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PETITIONER: THE STATE OF MADHYA PRADESH

       Vs.

RESPONDENT: THE GWALIOR SUGAR CO., LTD., AND OTHERS(AND CONNECTED APPEAL

DATE OF JUDGMENT: 30/11/1960

BENCH:

ACT: Cess-Levy  on sugar cane ordered by erstwhile  Ruler-Consti- tutional validity-Constitution of India, Arts. 14, 265, 373.

HEADNOTE: In order to put the sugar industry on a stable footing,  for which  it was necessary to develop the cane area, the  Ruler of  the erstwhile Gwalior State by an order dated  27-7-1946 sanctioned  the  levy of cess of one anna per maund  on  all sugar  cane purchased by the respondent company.   When  the Government  of Madhya Bharat, which was the successor  state of  the former Gwalior State, made a demand for  payment  of the  cess, the respondent filed a petition before  the  High Court of Madhya Bharat challenging the legality of the  levy on  the grounds (1) that the order dated 27-7-1946 was  only an  executive  order  and not a law under Art.  265  of  the Constitution  of  India and that, therefore,  there  was  no authority  for the imposition of the cess after January  26, 1950, and (2) that the levy was discriminatory and  violated Art. 14 inasmuch as while the respondent was made liable  to pay  the  cess the other sugar factories in the  State  were exempt.   It was found that at the time when cess was  first levied  there  was  no sugar factory  in  existence  in  the Gwalior State other than that of the respondent. Held, that (i) the Ruler of an Indian State was an  absolute monarch  in which there was no constitutional limitation  to act   in  any  manner  be  liked,  he  being   the   supreme legislature,  the supreme judiciary and the supreme head  of the  executive.,  Consequently, the  order  dated  27-7-1946 issued  by  the  Ruler of Gwalior State amounted  to  a  law enacted by him and became an existing law under Art. 372  of the  Constitution of India.  The levy of cess was  therefore by authority of law within the meaning of Art. 265; Madhaorao  Phalke  v. The State of Madhya Bharat,  [1961]  1 S.C.R. 957, followed. (2)  the levy of cess did not contravene Art. 14 because (a) the object was cane development in the particular area and a geographical  classification based upon  historical  factors was  a  permissible mode of classification, and  (b)  a  tax could  not  be struck down as discriminatory unless  it  was found  that  it was imposed with a deliberate  intention  of differentiating between 620 an  individual  and  individual; and  particularly,  in  the instant case, where when cess was first sought to be levied, there was no other sugar factory existing in the State.

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JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos. 98 and  99 of 1957. Appeals  from the judgment and order dated August 31,  1954, of the Madhya Pradesh High Court in Civil Misc.  Case No.  9 of 1953. R.   Ganapathi Iyer and D. Gupta, for the appellant in C. A. No. 98 of 1957 and respondents in C. A. No. 99 of 1957. S.   K. Kapur and Naunit Lal, for the respondents in C.   A. No. 98 of 1957 and appellant in C. k. No. 99 of 1957. 1960.  November 30.  The Judgment of the Court was delivered by. MUDHOLKAR, J.-These are cross appeals from two judgments  of the  erstwhile  High Court of Madhya Bharat.  Both  of  them arise out of a writ petition presented by the Gwalior  Sugar Company  Ltd., who are respondents in C. A. 98 of  1957,  in which they challenged the validity of the levy of a cess  on sugarcane  purchased  by the respondents.   The  grounds  on which  the validity of the cess is challenged are two.   The first ground is that it was not levied under any law and the second  ground  is  that it is  discriminatory  against  the respondents. In order to appreciate these contentions it is necessary  to set out certain facts.  In the year 1940 in pursuance of  an agreement  entered  into between the Government  of  Gwalior State  and  Sir Homi Mehta and others a  sugar  factory  was established  at  Dabra.   The name of that  factory  is  The Gwalior  Sugar  Co., Ltd.  On June 20,  1946,  the  Maharaja Scindia, the ruler of Gwalior State constituted a  Committee to consider the desirability of imposing a "cane cess on the lines  of the United Provinces or Bihar and to  recommend  a procedure  for fixation of sugar prices within the terms  of the  agreement  subsisting between the  Government  and  the factory".  The Report of the                             621 Committee  was submitted to the Maharaja by the Chairman  on July 23, 1946.  In their report the Committee observed  that in order to put the industry on a sure and stable footing it was absolutely necessary to develop the cane area and  yield in  the  shortest  possible  time.   For  this  purpose  the Committee  recommended that it was essential to levy a  cane cess  of one anna per maund on all sugar cane  purchased  by the  respondent  factory.  At the foot of  this  report  the Maharaja   made   the   following   endorsement    "Guzarish sanctioned,  J. M. Scindia, 27-7-46".  It may  be  mentioned that  the Committee also recommended the establishment of  a Cane  Development  Board.   This  recommendation  was   also accepted  by  the Ruler.  On August 26, 1946,  the  Economic Adviser  to the Government of Gwalior wrote a letter to  the Manager  of  the respondent factory.  It will be  useful  to reproduce  the  text  of that letter as it  will  have  some relevance  on  the  second  ground  on  which  the  cess  is challenged.  The letter runs thus: "Dear air, With a view to expand cane area and cane yield in the  Harsi commanded  area so that the Gwalior Sugar Co., Ltd., be  put on  a  sound and stable basis, the Gwalior  Government  have decided  to impose a cane cess of one anna per maund on  all sugarcane purchased by your factory.  The operation of  this cess will start from the coming sugarcane crushing season. The  proceeds  of  the cess have  been  earmarked  for  cane development work in the Harsi region that will be undertaken by a Cane Development Board constituted for the purpose. The Cane Development Board expects your co-operation in this development work, which is proposed to be undertaken as soon

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as possible.                       Yours sincerely,                          Secretary,                     Cane Development Board."  The respondent factory protested against this levy.   After the formation of the State of Madhya Bharat, 79 622 the  respondent made a representation to the  Government  of Madhya   Bharat  against  the  levy  of  the   cess.    That representation was, however, rejected.  They, then, paid the cess for the years 1946 to 1948 amounting to Rs. 1,17,712-8- 2.   The Government of Madhya Bharat made a demand from  the respondents  for  a sum of Rs. 2,79,632-14-9 for  the  years 1949  to 1951.  The respondents challenged the  demand  upon the  two  grounds  set out above and  presented  a  petition before  the  High Court of Madhya Bharat  for  quashing  the demand.  The petition was opposed on behalf of the State  of Madhya  Bharat which was the successor State of  the  former Gwalior   State.   The  High  Court  granted  the   petition partially by holding that the State of Madhya Bharat was not entitled to recover the cess due from the respondents  after January 26, 1950.  It may be mentioned that it was  conceded on  behalf of the respondent company before the  High  Court that  the  State was entitled to recover the cess  prior  to January 26, 1950.  Later, however, the respondents preferred a  review  petition to the High Court in which  they  sought relief  even in respect of the cess for the period prior  to January 26, 1950.  The review petition was dismissed by  the High  Court upon the ground that no such petition lay.   The respondents are challenging the view of the High Court in C. A.  No.  99  of 1957.  After the coming into  force  of  the States Reorganization Act, 1956, the State of Madhya Pradesh has been substituted for the State of Madhya Bharat and they are shown as appellants and respondents respectively in  the two appeals. The High Court struck down the cess upon the ground that the order dated July 27, 1946, of the Gwalior Durbar was only an executive  order  and  not  a law  under  Art.  265  of  the Constitution and that, therefore, there was no authority for the  imposition  of the cess after January 26,  1950.   This point is covered by the decision of this Court in  Madhaorao Phalke v. The State of Madhya Bharat and Another (1) decided on  October 3, 1960.  In the course of the judgment of  this Court delivered by Gajendragadkar, J., he pointed out: (1)  [1961] 1 S.C.R. 957.                             623               "It would thus be seen that though Sir  Madhya               Rao  was gradually taking steps  to  associate               the  public with the government of  the  State               and  with  that  object  he  was  establishing               institutions  consistent with  the  democratic               form of rule, he had maintained all his powers               as  a  sovereign  with  himself  and  had  not               delegated  any of his powers in favour of  any               of  the said bodies.  In other words,  despite               the  creation  of these  bodies  the  Maharaja               continued  to be an absolute monarch  in  whom                             were   vested   the  supreme   power   of   th e               legislature, the executive and the judiciary.               "In  dealing with the question as  to  whether               the orders issued by such an absolute  monarch               amount to a law or regulation having the force               of  law,  or whether  they  constitute  merely

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             administrative orders, it is important to bear               in mind that the distinction between executive               orders  and legislative commands is likely  to               be  merely  academic where the  Ruler  is  the               source   of   all   power.    There   was   no               constitutional  limitation upon the  authority               of the Ruler to act in any capacity he  liked;               he  would  be  the  supreme  legislature,  the               supreme judiciary and the supreme head of  the               executive,   and  all  his  orders,   how-ever               issued, would have the force of law and  would               govern  and regulate the affairs of the  State               including the rights of the citizens.               "It  is also clear that an order issued by  an               absolute monarch in an Indian State which               had  the  force  of law  would  amount  to  an               existing   law   under   Art.   372   of   the               Constitution." From  these  observations it would be quite clear  that  the endorsement  of  the  Maharaja on the  Guzarish  whereby  he accepted the recommendation of the Committee about  imposing a cess on the sugarcane crushed by the factory amounted to a law,  however  informal that endorsement may appear  to  be. Since  it was a law enacted by the Maharaja then,  with  the coming into force of the Constitution, it became an existing law under Art. 372 and thus it satisfies the requirements of Art. 265 of the Constitution. 624 Disagreeing  with the High Court we therefore hold that  the cess was imposed by authority of law.   What  remains  to  be  considered  is  whether  this  cess violates the guarantee of equal protection contained in Art. 14 of the Constitution.  What was urged Ltd. before the High Court and what was also urged before us was that this is the only  sugar factory in the present State of  Madhya  Pradesh which  is  liable  to  pay  the  cess  whereas  other  sugar factories are exempt therefrom.  The result of this is  that those other sugar factories do not have to pay this cess and are  thus better placed in the matter of carrying  on  their business  of manufacturing and marketing of sugar  than  the respondents  and  so  there is  discrimination  against  the respondents in that respect.  It seems to us, however,  that this cannot be regarded as discrimination at all, even after the formation of the State of Madhya Pradesh.  The reason is that the difference arises out of the historical  background to  the imposition of this cess.  It has recently been  held by  this  Court  in  M. K. Prithi  Rajji  v.  The  State  of Rajasthan  &  Ors  (1) decided on  November  2,  1960,  that geographical  classification based upon  certain  historical factors  is  a permissible mode of classification.   In  our opinion,  the principle underlying that decision would  also apply  to  the present case.  In view of the  decision,  Mr. Kapur the learned counsel for the respondents sought to rest his argument on a somewhat different ground.  That ground is that  under  the  order of June  27,  1946,  the  respondent factory  alone  was  made liable to pay  cess  and  that  no similar  liability  was imposed upon any  other  factory  in Gwalior.   It  would, however, appear that at that  time  no other  sugar factory was at all in existence in the  Gwalior State.    The  respondent  factory  was  the  first  to   be established and for all we know is even today the only sugar factory in the area which formerly constituted the State  of Gwalior.   We have already quoted the letter written by  the Economic Adviser to the Gwalior Government addressed to  the Management of the Gwalior Sugar Co., Ltd.  From that  letter

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it would (1)  C.A. NO. 327 of 1956. 625 appear that the cess was imposed for a definite purpose  and that  was  to expand the cane area in  the  Harsi  commanded region  so  that the Gwalior Sugar Co., Ltd., that  is,  the respondent factory would be put on a sound and stable basis. It  will, therefore, be clear that far  from  discriminating against the factory, the whole object of the cess was to  do something for the benefit of the factory and for the benefit of the sugar industry in the State which was at that date in its  infancy.   Apart from the fact that in  the  matter  of taxation the legislature enjoys a wide discretion, it should be  borne  in  mind  that a tax cannot  be  struck  down  as discriminatory  unless  the  Court finds that  it  has  been imposed  with  a  deliberate  intention  of  differentiating between  an individual and an individual or upon grounds  of race,  religion, creed, language or the like.  There was  no question  of doing anything like this in the year 1946  when no other sugar factory existed in the State of Gwalior.  The cess  was thus good in law when enacted and it has not  been rendered  void  under Art. 13 by reason of the  coming  into force  of  the Constitution on the ground that  it  violates Art.  14.   In our opinion, therefore, both the  grounds  on which  the  validity  of  the cess  is  challenged  are  ill conceived and the cess is a perfectly valid one.  It  would, therefore,  be competent to the State of Madhya  Pradesh  to realise  that  cess from the respondent factory.   Upon  the view  we  have taken in the matter in C. A. No. 98  of  1957 nothing  remains to be considered in C. A. No. 99  of  1957. Accordingly  we  allow the appeal by the State  and  dismiss that of the respondents. The costs of the appeal will be borne by the respondents  in C.  A.  No.  98 of 1957.  As both the  appeals  were  argued together, there will be only one set of hearing fees. Appeal No. 98 allowed. Appeal No. 99 dismissed. 626