# THE STATE 0]' MADHYA PRADESH v. THE GWALIOR SUGAR CO., LTD., AND OTHERS

- **Citation:** [1962] 2 S.C.R. 619
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 98 and 99 of 1957
- **Bench:** B. P. Sinha, s. K. DAS, A. K. Sarkar, N. Rajagopala Ayyangar, J. R. Mudholkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-state-0-madhya-pradesh-v-the-gwalior-sugar-co-ltd-and-others-2278
- **Pages:** 7

## Headnote

Gess-Levy 011 sugar cane ordered by erstwhile Rulcr-Constitutio1ial validity-Constitution of fadia, Arts. 14, 265, 373.
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 Conrt of Madhya
Bharat challenging the legality of the levy on the grounds (r)
that the order dated 27-7-1946 was only an executive order and
not a law under Art. 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 Art. r4 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 (r) the Ruler of an Indian State was an absolute
monarch in which there was no constitutional limitation to act
in any manner he 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 Art. 372 of the Constitution of India.
The levy of cess was therefore by authority of law within the
meaning of Art. 265;
Madhaorao Phalke v. The State of Madhya Bharat, [r961] r
S.C.R. 957, followed.
(2) the levy of cess did not contravene Art. r4 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 foμnd that it was
imposed with a deliberate intention of differentiating between
November 30.
1961
State of
Madhya Pradesh
v.
Gwalior
Sugar Co , Ltd.
620
SUPREME COURT REPORTS
[1962]
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.

## Text

2 S.C.R
SUPREME COURT REPORTS
619
THE STATE 0]' MADHYA PRADESH
v.
THE GWALIOR SUGAR CO., LTD.,
AND OTHERS
(AND CONNECTED APPEAL)
(B. P. SINHA, c. J., s. K. DAS, A. K. SARKAR,
N. RAJAGOPALA AYYANGAR and
J. R. MUDHOLKAR, JJ.)
Gess-Levy 011 sugar cane ordered by erstwhile Rulcr-Constitutio1ial validity-Constitution of fadia, Arts. 14, 265, 373.
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 Conrt of Madhya
Bharat challenging the legality of the levy on the grounds (r)
that the order dated 27-7-1946 was only an executive order and
not a law under Art. 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 Art. r4 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 (r) the Ruler of an Indian State was an absolute
monarch in which there was no constitutional limitation to act
in any manner he 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 Art. 372 of the Constitution of India.
The levy of cess was therefore by authority of law within the
meaning of Art. 265;
Madhaorao Phalke v. The State of Madhya Bharat, [r961] r
S.C.R. 957, followed.
(2) the levy of cess did not contravene Art. r4 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 foμnd that it was
imposed with a deliberate intention of differentiating between
November 30.
1961
State of
Madhya Pradesh
v.
Gwalior
Sugar Co , Ltd.
620
SUPREME COURT REPORTS
[1962]
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.
CIVIL APPELLATE JURISDICTION: Civil 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 a.nd respondents in C. A. No.
99 of 1957.
S. K. Kapur and Naunit Lal, for the respondents in
C. A. No. 98 of 1957 and appellant in C. A. No. 99 of
1957.
1960.
November 30.
The Judgment of the Court
was delivered by.
MunHOLKAR, 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 sugar.
cane purchased by the respondents. The grounds un
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 neces.
sary to set out certain facts. In the year 1940 in pur.
suance of an agreement entered into between the
Govemrnent of Gwalior State and Sir Homi Mehta
and others a sugar factory was 3Stablished at Dabra.
The name of tlrnt factory is Tho Gwalior Sugar Co.,
Ltd. On Jmrn 20, 1946, the Maharaja Scindia, the
ruler of Gwalior State constituted a Committee to con.
sider the desirability of imposing a "cane cess on the
lines of the United Provinces or Bihar and to recom.
mend a procedure for fixation of sugar prices within
the terms of the agreement subsisting between the
Government and the factory". The Report of the
2 S.C.R. SUPREME COURT REPORTS
621
Committee was submitted to the Maharaja by the
Chairman on July 23, 1946. In their report the Com.
mittee 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, 19!6, the Economic Adviser to the Government of Gwalior wrote a letter to the Manager of the
r.ispondent factory. It will be useful to reproduce the
text of that letter as it will have some relevance on
the second ground ori which the cess is challenged.
The letter runs thus:
"Dear sir,
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 a.s possible.
Yours sincerely,
Secretary,
'
Cane Development Board."
The respondent factory protested against this levy.
After the formation of the State of Madhya Bharat,
79
r960
Slate nf
~! a,lhya J:Jradesh
v.
Gwalior
Sugar Co., Ltd.
Mudholhar j.
622
StJPREME COURT REPOR'fS
(19621
the respondent made a representation to the Government of Madhya Bharat against the levy of the cess.
State of
Madhya Pradesh That representation was, however, rejected. They,
then, paid the cess for the years 1946 to 1948 amounting to Rs. 1,17,712-8-2. The Government of Madhya
Bharat made a demand from the respondents for a
sum of Rs. 2,79,632-14-9 for the years 1949 to 1951.
The respondents challenged the demand upon the two
v.
Gwalior
Sugar Co., Ltd.
Mudholkar ].
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 'S~te 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 Re-organization 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 Art. 265 of the ConstitL1tion 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
v. The State of Madhya Bharat and Another(') decided
on October 3, 1960. In the course of the judgment of
this Court delivered by Gajendragadkar, J., he pointed out:
(1) [t!j61) I S.C.R. 951·
2 S.C.R. SUPREME COURT REPORTS
623
"It would thus be seen that though Sir Madhava
I96°
Rao was gradu11lly taking steps to associate the
5
public with the government of the State and with Maah'~'P1 a ,
that object he was establishing institutions consist.
Y v. a "'
ent with the democratic form of rule, he had mainGwalior
tained all his powers as a sovereign with himself Sugar Co., Ltd.
and had not delegated any of his powers in favour
of any of the said bodies. In other words, despite
Mudholkar f.
the creation of these bodies the Maharaja continued
to be an absolute monarch in whom were vested
the supreme power of the 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 forceoflaw, 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, however 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 Art. 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 Art. 372 and thus it satisfies
the requirements of Art. 265 of the Constitution.
624
SUPREME COURT REPORTS
[1962]
'
960
Disagreeing with the High Court we therefore hold
State of
that the cess was imposed by authority of law.
Madhya Pradesh
What remains to be considered is whether this cess
v. .
violates the guarantee of equal protection contained
Gwalior
.
C
.
.
Sugar co., Lid. m Art. 14 ~f the
onst1tut10n. What was urged
__
before the High Court and what was also urged before
Mudholkar J. 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 v. The State of Rajasthan & Ors.(')
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 pre"ent 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 existenoe 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) C.A. No. 327 of i956.
2 S.C.R. SUPREME COURT REPORTS
625
appear that the cess was imposed for a definite purpose and &hat 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 Art. 13 by reason of the coming into
force of the Constitution on the ground that it violates
Art. 14. In our opinion, therefore, both the grounds
on which the validity of the cess is challenged are illconceived 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.
Slate of
Aiadhya Pradc·sh
v.
Gwalior
Sugar Co., LJd.
Mudholkar J.