Full Judgment Text
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PETITIONER:
STATE OF MYSORE & ORS.
Vs.
RESPONDENT:
M/S. D. CAWASJI & CO. AND ORS.
DATE OF JUDGMENT:
18/11/1970
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
MITTER, G.K.
HEGDE, K.S.
GROVER, A.N.
RAY, A.N.
CITATION:
1971 AIR 152 1971 SCR (2) 799
1970 SCC (3) 710
CITATOR INFO :
R 1975 SC 813 (2)
RF 1990 SC1927 (70)
RF 1991 SC 735 (8)
ACT:
Cess-When can be levied.
Constitution of India List II Entry 8, Entry 51 and Entry
62-Whether enable legislature to levy cess on "shop-rent",
etc.--Whether shop-rent under Mysore Excise Act. 1901 and
1965 amounted to excise revenue.
Tax-Power to legislate in respect of-If derived from a
specific taxing entry or as incidental or subsidiary power
to legislate on any other topic.
HEADNOTE:
Under the Mysore Excise Act, 1901, later substituted by the
Act of 1965, the exclusive privilege of retail vending of
toddy in different areas was sold by auction for which-the
consideration paid by the licencee to the State was
popularly known as "shop-rent". In addition a tree-tax" and
"tree-rent" were also levied separately, in respect of
tapping toddy-yielding trees. In the notifications inviting
bids for the privilege of retail vending of toddy, it was
stipulated that education cess shall be paid in accordance
with a condition applicable to all excise licences.
Although the three levies were originally charged separately
by a Notification in 1907, "tree-rent" and "tree-tax" were
merged into "shoprent". However, the State continued to
collect education cess on these items.
Under the Mysore Elementary Education Act, 1941,. an
education cess was levied as a percentage, inter alia, of
excise revenue. After this Act was amended by the Mysore
Elementary Education (Amendment) Act, 1955, by a provision
in the Schedule, education cess was levied on all items of
land revenue, forest revenue and excise revenue "on which
education cess is now being levied."
A number of Excise Contractors moved petitions under Article
226 of the Constitution challenging the levy of education
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cess on "shop-rent", "tree-tax" and "tree-rent". The High
Court allowed the petitions holding that liability to pay
education cess arose in respect of all items of excise
revenue on which education cess was being levied and since
no education cess was being lawfully levied in 1955 and for
a long time before, the liability to pay education cess did
not arise. The Court further held that by virtue of Art.
265 of the Constitution no tax could be levied or collected
except by authority of law; and that since the provision in
the Schedule to the Act did not impose the charge of
education cess on "shop-rent", tree-tax" and "tree-rent"
and "shop-rent" was not a duty of excise, no education cess
could be levied on these items.
It was contended on behalf of the appellant State that (i)
under List II Entry 8 the State Legislature is competent to
legislate for levy of cess in respect of "intoxicating
liquors"; (ii) the High Court was in error in holding that
"shop-rent" was not excise revenue; (iii) that in any event
the State-was entitled to levy "tree-tax" and "tree-rent" at
the rates prescribed; and (iv) that even if education cess
on "shop-rent" is not within
800
the competence of the State Legislature under Entry 51 List
II, it is still a tax on "luxuries" within the meaning of
Entry 62 of List II.
HELD : Dismissing the appeal,
(i) Legislative power normally includes all incidental and
subsidiary powers, but the power to tax is neither
incidental nor subsidiary to the power to legislate on a
matter or topic. Entries in Lists I and II in Schedule VII.
dealing with certain specific topics do not grant power to
levy tax on transactions relating, to those topics. Power
to tax, must be derived from a specific taxing entry. Tax
could therefore not be levied on intoxicating liquors
relying upon Entry 8 List II. [804 G]
M. P. V. Sundararamier & Co. v. The State of Andhra
Pradesh and Another, [1958] S.C.R. 1422; referred to.
The taxing power under Entry 51 List II in respect of
alcoholic liquors for human consumption is circumscribed.
It may only be levied as excise duty, that is, a duty levied
on the manufacture and production of alcoholic liquors. [805
C]
R. C. Jall v. Union of India, [1962] Supp. 3 S.C.R. 436;
referred to.
(ii) "Shop-rent" is not excise revenue within the meaning of
the Schedule to the Mysore Elementary Education Act, 1941
and no education cess could be levied on "shop-rent". [805
H]
M/s. Guruswamy & Company v. State of Mysore & Ors., [1967]
1 S.C.R. 548; followed.
(iii) Granting that "tree-tax," and "tree-rent" are
excise revenues, those imposts ceased to be levied
separately after the year 1907 : they merged in "shop-rent"
and a fixed percentage was regarded as local cess and
diverted to the local bodies. If under the order of 1955
and before that date education cess-on "tree-tax" and "tree-
rent" was not being levied lawfully, liability to pay "tree-
tax" and "tree-rent" could not be enforced by the State
against the excise contractors. [806 B]
(iv) Education cess is not levied as an independent cess :
it is levied as a cess on all items of land revenue, forest
revenue and excise revenue. The "shop-rent" collected under
the terms of the auction not being land revenue, forest
revenue or excise revenue, the question whether education
cess could be levied by the State legislature under Entry 62
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of List II does not, fall to be determined.
Furthermore the liability to pay cess is statutory : if the
statute does not effectuate the levy, no liability may arise
for payment, of the cess merely from the condition of the
auction. [806 D-F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 179 to
235 of 1969 and 130 to 133 of 1970.
Appeals from the judgments and orders dated May 2, 1968 and
January 8, 1969 of the Mysore High Court in Writ Petitions
Nos. 1096 of 1966 etc.
M. C. Chagla, R. Gopalakrishnan and S. P. Nayar, for the
appellant (in all the appeals).
801
M. C. Setalvad, B. Datta, P. N. Tiwari, for respondent
No. 1 (in C.As. Nos. 179, 180, 183, 193 and 194 of 1969).
M. K. Nambyar, K. N.. Bhatt, S. Shivaswamy and K. L. Hathi
for the respondents (in C.As. Nos. 181, 182, 203, 209 to 213
and 223 to 226 of 1969).
S. Shivaswamy, K. N. Bhatt and K. L. Hathi,for the respon-
dent (in C.A. No. 195. of 1969).
R. V. Pillai and, P. Kesava Pillai, for the respondents
(in C.As. Nos. 186 to 188 and 198 to 202 of 1969).
Shyamala Pappu, J, Ramamurthy and Vineet Kumar, for the
respondents (in C.As. Nos. 214 to 220 of 1969).
M. Veerappa, for the respondents (in C.As. Nos. 130 and
133 of 1970).
The Judgment of the Court was delivered by
Shah, J. Under the Mysore Excise Act, 1901, the Government
of the State was authorised to grant exclusive privilege of
selling by retail Indian made liquor on such conditions and
for such period as the Government deemed fit, and to levy
duty on manufacture and sale of alcoholic liquor. In
exercise of that power the Government of Mysore framed rules
regulating sale of "excise privileges". In the Note to 23
in respect of toddy, "tree-tax", "tree-rent" and "shop-rent"
were chargeable at the rate of 9 pies per rupee.
Under the Act, the exclusive privilege of retail vending of
toddy in different areas was sold by auction. Every
licencee had to secure toddy by tapping "toddy-yielding
trees either in Government groves assigned to his shops or
trees of private ownership. The licencee was required to
pay to the. State "tree-tax" at the prescribed rates for
the number of tree tapped by him. When he tapped trees
belonging to the Government he had to pay, in addition,
"tree-rent" to the State. ration paid by the licencee to
the State for the exclusive privilege of retail Vending of
today, or Arrack or beer was popularly known as "shop-rene’.
In the notifications inviting bids or tenders for the
exclusive privilege of retail vending of toddy, arrack, and
beer it was stipulated that education cess shall be paid in
accordance with Condition 23 of the General Conditions
applicable to all excise licences.
Originally the Government used to charge "Shop-rent" "tree-
tax" and "tree-rent" separately. But in 1907 a notification
was issued abolishing separate levies of "tree-tax" and
"tree-rent".
L694 Sup CI/71
802
The, Mysore Revenue Manual (1938 Edn.) Vol.
I, at p. 334 read as follows :-
"Formerly, the local cess was being levied on
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the following items
(i)
(ii) Toddy-both date and bagani.
(iii)
But in the marginal note dated G.O. (F.I.
924354 S.R. 145-06-1 dt. 16th June, 1907), the
following directions have been given:-
(a) The separate levy of local cess on tree-
tax is abolished and the cess at present
levied merged- in the main item, the rates of
tree-tax, on the various kinds of trees being
as follows :-
(b) Levy of a local cess on toddy shop
rental is also abolished;
(c) The cess on tree-rent is merged in the
main item itself.
N.B. :-1/17th of the tree-tax, the shop rental
and tree-rent collected should be credited to
Local Funds, in lieu of the one-anna cess
formerly levied on these items.
(Vide also Art. 41-Mysore Accounts Code Vol 1)
After the merger of a part of the Bellary
District pursuant to the setting up of the
State of Andhra in 1953 the Mysore Excise Act,
1901 was extended to the Bellary Area so
merged in 1955.
The Mysore Excise Act, 1901, was repealed and replaced by
the Mysore Excise Act, 1965. But no substantial alteration
was, made in the scheme of levy of excise revenue under the
new Act.
Under the Mysore Elementary Education Act, 1941 an education
cess was levied as a percentage inter alia of excise
revenue. The Mysore Elementary Education Act, 1941, was.not
extended to the Bellary Area and the excise contractors in
that area were not liable to pay education cess. The Mysore
Elementary Education Act, 1941, was replaced by the. Mysore
Compulsory Education Act, 1961. By s. 25 of that Act
Chapters Vl and VII of the 1941 Act were repealed and the
rest of the 1941 Act
803
continued to remain in force in the old Mysore Area.
Accordingly S. 9 of the 1941 Act which occurred in Ch. III
under which education cess was levied remained in operation.
Section 9(1) of the Mysore Elementary Education Act, 1941,
as amended’ by the Elementary Education (Amendment) Act,
1944 read as follows
"The Government may for carrying out the
purpose of this Act, levy throughout or in any
part of Mysore, in education cess on any or
all of such items of State revenue or of tax
levied under any Act, or rule constituting
Local Bodies in Mysore and at such rates as
are specified in the Schedule to this Act."
After the Mysore Elementary Education (Amendment) Act, 1955,
the relevant provisions of the Schedule read as follows
Items on which cess Maximum rate
may be levied. of levy.
All items of land revenue, forest revenue,
and excise revenue on which education
cess is now being levied. 9 pies in the rupee.
The Government of Mysore levied the "education cess" from
excise contractors in the old Mysore Area of the New State
of Mysore. From time to time large amounts were collected
by the Government of Mysore.
A large number of excise contractors moved petitions under
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Art. 226 of the Constitution before the High Court of Mysore
challenging the, levy of "education cess" on "shop-rent in
respect of toddy, arrack and beer and on "tree-tax" and
"tree-rent". They claimed a declaration that they were not
liable to pay the "education cess" and an injunction
restraining the State from levying and collecting the
education cess and also for an order refunding the amount
already collected.
It appears that even after the notification of 1907 merging
the "tree-tax " and "tree-rent" with the "shop-rent" was
issued, the State was in fact collecting the education cess
froth the excise contractors. In the view of the High Court
under the Schedule as amended by the, Mysore Elementary
Education (Amendment) Act, 1955, liability to.. pay.
education cess arose in respect of all items of excise
revenue on which education cess was being levied and since
no education cess was being lawfully levied in the year 1955
and for a long time before that year, the liability
804
to pay education cess did not arise.’ They held that the
expression "now being levied" used in the Schedule as
amended meant "now being lawfully levied". By virtue of.
Art. 265 of the Constitution,no tax could, they observed, be
levied or collected except by authority of law : if there
was no authority of law, collection of the education cess
under the amended Scheme could not authorise collection of
the education cess. The High Court observed that the
Schedule to the Education Act was amended after the
commencement of the Constitution and it was reasonable to
impute to the State Legislature not merely knowledge of, but
also anxiety to comply with Art. 265 of the Constitution,
and that was clear from the fact that neither the original
Education Act nor the Amending Act of 1955 contained any
provisions for validating any levy or collection made
without the authority of law., Accordingly the High Court
held that the State was incompetent to levy the education
cess because it did not fall within the charging provision.
After expressing that opinion the High Court proceeded to
interpret the Schedule and held that the Education Act does
not impose the charge of education cess on Arrack shop-rent,
toddy "shop-rent" and beer "shop-rent" "tree-tax" and "tree-
rent" and that "shop-rent" is not a duty of excise and hence
education cess cannot be levied on Arrack "shop rent", toddy
"shop,-rent" or beer "shop-rent". The High Court also held
that the excise contractors may question the validity of
the levy of education cess on "shop-rent"-"tree-tax" and
"tree-rent" even if they had agreed to pay education cess
on those items. The High Court declared the levy of
education cess on toddy, Arrack and beer "shop-rent", "tree-
tops" and "tree-rent" as invalid. The State of Mysore has
appealed to this Court with certificate granted by the High
Court.
Mr. Chagla contended that under List II Entry 8 the State
Legislature is competent to legislate for levy of cess in
respect of intoxicating liquors, that is to say, the
production, manufacture, possession, transport, purchase and
sale of intoxicating liquors". Legislative power normally
includes all incidental and subsidiary powers, but the power
to tax is neither incidental nor subsidiary to the power to
legislate on a matter or topic : M.P.V. Sundararamier & Co.
v. The State of Andhra Pradesh & An, other(1). Entries in
Lists I & II in Schedule VII dealing with certain specific
topics do not grant power to levy tax on transactions
relating to those topics. Power to tax must be derived from
a specific taxing entry. " Tax could therefore not be
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levied on intoxicating liquors relying upon Entry 8 List If.
Entry 51 List II authorises the State Legislature to
legislate for-"Duties of excise on the following goods
manufactured or produced in the State and countervailing at
the same or
(1) [1958] S.C.R. 1422
805
lower rates on similar goods manufactured or produced
elsewhere in India:--
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and
narcotics; but
The taxing power in respect of alcoholic liquors for human
consumption is therefore circumscribed,: it may only be
levied as excise duty, that is a duty levied on the
manufacture and production of alcoholic liquors,: R. C. Jall
v. Union of India(1).
Mr. Chagla for the State urged that the High Court was in
error in holding that "shop-rent" was not excise revenue.
But this quest-Ion is concluded by a judgment of this Court.
In M/s. Guruswamy & Company v. State of Mysore & Ors. (2)
this Court held that the Mysore State Legislature was
incompetent to levy health cess on the items of the State
excise revenue. The Court further held that the levy of
health-cess could only be made if it be shown that the duty
had been levied on goods which had been produced or
manufactured, the taxable event being production or
manufacture of goods. The Court observed that the essential
characteristics of an excise duty was uniformity of inci-
dence, and that the duty must be closely related to
production or manufacture of goods. It did not matter if
the levy was made not at the moment of production or
manufacture but at a later stage. If a duty had been levied
on an excisable article, but the duty was collected from a
retailer it did not necessarily cease to be an excise duty.
If a levy was made for the privilege of selling an excisable
article and the excisable article had already borne the duty
and the duty had been paid, there must be clear terms in the
charging action to indicate that what was being levied for
the purpose of the privilege of sale was in fact a duty of
excise. The Court further held that a payment for the
exclusive privilege of selling toddy from certain shops was
called "Shope-rent". The licencee paid what he considered
to be equivalent to the value of the right and it had no
relation to the production or manufacture of toddy, and that
the "shop-rent" was not excise duty within the meaning of
Entry 51 of List II of the Constitution. We are bound by
this judgment. "Shop-rent" is accordingly not excise
revenue within the meaning of the’ Schedule to the Mysore
Elementary Education Act, 1941 and no education cess could
be, levied on "shop-rent".
(1) [1962] Supp. 3 S.C.R. 436. (2) [1967] S.C.R. 548.
806
Mr. Chagla however contended that in any event the State is
entitled to levy "tree-tax," and "tree-rent" at the rates
prescribed. It is unnecessary for the purpose of this case
to determine whether "tree-tax and "tree-rent’ are excise
revenue, within the meaning of the Schedule to the Mysore
Elementary Education Act. &ranting that "tree-tax" and
"tree-rent are excise revenues, those imposts ceased to be
levied separately after the year 1907 : they merged in
"shop-rent" and a fixed percentage was regarded as local
cess and diverted to the Local Bodies. If under the order
of 1955 and before that- date education cess on "tree-tax"
and "tree-rent" was not being levied lawfully; liability to
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pay "tree-tax" and "tree-rent" could not be enforced by the
State against the excise contractors’.
Mr. Chagla also urged that even if education cess on "shop-
rent" is not within the competence of the State Legislature
under Entry 51 List II, it is still a tax on "luxuries"
within the meaning of Entry 62 of List II, and a cess may be
levied thereon. The argument is, in our judgment,
misconceived. Education cess is not levied as an
independent cess : it is levied as a cess on all items of
land revenue, forest revenue and excise, revenue. The
"shop-rent" collected under the terms of the auction not
being land revenue, forest revenue, or excise revenue, the
question whether education cess could be levied by the State
Legislature under Entry 62 of List II does not fall to be
determined before us. Counsel also urged that under the
terms of the auction the excise contractors had agreed to
pay education cess. But the liability to pay cess is
statutory : if the statute does not effectuate the levy, no
liability may arise for payment of the cess merely from the
condition of the auction.
Counsel for the State. informed us that since the judgment
of the High Court the Schedule has been amended by the State
Legislature, but he did not very properly ask us to
determine the question whether under the a mended Schedule
the cess is leviable. We express no opinion on the question
whether the State is competent to levy the cess after
amendment of the Schedule to the Mysore Elementary Education
Act, 1941. It will be open to the State to agitate the
question if hereafter the education cess is sought to be
levied under the authority of the amended Schedule.
The apples therefore fail and are dismissed with costs.
There will be one hearing fee.
R.K.P.S. Appeals dismissed.
807