TMI Blog1968 (5) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... n the aforesaid items was sought to be levied under the Mysore Elementary Education Act, 1941 (hereinafter referred to as the 'Education Act,) which was enacted prior to the Constitution by the then Princely State of Mysore to amend and consolidate the law relating to elementary education in Mysore. After Bellary district (excepting 3 Taluks) became part of the then State of Mysore on formation of Andhra State under the Andhra State Act, 1953, this Act was not extended to Bellary District and it continued to apply only to the then State of Mysore except Bellary District, Under section 119 of the States Re-organization Act his Act has constituted to be in force in the old Mysore area except Bellary District. 4. The Mysore Compulsory Primary Education Act, 1961, enacted by the new State for the entire State of Mysore repealed only Chapters VI and VII of the 1941 Act and the rest of the 1941 Act continues to be in force in the Old Mysore Area. Section 9 of the 1941 Act which provides for levy of Education cess occurs in Chapter III and has not been repealed. 4A. Sub-section (1) of Section 9 of the Education Act, as originally enacted, read thus: 9(1), The Government may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty, inter alia, on manufacture and sale of alcoholic liquor. Section 18 read: 18. Such duty may be levied in one or more of the following ways : (a) by duty of excise to be charged in the case of spirits or beer either on the quantity produced in or passed out of a distillery, brewery or ware-house licensed or established under Section 12 or Section 14 as the case may be; or in accordance with such scale of equivalents, calculated on the quantity of materials used or by the degree of attenuation of the wash or worth , as the case may be, as the government may prescribe; (b) xx xx xx xx xx (c) by payment of a sum in consideration of the grant of any exclusive or other privilege- (1) of manufacturing or supplying by whole-sale, or (2) of selling by retail, or (3) of manufacturing or supplying by whole-sale and selling by retail any liquor or intoxicating drug in any local area and for any specified period of time ; (d) by fees on licenses for manufacture or sale; (e) xx xx xxx 12. Section 15 of the 1901 Act provided that no liquor shall be sold without a licence from the Deputy Commissioner, Section 16, inter alia, empowered to grant to any person the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... censee (who secured the exclusive privilege of vending arrack) had to secure his requirement of Arrack from the Government Distillery on paying the price of arrack and duty thereon. 16. Under the Mysore Excise Act, 1901, the exclusive privilege of selling Indian made Beer in sealed bottles in shops in localities notified by the Excise Commissioner, was sold by auction or tender-cum-auction. The licensee (who secured such privilege) had to purchase his requirement of bottled Beer from breweries approved by the Excise Authorities and to pay to the State such duty as was fixed and notified by the Government from time to time. 17. The consideration paid by the licensee to the State for the exclusive privilege of vending Toddy, or Arrack or Beer, is popularly know as 'shop Rent'. 18. In the Notifications calling for bids and/or tenders for the exclusive privilege of retail vending of Toddy, Arrack and Beer, it used to be stated that Education Cess should be paid in accordance with Condition 23 of the General conditions applicable to all Excise Licences, and the kind of liquor, items and rates on and at which such cess was payable, we also detailed. 19. Section 23 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shop Rent', Tree tax and Tree Rent; (ii) Levy of Education Cess in only the old Mysore Area of the new State, is violative of Article 14 of the Constitution: (iii) Shop Rent is not an excise duty and hence Education Cess, cannot be levied on Shop Rent; (iv) Education Cess on Shop Rent is a tax on the business of vending Liquor and the amount of cess payable by any one person to the State cannot exceed ₹ 250/- per annum; and (v) As no separate procedure is provided by the Education Act for assessment and collection of Education Cess, it cannot be collected. 22A. Besides meeting these contentions the learned Special Govt. Pleader raised the following pleas in defence; (i) Levy of Education Cess is saved by Article 277 of the Constitution; (ii) Shop rent is a tax on luxuries; and (iii) It is not open to the petitioners to question their liability to pay education Cess which they have agreed to pay under contracts with the State. 22B. We shall proceed to consider these contentions. 23. W. Ps. Nos. 639 and 640 of 1968 relate to the levy of Education Cess on Toddy Shop Rent and Tree Tax in Bellary District for the period 1-1-1968 (sic) to 30-6-1959 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment Pleader did not dispute that Education Cess was not being levied on Arrack Shop Rent till the year 1965 and that for the first time it was stated in the Notification of Sale of Excise Privilege for the year 1966-67 that Education Cess should be paid on Arrack Shop Rend and Beer Shop Rent. 30. Even in Rule 23 of the Rules regulating sale of Excise Privilege, contained in the Mysore Excise Manual Vol. I (1956 Edition) all that is stated in respect of Arrack and Beer, is that Education Cess is payable on Duty. It has not been stated that Education Cess is payable on Arrack shop Rent or Beer Shop Rent. 31. In the Mysore revenue Manual, Vol. I (1938 Edition) at page 384 and in the Mysore Revenue Manual (1967 Edition) at page 660, in the Chapter, Cesses and Taxes, under the heading, Abkari, it is stated: Formerly, the Local Cess was being levied on the following terms: (i) Arrack. Note:--The cess is now merged in the still-head duty. (ii)................................. ........................................... (iv) Duty on beer (Notification No. 312, dated 14th November 1871). 32. It is clear beyond doubt that local cess was not being levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales of Excise Privileges in support of his assertion that Education Cess was being levied on toddy Shop Rent, Tree Tax and Tree Rent when the Mysore Elementary Education (Amendment) Act, 1955 came into force. It is true that in the Mysore Excise Manual (1956 Edition) in the Note to rule 23 the items, Tree Tax, Tree rent and shop rent have been shown against Toddy and the rate of Education Cess has also been stated. But it is not clear under what Government Order or Notification or statutory enactment Education Cess was levied on these items. 36. Further these rules have been framed under Section 16 and 29 of the Mysore Excise Act, 1901. It is true, as stated earlier that Section 16 empowered the Government to grant the exclusive privilege of manufacturing or selling liquor, on which condition it considered fit. But the power to impose a condition of licence, cannot go so far as to impose a new levy not provided by the Excise Act and not strictly required for the regulatory purposes of the licence. Under Section 29 of the Mysore Excise Act, 1901, the Government is empowered to make rules for carrying out the provisions of that Act. To levy a Cess not provided by that Act, canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority of law), is what amended Section 9 read with amended Schedule to the Education Act, contemplates. 41. We are unable to accede to this contention of the learned Special Government Pleader. The necessary implication of the words on which education cess is now being levied occurring in the amended Schedule to Education Act, is that such cess is being lawfully levied and not without the authority of law. The Schedule to the Education Act was amended after the advent of the Constitution and hence it is reasonable to impute to the State Legislature not merely knowledge of, but also anxiety for compliance with, Art. 265 of the Constitution which provides that no tax shall be levied or collected except by authority of law. That the Legislature did not have in mind any unauthorised levy of collection, is clear from the fact that neither the original Education Act nor the amending Act of 1955 contains any provisions for validating any levy or collection made without the authority of law. 42. Thus the contention of the petitioners that the provisions of the Education Act as amended from time to time, do not impose a charge of Education cess on Arrack shop Rent, Beer Shop Rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trike down all laws prevailing in the two parts of the State because of certain differences in them arising out of historical reasons..... 45. Mr. Shiva Swamy argued that from the above observations it can be inferred that the Supreme Court would have held the existence of two different laws in the different areas as offending Art 14, but for the assurance given on behalf of the State that steps were being taken to assimilate the laws in two different parts of the State and that the question of having one law for the public religious and charitable trusts, was under the active consideration of the Government. Mr. Shiva Swamy further argued that no such assurance was forthcoming from the State in the present cases and that even after assimilation of the laws relating to compulsory primary education, the levy of Education Cess is perpetuated in the Old Mysore Area. 46. On the other hand, the learned Special Government Pleader referred to the decision of the Supreme Court in Bhaiyalal Shukla v. State of Madhya Pradesh AIR1962SC981 in which the Supreme Court held that the existence of different laws in different parts of Madhya Pradesh could be sustained on the ground that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primarily a duty on the production or manufacture within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. 53. In Abdulkadir v. State of Kerala AIR1962SC922 the nature of the system of collecting tobacco revenue by auctioning the right to sell in retail tobacco in shops, came up for consideration. Wanchoo, J. (as he then was), who spoke for the Bench said at page 927: It is obvious that this system of auction is not a system of levying tax because it has nothing to do with the levy on each sale, which is the essence of a sales tax. It seems that in the former States of Travancore and Cochin, auction system continued right upto the time the Constitution came into force and even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ajority of the Bench. Sikri, J., speaking for the majority, stated thus at page 1522: It is true that Wanchoo, J., referred to the practice of public auctions of the right to possess and sell excisable goods but what he said was that the amounts realised from these auctions was excised revenue; he did not say that the amount realised was excise duty as such in the strict sense of the term. 59. The learned Special Government Pleader did not dispute that the ratio of the majority decision in Shinde Brothers' Case [1967]1SCR548b would apply to Arrack Shop Rent, and Beer Shop Rent also and that in view of the majority decision in that case, Toddy Shop Rent, Arrack Shop Rent, or Beer Shop Rent, cannot be regarded as a duty of excise. He however submitted that he should not be understood as giving up his contention that Shop Rent is a duty of excise, so that it may be open to the State to urge before the Supreme Court in any appeal from our decision, that the majority of the Supreme Court in Shinde Brothers' Case [1967]1SCR548b may be reconsidered. 60. In the light of the majority view of the Supreme Court in Shinde Brothers' Case [1967]1SCR548b , Section 24 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. (Underlining (herein ' ') is ours). 63. The learned Special Government Pleader argued that Education Act imposes education Cess on excise revenue which is of wider import than excise duty; that excise revenue comprises of not only duties of excise but other sources of revenue like fee, rent, fine and confiscation under the Excise Act. He referred to Section 3(1) of the Mysore Excise Act, 1901, which read: 3. In this Act, unless there be something repugnant in the subject or context-- (1) Excise revenue means revenue derived or derivable from any duty, fee, tax, rent, fine or confiscation imposed or ordered under the provisions of this Act or of any other law for the time being in force relating to liquor or intoxicating drugs. 64. He also referred to Section 2(11) of the Mysore Excise Act, 1965, in which the definition of 'Excise Revenue' is the same as in the 1901 Act. The learned Special Government Pleader further argued that even if Shop Rent is not a duty of excise, it is one of the items of excise revenue on which the Education Act levies Education Cess; that there is material difference between the language of Section 3 of, and Schedule A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whether the State is competent to levy Education Cess on Shop Rent after the advent of the Constitution. 68. Even if a pre-Constitution tax or cess is outside the legislative competence of the State, Article 277 saves continuance of such tax until provisions made to the contrary by Parliament by law. In Ram Krishna v. Janpada Sabha AIR1962SC1073 the Supreme Court laid down that for continuance of a tax under section 143(2) of the Government of India Act, 1935 (which corresponds Art. 277 of the Constitution), three conditions should be satisfied. In a later decision Amraoti Municipality v. Ramachandra [1964]53ITR444(SC) , the Supreme Court held those very three conditions are equally applicable for continuance of a tax under Article 277 of the Constitution. Those three conditions are: i) The tax was one which was lawfully levied; ii) the identity of the body that collects the tax, the area whose benefit the tax is to be utilised and the purpose for which the utilisation is to take place continue to be the same; and iii) The rate of tax is not enhanced nor its incidence in any manner altered. 69. We shall now examine whether Education Cess levied on Arrack Shop Rent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 277 is not available to Education cess on Shop Rent, if Shop Rent falls outside any of the Entries in List II of the Seventh Schedule to the Constitution. 74. The learned Special Government Pleader next contended that Shop Rent comes within the ambit of Entry 8 of List II which reads Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors. 75. The learned Special Government Pleader said that the language of any Entry in the Legislative Lists in the Seventh Schedule to the Constitution, should be given the widest scope which their meaning is fairly capable and that each general word should, accordingly be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be comprehended in it. We think this rule of interpretation of legislative Entries, is well accepted, and beyond any controversy. 76. But it is difficult to accept the further proposition of the learned Special Government Pleader that the legislative power to regulate or restrict manufacture, sale, and consumption of liquor would include the power to impose any tax which has the effect of discouraging c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, we shall assume for sake of arguments that alcoholic liquors are articles of luxury. Before Shop Rent can be regarded as a tax on luxuries, it must first be established that Shop Rent is a tax. In Shinde Brothers case [1967]1SCR548b Sikri J., who delivered the majority judgment, observed that Toddy Shop Rent is a payment for the exclusive privilege of selling Toddy in certain shops and that the licencee pays what he considers to be equivalent to the value of that right. 82. As stated by B. K. Mukherjee, J. (as he then was) in Commr, Hindu Religious Endowment, Madras v. L. T. Swamiar [1954]1SCR1005 , one of the essential characteristics of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax; in other words, there is no element of quid pro quo between the tax payer and the public authority. Since the payment of Shop Rent is for the benefit which the licensee gets in form of exclusive privilege to sell liquor in certain area or in certain shops, Shop Rent cannot be regarded as a tax at all. 83. Even assuming for the sake of arguments that alcoholic liquors are articles of luxury and that Shop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on certain articles or goods constituting luxuries and not legislation controlling an activity which may not be a necessary activity but may be unnecessary and in that sense a luxury. 87. Reference was also made to the following observations of the Kerala High Court in: AIR1966Ker46 : It seems to me that 'luxury tax' is a tax on an article in order that it might be a luxury tax, this article must be an article of luxury. 88. Learned counsel for the petitioners argued that Shop Rent is not levied on the articles of luxury, namely alcoholic liquors, nor on the person who consumes liquor and thereby engages in an activity of luxury, but is collected from the vendor of the liquor for the liquor for the exclusive privilege of selling liquors, and there is no proximate nexus between the levy of Shop Rent and the consumption of alcoholic liquors. 89. The learned Special Government Pleader argued that a tax on luxuries can be levied on a person who vends articles of luxury as he will indemnify himself at the expense of persons using articles of luxury. In support of his contention, he relied on the decision of the Supreme Court in State of Bombay v. R. M.D. Chama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no reason to give a restricted meaning to this Entry so as to confine the operation of the law to be made thereunder only to taxes on persons receiving the luxuries, entertainments or amusements, that there can be no reason to differentiate between the giver and the receiver of luxuries, entertainments or amusements, and that both may with equal propriety be made amenable to the tax. The following passage in the judgmental p.585 brings out the distinction between tax on luxuries and tax on trade or calling: ..... Nor is the impugned tax a tax imposed for the privilege of carrying on any trade or calling. It is a tax imposed on every show that is to say, on every instance of the exercise of the particular trade, calling or employment. If there is no show there is no tax. A lawyer has to pay a tax or fee to take out a license irrespective of whether or not he actually practices. That tax is a tax for the privilege of having the right to exercise the profession if and when the person taking out the license chooses to do so. The impugned tax is a tax on the act of entertainment resulting in a show. 94. From the aforesaid two decisions of the Supreme Court, the propositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion was sought to be derived from the observation of Sikri, J., in Shinde Brothers' case that the levy of Toddy Shop Rent is in respect of the business of carrying on the sale of Toddy. 99. But we think this observation cannot be understood as laying down that Toddy Shop Rent is a tax on trade in Toddy. As stated earlier, His Lordship observed that Shop Rent is a payment for the exclusive privilege of selling Toddy in certain shops and Shop Rent which is a payment for such benefit, is not a tax at all. If Shop Rent itself is not a tax there is no question of its being a tax on trade or calling. Education Cess which is in the nature of a surcharge or an increment to an existing tax, cannot be levied on Shop Rent which is not a tax, and the purported levy of Education Cess on Shop Rent cannot be regarded as a tax on trade and calling. 100. Lastly it was contended by learned counsel for the petitioners that Education Cess cannot be levied on any item of Excise Revenue as the Education Act contains no provisions for assessment, for giving opportunities to tax-payers to put forth their objections as to their liability and the extent of such liability, and for collection. And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the petitioners urged that any agreement to pay a tax or cess which is not imposed under any authority of law, is void and unenforceable and does not create any legal obligation to pay such tax or cess, nor precludes the petitioners from claiming refund of such tax or cess paid to the State. 105. Reliance was placed on the decision of the Supreme Court in Moti Ram Deka v. N. E. F. Rly. (1964)IILLJ467SC . There Rules 148(3) and 149(3) contained in the Indian Railway Establishment Code, Vol. I, which empowered the Railway Authorities to terminate the services of a Railway employee by serving a notice on him, were held to be repugnant to Art. 311(2) of the Constitution. It was however urged on behalf of the Railway Authorities that Railway servants who entered into service with full knowledge of these Rules, could not be allowed to complain that the Rules contravene Art. 311 and are, therefore, invalid. Repelling that contention, this is what Gajendragadkar, J., (as he then was), who spoke for the majority, said at page 611: In our opinion, this approach may be relevant in dealing with purely commercial cases governed by rules of contract, but it is wholly inappropriate in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or tender amounts. 108. Our conclusion may be summed up thus: i. 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; ii. Continuance of the levy of Education Cess in the Old Mysore Area of the new State of Mysore, has not been shown to offend Art. 14 of the Constitution; iii. 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; iv. Education Cess on Shop Rent, is not a tax on trade as Shop Rent is not a tax on trade; v. Education Cess can be levied and collected even in the absence of provisions of creating a machinery for assessment and collection of Education Cess. vi. The levy of Education Cess on Shop Rent after the commencement of the Constitution is not saved by Art. 277 of the Constitution; vii. Shop Rent not being a tax is not a tax, on luxuries; and viii. The petitioners can question the validity of the levy of Education Cess on Shop Rent, Tree Tax and Tree Rent in spite of their having agreed to pay Education Cess on these items. 109. In view of the above conclusions, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mistake, still the Court is not bound to exercise its discretion directing repayment. The Supreme Court added: Whether repayment should be ordered in the exercise of this discretion will depend in each case on its own facts and circumstances. It is not easy nor is it desirable to lay any rule for universal application. It may however be stated as a general rule that if there has been unreasonable delay the Court ought not ordinarily to lend its aid to a party by this extraordinary remedy of mandamus. Again, where even if there is no delay the Government of the Statutory Authority against whom the consequential relief is prayed for raises a prima facie triable issue as regards the availability of such relief on the merits on the grounds like limitation the Court should ordinarily refuse to issue the writ of mandamus for such payment. In both these kinds of cases it will be sound use of discretion to leave the party to seek his remedy by the ordinary mode of action in a civil court and to refuse to exercise under Art 226 of the Constitution. 114. Learned counsel for the petitioners argued that the petitioners became aware of the illegality of Education Cess on several items of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Cess on Toddy Shop Rent for the period 1964-65 to 1966-67. The petition was filed on 24-6-1967. We have directed refund of amounts, if any, paid by him subsequent to 24-6-1964, leaving it open to him to seek his remedy by way of suit or other proceedings if he so desires, in respect of amounts paid by him, if any, prior to 24-6-1964. 119. In W. P. No. 2161 of 1967, the petitioner has claimed refund of amounts paid by him towards Education Cess on Toddy Shop Rent, Tree Tax and Tree Rent for the period 1962-63 to 1966-67. The petition was filed on 18-9-1967. We have directed refund of amounts, if any, paid by him subsequent to 18-9-1964 leaving it open to him to seek his remedy by way of a suit or other proceedings if he so desires, in respect of payments, if any, made prior to 18-9-1964. 120. In W. P. No. 864 of 1968 the petitioner has claimed refund of amounts paid towards Education Cess or Tree Tax for the period 1964-65. The petition was filled on 14-3-1968. We have directed refund of amounts, if any paid subsequent to 14-3-65 leaving it open for him to seek his remedy in respect of payments, if any, made prior to 14-3-1965, by way of suit or other proceedings if he s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents are directed to refund the amounts, if any, paid by the petitioners towards Education Cess on Arrack Shop Rent, and Toddy Shop Rent for the period 1-1-1968 to 30-6-1969. 134. W. Ps. Nos. 612, 627 to 631 of 1968, 639 and 640 of 1968: The respondents are directed to refund the amounts, if any, paid by the petitioners towards Education Cess on Toddy Shop Rent for the period 1-1-1968 to 30-6-1969. 135. W. P. No. 862 of 1968: The respondents are directed to refund the amount, if any, paid by the petitioner towards Education Cess on Tree Tax for the year 1967-68. 136. W. P. No. 864 of 1968: The respondents are directed to refund the amounts if any, paid by the petitioner subsequent to 14-3-1965 towards Education Cess on Tree Tax for the year 1964-65. 137. W. P. No. 944 of 1968: The respondents are directed to refund the amounts, if any, paid by the petitioner towards Education Cess on Tree Tax for the year 1965-66. 138. W. P. No. 989 of 1968: The respondents are directed to refund the amount if any, paid by the petitioner towards Education Cess on Toddy Shop Rent and Tree Tax for the period 1-1-1968 to 30-6-1969. 139. W. P. No. 1016 of 1968: The respondents are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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