Case: Jaora Sugar Mills (P) Ltd Vs. State Of Madhya Pradesh And Others

The appellant, Jaora Sugar Mills (Pvt.) Ltd., is a Private Limited liability Company incorporated under the Indian Companies Act. Its registered office is at Jaora within the premises of the Sugar Mills owned by it. The appellant manufactures sugar and carries on the business, inter alia, of the production and sale of the said commodity since 1955 when it was incorporated. The sugarcane season for the manufacture of sugar generally covers the period December to March and the sugarcane crushing season usually begins on the 1st of October and ends on the 30th June2. Respondent No. 1, the State of Madhya Pradesh, enacted the Madhya Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1958 (N0. 1 of 1959) (hereinafter called the Madhya Pradesh Act). Section 23 of the said Act made a sugarcane cess payable as prescribed by it. Rules 60 to 63 of the Madhya Pradesh Sugarcane (Regulation of Supply and Purchase) Rules, 1959, made under the said Act, provide for the method of collection of cess. Section 21 of the said Act prescribes for the payment of commission to the Cane Development Council which was proposed to be constituted under S. 5. Rules 45 of 47 prescribe the quantum of commission payable to the said Council and refer to the manner in which the said payment has to be made3. The validity of S. 23 of the Madhya Pradesh Act was challenged before the Madhya Pradesh High Court under Article 226 of the Constitution in Bhopal Sugar Industries v. State of Madhya Pradesh, Misc. Petn. No. 27 of 1961 (Madh. Pra.). Before the writ petition challenging the validity of the said Act came to be heard before the said High Court, a similar provision in the U. P. Sugarcane Cess Act, 1956 (U. P. Act XXII of 1956) had already been struck down by this Court as unconstitutional in Diamond Sugar Mills Ltd. v. State of Uttar Pradesh, (1961) 3 SCR 242     at p. 256: (AIR1961 SC 652 at p. 658). The common feature of the charging sections in both the Madhya Pradesh and the U. P. Acts was that they authorised the respective State Governments to impose a cess on the entry of cane into the premises of a factory for use, consumption or sale therein. It was urged before this Court in the cess of Diamond Sugar Mills Ltd., (1961) 3 SCR 242  : (AIR 1961 SC 652  ), that the premises of a factory was not a local area within the meaning of Entry 52 in List II of the Seventh Schedule to the Constitution, and so, the Act passed by the U. P. Legislature was beyond its competence. This argument was upheld. "We are of opinion", observed Das Gupta J., who spoke for the majority of the Court, "that the proper meaning to be attached to the words "local area" in Entry 52 of the Constitution (when the area is a part of the State imposing the law) is an area administered by a local body like a municipality, a district board, a local board, a union board, a Panchayat or the like. The premises of a factory is, therefore, not a "local area". Following this decision, the Madhya Pradesh High Court struck down S. 23 of the impugned Madhya Pradesh Act in the Bhopal Sugar Industries, Misc. Petn. No. 27 of 1961 (Madh. Prs.), and allowed the writ petition to that extent. This decision was pronounced on August 31, 19614. The validity of S. 21 of the Madhya Pradesh Act prescribing the payment of commission of the Cane Development Council, was also challenged before the Madhya Pradesh High Court by the Bhopal Sugar Industries Ltd. by another writ petition (Misc. Petition No. 340 of 1961). The said High Court held that the commission directed to be paid by the impugned section was a "fee" and the delegation to the State Government to implement the said provision by prescribing Rules thereunder amounted to valid delegation and as such the impugned section was not open to any effective challenge. In the result, S. 21 was upheldThis decision was pronounced on January 30, 19625. It appears that as a result of the decision of this Court in the case of Diamond Sugar Mills, (1961) 3 SCR 242  : (AIR 1961 SC 652  ), the U. P. Sugarcane Cess (Validation) Act, 1961 was passed by the Central Legislature on March 21, 1961 (No. IV of 1961), and it received the assent of the President the same day. It may be mentioned that the decision of this Court in the case of Diamond Sugar Mills, (1961) 3 SCR 242  : (AIR 1961 SC 652  ), was pronounced on December 13, 1960, and Parliament thought that it was necessary to validate the imposition and collection of cesses made under the said Act, and so, the U. P. Sugarcane Cess (Validation) Act, 1961 was passed6. Parliament, however, realized that there was several other State Acts which suffered from the same infirmity, and so on September 11, 1961, the Act with which we are concerned in the present proceedings, was passed. It has also received the assent of the President the same day. This Act purports to validate the imposition and collecting of cesses on sugarcane under ten difference Acts passed by the Legislatures of seven different States. Section 3 of the Act is the main validating section. Section 5 purported to amend the specified provisions in the U. P. Sugarcane Cess (Validation) Act, 1961. The said section was brought into force at once, and the remaining provisions of the Act were to come into force in the respective States as from the dates which may be specified in that behalf by a notification issued by the Central Government and published in the Official Gazette. The relevant date, so far as the respondent State is concerned, is December 26, 19617. on March 17, 1962, respondent No.2 the Collector of District Ratlam, issued a notice to the appellant demanding payment of sugarcane cess at the rate prescribed by the respondent State under the relevant Rules. The said notice also demanded payment of cane commission for the years 1959-60 and 1960-61, as prescribed by the relevant Rules8. The appellant challenged the validity of these demands and addressed respondent No. 2 in that behalf. It alleged that both the demands were invalid, because the Act under the authority of which they purported to have been made, was itself ultra vires and unconstitutional. In respect of the demand for cane commission for the year 1959-60, the appellant urged an additional ground that the Cane Development Council itself had come into existence on August 26, 1960, and, so, it was not permissible for respondent No. 2 to make a demand for commission in respect of the year 1959-60. It was also alleged that the demand for cane commission at the flat rate of 3 nP per maund was not relate to the services proposed to be rendered by the said Council and as such was invalid9. These pleas were resisted by the respondents. It was urged on their behalf that the impugned Act was valid, and that the demands made by respondent No. 2 for the recovery of the cess and the commission were fully justified. On these pleadings, the Madhya Pradesh High Court considered the two broad issues which arose before it. It had held that the provisions of the impugned Act are constitutionally valid, and that the demand for cess made by respondent No. 2 could not be effectively challenged. In regard to the demand for cane commission, the High Court was not impressed by the plea made by the appellant, particularly in relation to the sugarcane season of 1959-60 and it held that even though the Council may not have come into existence, a demand could be made with a view to provide for the constitution of the said Council and thus enable it to afford service and assistance to the mills like the appellant. That is why the High Court rejected the appellants contentions in that behalf and dismissed its writ petition. This judgment was pronounced on September 24, 196310. The appellant then applied for and obtained a certificate from the High Court and it is with the said certificate that it has come to this Court by appeal.

Court's reasoning:
In fact, if the invalid provision is severable from the rest of the Act, courts dealing with the question of its validity may strike down the invalid portion alone and uphold the validity of the remaining part of the State. But where an impugned Act passed by a State Legislature is invalid on the ground that the State Legislature did not have legislative competence to deal with the topic covered by it, then even Parliament cannot validate such an Act, because the effect of such attempted validation, in substance, would be to confer legislative competence on the State Legislature in regard to a filed or topic which, by the relevant provisions of the Schedules in the Constitution, is outside its jurisdiction. This position is not and cannot be disputed. If it is shown that the impugned Act purports to do nothing more than validate the invalid State Statutes, then of course, such a validating Act would be outside the legislative competence of Parliament itself. Where a topic is not included within the relevant List dealing with the legislative competence of the State Legislature, Parliament, by making a law, cannot attempt to confer such legislative competence on the State LegislaturesWe are, therefore, satisfied that the sole basis on which Mr. Pathaks argument rests is invalid, because the said basis is inconsistent with the plain and clear meaning of S. 3.As we have already indicated, Mr. Pathak does not dispute - and rightly that it is competent to Parliament to make a law in respect of the cesses in question, to apply the provisions of such a law to the different States, and to make them retrospective in operation. His whole contention is based on what he regards to be the true scope and effect of S. 3. If the construction which he places on S. 3 is rejected, the argument about the invalidity of the Act must likewise be rejectedThis observation succinctly and effectively brings out the true character of the contention that any legislation is colourable legislation. Where a challenge is made on this grounds, what has to be proved to the satisfaction of the Court is that though the Act ostensibly is within the legislative competence of the Legislature in question, in substance and in reality it covers a filed which is outside its legislative competence. It would be noticed that as soon as this aspect of the matter is borne in mind, the argument that the Act is a colourable piece of legislation takes us back again to the true scope and effect of the provisions of S. 3. If the true scope and effect of S. 3 is as Mr. Pathak assumes it to be, then, of course, the Act would be void on the ground that it is a colourable piece of legislation. But if the true scope and effect of S. 3 is as we have already held it to be, then in passing the Act, Parliament has exercised its undoubted legislative competence to provide for the recovery of the specified cesses and commissions in the respective State areas from the dates and in the manner indicated by it. When demands were made for the recovery of the said cesses, they will be deemed to have been made not in pursuance of the State Acts but in pursuance of the provisions of the Act itself. Therefore, we do not think there is any substance in the argument that the Act is invalid on the ground that it is a colourable piece of legislationNormally, it would be inappropriate and indeed illegitimate to hold an enquiry into the manner in which the funds raised by an Act would be dealt with when the Court is considering the question about the validity of the Act itself. As we have just indicated, if the taxes or cesses recovered under an Act are not dealt with in the manner prescribed by the Constitution, what remedy a citizen may have and how it can be enforced, are questions on which we express no opinion in this appeal. All we are considering at this stage iswhether even on the assumption made by Mr. Pathak, it would be permissible for him to contend that the Act which is otherwise valid, is rendered invalid because the funds in question will not go into the Consolidated Fund of India.In truth, this arguments again proceeds on the basis that Parliament has passed the Act not for the purpose of treating the recoveries made as those under its provisions retrospectively enacted, but for the purpose of validating the said recoveries as made under the invalid State Acts; and we have already pointed out that S. 3 completely negatives such an assumption. Therefore, we do not think that Mr. Pathak is right in contending that the provisions of the Act are invalid in any mannerIn our opinion, the answer to this question has to be in the affirmative, because to hold otherwise would be to cut down the width and amplitude of the legislative competence conferred on Parliament by Art. 248 read with Entry 97 in List I of the Seventh Schedule. Whether or not retrospective operation of such a law is reasonable, may fall to be considered in certain cases: but that consideration has not been raised before us and in the circumstances of this case, it cannot validly be raised either. We must, therefore, hold that the High Court was right in rejecting the appellants case that the Act was invalid, and hence no demands could be made under its provisions either for a cess or for commissionIn our opinion, the High Court has completely ignored the context in which the said observations were made and has misjudged their effect. It is not necessary for us to decide whether the service must be rendered for the whole of the period covered by the fee, or whether it is necessary that the service must by rendered first and the fee can be recovered thereafter. These fine and academic questions are not relevant in the present case, because it is not even suggested the during the whole of the period any service whatever was rendered by the Council at all. In this connection, it is necessary to bear in mind the fact that S 23(1) of the Madhya Pradesh Act required, inter alia, that the commission had to be paid to the Council at the rate in the proportion prescribed by it. Other statutory provisions including the Rules further provided that the failure to pay the said commission on the occasion of the purchase would entail the liability to pay interest and the said commission along with the interest was made recoverable as arrears of land revenue. Having regard to these provisions, it seems to us very difficult to accept the view that the commission which had to be paid to the Council fell to be paid even though the Council was not in existence at all throughout the sugar crushing season in question. On the special facts of this case, therefore, we are satisfied that no amount could be validly claimed by way of commission for the year 1959-60. The notice of demand (Annexure D) which has been issued in that behalf shows that the cane commission at 3 nP. per maund which has been demanded from the appellant by respondent No. 2 for the years 1959-60 and 1960-61, amounts to Rs. 1,26,152.86 nP. It is common ground that out of this amount, Rs. 54,037.57 nP. represents the commission for the year 1959-60. We must accordingly hold that the demand made by respondent No. 2 for the payment of cess commission for the year 1959-60 amounting to Rupees 54,037.57 nP. is invalid and the notice to that extent must be cancelled.