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PETITIONER: STATE OF MYSORE & ANR.

       Vs.

RESPONDENT: PENDAKUR VIRUPANNA SETTY & SONS & A

DATE OF JUDGMENT27/04/1971

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHELAT, J.M. DUA, I.D.

CITATION:  1971 AIR 1325            1971 SCR  526

ACT: Andhra State Act (30 of 1953) and States Reorganisation Act, 1956--Parts  of Madras State made part of Mysore  State-Laws in  Madras State made applicable to Bellary area and  Madras Area-Mysore  Adaptation  of  Laws  Order  1956,  and  Mysore General Clauses Act, 1899--’Madras Area’, what is.

HEADNOTE: As  a  result of the Andhra State Act, 1953 a  part  of  the Bellary  district of Madras became part of the former  State of Mysore, and as a result of the State Re-organisation Act, 1956  a part of the South Kanara district of  Madras  became part of the Mysore State.  Under sections in those two  Acts providing  for the continuance of laws, s, 11 of the  Madras Commercial  Crops Market Act, 1933, as it stood  before  its amendment in 1955 by the Madras Legislature, was in force in the  Bellary  area of the Mysore State, and the  section  as amended  in  1955, was in force in the  South  Kanara  area. Section  11(1),  before its amendment in 1955,  empowered  a ’Market  Committee  to levy fees, but after  amendment,  the levy was a cess by way of sales tax in addition to the sales tax  levied  under the Madras General Sales Tax  Act.   Even though  no  notification, as required by  the  section,  was issued by the Government of Madras, the South Kanara  Market Committee was levying the cess and continued to do so  after the area became a part of Mysore.  In order to validate  the levy  and to enable the Committee to continue the levy,  the Madras Commercial Crops (Mysore Amendment and Validation  of Levy  of Cess) Act was passed by the Mysore  Legislature  in 1958.  By the Mysore Amendment Act, a new section 11(1)  was substituted  for  the s. 11 (1) as in force  in  the  Madras area.  This new sub-section also empowered the levy of  cess by way of sales tax, in addition to the sales tax under  the general sales tax law. The respondents were served a notice by the Secretary of the Bellary  Market  Committee to pay cess  on  groundnut  seeds bought or sold in the notified area of the committee in  the Bellary area of Mysore.  As the respondents failed to comply with  the demands, complaints were filed against them.   The respondents   filed   petitions  under  Art.  226   of   the Constitution  challenging the validity of the levy  and  the High  Court quashed the demand on the ground that  what  was

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being  demanded  was  payment of  sales-tax  and  since  the maximum  rate authorised by s. 15 of the Central  Sales  Tax Act,  1956, read with s. 5(4) of the Mysore Sales  Tax  Act, 1957,  had already been imposed, the Market Committee  could not make a further levy. In appeal to this Court, HELD:     (1)  Section  11(1) as substituted by  the  Mysore Legislature  in 1958, did not apply to the Bellary area  and was  confined only to the ’Madras area’, which  meant,  that part  of the South Kanara district which became part of  the Mysore State, because, (a)  The  statement  of objects and reasons  of  the  Mysore Amendment  shows that the changes in law and the  validation provisions  were confined only to the levy of a cess by  way of sales-tax by the South Kanara Market Committee.  527 (b)  The  Mysore Amendment was made applicable only  to  the ’Madras area’ and this area could have reference only to the South  Kanara area of the Mysore State, since: (i)  By  the Mysore Adaptation of Laws Order, 1956, read with s. 7(1)  of the  States  Re-organisation Act, ’Madras  area’  under  the Mysore General Clauses Act, 1899 (applicable to Mysore  Act) means,  the South Kanara area of the Mysore State; and  (ii) it  would be stretching language too far to include  in  the expression,  ’Bellary area’ what had ceased to be a part  of the  Madras State in 1953, long before the Mysore  Amendment in 1958. (c)  In s. 154 of the Mysore Agricultural Produce  Marketing (Regulation)  Act,  1966,  it  is  stated  that  the  Madras Commercial  Crops  Market  Act as in force  in  the  Bellary district,  and the same Act as in force in the  Madras  area was being repealed, showing that the ’Bellary area’ was  not the same as the ’Madras area’ of the Mysore State. (d)  The  Mysore Amendment Act specifies the rates  of  only two commodities, namely, arecanut and coconut in the ’Madras area’  and  these two commodities figure  as  the  principal commercial crops in the bye laws of the South Kanara  Market Committee, whereas they are not included as commercial crops in  the  bye laws of the Bellary Market  Committee  at  all. [532A-533D] (2)  If the Mysore Amendment Act, 1958, did not apply to the Bellary  area,  s.  11(1) of  the  Madras  Commercial  Crops Markets  Act as it originally stood before its amendment  in 1955  by  the Madras Legislature was applicable.  and  under that  provision  only  a fee and not tax  could  be  levied. Therefore,  even  though  the demand  in  the  present  case employed  the word ‘cess’, it referred only to a ’fee’,  and not to tax. [533E] [The  matter was remitted to the High Court for  determining the  validity and legality of the levy as ’fee’ in  relation to the services rendered.]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal Nos.  1827  to 1830 of 1968. Appeals  from the judgments and orders dated August 22,  23, 1967,  and August 23, 1967 of the Mysore High Court in  writ petitions  Nos.  1967 of 1966, and 1968, 1969  and  2388  of 1966. Shyamlad  Pappu,  M.  S. Ganesh and S.  P.  Nayar,  for  the appellants (in all the appeals). S.   V.  Gupte and A. V. Rangam, for respondent no.   1  (in all the appeals.)

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The Judgment of the Court was delivered by Grover, J.-These appeals by certificate arise from a  judge- ment of the Mysore High Court delivered in certain petitions filed  under  Art. 226 of the Constitution  challenging  the demand of a cess levied in exercise of the powers  conferred by s. 11 (1) of the Madras Commercial Crops Market Act 1933- hereinafter  called the ’Act’--the provisions of which  were applicable to the Bellary district of the State of Mysore. 528 The respondents were served a notice by the Secretary of the Bellary  Market Committee established under the Act  to  pay the  cess on groundnut seeds bought or sold in the  notified area of the Committee.  As the respondents failed to  comply with  the  demand  complaints were filed  against  them  for contravention of s. 1 1 (1) of the Act and of certain  rules and  bye-laws  framed  thereunder.   The  respondents  filed petitions under Art. 226 of the Constitution challenging the validity  of the levy of cess.  The High Court  quashed  the demand on the ground that what was being really demanded was the payment of sales tax and since the maximum rate of sales tax  authorised by s. 15 of the Central Sales Tax  Act  1956 read  with  s.  5(4) of the Mysore Sales Tax  Act  1957  had already been imposed the Market Committee could not make any further  or additional levy.  A direction was also made  for refund of the cess collected during a period of three  years preceding the date of the presentation of the writ petition. For  the purpose of determination of the points  which  have been  raised it is necessary to set out the  background  and the  history  of  legislation  insofar  as  it  is  relevant concerning  Bellary district.  By the Andhra State Act  1953 (Central  Act  30  of 1953) a part A State to  be  known  as "Andhra" came into existence.  By s. 4 of that Act there was added to the State of Mysore the territory which immediately before the appointed was comprised in the Taluks of  Bellary district other than Alur, Adoni and Rayadrug in the State of Mysore  and  the said territories thereupon ceased  to  form part  of  the State of Madras.  By virtue of s.  53  of  the Central  Act  30  of  1953 all  laws  which  were  in  force immediately  before  the appointed day  in  the  territories which became a part of the State of Mysore were to  continue to  be in force until otherwise provided by the  legislature of  that State.  The Act became applicable to that  area  of the  Bellary  district which became a part of the  State  of Mysore.   Section  11(1) of the Act as it  originally  stood empowered the Market Committee to levy fees subject to  such rules  as might be made on the notified commercial  crop  or crops brought and sold in the notified area at such rates as it might determine.  In certain decisions of the Madras High Court  the view was expressed that the fee levied  under  s. 11(1)  as it originally stood was not for services  rendered but   was  really  a  tax  levied  for  raising  funds   for constructing the market.  With a view to avoid the  legality of the levy being questioned the Madras legislature  amended s.  11(1)  by Madras Act 33 of 1955.  It was stated  in  the objects and reasons of the Bill, which was introduced in the legislative assembly of that State, that it was proposed  to make  it clear that the levy was a cess by way of sales  tax and that it was in addition to the sales tax levied 529 under  the  Madras General Sales Tax Act 1939 and  was  also subject   to   the  provisions  of  Article  286’   of   the Constitution.  The following sub-section was substituted for sub-s. (1) of S. 11 of the Act :               "Notwithstanding  anything  contained  in  the               Madras General Sales Tax Act, 1939 (Madras Act

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             IX  of  1939),  the  Market  Committee   shall               subject  to such rules as may be made in  this               behalf, levy a cess by way of sales tax on any               commercial   crop  bought  and  sold  in   the               notified  area  at such rates  as  the,  State               Government may, by notification, determine.                 Explanation.................... Since that part of Bellary district which had bnen  included in the Mysore State by virtue of the Central Act 30 of  1953 was  no  longer  a part of the State  of  Madras  the  above amendment  made  in 1955 did not apply there.   The  amended section,  however, was applicable to South  Kanara  district which  then  formed  part of the State of  Madras.   By  the States Reorganisation Act 1956 the district of South Kanara, with  the  exception of the Taluk of  Kollegal  and  certain other areas became part of the new State of Mysore.  Section 7(a)  of that Act contained a provision similar to s. 53  of the Central Act 30 of 1953. :The laws operating in the State of Madras became applicable to areas which were formerly  in that  State.  Thus s. 11 of the Act as amended, in the  year 1955 by the legislature, of the State of Madras continued to apply to the South Kanara district of the State of,  Mysore. The  situation:  on that date was that in  the  district  of Bellary which became part of the former State of Mysore s.11 of the Act was in force as it stood before its amendment  in 1955 by the Madras legislature.  But s. 11, as amended,  was in force in the district of South Kanara. In  1958 a Bill was introduced in the Mysore Legislature  to amend  the  Act  as in force in the  Madras  area.   In  the statement of objects and reasons it was mentioned that s. 11 of the Act, as amended by the Madras Legislature in 1955 and as  in force in South Kanara district, empowered  the  South Kanara  Market Committee to levy a cess by way of sales  tax on any commercial crop bought and sold in the notified  area at  such  rates  as  the  Government  might  determine.   No notification  as contemplated by the section was  issued  by the  Government  of the erstwhile State of  Madras  and  the Market  Committee continued to levy a cess at the same  rate as  it was levying prior to the amendment.  In the  decision of  the Madras High Court it had been held that the levy  of cess  was invalid’ a no notification had been issued by  the State Government.  The validity of the collection of the fee prior to the amendment Act of 1955 had also been 34-1 S.C. India/71  530 questioned.   It was, therefore, necessary to  validate  the levy  and collection of the cess already made and  to  amend the  Act  to enable the Committee to continue  to  levy  the cess.  Previously an Ordinance had also been promulgated  on account of the urgency of the matter.  The Madras Commercial Crops  Market  (Mysore Amendment and Validation of  Levy  of Cess)  Act  1958  received the assent  of  the  Governor  on November  30, 1958.  By s. 2 of this amending Act, s. 11  of the Act was amended.  Sub-s.  (1) as in force in the "Madras area"  was  substituted and was to be deemed  to  have  been substituted  with effect from November 23, 1955.  This  sub- section was as follows:-               "(1) Notwithstanding anything contained in the               general  sales tax law for the time  being  in               force, the market committee shall levy a  cess               by  way  of sales tax on any  commercial  crop               bought  or  sold in the notified area  at  the               rates specified hereunder:-               1. Arecanut               2. Coconut."

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Section 4 validated the fee or cess collected or paid before the commencement of the amending Act of 1958. Section 120 of the States Reorganisation Act 1956  empowered the  appropriate Government for the Purpose of  facilitating the application of any law in relation to any of the  States formed   or  territorially  altered  to  make,  within   the specified period, such adaptations and modifications of  the law,  whether  by way of repeal or amendment,  as  might  be necessary or expedient and every such law was to have effect subject  to  the adaptation or modification  so  made  until altered, repealed or amended by the competent legislature or other competent authority.  By the Mysore Adaptation of Laws Order 1956 "Madras area" was to mean the territory specified in  clause  (d)  of  sub-s.  (1)  of  s.  7  of  the  States Reorganisation  Act.   According  to  that  provision  South Kanara district except Kasargod taluk and Amindivi is  Jands and  Kollegal Taluk in the State of Madras became a part  of the  State  of  Mysore.  In other  words  according  to  the Adaptation  of  Laws  Order  the "Madras  area"  was  to  be confined to the above territories only.  The Mysore  General Clauses Act 1899, after the adaptations made, contained  the definition  of "Madras area" in clause 47 of s. 3  confining it to the territories specified in clause (d) of sub-s.  (1) of s. 7 of the States Reorganisation Act 1956.  This  meant that it did not include that part of Bellary district  which had been incorporated in the State of Mysore by the  Central Act 30 of 1953.  Therefore under s. 3 of the Mysore  General Clauses Act in any of the Mysore Acts made 531 after  its commencement unless there was anything  repugnant in  the  subject or context "Madras area" was  to  mean  the territory  which  was incorporated in Mysore by  the  States Reorganisation  Act  1956  and which  did  not  include  the Bellary district with which we are concerned in the  present appeals. The Mysore Agricultural Produce Marketing (Regulation)  Act, 1966  (Mysore  Act 27 of 1966) was published in  the  Mysore Gazette  on  September 15, 1966.  S. 154 of that  Act  which relates to Repeal and Savings is as follows :               "154.  Repeal and savings. (1) The Madras Com-               mercial Crops Market Act, 1938 (Madras Act  XX               of 1933) as in force in Bellary District,  the               Madras  Commercial  Crops  Market  Act,   1933               (Madras  Act XX of 1933), as in force  in  the               Madras   Area..................   are   hereby               repealed." As  the impugned proceedings relate to levy in the  Bellary district  of the State of Mysore for the year prior  to  the enactment the new Act of 1966 one of the main questions  for determination  is whether the amendment made in s. 11(1)  by the  amending Act of 1958 passed by the  Mysore  legislature was  applicable  to  that  area  or  whether  the   amending provision was confined only to the "Madras Area" which meant the district of South Kanra with the exception of  specified area which came to be incorporated in the State of Mysore in 1956.  The High Court was of the opinion that the definition contained in clause 47 of s. 3 of the Mysore General Clauses Act  of "Madras Area" which was limited to the South  Kanara district  with  the exception of specified areas had  to  be disregarded while interpreting the expression "Madras  Area" occurring  in the Mysore Amending Act of 1958.  It was  held by  the High Court that the "Madras Area" mentioned  in  the Amending Act of 1958 must also include that part of  Bellary district which originally was a part of the State of  Madras but  which  came  to be incorporated in Mysore  State  as  a

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result of the Central Act 30 of 1953. It  may be observed at this stage that the attention of  the High  Court  does not appear to have been drawn  to  several matters  including  s.  154 of the Mysore Act  27  of  1966. Indeed  before us also these matters escaped the  notice  of the  counsel until more information was obtained  under  our directions which necessitated a rehearing of the case. We  have no manner of doubt that the Bellary district  which became  a  part of the State of Mysore as a  result  of  the Central  Act 30 of 1953 was governed by s. 11(1) of the  Act as  it  stood at the time it had become applicable  to  that area by virtue 532 of s. 53 of the aforesaid Central Act of 1953. The amendment made by the Mysore legislature in 1958 by which sub-s.(1) of S. II was substituted by a new section did not apply to  the Bellary district and was confined only to the "Madras  Area" which meant the district of South Kanara with the  exception of specified areas.  We now proceed to give our reasons  for coming  to  the above conclusion. (1) In  the  statement  of objects and reasons relating to the Madras Commercial  Crops Markets  (Mysore Amendment and Validation of Levy  of  Cess) Bill  1958 when it was introduced in the Mysore  legislature there  was mention only of the Act as amended by the  Madras legislature in 1955 being in force in South Kanara district. The  entire  reading of the statement  shows  that  whatever changes  in  law and the validation  provisions  which  were being  made were confined only to the levy of a cess by  way of sales tax by the South Kanara I Market Committee. (2) The Amending  Act of 1958 was made applicable only to  what  was called  the "Madras Area".  This area could  have  reference only to the South Kanara district with the exception of  the specified  areas  which was a, part of the State  of  Madras immediately  before the States Reorganisation Act  of  1956. It would be stretching the language too far to include in it the  Bellary district which had ceased to be a part  of  the state of madras much earlier in 1953 The adaptation made  in the  Mysore  General  clauses. Act 1899  by  virtue  of  the provisions  contained  in the states Organisation  Act  1956 defined’  "Madras  Area to mean the territory  specified  in clause (d) of sub-s (1) of S. 7 of that Act.  That would, as stated  before comprise only the territory of  South  Kanara district  with  the  exception  of  specified  areas.    The reasoning  of the High Court that the definition  ’given  in the  General  Clauses  Act  should not  be  applied  to  the expression "Madras Area" in the Amending Act of 1958 can  by no means the Sustained. (3) The distinction between what may be  called  the "Bellary Area" and the "Madras  Area"  which came  to be incorporated in the State of Mysore in 1953  and 1956  respectively is full " substantiated by $. 154 of  the Mysore  Act 27 of 1966.  It is stated there  in  unambiguous language  that the Act as in force in’ the Bellary  district and is in force in the "Madras Area" was being repealed.  If "Madras Area" also included the Bellary district. as is  the view  of  the High Court there ’was no question  of  S.  154 being  worded as it is, making it quite clear, that the  Act as  applicable in Bellary district, was not the same  as  in force in the "Madras Area". (4) The bye-laws of the  Bellary Market  Committee  which  were, framed in  exercise  of  the powers  conferred by S. 19 of the Act read with  the  Madras Commercial, Crops Market Rules 1948 give an indication  that the  Amending Act of 1958 was not applicable to the  Bellary district.   These  by-laws were approved in  May  1960.Under bye-law  19 the Market committee could levy fee or  cess  on the notified crops or commodities at the rates specified  in

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the 533 schedule.  The schedule included cotton bales, loose cotton, kapas,  groundnut  seeds, groundnut pods and  various  other commodities.   The Amending Act of 1958 specified the  rates of only two commodities Arecanut and Coconut.  These are not to be found in the schedule of the bye laws. of the  Bellary Market committee In the bye-laws of the South Kanara  Market Committee  which came into force on July 1, 1955  these  two commodities, namely,Arecanut and Coconut are the  principal, if  not the only. commodities which figure.  The  suggestion which has been made at the bar and which does not seem to be without substance is that in the South Kanara district these are  the only or the principal commodities which  constitute commercial crops; whereas in the Bellary district there  are other  commodities  mentioned in the bye-laws which  do  not include these two that constitute commercial crops.  Certain notifications have also been produced which show that  rice, paddy etc. were declared to be commercial crops for the pur- pose of the Act even in the "Madras Area".  But the bye-laws as also the Amending Act of 1958 seem to show that  Arecanut and Coconut are the main or the principal commodities in the "Madras  Area" and these commodities, according to the  bye- laws,  are  confined to South Kanara district  and  are  not included as commercial crops in the Bellary district at all. Once it is held that the Mysore Amending Act of 1958 did not apply to the Bellary district only fee could levied under S. 11(1)  of the Act as it originally stood.  Under bye-law  19 the  rate  specified  for groundnut seeds was  9  paise  per kilogram.   The notice sent by the Market  Committee  making the demand from the respondents employed the word "cess" but that  cannot  stand  in the way of it being  held  that  the demand related to a fee which alone could be levied under S. 11(1)  of the Act.  The finding of the High Court  was  that the cess demanded was a sales tax since it was levied  under S. 11 (1) of the Act as amended by the Amending Act of 1958. It  was observed that if it was not a tax the question  that remained to be considered was whether the cess demanded  was a  fee  and if so whether the levy of the fee  was  open  to criticism  that it was not correlated to the  services  ren- dered. As  it  has  been determined by us that the  demand  by  the Market Committee could be made lawfully only in respect of a fee the validity and legality of that levy will now have  to be determined by the High Court.  The distinction between  a fee  and  a  tax  is wel known and there  are  a  series  of decisions  of this Court on what is a fee and what  are  the tests  which distinguish it from a tax.  See Delhi  Cloth  & General Mills Co. Ltd. v. Chief 534 Commissioner,  Delhi, & Others(1).  The High Court  will  no doubt   afford   the  parties  an  opportunity   of   filing supplementary  affidavits and documents, if  necessary,  for determining whether the levy made is a fee.  After  deciding that matter the writ petitions win have to be disposed of in accordance with law by the High Court. The  appeals  are  allowed accordingly  and  the  cases  are remitted  to the High Court for disposal.  The parties  will bear their own costs in this Court. V.P.S.                            Appeals allowed. (1) [1970] 2 S. C. R. 348. 535