he refund of cess paid by them
304D  CIVIL ORIGINAL JURISDICTION Writ Petitions Nos
2687 5822 of 1983 etc
Under Article 32 of the Constitution of India
Dr Shankar Ghosh TSK Iyer ML Lahoty PS Jha DD Gupta SK Jain DP Mukherjee SR Srivastava PN Tewari and Parijat Sinha for the petitioners
Tapas Ray Anil B Dewan TC Roy GS Chatterjee Dalip Sinha and HK Puri for the respondents
The judgment of the Court was delivered by PATHAK CJ
By these writ petitions and transferred cases the petitioners challenge the validity of the levy of cess in respect of tea estates under the West Bengal Rural Employment and Production Act 1976
The West Bengal Rural Employment and Production Act 1976 shortly referred to as the West Bengal Act is intended to provide the additional resources for the promo tion of employment in rural areas and for implementing rural production programmes
The additional resources are sought to be raised from two sources a surcharge on land revenue under section 3 of the Act and a rural employment cess under section 4 of the Act
We are concerned here with the levy of the rural employment cess
297 Originally section 4 of the West Bengal Act provided as follows 41 On and from the commencement of this Act all immovable properties on which road and public work cesses are assessed according to the provisions of the Cess Act 1880 shall be liable to the payment of rural employment cess Provided that no raiyat who is exempted from paying revenue in respect of his holding under clause a of subsection 1 of section 23B of the West Bengal Land Reforms Act 1955 shall be liable to pay rural em ployment cess
2 The rural employment cess shall be levied annually a in respect of lands at the rate of six paise on each rupee of development value thereof b in respect of coal mines at the rate of fifty paise on each tonne of coal on the annual dispatches therefrom c in respect of mines other than coal mines and quarries at the rate of six paise on each rupee of annual net profits thereof
 The West Bengal Taxation Laws Amendment Act 1982 amended the West Bengal Act and by section 7b thereof amend ments were made in section 42 of the West Bengal Act with effect from 1 April 1981
As a result as from that date section 42 in so far as it is material read as follows 42
The rural employment cess shall be levied annually a in respect of lands other than a tea estate at the rate of six paise on each rupee of development value thereof aa in respect of a tea estate at such rate not exceeding rupees six on each kilogram of tea on the dispatches from such tea estate of tea grown therein as the State Government may by notification in the Offi cial Gazette fix in this behalf 298 Provided that in calculating the dispatches of tea for the purpose of levy of rural employment cess such dispatches for sale made at such tea auction centres as may be recognised by the State Government by notification in the Official Gazette shall be excluded
Provided further that the State Government may fix different rates on des patches of different classes of tea
Explanation For the purpose of this section tea means the plant Camellia Sinen sis L O Kuntze as well as all varieties of the product known commercially as tea made from the leaves of the plant Camellia Sinensis L O Kuntze including green tea and green tea leaves processed or unprocessed Section 4 was also amended further by the insertion of sub section
4 which provided 4 The State Government may if it considers necessary so to do by notification in the Official Gazette exempt such categories of despatches or such percentage of despatches from the liability to pay the whole or any part of the rural employment cess or reduce the rate of the rural employment cess payable thereon under clause aa of sub section 2 on such terms and conditions as may be speci fied in the notification
Provided that the State Government may at any time add to amend vary of rescind any such notification
 Thereafter the West Bengal Taxation Laws Amendment Act 1982 was enacted with effect from 1 October 1982
section 42 of the West Bengal Act was amended and under clause aa thereof the first proviso was omitted
Pursuant to the amendments in the West Bengal Act in 1981 and 1982 various notifications were issued by the State Government which for our purpose broadly cover these different periods a First Period 1 April 1981 to 30 Septem ber 1982 299 Rural employment cess was levied at the rate of Rs5 per Kg
on all despatches of tea but in respect of despatches to two tea auction centres within West Bengal the rate of duty was nil and in respect of tea sold in West Bengal through registered dealers otherwise than through the two tea auction centres the rate of tax was Rs250 per Kg
b Second Period 1 October 1982 to 28 March 1984 Rural employment cess was levied at the rate of Rs 150 per Kg
on all despatches of tea except that for despatches to the said two tea auction centres the rate of levy was 30 paise per Kg
c Third Period 29 March 1984 onwards Rural employment cess was levied at the rate of Rs3 per Kg
on all despatches of tea except that for despatches to the said two tea auction centres in West Bengal the rate of tax was only 30 paise per Kg
Learned counsel for the petitioners contend that the levy of the cess under section 41 read with section 42aa of the West Bengal Act as amended in 1981 and 1982 is ultra vires inasmuch as the statutory provisions violate Article 14 and Article 301 of the Constitution and also lie outside the legislative competence of the State Government
It seems to us that these cases can be disposed of on the short ground based on Article 301 of the Constitution and want of legis lative competence
There can be no dispute that the rural employment cess is a tax
cannot also be disputed that if the levy of a tax on goods has the direct and immediate effect of impeding the movement of goods throughout the territory of India there is a violation of Article 301 of the Constitution
If however the impact of the levy is indirect or remote no valid complaint can be made in relation to Article 301
In Atiabari Tea Co Ltd vs The State of Assam and Others   Gajendragadkar J as he then was speaking for the majority in that case held that tax laws would effect trade and commerce and could be violative of the freedom guaranteed by Article 30 1 provided they di rectly or immediately affect the freedom of trade and com merce and not indirectly or in a remote manner
This princi ple was affirmed by this Court in The Automobile Transport Rajasthan 300 Ltd vs The State of Rajasthan and Others 1963 1 SCR 491 and again in Firm ATB Mehtab Majid and Company vs State of Madras and Another 1963 Suppl
2 SCR 435
But the declaration in Article 301 that trade commerce and intercourse throughout the territory of India shall be free is subject to Article 304b which provides 304
Restrictions on trade commerce and intercourse among States
Notwithstanding anything in Article 301 or Article 303 the Legislature of a State may by law  a  
  b impose such reasonable restrictions on the freedom of trade commerce or inter course with or within that State as may be required in the public interest
Provided that no Bill or amendment for the purposes of clause b shall be intro duced or moved in the Legislature of a State without the previous sanction of the Presi dent
 Therefore there is no violation of Article 30 1 if the case falls under Article 304b and its proviso
In Kalyani Stores vs The State of Orissa and Others 1966 1 SCR 865 this Court held that a restriction on the freedom of trade and commerce which is guaranteed by Article 301 cannot be justified unless the procedure provided in Article 304 is followed
That was also the view taken in State of Mysore vs H Sanjeeviah  and Andhra Sugars Ltd  Anr
vs State of Andhra Pradesh  Ors
 1968 1 SCR 705
In other words if the Legislature of a State enacts a law which imposes such reasonable restrictions on the free dom of trade commerce or intercourse with or within that State as may be required in the public interest and further that the Bill or amendment for the purposes of clause b has been introduced or moved in the Legislature of a State with the previous sanction of the President such enactment will not offend the Article 301
The question then is whether the impugned levy impedes the free flow of trade and commerce throughout the territory of India and if it does whether it fails within the excep tion carved out in Article 304b
If the levy imposes a cess in respect of tea estates it may well De said that even though the free flow of tea is impeded in its movement throughout the territory of India it is in consequence of an indirect or 301 remote effect of the levy and that it cannot be said that Article 301 is contravened
The contention of the petition ers is however that it is ostensibly only in respect of tea estates but in fact it is a levy on despatches of tea
If that contention is sound there can be no doubt that it constitutes a violation of Article 301 unless the legisla tion is brought within the scope of Article 304b
To determine whether the levy is in respect of tea estates or is a levy on despatches of tea the substance of the legis lation must be ascertained from the relevant provisions of the statute
It cannot be disputed that the subject of the levy the nature of which defines the quality of the levy must not be confused with the measure of liability that is to say the quantum of the tax
There is a plenitude of case law supporting that principle among the cases being Union of India and Others vs Bombay Tyre International Ltd and Others  But what is the position here The statute speaks of a levy in respect of a tea estate and it says that the levy will not exceed Rs6 on each Kilogram of tea on the des patches from such tea estate of tea grown therein
The statute also provides that in calculating the despatches of tea for the purpose of levy of rural employment cess the despatches for sale made at such tea auction centres as may be recognised by the State Government shall be excluded
And there is a proviso which empowers the State Government to fix different rates on despatches of different classes of tea
There is also section 44 which empowers the State Govern ment to exempt such categories of despatches or such per centage of despatches from the liability to pay the whole or any part of the rural employment cess or to reduce the rate of the rural employment cess payable thereon under clause aa of sub section
2 on such terms and conditions as it may specify by notification
As from 1 October 1982 the posi tion remained the same except that the first proviso to section 42aa excluding the despatches for sale made at recog nised tea auction centres was deleted
The remaining provi sions continued as before
Now for determining the true nature of the legislation whether it is a legislation in respect of tea estates
and therefore of land or in respect of despatches of tea we must as we have said take all the relevant provisions of the legislation into account and ascertain the essential substance of it
It seems to us that although the impugned provisions speak of a levy of cess in respect of tea estates what is really contemplated is a levy on despatches of tea instead
The entire structure of the levy points to that conclusion
If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea des patched from the tea estate there must be a nexus between the two indicating a 302 relationship between the levy on the tea estate and the criteria for determining the measure of liability
If there is no nexus at all it can conceivably be inferred that the levy iS not what it purports to be
The statutory provisions for measuring the liability on account of the levy throws light on the general character of the tax as observed by the Privy Council in Re A Reference under the Government of Ireland Act 1920 and Section 3 of the Finance Act Northern Ireland 1934 In RR Engineering Co vs Zila Parishad Bareilly  Anr   this Court observed that the standard on which the tax is levied was a relevant consideration for determining the nature of the tax although it could not be regarded as conclusive in the matter
Again in The Hingir Rampur Coal Co Ltd and Others
vs The State of Orissa and Others   this Court observed that the method of determining the rate of levy would be relevant in consider ing the character of the levy
All these cases were referred to in Bombay Tyre International Ltd supra where in the discussion on the point at page 367 this Court said Any standard which maintains a nexus with the essential character of the levy can be regard ed as a valid basis for assessing the measure of the levy
 It is apparent that the standards laid down for measur ing the liability under the levy must bear a relationship to the nature of the levy
In the case before us however we find that the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and that throughout the nexus is confined to despatches of tea rather than related to the tea estate
There is nothing to suggest that a particular tea estate produces only one class of tea and when reference is made to a certain class of tea the reference identifies a certain class of tea estates
We may presume that a tea estate produces different classes of tea and not one class of tea only
While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions
Variations considered appropriate for the purpose of deter mining the measure must correspond to variations in the subject of the levy
If the measure of levy is to vary with the despatches of different classes of tea there must be something in the class of tea concerned which points to a reason located in the particular tea estate or classes of tea estates which are made the subject of the levy
So also if the measure varies with the centre of sale of tea the variation must relate to a reason to be found in the nature of the tea estate or classes of tea estates
In other words there must be a reason why one class of tea is treated 303 differently from another class of tea when deciding upon the rate to be applied to different classes of tea and that reason must be found in the nature of the tea estate con cerned
Ultimately the benefit of exemption or reduced levy must be related to the need for exempting the tea estate from that levy or relieving it from part of the normal levy
When the provisions before us are examined in their totali ty we find no such relationship or nexus between the tea estate and the varied treatment accorded in respect of despatches of different kinds of tea
It seems to us that having regard to all the relevant provisions of the statute including section 42aa and section 44 in substance the impugned levy is a levy in respect of despatches of tea and not in respect of tea estates
Treating it as a levy on despatches of tea it is evident that the levy must be regarded as constituting a direct and immediate restriction on the flow of trade and commerce in tea throughout the territory of India and the levy can avoid the injunction declared in Article 301 only if it satisfies the provisions of Article 304b and the proviso thereto
For bringing the legislation within the saving provisions of Article 304b it is necessary that the Bill or amendment should have been introduced or moved in the Legislature of the State with the previous sanction of the President
It is not disputed that the amendments to the West Bengal Act made in 198 1 and 1982 did not satisfy that requirement
Indeed it appears that the West Bengal Govern ment had sent an earlier Bill to the President with the object of levying a tax on the income from tea but the Presidential assent was not granted
It appears further that the Finance Minister of WeSt Bengal made a statement in the West Bengal Legislature on 27 February 1981 stating that he would introduce the rural employment cess on despatches of tea
He referred to a Bill for amending the West Bengal Marketing Regulation Act 1972 having been sent to the President and the President not having signified his consent to the amendment
In our opinion the impugned provisions brought into the West Bengal Act by the amendments in 1981 and 1982 so far as they purport to relate to tea estates are unconstitutional and void and cannot be given effect to
Another aspect of the matter may be considered and that relates to legislative competence
If the impugned legisla tion were to be regarded as a levy in respect of tea es tates it would be referable to Entry 49 in List II of the Seventh Schedule of the Constitution which speaks of taxes on lands and buildings
But if the legislation is in sub stance legislation in respect of despatches of tea legisla tive authority must be 304 found for it with reference to some other Entry
We have not been shown any Entry in List II or in List III of the Sev enth Schedule which would be pertinent
It may be noted that Parliament had made a declaration in section 2 of the that it was expedient in the public interest that the Union should take under its control the tea industry
Under the  Parliament has assumed control of the tea industry including the tea trade and control of tea prices
Under section 25 of the Act a cess on tea produced in India has also been imposed
It appears to us that the impugned legis lation is also void for want of legislative competence as it pertains to a covered field
We do not consider it necessary to express our opinion on the other points raised between the parties in this case
In the result the writ petitions filed in this Court and the petitions in the Transferred Cases are allowed the impugned amendments effected in the West Bengal Rural Em ployment and Production Act 1976 by the amending Acts of 1981 and 1982 so far as they purport to relate to tea es tates are declared void and the petitioners are held enti tled to the refund of cess paid by them under the impugned statutory provisions
The petitioners are entitled to their costs
PSS Petitions allowed


Summary:
This appeal is directed against the order of the Gujarat High Court upholding the order dated the 15th November 1977 passed by the State of Gujarat whereby the amounts of gratu ity and pension payable to the appellant on superannuation were reduced by 50 per cent
The appellant was born on January 15 1909 and after obtaining a Degree in Bachelor of Engineering Civil joined the service in the former State of Junagarh and as such was governed by the Junagadh State Pension and Parwashi Allow ances Rules of 1932 which were duly codified and published in the Junagadh State Account Code State of Junagadh was integrated into the State of Saurashtra on 2011949 and the services of the appellant were absorbed in the State of Saurashtra
The conditions of service of the absorbed serv ants were duly protected and a proclamation providing a guarantee that the service conditions of absorbed servants could not be varied to their disadvantage was issued on 20149 that being the date of merger of the State
The State of Saurashtra made the Saurashtra Covenanting State Servants Superannuation Age Rules 1955
Rule 3i thereof provided that a Government servant shall unless for special reasons otherwise directed by Government retire from service on his completing 55 years of age
After the merger of the State of Saurashtra with State of Bombay the old Bombay Civil Service Rules 1959 were made applicable to Saurashtra area and on 1759 the Bombay Civil Service Rules 1959 were promulgated
As per clause c2ii1 of Rule 161 Government servants in the Bombay Service of Engineers Class I were to retire on reaching the age of 55 years
215 The appellant was compulsorily retired by the State on 12101961 with effect from 1211962 when he had completed the age of 53 years
The appellant challenged that order by means of writ before the High Court and having remained unsuccessful he took up the matter before this Court and this Court by its judgment dated 9469 allowed the appeal and declared that the appellant was entitled to remain in service until he attained the age of 55 years and that the impugned order compulsorily retiring him at the age of 53 years was invalid and ineffective
In order to give effect to this Court s order mentioned above the Government of Gujarat on 4869 intimated the appellant that he will be deemed to have remained in service uptil 14164 when he attained the age of 55 years
as he had attained that age prior to the decision of this Court
In the meantime the age of superannuation of the employ ees of the State of Gujarat had been raised from 55 years to 58 years
The appellant in order to take benefit of the change moved a writ petition before the High Court of Guja rat but remained unsuccessful
Thereupon he filed a special leave petition before this Court
This Court by its order dated 2171975 declined to interfere
Thus the appellant was not entitled to continue in service beyond 55 years of age
It may be mentioned that prior to his compulsory retire ment there were three departmental inquiries pending against the appellant on grounds of slackness in supervision
overpayment to contractors and loss to the Government and payment in advance of the receipt of goods
The first in quiry was initiated on 6261
second on 1141963 and the third on 17863
These inquiries remained pending against the appellant till 1971
The appellant filed yet another Special Civil Applica tion No 504 of 1971 before the High Court praying for issue of a writ of mandamus directing the State to pay to the appellant all his outstanding salary
allowances
including due increments after the efficiency bar from 121
1902 to 141
1964 together with 6 interest
An application for interim relief was also filed but was withdrawn later on the representation perhaps made by the State that the enquiries had become infructuous consequent to appellant s retirement
In the meanwhile the State of Gujarat issued a show cause notice dated 1771971 to the appellant intimating him that the Government 216 considered his service record and did not find the same thoroughly satisfactory for the reasons mentioned in the said notice and accordingly the Government proposed to make 50 reduction both in the payment of Gratuity and Pension admissible to him
The appellant submitted his reply and these proceedings due to laches on the part of the appellant went on for a considerable time and the Government passed the final order on 15111977 reducing the Pension and Gratuity by 50 per cent
To challenge this Order the appellant again filed Spe cial Civil Application before the High Court for quashing the order reducing his Pension and gratuity
The High Court dismissed the application in limine on 831978 observing that in the present case the Government recorded reasons why it came to the conclusion that the petitioner s Service was unsatisfactory and therefore put a proportionate cut in the Pension
as no case of discrimination was made out
The appellant preferred Letters Patent Appeal
against the order passed by the Single Judge
His contention before the Division Bench was that he continued to be governed by the Junagadh Rules in spite of the fact that the Bombay Rules were sought to be made applicable to him
His alternative contention was that even if the Bombay Rules were to be made applicable so far as the question of payment was concerned inasmuch as they were not less advantageous on compulsory retirement
proportionate pension was payable to the appel lant under the Bombay Rules of 1959
The Division Bench held that under either set of Rules it was open to the State Government to reduce the amount of pension payable to the petitioner as his service had not been found satisfactory by the State under Junagadh Rules as also under Bombay Civil Service Rules
The High Court accordingly dismissed the Letter Patent Appeal
Hence this appeal
It was contended on behalf of the appellant that the High Court went wrong in upholding the impugned order reduc ing the amounts of pension  gratuity in exercise of its power under Rules 188 and 189 of the Bombay Rules as it had already been ruled by this Court in its judgment in Civil Appeal No 409 of 1966 that Bombay Rules could not be made applicable to the appellant
It was urged that the appellant was not governed by Saurashtra Rules either and it was asserted that either in the show cause notice or in the impugned order
it Is nowhere specifically stated as to under what set of Rules the impugned order Imposing a cut in the Pension or Gratuity has been passed
A contention was also raised based on clauses 3 13  15 of Rule 241 A of Junagadh Rules stating that they operate in different fields
It was added that no inquiry as contemplated under Rule 189 had been made and admittedly the State had stated before the High Court that 217 the departmental inquiries had become infructuous consequent upon the retirement of the appellant
According to the counsel for the State the appellant having been retired in pursuance of a judicial order passed by this Court he cannot now be heard that his retirement at the age of 55 years should be construed as compulsory re tirement the superannuation age having been increased to 60 years under Junagadh Rules that the retirement of the appellant is normal one he was entitled to pension under Rule 241 of the Junagadh Rules and the State has passed the impugned order after complying with the provisions of Rules or gratuity be not reduced
Dismissing the appeal
this Court HELD Rules 188 and 189 have expressly preserved the State Government s power to reduce or withhold pension by taking proceedings against a Government Servant even after his retirement
229H 230A In the instant case in accordance with the procedure specified in Note I to Rule 33 of the Bombay Civil Services Conduct Discipline and Appeal Rules a show cause notice had been issued to the appellant on 17771 calling upon him to show cause within 30 days from the date of the receipt of the notice as to why the proposed reduction should not be made in the Pension and death cum retirement gratuity
The appellant failed to avail that opportunity to disprove the allegations and satisfy his appointing authority that he rendered satisfactory service throughout
It was in those circumstances the appointing authority thought fit to impose reduction on the Pension and gratuity in accordance with Rules 188 and 189 of the Bombay Rules on the ground that the appellant had not rendered satisfactory service
The appel lant is not entitled to take advantage of clause bii of the proviso to Rule 189 A since the proceedings had been instituted long before his retirement
Further as per clause a of the said proviso the proceedings were already insti tuted long before his retirement
Further as per clause a of the said proviso the proceedings already instituted while the Government servant was in service could be contin ued and concluded even after his retirement
Therefore the order dated 15111977 reducing the pension and gratuity cannot be said to contravene the Bombay Rules
231A E A combined reading of clauses 3 13 and 15 of Rule 241 A of 218 Junagadh Rules shows that clause 3 is an exception to the general scheme laid down in clauses 13 and 15
228C Bholanath J Thakar vs State of Saurashtra AIR 1954 SC 680 Dalip Singh vs State of Punjab  Moti Ram Deka etc
vs General Manager NEF Railways Maligaon Pandu etc
   State of Maharashtra vs MH Mazumdar  and M Narasimhachar vs State of Mysore 1960 1 SCR 981 referred to
State of UPv
Brahm Datt Sharma 1987 2 SCC 179 fol lowed