Full Judgment Text
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PETITIONER:
AHMEDABAD MANUFACTURING & CALICO PRINTING CO., LTD.,
Vs.
RESPONDENT:
STATE OF GUJARAT & ORS.
DATE OF JUDGMENT:
10/04/1967
BENCH:
RAO, K. SUBBA (CJ)
BENCH:
RAO, K. SUBBA (CJ)
HIDAYATULLAH, M.
BACHAWAT, R.S.
SHELAT, J.M.
VAIDYIALINGAM, C.A.
CITATION:
1967 AIR 1916 1967 SCR (3) 595
ACT:
Constitution of India, 1950, Art. 14, and Gujarat Education
Cess Act, 1962-City of Ahmedabad divisible into three zones-
Different method of levying cess in each zone-Whether
results in discrimination.
Gujarat Education Cess Act, 1962, s. 12-Levy based on
assessment book prepared by municipality under Bombay
Provincial Corporation Act, 1949 as applied to city of
Ahmedabad-Said assessment book, levying property tax at flat
rate on basis of floor area, declared invalid by Supreme
Court-Section 12 of Cess Act whether survives-Cess Act
whether invalid for lack of opportunity to raise objections
etc.
HEADNOTE:
The petitioners had their textile mills in the City of
Ahamdabad, The properties in Ahmedabad were in three zones.
In the inner zone were situated properties which did not
bear land revenue on account of the exemption given in s.
123 of the Bombay Land Revenue Code. In the middle zone
were situated lands which though originally agricultural
lands had been diverted to non-agricultural use. In the
outer zone were lands which were purely agricultural. Under
the Gujarat Education Cess Act, 1962 the Cess was of three
separate kinds; (a) a surcharge on land revenue assessed an
purely agricultural lands, (b) a surcharge on non-
agricultural assessment in respect of lands used for non-
agricultural purposes, and (c) a tax on lands and buildings
which did not bear land revenue. As a result the Cess Act
operated differently in the three zones. The properties of
the petitioners were in the middle zone of Ahmedabad. In
their writ petitions under Art. 32 of the Constitution they
contended that by reason of their situation the Cess Act
operated unequally against them because while the owners of
property in the other two zones bore either a surcharge on
the land revenue or a tax on the annual letting value, they
bad to pay both the surcharge as well as the tax. Thus a
violation of Art. 14 was alleged. It was also contended
that the preparation of the assessment book on the basis of
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a flat rate on the floor area of a property having been
struck down by his court in an earlier case (New Manek Chowk
Spinning & Weaving Co. Ltd., etc. v. Municipal Corporation
of the City of Ahmedabad & Ors., [1967] 2 S.C.R. 679 the tax
under s. 12 of the Cess Act was no longer leviable, and that
s. 12 being no longer operative. the Cess Act must fall as a
whole. no validity of the Act was also attacked on the
ground that it did not provide for objections being
considered.
HELD : (i) If as a result of the decision of this Court the
assessment book needed revision or the Principles on which
valuation must be based had to be laid down afresh by the
Legislature, the provisions of s. 12 of the Cess Act did not
fail automatically. They would fasten on the new valuation
when made. This cannot affect the validity of the section
in the meantime. The section remains on the statute book to
be worked into such assessment book as hereafter emerged.
The argument fiat s. 12 had failed must therefore be
rejected. [599 F-G]
(ii) A double imposition on the middle zone was not by
itself offensive of Art. 14 of the Constitution unless it
could be shown that the double tax in one zone as compared
with the single tax in the other zones fell more heavily
than the single tax. According to the earlier decision of
this Court a new assessment book would be prepared. Ever
if, in the middle zone, the surcharge and tax both had to be
paid, that rates might be so adjusted that the cess fell
equitably on all landholder regard being had to the
advantage; derived from the cess and the advantages derived
from the situation of the lands. [601 D-F]
(iii)The procedure for the levy of the cess cannot be said
to offend natural justice in not providing opportunity for
putting forward objections etc. The cess is nothing more
than an addition to other taxes which allow the raising of
objections and provide for appeals. There is no need for
further scrutiny, objection or appeal. Nor is the Cess Act
bad because it is not self-contained in the matter of
assessment, this being the usual method by which cesses are
levied. [601 H]
JUDGMENT:
ORIGINAL JURISDICTION : Writ Petitions Nos. 12 and 17 to 21
of 1967, and 239, 240, 244 and 246 to 249 of 1966.
Petitions under Art. 32 of the Constitution of India for the
enforcement of fundamental rights.
G. S. Pathak, M. S. Desai, K. M. Desai and Ravinder Narain
for the petitioner (in W.P. No. 12 of 1967).
Ravinder Narain, M. S. Desai and K. M. Desai, for the peti-
tioners (in W.Ps. Nos. 17-21 of 1967, 239, 240, 244 and 246
249 of 1966).
N. S. Bindra, R. N. Sachthey and R. H. Dhebar, for respon-
dent No. 1 (in all the petitions).
M. N. Shroff and I. N. Shroff, for respondents Nos. 2 and
3 (in all the petitions.)
The Judgment of the Court was delivered by
Hidayatullah, J. These are twelve Writ Petitions by diverse
textile mills and other factories of Ahmedabad challenging
the imposition of the Education Cess pursuant to the Gujarat
Education Cess Act, 1962. As the contents of all petitions
are the same, it will be sufficient if we refer to the
petition filed by the Ahmedabad Manufacturing & Calico
Printing Co. Ltd. (Writ Petition No. 12 of 1967). Before we
do so, we shall state the scheme of the Cess Act relevant to
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the present purpose.
On October 9, 1962, the Gujarat Education Cess Act, 1962
became law. It is an Act to provide for the creation of a
fund to promote education in the State of Gujarat. The Act
applies to the City of Ahmedabad as constituted under the
Bombay Provincial Municipal Corporations Act, 1949. Under
the Cess Act education cess is levied on lands and buildings
which have the meanings given to them under the relevant
Local Authority Law here the Corporation Act. "Land",
however, includes things
597
attached to earth or permanently fastened to anything
attached to the earth. Education cess is collected either
as a surcharge on lands assessed to land revenue or a tax on
lands and buildings in urban areas and the charging section
reads :
"s. 3 : For the purpose of providing for the
cost of promoting education in the State of
Gujarat, there shall be levied and collected
in accordance with the provisions of this Act
an education cess which shall consist
of........
(a) a surcharge on all lands except lands
which are included within a village site and
not assessed to land revenue;
(b) a tax on lands and buildings in urban
areas.
"Village Site" means the site of a village, town or city
determined under s. 126 of the relevant Code which in this
case is the Bombay Land Revenue Code, 1879 and "urban area"
means an area which is for the time being included in the
limits of a city, municipal borough, etc. The mode of
calculation of the surcharge and of the tax and of their
collection are contained in Chapters III,’ and IV. Chapter
III deals with surcharge on land and is divided into two
parts A and B. Part A deals with surcharge on agricultural
lands and part B deals with surcharge on lands used for non-
agricultural purposes. Chapter IV deals with tax on lands
and buildings. For the purposes of the present writ
petitions, we shall have occasion to refer to s. 5 from Part
A and s. 7 from part B of Ch. III and s. 12 from Ch. IV.
Under s. 5, a surcharge is levied at the rate of 20 paise on
every rupee of every sum assessed as land revenue on all
lands (except lands included within a village. site and not
assessed to land revenue) which are assessed or held for the
purpose of agriculture and not used for any purpose
unconnected with agriculture. In simple language, it means
the surcharge is 20% of the amount of land revenue assessed
on land not within a village site, not assessed to land
revenue, and not used for any purpose unconnected with
agriculture. Under s. 7 the surcharge is additional to non-
agricultural assessment of agricultural lands used for non-
agricultural purposes. The surcharge here ranges from 121%
to 75% of the non-agricultural assessment depending on the
kind of non-agricultural use of the land. Under s. 12, a
tax on lands and buildings situated in urban area is levied
at varying rates depending on the use to which the lands and
buildings are put. In every case, the tax is a percentage
of the annual letting value which means the ratable value or
annual letting value or gross annual letting value of lands
and buildings determined in accordance with the relevant
local authority law which as stated earlier is the
Corporation Act. The
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rate applicable to lands and buildings used for purposes of
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trade, commerce, industry, profession or business is 3% of
the annual letting value. It has now been raised to 4.5%
from October 1, 1965.
Annual letting value for the purpose of S. 12 is determined
upon and pursuant to the preparation of an assessment book
relating to the property section under the Corporation Act.
According to the assessment book, the annual letting value
for the purpose of levying property tax on textile mills,
factories, buildings of universities, etc., is made on the
basis of a flat rate of a monthly rental of Rs. 6-10as. for
the processing portion and Rs. 5-4as. for the non-processing
portion, per 100 sq. foot of the floor area of such property
situated in the urban area. Education cess is calculated on
the basis of the annual letting value determined in the
assessment book by applying the percentage. The details of
the working of the system are fully described by our brother
Mitter, in his judgment in Writ Petitions Nos. 133, 156-157,
159-171, 178 206-209, 210 and 234 of 1966 decided on Feb-
ruary 21, 1967, where these mills and factories have
successfully challenged the assessment book. By the
decision of this Court, the floor area method of determining
the annual letting value of textile factories in Ahmedabad
has been held to be bad, because the contractor’s basis
which is usually applied in such calculations was not
applied and the system actually adopted was likely to lead
to discrimination. The inclusion of plant and machinery has
also been held to be illegal as the power of the State
Legislature to tax lands and buildings does not include a
power to tax plant and machinery and the powers of the
Corporation are co-terminus with those of the State
Legislature by reason of s. 127(4) of the Corporation Act.
It will be noticed that education cess is of three separate
kinds. It is (a) a surcharge on land revenue assessed on
purely agricultural lands, or (b) a surcharge on non-
agricultural assessment in respect of lands used for non-
agricultural purposes or (e) a tax on lands and buildings
which do not bear land revenue, The properties in Ahmedabad
are in three zones which may be described as demarcated by
three concentric circles. In the inner zone are situated
properties which do not bear land revenue and no surcharge
is therefore payable in respect of lands and buildings.
Properties in this zone were exempted from the payment of
land revenue under S. 128 of the Bombay Land Revenue Code in
Ahmedabad in common with other towns and cities in which
there had been formerly a city survey. In the middle zone
are situated lands which though originally agricultural
lands have been diverted to non-agricultural use and the
lands and buildings therefore bear both municipal tax and
non-agricultural assess-
ment. In the outer zone are lands which are purely
agricultural and they bear land revenue but no other charge.
The textile mills of the petitioners are situated in the
middle zone within the municipal limits of Ahmedabad and the
main complaint in these cases is that by reason of their
situation, these mills have to pay both the surcharge as
well as the tax whereas the owners of property in the other
two zones bear either a surcharge on the land revenue or a
tax on the annual letting value. It is also contended that
the preparation of the assessment book having been struck
down by this Court in the case cited earlier by us, the tax
under s. 12 is no longer leviable and s. 12 having become
inoperative, the Cess Act must fall as a whole.
The Cess Act does not provide for the procedure to arrive at
the valuation of urban properties. It takes the valuation
from the assessment book. There is, therefore, no doubt
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that the annual letting value or ratable value is not
presently available since the decision of this Court has
struck down the assessment book itself. This is conceded on
behalf of the State of Gujarat. Similarly the decision of
this Court that there is no power to include the value of
plant and machinery in the ratable value is binding for
purposes of the Cess Act. The question is, does this make
s. 12 -to fail also? In our judgment it does not. Section
12 lays down that the tax on lands and buildings situated in
urban areas shall be collected at the rate of 3% of the
annual letting value (now 4.5%) where a building or land is
used for the purpose of trade, commerce, industry,
profession or business. This rate is applicable to the
annual letting value as determined under the Bombay
Provincial Municipal Corporations Act. If as a result of
the decision of this Court the assessment book needs
revision or the principles on which valuation must be based
have to be laid down afresh by the Legislature, the
provisions of on the new valuation when made. This
cannot affect the validity of the section in the meantime.
The section remains on the statute book to be worked into
such assessment book as may hereafter emerge. The argument
that s. 12 has failed must be rejected.
The second argument that there is discrimination between
properties in the middle zone and the inner zone may now be
considered. Chapter X of the Bombay Land Revenue Code deals
with lands within the sites of villages, towns and cities.
Under s. 126, the limits of sites of villages, towns and
cities are fixed. Under s. 127, the Bombay Rent-free
Estates Act, 1852, the Bombay Exemptions from Land Revenue
(No. 1) Act, 1863 and the Bombay Exemption from Land-revenue
(No. 2) Act, 1863 have been made applicable to all lands,
within the limits of the site of any town or city, in which
an inquiry into titles
600
has been made under the provisions of Bombay Act IV of 1868
(now repeated), which had been ordinarily used for
agricultural purposes only, but not to other lands. Section
128 of the Code then provides :
" s. 128 : The existing exemption from payment
of land revenue of lands other than lands
which have hitherto been ordinarily used for
purposes of agriculture only, situate within
the sites of towns and cities in which an
inquiry into titles has been made under the
provisions of Bombay Act IV of 1868 shall be
continued........
First-if such lands are situated in any town
or city where there has been in former years a
survey which the State Government reorganise
for the purpose of this section, and are shown
in the maps or other records of such survey as
being held wholly or partially exempt from the
payment of land revenue;
The exemption granted by s. 128 saves lands in the inner
zone from the application of land revenue and the middle
zone bears the non-agricultural assessment since it does not
fall within this exemption. It is subjected to non-
agricultural assessment by reason of the non-agricultural
use to which it is put. The outer zone being outside the
limits of village sites, town or city and composed of pure
agricultural land is subject to land revenue only.
The three zones are the result of the operation of different
laws in rural and urban areas. Lands subjected to city
survey and assessed to property-tax are saved from the
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imposition of land revenue to which all lands are normally
subject. This exemption is a hundred years old and is based
on the fact that land in the heart of the city ceases to be
agricultural. Similarly lands in the outer circle are free
from municipal assessment because they. are outside
municipal limits and do not benefit from the municipal
services. They are subject to land revenue only. The
middle zone comes into being be-cause the owners and holders
of agricultural lands are not content to hold land for
agriculture but divert it to other uses. In course of time
the limits of the municipality have to be revised and these
lands are taken within the municipality which means that
they begin to share in the municipal services. They are,
therefore, assessed to municipal taxes as a return for the
services rendered.
Now a cess is really a tax and it is generally imposed for
providing money for some stated administrative purpose. It
is
601
usually collected as an addition to an existing tax. And so
it is here. It is made as an addition to the tax already
levied on lands and buildings. Since lands and buildings
bear different kinds of taxes in the different zones, an
attempt has been made to adjust the rates for the different
zones presumably to make, the levy, equitable, regard being
had to the situation and advantages to be derived from the
expenditure on education. No objection has been made in the
case that the tax levied in any zone is not commensurate
with the advantages which are likely to accrue or that the
burden has been made unduly high in any particular zone.
The only objections raised are three. The first and second
are (a) that flat rate is applied in calculating the annual
letting value and (b) that plant and machinery are included
in lands and buildings. This has been corrected by the
decision of our brother Mitter. The third is that the
middle zone bears both the surcharge and the tax. A double
imposition by itself is not offensive to Art. 14 of the
Constitution unless it can be shown that the double tax in
one zone as compared with the single tax in the other zones
falls more heavily than the single tax. This is not
attempted to be established except on the ground of flat
rate above mentioned. Since that has been struck down
already and will presumably be replaced by some more
accurate and equitable valuation, we do not see any reason
to interfere. The decision of our brother Mitter will lead
to a readjustment of the assessment book and then only the
ground that the rate of cess in the middle zone exceeds the
rate in the other two zones can be considered. As at
present situated it is sufficient to say that there is no
discrimination because the method of calculation of cess in
the three zones is different. Even if, in the middle zone,
the Surcharge and tax have to be paid, the rates, for aught
we know, may be so adjusted that the cess falls equitably on
all landholders regard being had to the advantages derived
from the cess and the advantages derived from the situation
of the lands.
Finally there is the argument that the Cess Act, in not pro-
viding its own procedure of assessment and in not giving the
tax-payers an opportunity for putting forward their
objections by way of representation, appeal or otherwise,
before the tax is finally fixed, offends the principles of
natural justice. This argument is not correct. The cess is
nothing more than an addition to existing taxes. As it is a
percentage of another tax, the determination of the cess is
not by an independent assessment. It is an arithmetical
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calculation based on the result of assessment under other
Act or Acts. Those Acts allow the raising of objections and
provide for appeals. It is only the result of assessment
after scrutiny, objection and appeals which forms the basis
for the application of a percentage. There is no need for
further scrutiny, objection or appeals. Nor is the Cess Act
bad because it is not self-contained in the matter of
assessment. In all cases
602
of imposition of cesses for special administrative purposes
(such as health cess, road cess, education cess, etc.) this
method is followed. Being an addition to another tax this
is the only method possible. The legislation on the subject
of the imposition, levy and collection of a cess is made
complete by incorporation of and reference to another piece
of legislation. This practice is neither ineffective nor
unconstitutional and cannot be said to be bad.
In the result we decline to issue a writ in these petitions.
They will be dismissed but the costs will be borne as
incurred.
G.C. Petitions dismissed.
603