Case: State Of Mysore &amp; Ors Vs. M/S. D. Cawasji &amp; Co. And Ors

1. 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 Rule 23 in respect of toddy, "tree-tax", "treatment" and "shop-rent" were chargeable at the rate of 9 pies per rupee.2. 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 trees tapped by him. When he tapped trees belonging to the Government he had to pay, in addition, "tree-rent" to the State. Consideration paid by the licencee to the State for the exclusive privilege of retail vending of toddy, or Arrack or beer was popularly known as "shop-rent". 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.3. 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". The Mysore Revenue Manual (1938 Edn.) Vol. I, at page 334 read as followsthe local cess was being levied on the following items :(i) x x x(ii) Toddy - both date and bagani.(iii) x x xBut in the marginal note dated G. O. (F. I. 9243-54 S. R. 145-06-1 dated 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: -x x x(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 itselfN. B.: - 1/17th of the tree-tax, the shop rental and tree-rent collected should be credited to Local Funds, lieu of the one-anna cess former levied on these items(Vice also Article 41 - Mysore Accounts Code Vol.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 1955.4. 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.5. 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 Section 25 of that Act Chapters VI and VII of the 1941 Act were repealed and the rest of the 1941 Act continued to remain in force in the old Mysore Area. Accordingly S. 9 of the 1941 Act which occurred in Chapter 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:Government may for carrying out the purpose of this Act, levy throughout or in any part of Mysore, an 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 thisthe Mysore Elementary Education (Amendment) Act, 1955, the relevant provision of the Schedule read as follows:on which cess may be levied. Maximum rate 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 cash amounts were collected by the Government of Mysore.A large number of excise contractors moved petitions under Article 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 from 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 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 Article 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 Schedule 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 Article 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-tax" and "tree-rent&quot; as invalid. The State of Mysore has appealed to this Court with certificate granted by the High Court.

Court's reasoning:
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 conditions 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 amended 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.