written the letter of 7th September 1954 in which he asked the Commissioner to scale down the rentals suitably having regard to the directions that no sabucha tax should be charged on the toddy brought into the city and if this is not accepted, then he withdraws the offer made by him. The validity of this contention depends on Rule 10 of the proclamation of Auction sales and the principles laid down in the Contract Act The proclamation of auction sales was purported to have been made under Sections 3 and 15 of the Hyderabad Ab-kari Act, 1316 F., and Section 5 of the Hyderabad intoxicating Drugs Act, 1333 F. and Section 5 of the Indian Opium Act, 1878. Clause (1) prescribes the conditions to be satisfied before a person is permitted to bid at the auction such as the solvency certificate etc. while Clause (2) lays down that a former solvency certificate will not be sufficient and for entry into the auction hall a ticket will have to be obtained on submission of the solvency certificate or agreement bund. Clause (3) states that bidding will be permitted only to the extent of double the value of the property mentioned in the certificate or the amount for which security is given; and if any increase in bidding is to he done, payment of cash to the extent of the difference will have to be made. Clauses 4, 5, 6 and 7 deal with the bidding and tenders in respect of shops either individually or groupwise. Clause 7(2) deals with the conditions to be complied with by the tenderer. Clause 8 deals with the power of the auctioning authority to reject the bid by any person who is convicted of any crime or punished for the contravention of the licences. The sub-clause states that the auctioning authority may


for the contravention of the licences. The sub-clause states that the auctioning authority may refuse to accept the bid of any person without assigning any reason therefor. Clause 9 prohibits the granting of a contract for Abkari or intoxicating drugs to the persons named therein.