18 November 1970
Supreme Court


Case number: Appeal (civil) 179 of 1969






DATE OF JUDGMENT: 18/11/1970


CITATION:  1971 AIR  152            1971 SCR  (2) 799  1970 SCC  (3) 710  CITATOR INFO :  R          1975 SC 813  (2)  RF         1990 SC1927  (70)  RF         1991 SC 735  (8)

ACT: Cess-When can be levied. Constitution  of India List II Entry 8, Entry 51  and  Entry 62-Whether  enable legislature to levy cess on  "shop-rent", etc.--Whether  shop-rent under Mysore Excise Act.  1901  and 1965 amounted to excise revenue. Tax-Power  to  legislate  in respect of-If  derived  from  a specific  taxing entry or as incidental or subsidiary  power to legislate on any other topic.

HEADNOTE: 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  licencee  to  the  State   was popularly known as "shop-rent".  In addition a tree-tax" and "tree-rent"  were  also  levied separately,  in  respect  of tapping toddy-yielding trees.  In the notifications inviting bids  for the privilege of retail 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  "shoprent".  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 cess was levied on all items  of land  revenue, forest revenue and excise revenue "on  which education cess is now being levied." A number of Excise Contractors moved petitions under Article 226  of the Constitution challenging the levy  of  education



cess  on "shop-rent", "tree-tax" and "tree-rent".  The  High Court  allowed the petitions holding that liability to  pay education  cess  arose  in respect of all  items  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 that by virtue  of  Art. 265 of the Constitution no tax could be levied or  collected 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 "shop-rent", tree-tax"  and  "tree-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  to legislate  for  levy  of cess in  respect  of  "intoxicating liquors";  (ii) the High Court was in error 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 prescribed; and (iv) that even if education  cess on "shop-rent" is not within 800 the competence of the State Legislature under Entry 51  List II,  it is still a tax on "luxuries" within the  meaning  of Entry 62 of List II. HELD : Dismissing the appeal, (i)  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 matter or topic.  Entries in Lists I and II in Schedule VII. 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 could  therefore  not  be  levied  on  intoxicating  liquors relying upon Entry 8 List II. [804 G] M.   P.  V.  Sundararamier  & Co. v.  The  State  of  Andhra Pradesh and Another, [1958] S.C.R. 1422; referred to. The  taxing  power  under Entry 51 List  II  in  respect  of alcoholic  liquors for human consumption  is  circumscribed. It may only be levied as excise duty, that is, a duty levied on the manufacture and production of alcoholic liquors. [805 C] R.   C.  Jall v. Union of India, [1962] Supp. 3 S.C.R.  436; referred to. (ii) "Shop-rent" is not excise revenue within the meaning of the  Schedule to the Mysore Elementary Education  Act,  1941 and  no education cess could be levied on "shop-rent".  [805 H] M/s.  Guruswamy & Company v. State of Mysore & Ors.,  [1967] 1 S.C.R. 548; followed. (iii)     Granting  that  "tree-tax,"  and  "tree-rent"  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  local  cess  and diverted  to the local bodies.  If under the order  of  1955 and before that date education cess-on "tree-tax" and "tree- rent" was not being levied lawfully, liability to pay "tree- tax"  and  "tree-rent" could not be enforced  by  the  State against the excise contractors. [806 B] (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 "shop-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. Furthermore 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-F]

JUDGMENT: CIVIL APPELLATE JURISDICTION : 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.  Chagla, R. Gopalakrishnan and S. P. Nayar, for  the appellant (in all the appeals). 801 M.   C.  Setalvad, B. Datta, P. N. Tiwari,  for respondent No. 1 (in C.As. Nos. 179, 180, 183, 193 and 194 of 1969). M.   K. Nambyar, K. N.. Bhatt, S. Shivaswamy and K. L. Hathi for the respondents (in C.As. Nos. 181, 182, 203, 209 to 213 and 223 to 226 of 1969). S.   Shivaswamy, K. N. Bhatt 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). Shyamala  Pappu,  J, Ramamurthy and Vineet  Kumar,  for  the respondents (in C.As. Nos. 214 to 220 of 1969). M.   Veerappa,  for the respondents (in C.As. Nos.  130  and 133 of 1970). The Judgment of the Court was delivered by Shah,  J. Under the Mysore Excise Act, 1901, the  Government of the State was authorised to grant exclusive privilege  of selling by retail Indian made liquor on such conditions  and for  such period as the Government deemed fit, and  to  levy duty  on  manufacture  and sale  of  alcoholic  liquor.   In exercise of that power the Government of Mysore framed rules regulating  sale of "excise privileges".  In the Note to  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 Government groves assigned to his shops  or trees  of private 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  tapped  trees belonging  to  the Government he had to  pay,  in  addition, "tree-rent"  to the State.  ration paid by the  licencee  to the  State for the exclusive privilege of retail Vending  of today, or Arrack or beer was popularly known as "shop-rene’. In  the  notifications  inviting bids  or  tenders  for  the exclusive privilege of retail vending of toddy, arrack,  and beer it was stipulated that education cess shall be paid  in accordance  with  Condition  23 of  the  General  Conditions applicable to all excise licences. Originally the Government used to charge "Shop-rent"  "tree- tax" and "tree-rent" separately.  But in 1907 a notification was  issued  abolishing separate levies  of  "tree-tax"  and "tree-rent". L694 Sup CI/71 802               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               (i)               (ii)  Toddy-both date and bagani.               (iii)               But  in  the marginal note  dated  G.O.  (F.I.               924354 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  abolished  and the  cess  at  present               levied merged- in the main item, the rates  of               tree-tax, on the various 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. :-1/17th of the tree-tax, the shop rental               and tree-rent collected should be credited  to               Local  Funds,  in lieu of  the  one-anna  cess               formerly levied on these items.               (Vide also Art. 41-Mysore Accounts Code Vol 1)                After  the  merger of a part of  the  Bellary               District  pursuant  to the setting up  of  the               State of Andhra in 1953 the Mysore Excise Act,               1901  was  extended  to the  Bellary  Area  so               merged in 1955. The  Mysore Excise Act, 1901, was repealed and  replaced  by the Mysore Excise Act, 1965.  But no substantial  alteration was, made in the scheme of levy of excise revenue under  the new Act. Under the Mysore Elementary Education Act, 1941 an education cess  was  levied  as  a percentage  inter  alia  of  excise revenue.  The Mysore Elementary Education Act, 1941, was.not extended  to the Bellary Area and the excise contractors  in that area were not liable to pay education cess.  The Mysore Elementary Education Act, 1941, was replaced by the.  Mysore Compulsory  Education  Act,  1961.  By s.  25  of  that  Act Chapters  Vl and VII of the 1941 Act were repealed  and  the rest of the 1941 Act                             803 continued  to  remain  in  force in  the  old  Mysore  Area. Accordingly S. 9 of the 1941 Act which occurred in Ch.   III under which education cess was levied remained in operation. Section  9(1) of the Mysore Elementary Education Act,  1941, as  amended’  by the Elementary Education  (Amendment)  Act, 1944 read as follows               "The  Government  may  for  carrying  out  the               purpose of this Act, levy throughout or in any               part  of Mysore, in education cess on  any  or               all  of such items of State revenue or of  tax               levied  under  any Act, or  rule  constituting               Local  Bodies in Mysore and at such  rates  as               are specified in the Schedule to this Act." After the Mysore Elementary Education (Amendment) Act, 1955, the relevant provisions of the Schedule read as follows Items on which cess              Maximum rate may  be levied.                   of levy. All items of land revenue, forest revenue, and excise revenue on which education cess is now being levied.              9 pies in the rupee. The  Government of Mysore levied the "education  cess"  from excise  contractors in the old Mysore Area of the New  State of  Mysore.  From 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 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  "education  cess"  and  an  injunction restraining  the  State  from  levying  and  collecting  the education  cess and also for an order refunding  the  amount already collected. It appears that even after the notification of 1907 merging the  "tree-tax  " and "tree-rent" with the  "shop-rent"  was issued, the State was in fact collecting the education  cess froth the excise contractors.  In the view of the High Court under  the  Schedule as amended by  the,  Mysore  Elementary Education  (Amendment)  Act,  1955, liability  to..  pay. education  cess  arose  in respect of all  items  of  excise revenue  on which education cess was being levied and  since no education cess was being lawfully levied in the year 1955 and for a long time before that year, the liability 804 to  pay  education cess did not arise.’ They held  that  the expression  "now  being  levied" used in the  Schedule  as amended  meant "now being lawfully levied".  By  virtue  of. Art. 265 of the Constitution,no tax could, they observed, be levied  or collected except by authority of law :  if  there was  no authority of law, collection of the  education  cess under the amended Scheme  could not authorise collection  of the  education  cess.  The  High  Court  observed  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 also  anxiety to comply with Art. 265 of  the  Constitution, and  that was clear from the fact that neither the  original Education  Act  nor the Amending Act of 1955  contained  any provisions  for  validating  any  levy  or  collection  made without  the authority of law., Accordingly the  High  Court held  that the State was incompetent 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 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" and that "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".  The High Court also  held that  the excise contractors may question the  validity  of the  levy  of education cess on  "shop-rent"-"tree-tax"  and "tree-rent"   even if they had agreed to pay education  cess on  those  items.  The  High  Court  declared  the  levy  of education cess on toddy, Arrack and beer "shop-rent", "tree- tops"  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, manufacture, possession, transport, purchase and sale  of intoxicating liquors".  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 matter or topic : M.P.V. Sundararamier &  Co. v.  The State of Andhra Pradesh & An, other(1).  Entries  in Lists  I & II in Schedule VII 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 could  therefore  not  be



levied on intoxicating liquors relying upon Entry 8 List If. 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  at the same or (1)  [1958] S.C.R. 1422                             805 lower  rates  on  similar  goods  manufactured  or  produced elsewhere in India:-- (a)  alcoholic liquors for human consumption; (b)  opium,  Indian  hemp  and  other  narcotic  drugs   and narcotics; but The  taxing power in respect of alcoholic liquors for  human consumption  is  therefore circumscribed,: it  may  only  be levied  as  excise  duty,  that is  a  duty  levied  on  the manufacture and production of alcoholic liquors,: R. C. Jall v. Union of India(1). Mr.  Chagla for the State urged that the High Court  was  in error  in holding that "shop-rent" was not  excise  revenue. But this quest-Ion is concluded by a judgment of this Court. In  M/s. Guruswamy & Company v. State of Mysore &  Ors.  (2) this  Court  held  that the  Mysore  State  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  being   production   or manufacture of goods.  The Court observed that the essential characteristics  of an excise duty was uniformity  of  inci- dence,  and that  the  duty must  be  closely  related  to production  or manufacture of goods.  It did not  matter  if the  levy  was  made  not at the  moment  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 to be an excise  duty. If a levy was made for the privilege 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  action 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 exclusive privilege of selling toddy from certain shops  was called  "Shope-rent".  The licencee paid what he  considered to  be  equivalent to the value of the right and 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 II of the Constitution.  We are  bound  by this  judgment.   "Shop-rent"  is  accordingly  not   excise revenue  within the meaning of the’ Schedule to  the  Mysore Elementary  Education Act, 1941 and no education cess  could be, levied on "shop-rent". (1) [1962] Supp. 3 S.C.R. 436.        (2) [1967] S.C.R. 548. 806 Mr. Chagla however contended that in any event the State  is entitled  to levy "tree-tax," and "tree-rent" at  the  rates prescribed.  It is unnecessary for the purpose of this  case to  determine whether "tree-tax and "tree-rent’  are  excise revenue,  within the meaning of the Schedule to  the  Mysore Elementary  Education  Act.  &ranting  that  "tree-tax"  and "tree-rent  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  local cess  and diverted to the Local Bodies.  If under the  order of  1955 and before that- date education cess on  "tree-tax" and "tree-rent" was not being levied lawfully; liability  to



pay "tree-tax" and "tree-rent" could not be enforced by  the State against the excise contractors’. Mr. Chagla also urged that even if education cess on  "shop- rent" is not within the competence of the State  Legislature under  Entry  51 List II, it is still a  tax  on  "luxuries" within the meaning 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 independent  cess : it is levied as a cess on all  items  of land  revenue,  forest  revenue and  excise,  revenue.   The "shop-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  before  us.  Counsel also urged that  under  the terms  of the auction the excise contractors had  agreed  to pay  education  cess.   But 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. Counsel  for the State. informed us that since the  judgment of the High Court the Schedule has been amended by the State Legislature,  but  he  did  not  very  properly  ask  us  to determine  the question whether under the a mended  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 Schedule to the Mysore Elementary Education Act,  1941.   It will be open to the State  to  agitate  the question  if  hereafter the education cess is sought  to  be levied under the authority of the amended Schedule. The  apples  therefore fail and are  dismissed  with  costs. There will be one hearing fee. R.K.P.S.                     Appeals dismissed.                             807