http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: AHMEDABAD   MANUFACTURING  &  CALICO  PRINTING  CO.,   LTD.,

       Vs.

RESPONDENT: STATE OF GUJARAT & ORS.

DATE OF JUDGMENT: 10/04/1967

BENCH: RAO, K. SUBBA (CJ) BENCH: RAO, K. SUBBA (CJ) HIDAYATULLAH, M. BACHAWAT, R.S. SHELAT, J.M. VAIDYIALINGAM, C.A.

CITATION:  1967 AIR 1916            1967 SCR  (3) 595

ACT: Constitution of India, 1950, Art. 14, and Gujarat  Education Cess Act, 1962-City of Ahmedabad divisible into three zones- Different  method  of  levying  cess  in  each  zone-Whether results in discrimination. Gujarat  Education  Cess  Act, 1962,  s.  12-Levy  based  on assessment  book  prepared  by  municipality  under   Bombay Provincial  Corporation  Act,  1949 as applied  to  city  of Ahmedabad-Said assessment book, levying property tax at flat rate  on  basis of floor area, declared invalid  by  Supreme Court-Section  12  of  Cess Act  whether  survives-Cess  Act whether invalid for lack of opportunity to raise  objections etc.

HEADNOTE: The  petitioners  had  their textile mills in  the  City  of Ahamdabad, The properties in Ahmedabad were in three  zones. In  the  inner zone were situated properties which  did  not bear  land revenue on account of the exemption given  in  s. 123  of  the Bombay Land Revenue Code.  In the  middle  zone were  situated  lands which though  originally  agricultural lands  had  been diverted to non-agricultural use.   In  the outer zone were lands which were purely agricultural.  Under the  Gujarat Education Cess Act, 1962 the Cess was of  three separate kinds; (a) a surcharge on land revenue assessed  an purely   agricultural  lands,  (b)  a  surcharge   on   non- agricultural  assessment in respect of lands used  for  non- agricultural purposes, and (c) a tax on lands and  buildings which  did not bear land revenue.  As a result the Cess  Act operated differently in the three zones.  The properties  of the  petitioners were in the middle zone of  Ahmedabad.   In their writ petitions under Art. 32 of the Constitution  they contended  that  by reason of their situation the  Cess  Act operated unequally against them because while the owners  of property  in the other two zones bore either a surcharge  on the land revenue or a tax on the annual letting value,  they bad  to pay both the surcharge as well as the tax.   Thus  a violation  of  Art. 14 was alleged.  It was  also  contended that the preparation of the assessment book on the basis  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

a  flat  rate on the floor area of a  property  having  been struck down by his court in an earlier case (New Manek Chowk Spinning  & Weaving Co. Ltd., etc. v. Municipal  Corporation of the City of Ahmedabad & Ors., [1967] 2 S.C.R. 679 the tax under s. 12 of the Cess Act was no longer leviable, and that s. 12 being no longer operative. the Cess Act must fall as a whole.  no  validity  of the Act was also  attacked  on  the ground  that  it  did  not  provide  for  objections   being considered. HELD : (i) If as a result of the decision of this Court  the assessment  book needed revision or the Principles on  which valuation  must be based had to be laid down afresh  by  the Legislature, the provisions of s. 12 of the Cess Act did not fail automatically.  They would fasten on the new  valuation when  made.  This cannot affect the validity of the  section in the meantime.  The section remains on the statute book to be  worked into such assessment book as  hereafter  emerged. The  argument  fiat  s.  12 had  failed  must  therefore  be rejected. [599 F-G] (ii) A  double  imposition  on the middle zone  was  not  by itself  offensive of Art. 14 of the Constitution  unless  it could  be shown that the double tax in one zone as  compared with  the  single tax in the other zones fell  more  heavily than  the single tax.  According to the earlier decision  of this  Court a new assessment book would be  prepared.   Ever if, in the middle zone, the surcharge and tax both had to be paid,  that  rates might be so adjusted that the  cess  fell equitably  on  all  landholder  regard  being  had  to   the advantage; derived from the cess and the advantages  derived from the situation of the lands. [601 D-F] (iii)The  procedure for the levy of the cess cannot be  said to  offend natural justice in not providing opportunity  for putting  forward objections etc.  The cess is  nothing  more than  an addition to other taxes which allow the raising  of objections  and provide for appeals.  There is no  need  for further scrutiny, objection or appeal.  Nor is the Cess  Act bad  because  it  is not self-contained  in  the  matter  of assessment, this being the usual method by which cesses  are levied. [601 H]

JUDGMENT: ORIGINAL JURISDICTION : Writ Petitions Nos. 12 and 17 to  21 of 1967, and 239, 240, 244 and 246 to 249 of 1966. Petitions under Art. 32 of the Constitution of India for the enforcement of fundamental rights. G.   S. Pathak, M. S. Desai, K. M. Desai and Ravinder Narain for the petitioner (in W.P. No. 12 of 1967). Ravinder Narain, M. S. Desai and K. M. Desai, for the  peti- tioners (in W.Ps. Nos. 17-21 of 1967, 239, 240, 244 and  246 249 of 1966). N.   S. Bindra, R. N. Sachthey and R. H. Dhebar, for respon- dent No. 1 (in all the petitions). M.   N. Shroff and I. N. Shroff, for respondents Nos. 2  and 3 (in all the petitions.) The Judgment of the Court was delivered by Hidayatullah, J. These are twelve Writ Petitions by  diverse textile  mills and other factories of Ahmedabad  challenging the imposition of the Education Cess pursuant to the Gujarat Education Cess Act, 1962.  As the contents of all  petitions are  the  same,  it will be sufficient if we  refer  to  the petition  filed  by  the Ahmedabad  Manufacturing  &  Calico Printing Co. Ltd. (Writ Petition No. 12 of 1967).  Before we do so, we shall state the scheme of the Cess Act relevant to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

the present purpose. On  October  9, 1962, the Gujarat Education Cess  Act,  1962 became  law.  It is an Act to provide for the creation of  a fund to promote education in the State of Gujarat.  The  Act applies  to the City of Ahmedabad as constituted  under  the Bombay  Provincial Municipal Corporations Act, 1949.   Under the Cess Act education cess is levied on lands and buildings which  have  the meanings given to them under  the  relevant Local  Authority  Law  here the  Corporation  Act.   "Land", however, includes things  597 attached  to  earth  or  permanently  fastened  to  anything attached  to the earth.  Education cess is collected  either as a surcharge on lands assessed to land revenue or a tax on lands and buildings in urban areas and the charging  section reads :               "s.  3 : For the purpose of providing for  the               cost  of promoting education in the  State  of               Gujarat,  there shall be levied and  collected               in accordance with the provisions of this  Act               an   education   cess  which   shall   consist               of........               (a)   a  surcharge on all lands  except  lands               which  are included within a village site  and               not assessed to land revenue;               (b)   a  tax on lands and buildings  in  urban               areas. "Village  Site"  means the site of a village, town  or  city determined  under s. 126 of the relevant Code which in  this case is the Bombay Land Revenue Code, 1879 and "urban  area" means  an area which is for the time being included  in  the limits  of  a  city, municipal borough, etc.   The  mode  of calculation  of  the surcharge and of the tax and  of  their collection are contained in Chapters III,’ and IV.   Chapter III  deals  with surcharge on land and is divided  into  two parts  A and B. Part A deals with surcharge on  agricultural lands and part B deals with surcharge on lands used for non- agricultural  purposes.  Chapter IV deals with tax on  lands and  buildings.   For  the  purposes  of  the  present  writ petitions, we shall have occasion to refer to s. 5 from Part A  and s. 7 from part B of Ch.  III and s. 12 from Ch.   IV. Under s. 5, a surcharge is levied at the rate of 20 paise on every  rupee  of every sum assessed as land revenue  on  all lands (except lands included within a village. site and  not assessed to land revenue) which are assessed or held for the purpose  of  agriculture  and  not  used  for  any   purpose unconnected with agriculture.  In simple language, it  means the surcharge is 20% of the amount of land revenue  assessed on  land  not within a village site, not  assessed  to  land revenue,  and  not  used for any  purpose  unconnected  with agriculture.  Under s. 7 the surcharge is additional to non- agricultural assessment of agricultural lands used for  non- agricultural purposes.  The surcharge here ranges from  121% to  75% of the non-agricultural assessment depending on  the kind  of non-agricultural use of the land.  Under s.  12,  a tax on lands and buildings situated in urban area is  levied at varying rates depending on the use to which the lands and buildings  are put.  In every case, the tax is a  percentage of the annual letting value which means the ratable value or annual letting value or gross annual letting value of  lands and  buildings  determined in accordance with  the  relevant local   authority  law  which  as  stated  earlier  is   the Corporation Act.  The 598 rate applicable to lands and buildings used for purposes  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

trade,  commerce, industry, profession or business is 3%  of the  annual letting value.  It has now been raised  to  4.5% from October 1, 1965. Annual letting value for the purpose of S. 12 is  determined upon  and pursuant to the preparation of an assessment  book relating to the property section under the Corporation  Act. According  to the assessment book, the annual letting  value for  the purpose of levying property tax on  textile  mills, factories,  buildings of universities, etc., is made on  the basis of a flat rate of a monthly rental of Rs. 6-10as.  for the processing portion and Rs. 5-4as. for the non-processing portion, per 100 sq. foot of the floor area of such property situated in the urban area.  Education cess is calculated on the  basis  of the annual letting value  determined  in  the assessment book by applying the percentage.  The details  of the working of the system are fully described by our brother Mitter, in his judgment in Writ Petitions Nos. 133, 156-157, 159-171,  178 206-209, 210 and 234 of 1966 decided  on  Feb- ruary  21,  1967,  where  these  mills  and  factories  have successfully   challenged  the  assessment  book.   By   the decision of this Court, the floor area method of determining the  annual letting value of textile factories in  Ahmedabad has  been  held to be bad, because  the  contractor’s  basis which  is  usually  applied in  such  calculations  was  not applied  and the system actually adopted was likely to  lead to discrimination.  The inclusion of plant and machinery has also  been  held  to be illegal as the power  of  the  State Legislature  to tax lands and buildings does not  include  a power  to  tax  plant and machinery and the  powers  of  the Corporation   are  co-terminus  with  those  of  the   State Legislature by reason of s. 127(4) of the Corporation Act. It will be noticed that education cess is of three  separate kinds.   It is (a) a surcharge on land revenue  assessed  on purely  agricultural  lands,  or (b)  a  surcharge  on  non- agricultural  assessment in respect of lands used  for  non- agricultural  purposes or (e) a tax on lands  and  buildings which do not bear land revenue, The properties in  Ahmedabad are  in three zones which may be described as demarcated  by three  concentric circles.  In the inner zone  are  situated properties  which do not bear land revenue and no  surcharge is  therefore  payable in respect of  lands  and  buildings. Properties  in this zone were exempted from the  payment  of land revenue under S. 128 of the Bombay Land Revenue Code in Ahmedabad  in  common with other towns and cities  in  which there  had been formerly a city survey.  In the middle  zone are  situated  lands which  though  originally  agricultural lands  have  been diverted to non-agricultural use  and  the lands  and buildings therefore bear both municipal  tax  and non-agricultural assess- ment.   In  the  outer  zone  are  lands  which  are  purely agricultural and they bear land revenue but no other charge. The  textile  mills of the petitioners are situated  in  the middle zone within the municipal limits of Ahmedabad and the main  complaint  in these cases is that by reason  of  their situation,  these  mills have to pay both the  surcharge  as well as the tax whereas the owners of property in the  other two  zones bear either a surcharge on the land revenue or  a tax on the annual letting value.  It is also contended  that the  preparation of the assessment book having  been  struck down by this Court in the case cited earlier by us, the  tax under  s. 12 is no longer leviable and s. 12  having  become inoperative, the Cess Act must fall as a whole. The Cess Act does not provide for the procedure to arrive at the  valuation of urban properties.  It takes the  valuation from  the  assessment book.  There is, therefore,  no  doubt

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

that  the  annual  letting value or  ratable  value  is  not presently  available  since the decision of this  Court  has struck down the assessment book itself.  This is conceded on behalf  of the State of Gujarat.  Similarly the decision  of this  Court that there is no power to include the  value  of plant  and  machinery in the ratable value  is  binding  for purposes  of the Cess Act.  The question is, does this  make s. 12 -to fail also?  In our judgment it does not.   Section 12 lays down that the tax on lands and buildings situated in urban  areas  shall be collected at the rate of  3%  of  the annual letting value (now 4.5%) where a building or land  is used   for  the  purpose  of  trade,   commerce,   industry, profession  or  business.  This rate is  applicable  to  the annual   letting  value  as  determined  under  the   Bombay Provincial  Municipal Corporations Act.  If as a  result  of the  decision  of  this  Court  the  assessment  book  needs revision or the principles on which valuation must be  based have  to  be  laid  down  afresh  by  the  Legislature,  the provisions of on    the  new  valuation  when  made.    This cannot affect the validity of the  section in the  meantime. The  section remains on the statute book to be  worked  into such assessment book as may hereafter emerge.  The  argument that s. 12 has failed must be rejected. The  second  argument that there is  discrimination  between properties in the middle zone and the inner zone may now  be considered.  Chapter X of the Bombay Land Revenue Code deals with  lands within the sites of villages, towns and  cities. Under  s.  126, the limits of sites of villages,  towns  and cities  are  fixed.   Under s.  127,  the  Bombay  Rent-free Estates  Act, 1852, the Bombay Exemptions from Land  Revenue (No. 1) Act, 1863 and the Bombay Exemption from Land-revenue (No.  2) Act, 1863 have been made applicable to  all  lands, within the limits of the site of any town or city, in  which an inquiry into titles                             600 has been made under the provisions of Bombay Act IV of  1868 (now   repeated),  which  had  been  ordinarily   used   for agricultural purposes only, but not to other lands.  Section 128 of the Code then provides :               " s. 128 : The existing exemption from payment               of  land  revenue of lands  other  than  lands               which  have hitherto been ordinarily used  for               purposes  of agriculture only, situate  within               the  sites  of towns and cities  in  which  an               inquiry  into titles has been made  under  the               provisions  of Bombay Act IV of 1868 shall  be               continued........               First-if  such lands are situated in any  town               or city where there has been in former years a               survey  which the State Government  reorganise               for the purpose of this section, and are shown               in the maps or other records of such survey as               being held wholly or partially exempt from the               payment of land revenue; The  exemption  granted by s. 128 saves lands in  the  inner zone  from  the application of land revenue and  the  middle zone bears the non-agricultural assessment since it does not fall  within  this  exemption.   It  is  subjected  to  non- agricultural  assessment by reason of  the  non-agricultural use  to which it is put.  The outer zone being  outside  the limits  of village sites, town or city and composed of  pure agricultural land is subject to land revenue only. The three zones are the result of the operation of different laws  in  rural and urban areas.  Lands  subjected  to  city survey  and  assessed  to property-tax are  saved  from  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

imposition  of land revenue to which all lands are  normally subject.  This exemption is a hundred years old and is based on the fact that land in the heart of the city ceases to  be agricultural.  Similarly lands in the outer circle are  free from   municipal  assessment  because  they.   are   outside municipal  limits  and  do not benefit  from  the  municipal services.   They  are  subject to land  revenue  only.   The middle zone comes into being be-cause the owners and holders of  agricultural  lands  are not content to  hold  land  for agriculture but divert it to other uses.  In course of  time the limits of the municipality have to be revised and  these lands  are  taken within the municipality which  means  that they  begin to share in the municipal services.   They  are, therefore,  assessed to municipal taxes as a return for  the services rendered. Now  a cess is really a tax and it is generally imposed  for providing money for some stated administrative purpose.   It is  601 usually collected as an addition to an existing tax.  And so it  is here.  It is made as an addition to the  tax  already levied  on lands and buildings.  Since lands  and  buildings bear  different  kinds of taxes in the different  zones,  an attempt has been made to adjust the rates for the  different zones presumably to make, the levy, equitable, regard  being had  to the situation and advantages to be derived from  the expenditure on education.  No objection has been made in the case  that  the tax levied in any zone is  not  commensurate with  the advantages which are likely to accrue or that  the burden  has  been made unduly high in any  particular  zone. The only objections raised are three.  The first and  second are (a) that flat rate is applied in calculating the  annual letting value and (b) that plant and machinery are  included in  lands  and buildings.  This has been  corrected  by  the decision  of  our  brother Mitter.  The third  is  that  the middle zone bears both the surcharge and the tax.  A  double imposition  by  itself is not offensive to Art.  14  of  the Constitution  unless it can be shown that the double tax  in one zone as compared with the single tax in the other  zones falls  more  heavily  than  the single  tax.   This  is  not attempted  to  be established except on the ground  of  flat rate  above  mentioned.   Since that has  been  struck  down already  and  will  presumably  be  replaced  by  some  more accurate  and equitable valuation, we do not see any  reason to interfere.  The decision of our brother Mitter will  lead to  a readjustment of the assessment book and then only  the ground that the rate of cess in the middle zone exceeds  the rate  in  the  other two zones can  be  considered.   As  at present  situated it is sufficient to say that there  is  no discrimination because the method of calculation of cess  in the three zones is different.  Even if, in the middle  zone, the Surcharge and tax have to be paid, the rates, for  aught we know, may be so adjusted that the cess falls equitably on all  landholders regard being had to the advantages  derived from the cess and the advantages derived from the  situation of the lands. Finally there is the argument that the Cess Act, in not pro- viding its own procedure of assessment and in not giving the tax-payers   an  opportunity  for  putting   forward   their objections  by way of representation, appeal  or  otherwise, before  the tax is finally fixed, offends the principles  of natural justice.  This argument is not correct.  The cess is nothing more than an addition to existing taxes.  As it is a percentage of another tax, the determination of the cess  is not  by  an independent assessment.  It is  an  arithmetical

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

calculation  based on the result of assessment  under  other Act or Acts.  Those Acts allow the raising of objections and provide  for appeals.  It is only the result  of  assessment after scrutiny, objection and appeals which forms the  basis for  the application of a percentage.  There is no need  for further scrutiny, objection or appeals.  Nor is the Cess Act bad  because  it  is not self-contained  in  the  matter  of assessment.  In all cases 602 of imposition of cesses for special administrative  purposes (such as health cess, road cess, education cess, etc.)  this method  is followed.  Being an addition to another tax  this is the only method possible.  The legislation on the subject of  the  imposition, levy and collection of a cess  is  made complete by incorporation of and reference to another  piece of  legislation.  This practice is neither  ineffective  nor unconstitutional and cannot be said to be bad. In the result we decline to issue a writ in these petitions. They  will  be  dismissed but the costs  will  be  borne  as incurred. G.C.                                   Petitions dismissed.                             603