Full Judgment Text
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PETITIONER:
THE STATE OF MADHYA PRADESH
Vs.
RESPONDENT:
THE GWALIOR SUGAR CO., LTD., AND OTHERS(AND CONNECTED APPEAL
DATE OF JUDGMENT:
30/11/1960
BENCH:
ACT:
Cess-Levy on sugar cane ordered by erstwhile Ruler-Consti-
tutional validity-Constitution of India, Arts. 14, 265, 373.
HEADNOTE:
In order to put the sugar industry on a stable footing, for
which it was necessary to develop the cane area, the Ruler
of the erstwhile Gwalior State by an order dated 27-7-1946
sanctioned the levy of cess of one anna per maund on all
sugar cane purchased by the respondent company. When the
Government of Madhya Bharat, which was the successor state
of the former Gwalior State, made a demand for payment of
the cess, the respondent filed a petition before the High
Court of Madhya Bharat challenging the legality of the levy
on the grounds (1) that the order dated 27-7-1946 was only
an executive order and not a law under Art. 265 of the
Constitution of India and that, therefore, there was no
authority for the imposition of the cess after January 26,
1950, and (2) that the levy was discriminatory and violated
Art. 14 inasmuch as while the respondent was made liable to
pay the cess the other sugar factories in the State were
exempt. It was found that at the time when cess was first
levied there was no sugar factory in existence in the
Gwalior State other than that of the respondent.
Held, that (i) the Ruler of an Indian State was an absolute
monarch in which there was no constitutional limitation to
act in any manner be liked, he being the supreme
legislature, the supreme judiciary and the supreme head of
the executive., Consequently, the order dated 27-7-1946
issued by the Ruler of Gwalior State amounted to a law
enacted by him and became an existing law under Art. 372 of
the Constitution of India. The levy of cess was therefore
by authority of law within the meaning of Art. 265;
Madhaorao Phalke v. The State of Madhya Bharat, [1961] 1
S.C.R. 957, followed.
(2) the levy of cess did not contravene Art. 14 because (a)
the object was cane development in the particular area and a
geographical classification based upon historical factors
was a permissible mode of classification, and (b) a tax
could not be struck down as discriminatory unless it was
found that it was imposed with a deliberate intention of
differentiating between
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an individual and individual; and particularly, in the
instant case, where when cess was first sought to be levied,
there was no other sugar factory existing in the State.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 98 and 99
of 1957.
Appeals from the judgment and order dated August 31, 1954,
of the Madhya Pradesh High Court in Civil Misc. Case No. 9
of 1953.
R. Ganapathi Iyer and D. Gupta, for the appellant in C. A.
No. 98 of 1957 and respondents in C. A. No. 99 of 1957.
S. K. Kapur and Naunit Lal, for the respondents in C. A.
No. 98 of 1957 and appellant in C. k. No. 99 of 1957.
1960. November 30. The Judgment of the Court was delivered
by.
MUDHOLKAR, J.-These are cross appeals from two judgments of
the erstwhile High Court of Madhya Bharat. Both of them
arise out of a writ petition presented by the Gwalior Sugar
Company Ltd., who are respondents in C. A. 98 of 1957, in
which they challenged the validity of the levy of a cess on
sugarcane purchased by the respondents. The grounds on
which the validity of the cess is challenged are two. The
first ground is that it was not levied under any law and the
second ground is that it is discriminatory against the
respondents.
In order to appreciate these contentions it is necessary to
set out certain facts. In the year 1940 in pursuance of an
agreement entered into between the Government of Gwalior
State and Sir Homi Mehta and others a sugar factory was
established at Dabra. The name of that factory is The
Gwalior Sugar Co., Ltd. On June 20, 1946, the Maharaja
Scindia, the ruler of Gwalior State constituted a Committee
to consider the desirability of imposing a "cane cess on the
lines of the United Provinces or Bihar and to recommend a
procedure for fixation of sugar prices within the terms of
the agreement subsisting between the Government and the
factory". The Report of the
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Committee was submitted to the Maharaja by the Chairman on
July 23, 1946. In their report the Committee observed that
in order to put the industry on a sure and stable footing it
was absolutely necessary to develop the cane area and yield
in the shortest possible time. For this purpose the
Committee recommended that it was essential to levy a cane
cess of one anna per maund on all sugar cane purchased by
the respondent factory. At the foot of this report the
Maharaja made the following endorsement "Guzarish
sanctioned, J. M. Scindia, 27-7-46". It may be mentioned
that the Committee also recommended the establishment of a
Cane Development Board. This recommendation was also
accepted by the Ruler. On August 26, 1946, the Economic
Adviser to the Government of Gwalior wrote a letter to the
Manager of the respondent factory. It will be useful to
reproduce the text of that letter as it will have some
relevance on the second ground on which the cess is
challenged. The letter runs thus:
"Dear air,
With a view to expand cane area and cane yield in the Harsi
commanded area so that the Gwalior Sugar Co., Ltd., be put
on a sound and stable basis, the Gwalior Government have
decided to impose a cane cess of one anna per maund on all
sugarcane purchased by your factory. The operation of this
cess will start from the coming sugarcane crushing season.
The proceeds of the cess have been earmarked for cane
development work in the Harsi region that will be undertaken
by a Cane Development Board constituted for the purpose.
The Cane Development Board expects your co-operation in this
development work, which is proposed to be undertaken as soon
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as possible.
Yours sincerely,
Secretary,
Cane Development Board."
The respondent factory protested against this levy. After
the formation of the State of Madhya Bharat,
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the respondent made a representation to the Government of
Madhya Bharat against the levy of the cess. That
representation was, however, rejected. They, then, paid the
cess for the years 1946 to 1948 amounting to Rs. 1,17,712-8-
2. The Government of Madhya Bharat made a demand from the
respondents for a sum of Rs. 2,79,632-14-9 for the years
1949 to 1951. The respondents challenged the demand upon
the two grounds set out above and presented a petition
before the High Court of Madhya Bharat for quashing the
demand. The petition was opposed on behalf of the State of
Madhya Bharat which was the successor State of the former
Gwalior State. The High Court granted the petition
partially by holding that the State of Madhya Bharat was not
entitled to recover the cess due from the respondents after
January 26, 1950. It may be mentioned that it was conceded
on behalf of the respondent company before the High Court
that the State was entitled to recover the cess prior to
January 26, 1950. Later, however, the respondents preferred
a review petition to the High Court in which they sought
relief even in respect of the cess for the period prior to
January 26, 1950. The review petition was dismissed by the
High Court upon the ground that no such petition lay. The
respondents are challenging the view of the High Court in C.
A. No. 99 of 1957. After the coming into force of the
States Reorganization Act, 1956, the State of Madhya Pradesh
has been substituted for the State of Madhya Bharat and they
are shown as appellants and respondents respectively in the
two appeals.
The High Court struck down the cess upon the ground that the
order dated July 27, 1946, of the Gwalior Durbar was only an
executive order and not a law under Art. 265 of the
Constitution and that, therefore, there was no authority for
the imposition of the cess after January 26, 1950. This
point is covered by the decision of this Court in Madhaorao
Phalke v. The State of Madhya Bharat and Another (1) decided
on October 3, 1960. In the course of the judgment of this
Court delivered by Gajendragadkar, J., he pointed out:
(1) [1961] 1 S.C.R. 957.
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"It would thus be seen that though Sir Madhya
Rao was gradually taking steps to associate
the public with the government of the State
and with that object he was establishing
institutions consistent with the democratic
form of rule, he had maintained all his powers
as a sovereign with himself and had not
delegated any of his powers in favour of any
of the said bodies. In other words, despite
the creation of these bodies the Maharaja
continued to be an absolute monarch in whom
were vested the supreme power of th
e
legislature, the executive and the judiciary.
"In dealing with the question as to whether
the orders issued by such an absolute monarch
amount to a law or regulation having the force
of law, or whether they constitute merely
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administrative orders, it is important to bear
in mind that the distinction between executive
orders and legislative commands is likely to
be merely academic where the Ruler is the
source of all power. There was no
constitutional limitation upon the authority
of the Ruler to act in any capacity he liked;
he would be the supreme legislature, the
supreme judiciary and the supreme head of the
executive, and all his orders, how-ever
issued, would have the force of law and would
govern and regulate the affairs of the State
including the rights of the citizens.
"It is also clear that an order issued by an
absolute monarch in an Indian State which
had the force of law would amount to an
existing law under Art. 372 of the
Constitution."
From these observations it would be quite clear that the
endorsement of the Maharaja on the Guzarish whereby he
accepted the recommendation of the Committee about imposing
a cess on the sugarcane crushed by the factory amounted to a
law, however informal that endorsement may appear to be.
Since it was a law enacted by the Maharaja then, with the
coming into force of the Constitution, it became an existing
law under Art. 372 and thus it satisfies the requirements of
Art. 265 of the Constitution.
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Disagreeing with the High Court we therefore hold that the
cess was imposed by authority of law.
What remains to be considered is whether this cess
violates the guarantee of equal protection contained in Art.
14 of the Constitution. What was urged Ltd. before the High
Court and what was also urged before us was that this is the
only sugar factory in the present State of Madhya Pradesh
which is liable to pay the cess whereas other sugar
factories are exempt therefrom. The result of this is that
those other sugar factories do not have to pay this cess and
are thus better placed in the matter of carrying on their
business of manufacturing and marketing of sugar than the
respondents and so there is discrimination against the
respondents in that respect. It seems to us, however, that
this cannot be regarded as discrimination at all, even after
the formation of the State of Madhya Pradesh. The reason is
that the difference arises out of the historical background
to the imposition of this cess. It has recently been held
by this Court in M. K. Prithi Rajji v. The State of
Rajasthan & Ors (1) decided on November 2, 1960, that
geographical classification based upon certain historical
factors is a permissible mode of classification. In our
opinion, the principle underlying that decision would also
apply to the present case. In view of the decision, Mr.
Kapur the learned counsel for the respondents sought to rest
his argument on a somewhat different ground. That ground is
that under the order of June 27, 1946, the respondent
factory alone was made liable to pay cess and that no
similar liability was imposed upon any other factory in
Gwalior. It would, however, appear that at that time no
other sugar factory was at all in existence in the Gwalior
State. The respondent factory was the first to be
established and for all we know is even today the only sugar
factory in the area which formerly constituted the State of
Gwalior. We have already quoted the letter written by the
Economic Adviser to the Gwalior Government addressed to the
Management of the Gwalior Sugar Co., Ltd. From that letter
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it would
(1) C.A. NO. 327 of 1956.
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appear that the cess was imposed for a definite purpose and
that was to expand the cane area in the Harsi commanded
region so that the Gwalior Sugar Co., Ltd., that is, the
respondent factory would be put on a sound and stable basis.
It will, therefore, be clear that far from discriminating
against the factory, the whole object of the cess was to do
something for the benefit of the factory and for the benefit
of the sugar industry in the State which was at that date in
its infancy. Apart from the fact that in the matter of
taxation the legislature enjoys a wide discretion, it should
be borne in mind that a tax cannot be struck down as
discriminatory unless the Court finds that it has been
imposed with a deliberate intention of differentiating
between an individual and an individual or upon grounds of
race, religion, creed, language or the like. There was no
question of doing anything like this in the year 1946 when
no other sugar factory existed in the State of Gwalior. The
cess was thus good in law when enacted and it has not been
rendered void under Art. 13 by reason of the coming into
force of the Constitution on the ground that it violates
Art. 14. In our opinion, therefore, both the grounds on
which the validity of the cess is challenged are ill
conceived and the cess is a perfectly valid one. It would,
therefore, be competent to the State of Madhya Pradesh to
realise that cess from the respondent factory. Upon the
view we have taken in the matter in C. A. No. 98 of 1957
nothing remains to be considered in C. A. No. 99 of 1957.
Accordingly we allow the appeal by the State and dismiss
that of the respondents.
The costs of the appeal will be borne by the respondents in
C. A. No. 98 of 1957. As both the appeals were argued
together, there will be only one set of hearing fees.
Appeal No. 98 allowed.
Appeal No. 99 dismissed.
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