1968 (5) TMI 62 - HC - Indian Laws

Summary

Issues Involved:
1. Validity of the levy of Education Cess on 'shop rents' for Arrack, Toddy, and Beer, and on Tree Tax and Tree Rent.
2. Violation of Article 14 of the Constitution due to levy only in the old Mysore Area.
3. Classification of Shop Rent as an excise duty.
4. Classification of Education Cess on Shop Rent as a tax on the business of vending liquor.
5. Absence of a separate procedure for assessment and collection of Education Cess under the Education Act.
6. Defense arguments by the Special Government Pleader, including the applicability of Article 277 of the Constitution, classification of Shop Rent as a tax on luxuries, and whether petitioners can question their liability after agreeing to pay.

Detailed Analysis:

1. Validity of the Levy of Education Cess:
The petitioners, excise contractors, challenged the levy of Education Cess on 'shop rents' for Arrack, Toddy, and Beer, and on Tree Tax and Tree Rent under the Mysore Elementary Education Act, 1941. The court examined the historical context and amendments to the Act, noting that the Act did not originally impose such a levy. The court found that the levy was not legally established under the Act or its amendments, thus rendering the levy invalid.

2. Violation of Article 14 of the Constitution:
The petitioners argued that the levy of Education Cess only in the old Mysore Area violated Article 14 due to unequal treatment within the new State of Mysore. The court referred to precedents and determined that historical reasons and geographical classifications justified the differentiation. Therefore, the levy did not violate Article 14.

3. Classification of Shop Rent as an Excise Duty:
The court analyzed whether Shop Rent could be classified as an excise duty. Referring to the Supreme Court's decision in Shinde Brothers v. Deputy Commr., Raichur, the court concluded that Shop Rent is not an excise duty as it is not levied on the manufacture or production of goods but on the acceptance of a license to sell. Consequently, Education Cess could not be levied on Shop Rent as an excise duty.

4. Classification of Education Cess on Shop Rent as a Tax on Business:
The petitioners contended that Education Cess on Shop Rent was a tax on the business of vending liquor, limited to Rs. 250 per annum under Article 276(2) of the Constitution. The court found that Shop Rent is not a tax but a payment for the exclusive privilege of selling liquor. Therefore, Education Cess on Shop Rent could not be classified as a tax on business.

5. Absence of a Separate Procedure for Assessment and Collection:
The petitioners argued that the Education Act lacked provisions for assessing and collecting Education Cess, making it unenforceable. The court referred to the Supreme Court's ruling in Ahmedabad Manufacturing and Calico Printing Co., Ltd. v. State of Gujarat, which upheld the validity of cesses calculated as a percentage of existing taxes. Thus, the absence of a separate assessment procedure did not invalidate the collection of Education Cess.

6. Defense Arguments by the Special Government Pleader:
The Special Government Pleader raised several defenses:
- Article 277: The court found that the levy did not satisfy the conditions for protection under Article 277, as it was not lawfully levied before the Constitution and the area of benefit had changed.
- Tax on Luxuries: The court examined whether Shop Rent could be classified as a tax on luxuries under Entry 62 of List II. It concluded that Shop Rent is not a tax on luxuries as it is not levied on the consumption of luxury items but on the exclusive privilege of selling liquor.
- Agreement to Pay: The court held that agreements to pay a tax not imposed by law are void and unenforceable, allowing the petitioners to question their liability despite their agreements with the State.

Conclusion:
The court declared the levy of Education Cess on Arrack Shop Rent, Toddy Shop Rent, Beer Shop Rent, Tree Tax, and Tree Rent invalid. It directed the authorities to refund amounts collected illegally and restrained them from collecting such cess in the future. The court left it open for petitioners to seek refunds through suits or other proceedings if necessary.