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
section K Kapur and Naunit Lal for the respondents in C A No 98 of 1957 and appellant in C k No 99 of 1957
November 30
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 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 117712 8 2
The Government of Madhya Bharat made a demand from the respondents for a sum of Rs 279632 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 article 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 vs 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  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 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 article 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 article 372 and thus it satisfies the requirements of article 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 article 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 vs 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 it would 1 CA 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 article 13 by reason of the coming into force of the Constitution on the ground that it violates article 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


Summary:
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 article 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 article 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 article 372 of the Constitution of India
The levy of cess was therefore by authority of law within the meaning of article 265 Madhaorao Phalke vs The State of Madhya Bharat   followed
2 the levy of cess did not contravene article 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