K.P. Joy v. Government of Kerala and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **THURSDAY, THE 9TH DAY OF MARCH 2017/18TH PHALGUNA, 1938** **WP(C).No. 39547 of 2016 (P)** **----------------------------** ## **PETITIONER(S):** **-------------** **K.P.JOY, S/O. LATE K.P. POULO, AGED 57 YEARS, MANAGING DIRECTOR, M/S. A-ONE SANDS PRIVATE LIMITED, ANNANAGAR, CHAMMANAMPATHY, GOVINDAPURAM P.O., CHITTUR TALUK, PALAKKAD DISTRICT-678507.** **BY ADVS.SRI.K.JAYAKUMAR (SR.) SRI.P.T.ABHILASH SRI.BABU JOSEPH KURUVATHAZHA** **RESPONDENT(S):** **--------------** ## **1. GOVERNMENT OF KERALA,** **REPRESENTED BY ITS SECRETARY, DEPARTMENT OF TAXES, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695001.** **2. THE COMMISSIONER OF COMMERCIAL TAXES, GOVERNMENT OF KERALA, COMMISSIONERATE OF TAXES, THIRUVANANTHAPURAM-695001.** **3. THE COMMERCIAL TAX OFFICER-II, CHITTOOR, CHITTOOR P.O., PALAKKAD DISTRICT-678101.** **4. MUTHALAMADA GRAMA PANCHAYATH, MUTHALAMADA P.O., PALAKKAD DISTRICT, PIN -678507, REPRESENTED BY ITS SECRETARY.** **WP(C).No. 39547 of 2016 (P)** ## **----------------------------** ## **5. VILLAGE OFFICER,** **MUTHALAMADA I VILLAGE, MUTHALAMADA P.O., PALAKKAD DISTRICT-678507.** ## **6. THE GEOLOGIST,** **MINING AND GEOLOGY DEPARTMENT, TOWN BUS STAND COMPLEX, PALAKKAD-678014.** **R1-R3,R5 & R6 BY SPECIAL GOVERNMENT PLEADER C.E.UNNIKRISHNAN R4 Y ADVS. SRI.MURALI PURUSHOTHAMAN** **SRI.DEEPU LAL MOHAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 09-03-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **SKG** ## **WP(C).No. 39547 of 2016 (P)** ## **----------------------------** ## **APPENDIX** |**PETITIONER(S)' EXHIBITS**|**PETITIONER(S)' EXHIBITS**| |---|---| |**-----------------------**|| |**P1**|**TRUE COPY OF THE DECISION NO.9(1) DATED 31/01/2012**| ||**OF THE MUTHALAMADA GRAMA PANCHAYATH COMMITTEE**| |**P2**|**TRUE COPY OF THE DECISION NO.9(2) DATED 31/01/2012 OF**| ||**THE MUTHALAMADA GRAMA PANCHAYATH COMMITTEE**| |**P3**|**TRUE COPY OF THE ORDER NO.A3-4659/2012 DATED**| ||**28/02/2013 ISSUED BY THE 4TH RESPONDENT**| |**P4**|**TRUE COPY OF THE ORDER NO. A3-6715/2013 DATED**| ||**05/09/2013 ISSUED BY THE 4TH RESPONDENT**| |**P5**|**TRUE COPY OF THE LICENCE NO. A3/4659/13 DATED**| ||**01/04/2013 VALID UP TO 31/03/2014 ISSUED BY THE 4TH**| ||**RESPONDENT**| |**P6**|**TRUE COPY OF THE LICENCE NO. A3/6715/13 DATED**| ||**05/09/2013 VALID UP TO 31/03/2014 ISSUED BY THE 4TH**| ||**RESPONDENT**| |**P7**|**TRUE COPY OF THE INTERIM ORDER DATED 21/11/2014 IN W.P**| ||**(C) 31093/2014**| |**P8**|**TRUE COPY OF THE RELEVANT PORTION OF THE DECISION NO.**| ||**7 DATED 22/04/2014 OF THE MUTHALAMADA GRAMA PANCHAYATH**| ||**COMMITTEE**| |**P9**|**TRUE COPY OF THE ORDER DATED 28/04/2014 IN I.A**| ||**988/2014 IN APPEAL NO. 514/2014 OF THE LEARNED**| ||**TRIBUNAL FOR LOCAL SELF GOVERNMENT INSTITUTIONS**| |**P9(A)**|**TRUE COPY OF THE ORDER DATED 28/04/2014 IN I.A**| ||**989/2014 IN APPEAL NO. 515/2014 OF THE LEARNED**| ||**TRIBUNAL FOR LOCAL SELF GOVERNMENT INSTITUTIONS**| |**P10**|**TRUE COPY OF THERESOLUTION NO. 10 DATED 28/02/2015 OF**| ||**THE MUTHALAMADA GRAMA PANCHAYATH COMMITTEE**| |**P10(A)**|**TRUE COPY OF THERESOLUTION NO. 10 (1) DATED 28/02/2015**| ||**OF THE MUTHALAMADA GRAMA PANCHAYATH COMMITTEE**| |**P11**|**TRUE COPY OF THE INTERIM ORDER DATED 31/03/2015 IN W.P**| ||**(C) NO.10660/2015**| |**SKG**|| |**WP(C).No.**|**39547 of 2016 (P)**| |---|---| |**----------------------------**|| |**P12**|**TRUE COPY OF THE RECEIPT NO.A 5157172 DATED 08/02/2016**| ||**AND THE CASH RECEIPT ISSUED BY THE 4TH RESPONDENT**| |**P13**|**TRUE COPY OF THE RECEIPT NO.A 5157171 DATED 08/02/2016**| ||**AND THE CASH RECEIPT ISSUED BY THE 4TH RESPONDENT**| |**P14**|**TRUE COPY OF THE REPRESENTATION DATED 04/04/2016**| ||**SUBMITTED BY THE PETITIONER BEFORE THE 4TH RESPONDENT**| |**P15**|**TRUE COPY OF THE JUDGMENT DATED 20/10/2015 IN W.P(C)**| ||**31909/2015**| |**P16**|**TRUE COPY OF THE ORDER NO. 101/2015-**| ||**16/DOP/2435/2015/A1 DATED 19/11/2015 ISSUED BY THE 6TH**| ||**RESPONDENT**| |**P17**|**TRUE COPY OF THE RETURN DATED 27/05/2016 SUBMIITED BY**| ||**THE PETITIONER IN FORM NO. 10 D BEFORE THE 3RD**| ||**RESPONDENT**| |**P18**|**TRUE COPY OF THE E-CHALAN PRODUCED ALONG WITH EXHIBIT-**| ||**P17**| |**P19**|**TRUE COPY OF THE APPLICATION FOR COMPOUNDING FOR THE**| ||**YEAR 2016-17 FOR METAL CRUSHER UNIT/M-SAND COMPOUNDING**| ||**EXERCISED BY THE PETITIONER ON 31/05/2016**| |**P20**|**TRUE COPY OF THE PERMISSION TO PAY TAX UNDER**| ||**COMPOUNDING SCHEME CATEGORY DATED 08/09/2015 ISSUED TO**| ||**THE PETITIONER BY THE 3RD RESPONDENT**| |**P21**|**TRUE COPY OF THE PRINT APPLICATION FOR COMPOUNDING**| ||**SUBMITTED BY THE PETITIONER FOR THE YEAR 2015-16,**| ||**PUBLISHED IN THE WEBSITE OF THE IST RESPONDENT**| |**P22**|**TRUE COPY OF THE PRINT APPLICATION FOR COMPOUNDING**| ||**SUBMITTED BY THE PETITIONER FOR THE YEAR 2016-17,**| ||**PUBLISHED IN THE WEBSITE OF THE IST RESPONDENT**| ||**DOWNLOADED BY THE PETITIONER ON 05/12/2016**| |**P23**|**TRUE COPY OF THE I.A 13343/2016 DATED 17/08/2016 FILED**| ||**BY THE PETITIONER IN W.P(C) 15530/2016**| |**P23(A)**|**TRUE COPY OF THE REPRESENTATION DATED 30/07/2016**| ||**SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT**| |**P24**|**TRUE COPY OF THE PROCEEDINGS DATED 18/10/2016 OF THE**| ||**3RD RESPONDENT**| |**P25**|**TRUE COPY OF THE REPRESENTATION DATED 17/11/2016**| ||**SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT**| |**P25(A)**|**TRUE COPY OF THE POSTAL ACKNOWLEDGMENT RECEIVED BY THE**| ||**PETITIONER, IN PURSUANCE TO THE SENDING OF EXHIBIT-P25**| |**SKG**|| |---|---| |**WP(C).No. 39547 of 2016 (P)**|| |**----------------------------**|| |**P26**|**TRUE COPY OF THE REPRESENTATION DATED 28/11/2016**| ||**SUBMITTED BY THE PETITIONER BEFORE THE IST AND 2ND**| ||**RESPONDENTS**| |**P27**|**TRUE COPY OF THE REPRESENTATION DATED 06.06.2015**| ||**PRODUCED AS EXT.P1 IN WPC.NO.26408/2015**| |**P27(A)**|**TRUE COPY OF THE REPRESENTATION DATED 10.07.2015**| ||**PRODUCED AS EXT.P3 IN WPC.NO.26408/2015**| |**P27(B)**|**TRUE COPY OF THE REPRESENTATION DATED 28.05.2015**| ||**PRODUCED AS EXT.P4 IN WPC.NO.26408/2015**| |**P28**|**TRUE COPY OF THE REPRESENTATION DATED 26.10.2015**| ||**PRODUCED AS EXT.P8 IN WPC.NO.35496/2015**| |**P29**|**TRUE COPY OF THE RESOLUTION NO.9 DATED 25.02.2015 OF**| ||**THE 4TH RESPONDENT**| |**P30**|**TRUE COPY OF THE JUDGMENT DATED 17.12.2016 IN**| ||**WPC.NO.15530/2016 OF THIS HON'BLE COURT**| |**P31**|**TRUE COPY OF THE RELEVANT PORTION OF THE NOTIFICATION**| ||**NO.2500/L.EG.A2/2014/L.AW DATED 23.7.2014 IN THE**| ||**GAZETTE DATED 23.7.2014 PUBLISHED BY THE 1ST**| ||**RESPONDENT**| |**P32**|**TRUE COPY OF THE RELEVANT PORTION OF THE KERAL**| ||**MINERALS (PREVENTION OF ILLEGAL MINING, STORAGE AND**| ||**TRANSPORTATION) RULES, 2015.**| |**P33**|**TRUE COPY OF THE APPLICATION DATED 06.04.2016**| ||**SUBMITTED BY THE PETITIONER BEFORE THE GEOLOGIST,**| ||**PALAKKAD**| |**P34**|**TRUE COPY OF THE LAST O(A) FORM BEARING MINERAL**| ||**TRANSIT PASS NO.5000 IN BOOK NO.50 DATED 19.4.2016**| ||**USED BY THE PETITIONER**| |**P35**|**TRUE COPY OF THE RETURN FOR THE MONTH OF MAY 2016**| ||**SUBMITTED BY THE PETITIONER ON 28.06.2016**| |**RESPONDENT'S EXHIBITS**|| |**----------------------**|| |**EXHIBIT R3(A) TRUE COPY OF THE JUDGMENT IN WPC.NO.26408/2015**|| |**EXHIBIT R3(B) TRUE COPY OF THE JUDGMENT IN WPC.NO.35496/2015**|| ||**/TRUE COPY/**| **P.S. TO JUDGE** **SKG** **'CR'** ## **K. VINOD CHANDRAN, J.** ## **===================== W.P.(C)No.39547 of 2016 - P ======================= Dated this the 09[th] day of March, 2017** ## **J U D G M E N T** Whether the petitioner, carrying on a quarry and crusher unit, be permitted to withdraw from the compounding applied for in the year 2016-17, for reason of failure to obtain licenses from the local authority, to carry on the quarry and crusher operations, is the question raised herein. 2. I have heard learned Senior Counsel Sri.K.Jayakumar, appearing for the petitioner and Sri.C.E.Unnikrishnan, learned Special Government Pleader (Taxes) for the respondent Panchayath. 3. The learned Senior Counsel would accept the position that the Hon'ble Supreme Court has consistently declared that a provision for compounding is a contract 2 W.P.(C)No.39547/2016 between the assessee and the Department; from which both cannot be allowed to withdraw. The learned Senior Counsel however would urge that the option for paying tax at the compounded rate having been exercised and the same being deemed to be a concluded contract, necessarily all the trappings of a contract would ensue and in such circumstance, the assessee; under Section 56 of the Indian Contract Act, 1872 (for brevity 'the Contract Act') could be absolved from the liability, flowing from the contract, on the ground of the obligation being impossible of performance. 4. The learned Senior Counsel would rely on **Ganga Saran v. Firm Ram Charan Ram Gopal [A.I.R (39) 1952 SC (9)]** , **Satyabrata Ghose** v. **Mugneeram Bangur & Co. and Another [A.I.R 1954 SC 44]** and **Naihati Jute Mills Ltd.** v. **Khyaliram Jagannath [A.I.R 1968 SC 522]** to buttress the contention. It is argued that the impossibility of performance 3 W.P.(C)No.39547/2016 by itself extinguishes the obligation or duty and such impossibility would be akin to a discharge by the performance of the original promise, as has been found in **M.D, Army** v. **Welfare Housing Organisation Sumangal Services (P) Ltd. [(2004) 9 SCC 619]** . **Mary** v. **State of Kerala and Others [(2014) 14 SCC 272]** is cited only to indicate a different path trod as far as a statutory contract is concerned, which however on facts would not be applicable, is the argument. v. **Koothattukulam Liquors Deputy Commissioner of Sales Tax [(2015) 12 SCC 794]** is relied on for the proposition that the Indian Contract Act would be applicable even in the case of a statutory contract. 5. The learned Special Government Pleader (Taxes) argues that there is no impossibility as urged by the petitioner, that did not exist, even at the time the petitioner applied for compounding. The compounding was applied for in the year 4 W.P.(C)No.39547/2016 2016-17 and when the same was applied for before the specified date of 31.05.2016, the petitioner did not have a license either for the quarry or for the crusher unit. The petitioner had filed monthly returns for April & May, 2017 and on 27.05.2016, there was payment of the first installment of tax under the compounding scheme coming to Rs.5,62,000/-. As is well known, the compounding provision absolves the assessee from maintaining any books of accounts and restricts any inspection of the business premises of the assessee by the Department. The volume of sales cannot be examined, for reason of the assessee having opted for compounding. In the context of the assessee having filed returns and paid the first installment as per the compounding provision, the intention to continue with the compounding is further fortified. There could hence be no withdrawal from the option subsequently. The learned Special Government Pleader would also place 5 W.P.(C)No.39547/2016 reliance on **Bhima Jewellery** v. **Assistant Commissioner (Assessment) [(2014) 71 VST 110 (SC)]** . 6. The facts as follows: The petitioner had been carrying on a quarry and crusher unit, for which D & O license was also obtained from the local authority as is indicated from Exts.P5 and P6, which were for the year 2013-14. Exhibits P1 to P4 are the various proceedings which culminated in the issuance of the D & O license. The assessee had also applied for compounding under the Kerala Value Added Tax Act, 2003 (for brevity 'the KVAT Act') for the said assessment year and paid taxes in accordance with the compounding provision. The application for renewal of D & O license, both for the quarry and the crusher, for the year 2014-15 was declined by the local authority as per Ext.P8 in a meeting of the Panchayath dated 22.04.2014. 6 W.P.(C)No.39547/2016 7. The decision of the Panchayath was challenged before the Tribunal for Local Self Government Institutions (Tribunal), which passed Exts.P9 and P9(a) orders respectively in the case of the quarry and the crusher. The interim order in fact stayed the decision of the Panchayath and the consequential direction of the Secretary to stop the unit. It is to be immediately noticed that the said interim orders would have had no effect and there could not have been a continuance of the quarry or crushing operation since, the stay of the decision of the Panchayath to decline license would not by itself result in the petitioner being permitted to carry on the operations. D & O license is issued yearly and that issued for the previous year expired. The decision to decline license for the subject year was taken by the Panchayath in a renewal application. 7 W.P.(C)No.39547/2016 8. The petitioner also filed a writ petition as W.P.(C) No.31093 of 2014, in which an interim order was issued as per Ext.P7; which directed renewal of the quarrying permit. The Panchayath was not a party there and the interim order could not have enabled the continuance of the quarry without the D & O license. The operations of the crusher also could not have been carried out; again for reason of there being no D & O license issued. This is the accepted position for the year 2014-15. 9. The Panchayath re-considered the issue of D & O license to both establishments, in a meeting on 28.02.2015; the minutes of which are produced as Exts.P10 and P10(a), presumably in an application filed for the year 2015-16. The orders of the Tribunal staying the earlier decision were also referred to. On the various grounds stated in Ext.P10 and P10(a), license for the quarry and the crusher units were again 8 W.P.(C)No.39547/2016 declined. The petitioner challenged the same in a writ petition numbered as W.P.(C) No.10660 of 2015, the interim order in which is produced as Ext.P11. The respondent Grama Panchayath was directed not to interfere with the activities of the petitioner in the quarry and the crusher unit. The petitioner is said to have carried on the operations on the basis of the interim order and the permits issued by the Mining and Geology Department. The permits were produced as Exts. P8,P8(a),P9, P9(a) and P10 in W.P.(C) No.15530 of 2016; a review in which is heard along with this writ petition. 10. The permits issued by the Mining and Geology Department for conducting quarry admittedly expired on 15[th] January 2016. At that point of time, there was also a requirement for Environmental Certificate for renewal of quarrying operations as insisted upon by **Deepak Kumar v. State of Haryana [(2012) 4 SCC 629] B]** and directed in 9 W.P.(C)No.39547/2016 Office Memorandum (OM) dated 18.05.2012, published by the Ministry of Environment, Forest and Climate Change (MoEF), flouting which the permits were issued. Be that as it may, the petitioner asserts to have carried the quarry up to 15.01.2016 and the crusher too in 2015-16; by virtue of the interim order at Ext.P11. The petitioner also approached this Court with W.P.(C) No.31909 of 2015, the judgment of which is produced at Ext.P15. The intention was to obtain O(A) Forms for transporting the mineral extracted, allegedly prior to the expiry of the license. The writ petition was allowed as per Ext.P15 judgment. The Geologist also issued O(A) Forms by order dated 19.11.2015 as is seen from Ext.P16. 11. The petitioner made a fresh application for license for the quarry and crusher unit before the local authority, as evidenced by Exts.P12 and P13 receipts for 2016-17. Pursuant to such applications, the petitioner also 10 W.P.(C)No.39547/2016 approached the authority on 04.04.2016 by Ext.P14, seeking issuance of the D & O license, invoking the deeming provision, for reason of the applications filed, evidenced by Exts.P12 and P13, having not been considered for 30 days. The petitioner then filed an application for compounding for the year 2016-17, even when the petitioner did not have a quarry permit or a D & O license issued by the local authority for the crusher or the quarry. It is stated by the petitioner that a writ petition was filed, numbered as W.P.(C) No.15530 of 2016, seeking such licenses and the petitioner hence nurtured a hope and an expectation that orders would be in his favour and license would also be obtained. 12. It is also argued that, if he had not filed the application for compounding within the specified date of 31.05.2016, he would stand to lose insofar as being obliged to go under the regular assessment, if eventually he obtained 11 W.P.(C)No.39547/2016 license for the quarry and the crusher unit in the said year. Unfortunately, against his expectations, there was no interim order issued and eventually; W.P.(C) No.15530 of 2016 stood dismissed as per Ext.P30. This in fact resulted in his being not able to carry on any business of quarry and crusher and there was no incidence of tax ie; the sale of minerals in the subject assessment year. The impossibility is projected insofar as having not been issued with D & O license and in such circumstance, the petitioner should be allowed to withdraw from the compounding applied for and granted. 13. It is pertinent that despite the petitioner's assertion that no business was carried on, the petitioner filed two returns for the months of April and May and the first installment, with respect to the compounding provision was also satisfied. One of the returns is produced as Ext.P17, which shows the business having been carried on in the assessment 12 W.P.(C)No.39547/2016 year. The petitioner's contention is that the sale conducted was of the already quarried materials. 14. The petitioner further argued that even at the point of request for O(A) Forms at the earlier instance in W.P.(C) No.31909 of 2015, which was disposed of on 20.10.2015 he had stopped the quarrying operations and he required O(A) Forms for transporting the metal already quarried. This was granted by Ext.P16. If the petitioner had closed the business prior to the close of the previous assessment year ie: 2015-2016, there is no reason why the petitioner applied for compounding in the subject year. Further it is also to be noticed that the interim order in W.P.(C) No.10660 of 2015 (Ext.P11) was in force since the writ petition was pending. But, as rightly argued by the learned Senior Counsel; that was for the previous assessment year and the license application for the current year too stood rejected by 13 W.P.(C)No.39547/2016 the Panchayath which orders he challenged in a fresh writ petition. 15. The petitioner having continued under the compounding scheme had a carte blanche, so to say, to carry on the business without any interference or inspection from or by the tax department and without maintenance of any books of accounts, especially since, the compounding was not on the basis of total turn over but on the basis of the jaw size of the crusher unit. The compounding scheme was hence on a reasonable estimate of the maximum production, an individual crusher machine operating in a quarry could turn out in an year. 16. The petitioner after having continued under the compounding scheme for a period in the assessment year applied for withdrawal from the scheme, as per Ext.P23(a). The same was declined by Ext.P24, which is the subject of challenge 14 W.P.(C)No.39547/2016 in the above writ petition. The inability to obtain a permit and D & O license in the particular year is said to be the subsequent reason for claiming frustration of the contract under Section 56 of the Contract Act. Immediately it would be pertinent that even in the previous assessment years the Panchayath had been consistently rejecting the petitioners applications for license. Further in all the decisions cited by the learned Senior Counsel, the claim raised by one party to the contract, under Section 56 of the Contract Act was declined. The examination of the facts and the law laid down in the said cases would in fact go against the petitioner, insofar as there being no subsequent supervening event, which created an impossibility in discharging the obligations under the contract. 17. **Ganga Saran** (supra) was a case, in which the respondent undertook to supply certain bales of cloth manufactured by two named Mills. The supply could not be 15 W.P.(C)No.39547/2016 fully made and the respondent claimed that there was no supply effected from the Mill, which was a clear stipulation under the contract enabling the respondent to plead frustration. The High Court read the condition as 'if and when' to negative the loss claimed by the appellant. The Hon'ble Supreme Court found that the defense set up could only be under Section 32 or 56 of the Contract Act. It was found that Section 32 has no application since the words employed does not suggest the agreement to be contingent on the happening of a future event, nor was Section 56 applicable when the nonperformance of the contract is attributable to the default of the defendant; who cannot avail of the doctrine of frustration. 18. **Satyabrata Ghose** (supra) was a case, in which a suit for specific performance of a contract, decreed by the trial court and affirmed in appeal was rejected by the High Court. The appellant was the plaintiff and the respondent was the 16 W.P.(C)No.39547/2016 defendant in the suit. The defendant, a company, who was the owner of a large tract of land, initiated a scheme for development of the land, for residential purposes and invited offers from the intending purchasers. The plaintiff was the assignee of one of the purchasers and the scheme was to accept a token amount as part of the consideration and then to undertake construction of roads and drains, after completion of which the purchasers were to pay the entire consideration to obtain conveyance of the parcels of land, covered by separate agreements. The defendant took up a plea that the Government had requisitioned the land, for military purposes, and there was no definiteness as to when the possession would be resumed. The contract of sale hence stood discharged by frustration as a reason of the supervening event was the argument. 17 W.P.(C)No.39547/2016 19. It was held that, “the doctrine of frustration is really an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of section 56 of the Indian Contract Act' (sic-para 10)”. The misconception prevailing, for reason of the complexities in the law of frustration of contracts, as developed in England, was cleared in the following manner: Although in English law these cases are treated as cases of frustration, in India they would be dealt with under Section 32 of the Indian Contract Act which deals with contingent contracts or similar other provisions contained in the Act. In the large majority of cases however the doctrine of frustration is applied not on the ground that the parties themselves agreed to an implied term which operated to release them from the performance of the contract. The relief is given by the court on the ground of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement. Here there is no question of 18 W.P.(C)No.39547/2016 finding out an implied term agreed to by the parties embodying a provision for discharge, because the parties did not think about the matter at all nor could possibly have any intention regarding it. When such an event or change of circumstance occurs which is so fundamental as to be regarded by law as striking at the root of the contract as a whole, it is the court which can pronounce the contract to be frustrated and at an end. The court undoubtedly has to examine the contract and the circumstances under which it was made. The belief, knowledge and intention of the parties are evidence, but evidence only on which the court has to form its own conclusion whether the changed circumstances destroyed altogether the basis of the adventure and its underlying object. This may be called a rule of construction by English Judges but it is certainly not a principle of giving effect to the intention of the parties which underlies all rules of construction. This is really a rule of positive law and as such comes within the purview of Section 56 of the Indian Contract Act. 20. Having so stated the law the nature and terms of the contract and the circumstances under which it was entered was examined to determine whether or not the disturbing element, which is alleged to have happened, had prevented the performance of the contract. It was stated that the contract 19 W.P.(C)No.39547/2016 was not an ordinary contract for sale and purchase. It was an integral part of a development scheme and there was no time limit within which the roads and drains were to be made. The first requisition order was passed nearly 15 months after the contract and the work was not commenced even within that time. Even when the contract was entered into, the war had already commenced and requisition orders for military purposes were normal events. There was also scarcity of materials and various restrictions by the Government, due to the prevailing war situation. The risks and difficulties involved in carrying on operations, were found to be in the contemplation of the parties, even at the time when they entered into the contract, which was presumed to be the reason for not stipulating a time frame within which the obligation had to be carried out. The requisition order based on which the frustration was claimed, was found to have not 20 W.P.(C)No.39547/2016 vitally affected the contract or made its performance impossible. An alternative argument on the performance of the contract having become illegal; on the requisition orders, was negatived on the ground that the prohibition if at all was only for the period during which the requisition remained in force. Essentially it was found that the ground on which frustration was claimed, did not amount to a supervening circumstance, which alone could be successfully alleged to claim frustration under Section 56. 21. **Naihati Jute Mills Ltd:** (supra) considered the very same ground of frustration of a contract for purchase of Pakistan jute, wherein the purchaser was obliged to obtain the license from the Government of India to facilitate such import. The purchaser's application for license was declined by the Licensing Authority first for reason of the purchaser having sufficient amount of stock to meet the requirements for some 21 W.P.(C)No.39547/2016 more months and then for reason of their having not purchased Indian jute to the minimum as prescribed. The refusal to grant license was for reason of there being a policy formulated to permit import of Pakistan jute to the absolute minimum and the jute mills were required to satisfy their needs by purchase of Indian jute. Import was permitted only to a small proportion of the total requirement. It was found that the purchaser was aware that the licenses were not issued freely and in the event of the purchaser failing to obtain licenses, there was a stipulation for damages. There was no subsequent impossibility or a ground to find the contract having been frustrated by the intrusion or occurrence of an unexpected event or change of circumstance; which was not in the contemplation of the parties. It was held that: “A contract is not frustrated merely because the circumstances in which it was made are altered. The Courts have no general power to 22 W.P.(C)No.39547/2016 absolve a party from the performance of his part of the contract merely because performance has become onerous on account of an unforeseen turn of events. The question would depend upon whether the contract which the appellants entered into was that they would make their best endeavors to get the license or whether the contract was that they would obtain it or be liable for breach of that stipulation' (sic-para 10). 22. In **Army Welfare Housing Corporation** (supra) frustration of contract was claimed on the ground of a stop memo issued by the local authority. It was held that statutory injunction by a statutory authority is one of such grounds which could be successfully urged to plead impossibility to fulfill the contractual obligation. On facts it was also found that the party to the contract who pleaded frustration had not abandoned the work and there was also no case set up of a 23 W.P.(C)No.39547/2016 self-induced frustration. The facts indicate a clear distinction from that coming out in the present case. 23. **Koothattukulam Liquors** (supra) examined an identical situation where the compounding was applied for and later sought to be withdrawn.The concept underlying the scheme for composition of tax under the Kerala General Sales Tax Act, which is almost similar to that found in KVAT Act was explained in paragraph 19 and 20 and succinctly stated so: 22. The composition of tax is nothing but an alternative route to assessment regulated by the terms of a contract between the assessee and the assessing authority to arrive at the same destination. Therefore, the dealer who had voluntarily and with full knowledge of features of alternate method of taxation has opted to be governed by it, a fortiori cannot in the lean season, claim for his assessment to be made under the regular assessment in the same assessment year. **Bhima Jewellery** (supra) reiterated that the compounding is a bilateral agreement entered into between the assessee and the Government from which both parties cannot resile. 24 W.P.(C)No.39547/2016 24. What comes out from the above discussion is that to plead frustration under Section 56 of the Contract Act, there should be a supervening impossibility, which was never in the contemplation of the parties at the time when the contract was entered into. We have seen that in **Satyabrata Ghose** (supra) even when there was a requisition order passed by the Government, subsequent to the contract, it was held by the Hon'ble Supreme Court that when there was in existence a war situation based on which normally requisition orders for military purposes were passed; it could not be said that the parties did not have such an event in contemplation, when the agreement was entered into. The claim of frustration was rejected on that premise. 25. Herein also, the petitioner did not have a D & O license at the time, when the petitioner approached the Appellate Authority for being permitted to pay tax under the 25 W.P.(C)No.39547/2016 compounding scheme. The petitioner did not even have a permit for quarrying at that point. The compounding was applied for on 31.05.2016, when the petitioner did not have any of the permits or licenses to carry on quarry or the crusher unit. The petitioner merely nurtured a hope that the proceedings taken against the denial of D & O license would materialize in his favour. The said hope was only on account of the pending W.P.(C) No. 15530 of 2106, in which there were no interim orders passed. The writ petition itself was filed on 22.04.2016 and stood rejected on 17.12.2016. 26. The petitioner also did not press for a D & O licence with respect to the quarry, since no such permit could have been issued to the petitioner without an Environmental Clearance. The petitioner's prayer for consideration of the D & O license for the crusher unit was also on the ground that even if he cannot quarry mineral, he could obtain minerals 26 W.P.(C)No.39547/2016 from other quarries and carry on the crusher operations. The specific plea recorded as seen from the judgment in W.P.(C) No.15530 of 2016 was that he could conduct the crusher by bringing raw materials from outside. The prayer so made was rejected. The very same pleading is reiterated here too. 27. It cannot at all be said that the dismissal of the writ petition was a supervising impossibility, which stood against the petitioner's performance of the obligation under the compounding scheme. It is established that there was no supervening subsequent event, which was not in the contemplation of the petitioner, when the petitioner had applied for compounding. The petitioner's contention is also that though he did not have a license or permit at the time when he made a compounding application, he had a hope that the writ petition would go in his favour. In such circumstance, he had applied for compounding. The dismissal of the writ 27 W.P.(C)No.39547/2016 petition cannot be claimed as a supervening event, which absolved him from complying with the obligations as agreed upon under the compounding scheme. 28. **Mary** was the successful bidder in an auction conducted to sell privilege for vending arrack; who was unable to establish the shop for reason of public outcry. She sought for refund of the earnest money and security deposit, on reason of frustration; which the State had forfeited as enabled in the statutory rules. The Hon'ble Supreme Court found that the transaction was governed by a statutory contract, which also contained the consequences of a breach, ie; forfeiture. It was held that there could be no frustration pleaded on facts, of a supervening impossibility. The unequal bargaining power urged was held to be not applicable in a commercial transaction, especially in a case of vending arrack; where the individual had bid in an auction conducted by the State fully 28 W.P.(C)No.39547/2016 aware of the consequences. The last argument of the provision for forfeiture being against public policy was repelled on the premise that principles of fairness and reasonableness cannot be imported to vary or alter the terms of a contract, especially a statutory contract. The decision squarely applies, in the instant case; against the assessee. 29. It is also to be noted that the petitioner had filed monthly returns and had also paid tax in accordance with the returns filed; which disclosed a turnover. Despite the petitioner having no license and permit, the petitioner had effected the sale in the course of the assessment year. It is also pertinent that the rejection of the D & O license by the respondent Panchayath had already occurred before the application was filed for The had made an compounding. petitioner application for compounding before 31.05.2016, since otherwise the petitioner would have lost the opportunity to 29 W.P.(C)No.39547/2016 compound. It cannot be said that the dismissal of the writ petition, filed for D & O license was never in the contemplation of the petitioner at that point of time. In fact, the chances being there for the dismissal, the petitioner could have opted to remain under the regular assessment, in which event, on denial of the license and permit, the petitioner could have filed NIL returns and there would have been no liability to tax. 30. The petitioner wanted the best of both worlds; the entitlement under the compounding scheme if the unit was permitted and a regular assessment if not permitted. The petitioner with eyes open, without any license or permit applied for compounding and on denial of the license seeks to turn around and plead frustration. Reiterating at the risk of repetition; there is no supervening impossibility occasioned by a subsequent event and it can only be said that the fond hope of the petitioner did not materialize. That is not a ground 30 W.P.(C)No.39547/2016 under Section 56 of the Contract Act. 31. The claim at best is that the obligation under the scheme, which the petitioner voluntarily opted, is onerous. **Naihati Jute Mills Ltd.** (supra) found that Courts cannot absolve a party from performance of a contract, merely for reason of the performance having become onerous by even an unforeseen turn of events. Here there is not even such an unforeseen turn of events. The Courts cannot alter or modify the terms of a contract. The petitioner hence cannot be permitted to wriggle out of the obligation to pay the compounding tax. The writ petition would stand dismissed. No Costs. Sd/- **K. VINOD CHANDRAN, JUDGE** // true copy // SB/27/02/2017 P.A to Judge