c STATE OF MYSORE & ORS. v. MIS. D. CA WASJI & CO. AND ORS. November 18, 1970 (J. C. SHAH, G. K. MITTER, K. S. HEGDE, A. N. GROVER, AND A. N. RAY, JJ.] Cess-When can be levied. Constitution of India List II Entry 8, Entry 51 and Entry 62-Wliet/Jer enable legislature to levy cess on "shop-rem", etc.-Whet/Jer shop-rent. under M,vsore Excise Act. 1901 1nd 1965 amoumed to excise revenue. · Tax-;:-Power. to legislate in respect of-If derived from a specific tax· ing entry of as incidental or sub:sidiary power to legislate 011 any other tqpic.
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 Jicencce to the State was popularly known as "shop·rent". In addition a "tree-tax" and "tree-rent" were also levied separateiy, in respect of tapping toddy· yielding trees.
JW the notification• inviting bids for the privilege of 1ctail 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 "shop- rent".
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 ces-. was levied on all items o(' land revenue, forest revenue and excise ·revenue "on which edu- cation cess is now being_ levied."
A . number of Excise c;ontractors moved petitions under Article 226 of' the Constitution challenging the levy of education cess on "sho1>-rent", "tree-tax" and "tree-rent". The High Court alowed the petitions holdina that liability to pay education cess. arose in respect of all ilems 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 th.at G . by virtue of Art. 265 of the Constitution no tax could be levied or collect- ed 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 "shor-rent", •'tree..~" and "tree6 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 io legislate for lc»y of cess H' in respect of "intoxicating liquors"; fii) the High Court was in eror 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 Pr<;S- cribed; and (iv) that even if education cess on "shop-rent" is not withm the competence of the State Legislature under Entry S 1 List II, it is still a tax on "luxuries" within the meaning of Entry 62 of List II. HELD : Dismissing the appeal,
( i) I.egislative power normally includes all incidental and subsidiary powers, but the power to ta:t is neither incidental nor subsidiary to the power to legislate on a matter or topic. Entdes in Lists 1 ancl II in Schedule VU 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 cou.ld thm-efore no! be levied on intoxicating liquors relying Upon Entry 8 List II. [804 GJ M. P. V. Sundararamier & Co. v. The State of Andhra Pradesh and Another, [1958J S.C.R. 1422; referred to.
The taxing power under Entry 51 List II ln respect of alcoholic liquors for human consumption is circumscribed. It may only be le•ied as excise duty, that is, a duty levied on the manufacture and productioa of alcoholic liquors. [805 CJ
R. C. Jail v. Union of India, [1962) Supp, 3 S.C.R. 436; referred to. c (ii) "Shop-rent" is not exci!le revenue within the meaning of the Schedule to the Mysore Elementary Education Act, 1941 and no educa- tim cess could be levied on "shop-rent". [805 HJ
M/s. Guruswamy & Company v. State df Mysore & Ors., [!967J 1 . S.C.R. 548; followed . (iii) Granting that "tree-t3.x." 1 and "tree-ren~"' 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 looal ccss and diverted to the local bodies. It under the order of 1955 and before that date education cess On "tree-tax" and "tree-rint" was not being Jevied lawfillly, liability to pay "tr.ee-tax" and "tree-rent" could not be enforced by the State against the excise contractors. [806 BJ
{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 "s1'.lo!'-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.
Furtherinore 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-FJ
CIVIL APPELLATE JVR.ISDICTION: 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 Chag/a, R.-Gopalakrishnan and S. P. Nayar, for the appellant (in all the appeals). MYSOU v. CAWAS.JI "' co. (Shah, I.) M. C. Setalvad, B. Datta, P N. TiWarl, for respondent No. 1 (in C.As. Nos. 179, 180, J83, 193 and 194 of. 1969).
M. K. Nambyar, K. N, Bhatt, S. Shivaswamy and K. L. Hathi for the respondMts (in C.As. Nos. 181, 182, 203, 209 to 213 and .223 to 226 of 1969). · s. Shivaswtimy, K. N. Br.att 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). Shyama/a Pappu, J. Ramamurthy and Vineet Kumar, for the respondents (in C.As. Nos. 214 to 220 cf 1969).
M. Veerappa, for the respondents (in C.As. Nos. 130 and 133. Of 1970). Tire Judgment of the Cou~t was delivered by Shah, J. Under the Mysore· Exci<;e Act, 1901, the Govem- meint of the State was authorised to grant .exclusive privilege of selling by retail Indian made liquor on such conditions al'd for such period as the Government deemed fit, and to levy duty on manufacture and sale of alcoholic liquor.
In exeroise of that power, the Government of Mysore framed rules regulating sate E of "excise privileges". In the Note to r. 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 Govem- F ment groves assigned to his shops or trees of priv'itte 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 tawed trees belonging to the Government he hlld to pay, ·in addition. "tree-rent" to the State. Consideration paid by the licencee to lhe State for the exclusive privilege of retail vending G of toddy, or Arrack or beer was popularly known as "shop-rent"; Iµ the notifications inviting! biGs or tenders for the exclusive privilege of retail vending. of toddy, arrack, and beer it v.as sti- pulated that education cess shall be paid in accordance with Con- dition 23 of the General Conditions applicable to all excise licences.
Originally the Government used to charge "shop-rent'', "tree- t:u" and "tree-rent" separately. But in 1907 a notiBcation was issued abolishing separate levies of "tree-tax" and "tree-rent". 9-,1.694 Sup C!/71
8(12 [1971)2 S.C.R. The Mysore Revenue Manual (1938 Edn.) Vol. I, at p. 334 read as follows :- "Formerly, the local cess was being levied on the following items :- 1 i) (ii) Toddy-both date and bagani.
(iii) But in the marginal note dated G.0. (F.I. 9243- 54 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
.aboiished and the cess at present levied merged in the main l\em, the rates of tree-tax on the ~arions 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. :-I/17th of the tree-talc, the shop rent;u .and tree-rent collected should be creaited to Local Funds,
in lieu of the one-anna cess formerly levied on these items. (Vide also Art; 41-Mysore Accounts Code Vol· 1) .• c After the merger of a part of the Bellai:y District pursuant to the setting up oi the State of Andhra in 1953 the Mysore Excise Act, J 901 was ~xtended to the Bellary Area so merged in 1955.
The Mysore Excise Act, 1901, was rei>ealed and replaced by the My~ore Excise 1\ct, 1965. But no substantial alteration was made in the scheme of levy of excise revenue under the new Under the Mysore Elementary Edur.ation Act, 1941 ah edu-
C?.tion cess was levied as a percentage inter a/ia of excise revenue. The Mysore Elementary Education Act, 1941, was not extended to· the. Bcilary Area and the excise contractors in that area were not foble' io pay education cess.
The Mysore Elementary Edu- t:;tion Act. 1941, was replaced by the Mysore Compulsory Education Act, 196 L By s. 25 of that Act Chapters VI and VII of tbc 1941 Act were repealed and the rest of the 1941 Act MYSORE v. CAWASjl & co,' (Shah, /.)
A cvntinued to remain in force in. the old Mysore Area. ACCOl.'d· ingly s. 9 of the 1941 Act which occurred in.Ch. m under which education ceas was leviro remained in operation. Section 9 ( 1) ot thr Mysore Elementary Education Act, .1941, as amended' by the Elementary Education (Amendment) Act, 1944 read as
follows: "fbe Government may for carrying out the purpose of this Act, levy throughout or in any part of M}10re, <tn education ceas on any or all of such items of State revenue or of tax levied under any Act, or rule consti.
tuting Local Bodies in Mysere and at such rates as are c specified in the Schedule to this Act." After the Mysore Elementary Education (Amednment) Act, 1955, the releval!t provisions of the Schedule read as iollows : Items on which <tess
Maximum rate may be lemd. of levy. D ·~————–~——~~—-~~~~ All items of land revenUe, forest revenue, and excise revenue on which education cess is now beina levied. 9 pies in the rupee.
E The Government of Mysore levied the "education ceas" from ·. exci"' contractms in the old Mysore Area of the New State of Mysore. Ftom time to time large amounts were collected by
the Government of Mysore. A large number of excise contractors moved petitions under Art. 226 of the Constitution before the High Court of Mysore F 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 "edu- cation cess" and an injunction restrainlng the State from levying and collecting the education cess and also for an order refunding the amount already collected.
It appears that even lfter the notification of 1907 merging the ·~tax" aad "b:w rent" with the "shop-rent" was issued, the State was ill fact coDectinl the education cm from the excite contractors. In die ._ of ille lliP Court 'llDder the Schedule i:s amended by the MJIOie :Btemenla•y lldacation (AmendrJient) H Act, 1955, liability to pay educatiOn Cllll arose in respect of all items oi excise revenue on which education cess WIS being levied and since no education cess wu being lawfully levied in the year 1955 and for a long time before that :yeir, the liability stJPDIOI ODUaT UPOllTS
[1971~ · td pay education ~·did not arise. They held that the expres- sion •·now being levied" used in the Schedule as ·amended m'eant · "now being lawfully levied". By virtue of Ar<. 265 of the COu.-
stitution no tax could, they observed, be levied or coUect.ed except by authority of law : if there was no authority of law, collection of the education cess under the amended Sc,hedule could not
authorise collection of the education cess. The High Court ob- served 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 alsri an)(iety to comply with Art. 265 of the Constitution, and thr.: was clear from the fact. that neither the original. Education Act ncfr the Amending Act of 1955 contained any provisions for v:ilidating any levy or collection made with0ut the authority of C law.
Accordingly the High Court held that the State was incom- petlmt .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 Edu- cation Act does not itnJ><'se the charge of t1ducatio11 cess on ,1 rrack shop-rent, toddy "shop-rent" and beer "shop-rent" "tree- tax" and "tree-i:eint" and that "shop-rent" is not a duty of excise &nd hence educat;on cess cannot 'be levied on Arrack "shop. rent", toddy "shop-rent" or beer "shop-rent".
The High Court also· held that the excise pontractors may question the validity cf the le~y of education cess on "shop-rent", "tree-tax" and "tree- .rent", even if they had agreed to pay educatiQn cess on those items.
The High Court declared .. the levy of education cess on toddy, Arrack and beer "shop-rent", "tree-tax" 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, manufac- tilre; possession, transport, purehase and sale of intoxicati,ng iiquors".
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 ll)atter or topic : M.P. V. · · Sundartiramier & Co .. v.
The State of Andhra Pradesh.& An, other('). Entires in Lists .I & II in Schedule VII dealing with G certain specific topics do not grant power to levy tax on transac" tions rdating to those topics. Power· to tax must be derived from a specific !axing entry. Tax could therefore not be levied on intoxicating liquors relying upon Entry 8 List II.
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 duties at the same or (I) [1958] S.C.R. 14221 ··
MYSORE V. CAWASJI & CO. (Shah, J.) lower rates on similar goods manufactured or produced elsewhere in India:- ('a) alcoholic liquors for human consumption; ( b) opium, Indian hemp and other narcotfo drugs
ana narcotics; but The taxing power in respect of alcoholic liquors for human con- sumption is therefore circumscribed :· it may only be levied as C excise duty, that is a duty levied on the manufacture and pro- duction of alcoholic liquors : R. C. Jail v. Union of India ( 1). Mr. Chagla for the State urged that the High Cou1t was in
error in holding that "shop-rent" was not excise revenue. But this question is concluded by a judgment of this Court. In M/s. D Guruswamy & Company v. State of Mysore & Ors.(') this Court held that the. Mysore S"tate 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 bei11g produc- tion or manufacture of goods. The Court observed that the E essential characteristics of an excise duty was uniformity of inci- dence, and that the duty must be closely related to ~roduction or manufacture of goods.
It did not matter if the levy was made not at the momont 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 F to be an excise duty. If a levy was made for the privelege 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 section 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 exclu- sive privilege of selling toddy from certain shops was called shop- rent". The licencee paid what he considered to be equivalent
to the value of the right ood 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 lJ of the Constitu- tion.
We are bound by this judgment. "Shop-rent" is acccrd- inglv not excise revenue within the meaning of the Schedule to H the Mysore Elementary Education Act. 1941 a.nd no educ:ition cess could he levied on "shop-rent".
(I) [1962] Supp. 3 S.C.R. 436. (2) fl967) S,C.I!.. 548. SUPREME COuB.T REPORTS (1971)2 S.C.R. Mr. Chagla however contended that in any event the State is entitled to levy "tree-tax" and "tree-rent" at the rates. prescn'b~ ed.
It .is unnecessary for the purpose of this case to determine. whether "tree-tax" and "tree-rent" are axcise revenue within the meaning of the Schedule to the Mysore Elementary Education Act.
Granting that "tree-tax" and "tree-rent" are excise reve- nues, , 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 un- der the order of 1955 and before that date education cess
on "tree-tax" and "tree-rent" was <11ot being levied lawfully; lia- bility to pay "tree-tax" and "tree-rent" could not be enforced by the State against the excise contractors, . ,~
-f:. '· Mr. Chagla also urged that even if education cess on '.'shop-'.,;.• rent" is not withiR the competence of the State Legislature under Entry 51 List II, it is still a tax on "luxuries" within the mean- ing 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 indepe!lldent cess : it is levied as a cess on all items of ·land revenue, forest revenue and excise revenue. The / "shop-rent" collected under the terins of the auction not bein& 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 bebre us. Coun- sel also urged 'that under the terms of the auction the excise con- tractors had agreed to pay education cess. But the liability to pay cess is statutory : if the statute does not effec'tuate 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 jud~nt of the High Court the Schedule has been amended by the State Legislature, but he did not very prorerly ask us to determine the question whether under the amended 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 Sche- dule to the Mysore Elementary Education Act, 1941. It will be open .to the State to agitate the question if hereafter the edu- catioi; cess is sought to be leVied under the authority of the amend- ed Schedule.
The appeals therefore fail and are dismissed with costs. There will be one hearing fee. R.K.P.S. Appeals dismissed.