Full Judgment Text
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PETITIONER:
KUNWAR RAM NATH AND OTHERS
Vs.
RESPONDENT:
THE MUNICIPAL BOARD, PILIBHIT
DATE OF JUDGMENT02/06/1983
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
ERADI, V. BALAKRISHNA (J)
CITATION:
1983 AIR 930 1983 SCR (3) 321
1983 SCC (3) 357 1983 SCALE (1)672
ACT:
U.P. Municipalities Act, 1916 (Act. No. 11 of 1916)-
section 128(1) (viii)-Power to impose octroi on certain
goods-Read with section 157(3)-Power to exempt from payment
of tax. Exemption-granted by U.P. Government Order
No.3613(1)/XI-395 dated November 20, 1936 from octroi duty-
Whether available after publication of new bye-laws on May
18, 1960. Order of exemption under s. 157(3) is not the same
as any general rule or special order referred in s. 128(1).
Words & phrases-Cess-Interpretation of-Whether tax or
fee depends upon purpose of its levy.
Words and phrases-Octroi-Interpretation of-Octroi
exempted by 1936 order and levy of 1960 are both taxes
levied under the Act.
HEADNOTE:
The respondent Municipal Board filed a complaint in the
trial court against the appellants under s. 155 of the U.P.
Municipalities Act, 1916 alleging that the appellants had
brought by railway on November 30, 1967 at the railway
siding in their sugar factory within the limits of the
respondent for purposes of consumption or use certain
quantity of sugarcane without paying octroi payable under
the new bye-laws of the respondent published on May 18,
1960. The appellants pleaded that since the payment of
octroi on sugarcane brought by railway at the railway siding
situated inside their factory had been exempted by U.P.
Government’s order dated November 20, 1936 passed under s.
157 (3) of the Act the prosecution should fail. As the
respondent went on seeking adjournments and the case
remained undisposed of for nearly four years, the appellants
filed a petition under s. 561-A of the Code of Criminal
Procedure, 1898 in the High Court for quashing the
proceedings on the ground that they were vexatious. The High
Court dismissed the petition observing that after the
commencement of the Constitution there has been a material
change in the nature of octroi levied under the Act and on
account of the framing of the new bye-laws the exemption
granted under s. 157(3) of the Act would no longer be
available. The High Court held that since a petition filed
by the appellants challenging the notification containing
the new bye-laws was earlier dismissed by the High Court it
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was not open to the appellants now to contend that the
exemption granted under the Order of 1936 was still
available.
In this appeal the respondent contended that the levy
from which exemption had been given by the Order of 1936 was
either a terminal tax or a fee and not a tax and since what
was being levied as octroi from the year 1960
322
under the new bye-laws was a tax, the order of exemption
would not be applicable to it.
Allowing the appeal,
^
HELD: The respondent was not entitled to collect octroi
on sugarcane brought into its municipal limits by the
appellants by rail on the relevant date.
[336 B]
The word ’octroi’ in s. 128(1) (viii) of the Act is
found in the group of taxes referred to in s. 128. The sum
received by a Municipal Board on account of octroi is also
dealt with like any other tax. There is no element of quid
pro quo between the person who pays the octroi and the
Municipal Board. The octroi leviable under entry 49 of List
II of the Seventh Schedule to the Government of India Act,
1935 was not a fee but was a tax. [332 B-C, 335 A]
A cess may either be a tax or a fee. Whether a cess in
a given context is a tax or a fee depends upon the purpose
for which it is levied. In entry 49 of List II of the
Seventh Schedule of the Government of India Act, 1935 the
expression ’cesses’ is used in the sense of ’taxes’. In
entry 52 of List II of the Seventh Schedule of the
Constitution the expression ’taxes’ is substituted in the
place of the expression ’cesses’ which was in the former
entry 49 in the Government of India Act, 1935, but the
nature and content of the legislative power under both are
the same. [331 C, E-F]
When tax is clearly levied on goods when they are
brought into a local area for purposes of use, sale or
consumption, it does not cease to be a tax levied under s.
128(1) read with entry 49 of List II of the Seventh Schedule
to the Government of India Act, 1935 merely because the
municipalities concerned render no service with regard to
it. [330 F, 334 G]
The Punjab Flour and General Mills Co., Ltd., Lahore v.
The Chief Officer, Corporation of the City of Lahore and the
Province of the Punjab, [1947] F.C.R. 17; and The Hingir-
Rampur Coal Co., Ltd., & Ors. v. The State of Orissa & Ors.,
[1961] 2 S.C.R. 537 referred to.
The octroi which was being levied in 1936 when the
exemption was granted and the subsequent levy imposed in the
year 1960 are both taxes levied under the Act and fall
within the State List both under the Government of India
Act, 1935 and under the Constitution. It was not a terminal
tax falling under entry 58 of List I of the Seventh Schedule
to the Government of India, Act, 1935. It does not also fall
under entry 89 of List I of the Seventh Schedule to the
Constitution now. The said levy came within entry 49 of List
II of the Seventh Schedule to the Government of India Act,
1935 and now falls under entry 52 of List II of the Seventh
Schedule of the Constitution. The exemption granted in the
year 1936 should be construed as an exemption from all
taxation by way of octroi leviable and levied under the Act
on rail-borne sugarcane and that exemption would continue
until it is either rescinded or modified by the State
Government or becomes inapplicable for any other reason. The
new set of bye-laws brought into force in 1960 by the
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Municipal Board though with
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the sanction of the State Government does not have the
effect of rescinding or annulling the exemption granted
under s. 157(3) by the former Provincial Government. [330 G,
331, A-B, 336 A-D]
There is no irreconcilable in-consistency between
notification published in 1960 and the order of exemption
made in the year 1936. While under the Notification of 1960
octroi is payable on the import of sugarcane into municipal
limits for purposes of sale, use or consumption, by virtue
of the order made in 1936 under section 157(3) sugarcane
brought by rail and delivered at the railway siding inside
the factory premises alone is exempted from the levy of
octroi. Sugarcane brought by other means of transport would
be governed by the notification issued in 1960. There is no
provision in the notification of 1960 to the effect that the
said exemption is either withdrawn or that sugarcane brought
by rail would be taxable. [335 C-E]
The High Court was in error in holding that the order
of exemption granted under section 157(3) was the same as
any general rule or special order of the State Government
referred to in sub-section (1) of section 128 subject to
which the Municipal Board may impose any tax referred to
therein and the effect of the exemption granted in 1936 was
also in issue in earlier writ petition. In that writ
petition the said question was neither directly nor
constructively in issue. An exemption becomes operative only
when the tax is validly imposed under section 128. The
restriction that may be imposed by any general rule or
special order of the State Government under section 128(1)
affects the initial power of the Municipal Board to levy a
tax. An order under section 157(3) operates only after a tax
is validly imposed with the sanction of the State Government
or of the Commissioner as the case may be, as stated in
section 133 of the Act. It is therefore, open to the
appellants to contend even after the dismissal of their
earlier petition that they are entitled to the limited
exemption granted by the Order of 1936. [333 D-G]
Vir Singh & Ors. v. Municipal Board & Anr., Civil Misc.
Writ No. 3181 of 1960 decided on May 4, 1960, not relevant
to the point raised.
JUDGMENT:
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
440 of 1976.
Appeal by Special leave from the Judgment and Order
dated the 3rd September, 1975 of the Allahabad High Court in
Criminal Misc. Case No. 3291 of 1972.
Shankar Ghose, R.P. Bhatt, S. R. Aggarwala, Praveen
Kumar, and Anil Kumar Sharma for the Appellants.
B.D. Sharma, Dalveer Bhandari, H. M. Singh, and R. S.
Yadav for the Respondent (State).
324
Yogeshwar Prasad and Mrs. Rani Chhabra for Municipal
Board.
The Judgment of the Court was delivered by
VENKATARAMIAH, J. This appeal by special leave arises
out of a complaint instituted under section 155 of the U.P.
Municipalities Act, 1916 (Act. No. II of 1916) (hereinafter
referred to as ’the Act’) by the Municipal Board of Pilibhit
in the court of the Sub Divisional Magistrate, Puranpur,
District Pilibhit against the Managing Director, the General
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Manager and the Cane Manager of L. H. Sugar Factory Pilibhit
and one Bishan Swaroop, an employee of the said Sugar
Factory, the appellants herein, alleging that they had
brought by railway on November 30, 1967 into their godown at
the railway siding situated within their Sugar Factory which
was within the limits of the Pilibhit Municipal Board for
purposes of consumption or use three wagon loads of
sugarcane weighing in all 804 maunds for which octroi of Rs.
8.48 P. was payable under the bye-laws of the Municipal
Board published under notification dated May 18, 1960
without paying the said octroi. The said complaint was filed
on September 12, 1968. During the proceedings before the
Magistrate the appellants pleaded that since the payment of
octroi by the factory of the appellants on sugarcane brought
by railway had been exempted by an order of the Government
of the United Provinces bearing G. O. No. 3613(1)/XI-395
dated November 20, 1936, the prosecution should fail. The
relevant part of the Government order which is contained in
a letter addressed by the Municipal Department of the
Government of the United Provinces to the Commissioner of
Rohilkhand Division reads thus:
"I am directed to say that Government have, after
full examination of the question of local taxation of
sugarcane imported for the manufacture of sugar in
factories situated within the limits of certain
municipalities, decided that there is no justification
for the continuance of taxes on rail-borne cane which
is delivered at the railway sidings situated inside the
sugar factories because the municipalities concerned
render no service with regard to it. The Governor
acting with his ministers is accordingly pleased to
exempt, under section 157(3) of the United Provinces
Municipalities Act, 1916, with immediate effect, all
such sugarcane from the octroi duty levied in the
municipality of Pilibhit. The Municipal
325
Board of Pilibhit may be informed accordingly and also
directed to take formal action to amend its octroi
schedule to that effect."
After the above plea was raised, the complainant
Municipal Board went on seeking adjournments in the criminal
case and the case remained undisposed of for nearly four
years. So the appellants filed a petition under section 561-
A of the Code of Criminal Procedure, 1898 (Act No. V of 1
98) before the High Court of Allahabad in Criminal Misc.
Case No. 3291 of 1972 in September, 1972 requesting the High
Court to quash the proceedings on the ground that they were
vexatious. In the High Court the appellants admitted that
they had brought into the municipal area of Pilibhit
sugarcane by railway as pleaded by the Municipal Board
without paying octroi but submitted that octroi was not
payable in view of the exemption granted by the State
Government under section 157(3) of the Act. The High Court
rejected the plea of the appellants and dismissed the
petition filed by them on the ground that the case was
governed by certain earlier judgments of the High Court and
that the exemption was no longer available as the octroi
claimed was a new levy not covered by it. Although there was
some dispute about the existence of the Government order
granting the exemption, the High Court held that such an
order had been passed by the Provincial Government but it
was of no avail to the appellants. Accordingly the High
Court dismissed the petition filed by the appellants.
Against the judgment of the High Court, this appeal has been
filed.
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At the outset it should be stated that until the
complaint was filed in the year 1968 the Municipal Board had
not collected any octroi from the factory in question on
sugarcane brought by railway. We are also informed that by
an order communicated to all the Divisional Commissioners
and the District Magistrates of the State of Uttar Pradesh
on June 3, 1982, the levy of octroi on sugarcane brought by
sugar factories into the municipalities in the State of
Uttar Pradesh for crushing purposes is generally exempted
irrespective of the mode of transport used to bring such
sugarcane. The relevant part of that communication reads
thus:
"Sub:Exemption from octroi on sugarcane brought
for crushing in sugar mills within municipal
limits.
326
Sir,
On the above subject, in continuation of the
radiogram of the Government No. 2065 B/11-9-82 dated
27.5.1982, I have been directed to state that in
exercise of the powers conferred under sec. 157(3) of
the U.P. Municipalities Act, 1916, the Governor exempts
sugarcane brought within municipal limits for crushing
in sugar mills from octroi duty with immediate effect.
You are requested to ensure that the order is
carried out and acknowledge receipt of the Government
order.
Yours faithfully,
Sd/-
Shashi Kant Jain
Under Secretary"
This communication may, however, have no bearing on the
period in question but only shows how the State Government
has understood the scope of its power under section 157(3)
of the Act. Since all the facts are admitted the only
question which requires to be considered is whether on the
relevant date the appellants were liable in law to pay
octroi on sugarcane brought by them by railway into the
sugar factory which was situated within the municipal limits
of Pilibhit.. Chapter V of the Act contains the provisions
relating to municipal taxation. Section 128(1) (viii) and
section 157 of the Act are in that Chapter. The relevant
part of section 128 (as it stood in the year 1936) and
section 157 are as follows:
"128. Taxes which may be imposed-(1) Subject to
any general rules or special orders of the Local
Government in this behalf, the taxes which a board may
impose in the whole or any part of a municipality are-
(i) a tax on the annual value of buildings or
lands or of both;
(ii) a tax on trades and callings carried on
within the municipal limits and deriving
special advantages from, or imposing special
burdens on, municipal services;
327
(iii)a tax on trades, callings and vocations
including all employments remunerated by
salary or fees;
(iv) tax on vehicles and other conveyances plying
for hire or kept within the municipality or
on boats moored therein;
(v) a tax on dogs kept within the municipality;
(vi) a tax on animals used for riding, driving,
draught or burden, when kept within the
municipality;
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(vii)a toll on vehicles and other conveyances,
animals and laden coolies entering the
municipality;
(viii)an octroi on goods or animals brought within
the municipality for consumption or use
therein;"
(There are seven other clauses in section 128(1)
which relate to other taxes).
"157. Exemption-(1) A board may exempt, for a
period not exceeding one year, from the payment of a
tax, or any portion of a tax, imposed under this Act by
any person who is in its opinion, by reason of poverty,
unable to pay the same and may renew such exemption as
often as it deems necessary.
(2)A board may, by a special resolution confirmed
by the Local Government in the case of cities and by
the Commissioner in other cases, exempt from the
payment of a tax, or any portion of a tax, imposed
under this Act any person or class of persons or any
property or description of property.
(3)The Local Government may, by order, exempt from
the payment of a tax, or any portion of a tax, imposed
under this Act any person or class of persons or any
property or description of property."
328
It may be noted that while the power of exemption under
sub-sections (1) and (2) of section 157 of the Act is vested
in the Municipal Board, the power of exemption under sub-
section (3) of section 157 is exercisable by the Local
Government. Under sub-section (2) of section 157 the
resolution of the Municipal Board granting exemption should,
however, be confirmed by the Local Government or the
Commissioner, as the case may be.
The first submission made before us is somewhat subtle
and needs to be considered in some detail. It is argued that
since the exemption had been given under the order dated
November 20, 1936 on the ground that there was no
justification for the continuance of the levy of taxes on
rail-borne sugarcane as the municipalities were not
rendering any service in regard to it, the levy from which
exemption had been given by that order was either a terminal
tax or a fee and not a tax. Since what is being levied as
octroi from the year 1960 was a tax, the order of exemption
would be inapplicable to it. In support of the first part of
this argument that the tax referred to in the order of
exemption could only be a terminal tax reliance was placed
on a decision of the Federal Court in The Punjab Flour and
General Mills Co., Ltd. Lahore v. The Chief Officer,
Corporation of the City of Lahore and the Province of the
Punjab.(1) In that case the Federal Court had to construe
the meaning of entry 58 of List I of the Seventh Schedule to
the Government of India Act, 1935 which read as ’58.
Terminal taxes on goods or passengers carried by railway or
air; taxes on railway fares and freights’ and of entry 49 of
List II of the Seventh Schedule to the Government of India
Act, 1935 which read as ’49. Cesses on the entry of goods
into a local area for consumption, use or sale therein’. The
facts in that case were these: The Lahore Municipality had
in the year 1926 imposed under its then existing power of
taxation a tax called terminal tax calculated on the gross
weight of consignments or per tail as the case might be at
the rates and on the specified articles or animals,
specified in the Schedule to the notification imposing the
levy, imported into its municipal limits by rail or by road.
This was superseded by a notification issued in the year
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1938 by which the municipality gave notice of the imposition
of a new tax called ’octroi (without refunds)’ which was to
be calculated on the gross weight of consignments and on
animals per tail at the rates and on the articles specified
in the Schedule to the relevant notification
329
imported into its limits. This notification was superseded
by a further notification of the year 1940 by which a tax
called ’octroi (without refunds)’ was to be charged at the
new rates with effect from May 11, 1940 on consignments
including grain, imported into its limits. The Punjab Flour
and General Mills Co. Ltd., Lahore which was importing for
use or consumption grain into its factory which was situated
within the Lahore municipal limits contended that the tax in
question was a terminal tax, by whatever name it might have
been called, falling under entry 58 of List I of the Seventh
Schedule to the Government of India Act, 1935 and was not
imposable in 1938 or in 1940 after the relevant provisions
of the Government of India Act, 1935 had come into force. It
was contended by the company that the tax in question did
not fall under entry 49 of List II of the Seventh Schedule
to the Government of India Act, 1935. The Federal Court
after explaining the difference between the terminal taxes
and cesses which can be levied on goods imported into a
local area for purposes of use, consumption or sale therein
rejected the contention of the company with these
observations:
"There appears to us a definite distinction
between the type of taxes referred to as terminal taxes
in entry No. 58 of List 1 of the Seventh Schedule and
the type of taxes referred to as cesses on the entry of
goods into a local area in entry No. 49 of List II. The
former taxes must be (a) terminal (and) (b) confined to
goods and passengers carried by railway or air. They
must be chargeable at a rail or air terminus and be
referable to services (Whether of carriage or
otherwise) rendered or to be rendered by some rail or
air transport organisation. The essential features of
the cesses referred to in entry No. 49 of List II are
on the other hand simply (a) the entry of goods into a
definite local area and (b) the requirement that the
goods should enter for the purpose of consumption, use
sale therein. It is to be noted that there is no
limitation on the manner by which the goods to be
subjected to such cesses may enter. There is no ground
for suggesting that entry of goods by rail or air is
any less contemplated than entry by waterway or road.
It was argued by the appellant’s counsel that because
by entry No. 20 of List I Federal railways and the
regulation of railways and so forth is included in the
Central Government Legislative List and by List II the
Provincial
330
Government is mainly given powers of legislation over
roads and internal waterways and transport thereon
(entry No. 18), it should therefore be deduced that all
taxation on rail and air borne goods must be imposed,
if at all, under the powers conferred by entry No. 58
of List 1 and that powers of taxation conferred by
entry No. 49 of List II must be confined to goods that
enter by road or internal waterway only. We cannot
accept this argument. It is not in our judgment
justified by the wording of the various entries in the
two Lists and would impose a limitation on local
taxation under entry No. 49, in List II, which would
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often work most inequitably in practice between those
importing goods by road or waterway and those who could
import by rail or air. In our judgment there is no
limitation to be implied in entry No. 49 List II, in
regard to the manner in which goods may be transported
into a local area. It follows that so far as rail borne
goods are concerned the same goods may well be
subjected to taxation under entry No. 58 of List I as
well as to local taxation under entry No. 49 of List
II. The grounds of taxation under the two entries are
as indicated above, radically different, and there is
no case for suggesting that taxation under the one
entry limits or interferes in any way with taxation
under the other."
It is true that in the course of the above decision it
is observed that the element of service to be rendered is
treated as an ingredient of a terminal tax but that does not
mean that when tax is clearly laid on goods when they are
brought into a local area for purposes of use, sale or
consumption, it ceased to be a tax levied under section 128
(1) (viii) read with entry 49 of List II of the Seventh
Schedule to the Government of India Act, 1935 merely because
of the reason given for granting exemption under the order
the Provincial Government dated November 20, 1936 issued
under section 157 (3) of the Act. There is no doubt that the
octroi which was being levied in 1936 when the exemption was
granted and the subsequent levy imposed in the year 1960 are
both taxes levied under the Act and fall within the State
List both under the Government of India Act, 1935 and under
the Constitution. It was not a terminal tax falling under
entry 58 of List I of the Seventh Schedule to the Government
of India Act, 1935. It does not
331
also fall under entry 89 of List I of the Seventh Schedule
to the Constitution now. The said levy came within entry 49
of List II of the Seventh Schedule to the Government of
India Act, 1935 and now falls under entry 52 of List II of
the Seventh Schedule to the Constitution. The exemption
granted in the year 1936 should be construed as an exemption
from all taxation by way of octroi leviable and levied under
the Act on rail-borne sugarcane and that exemption would
continue until it is either rescinded or modified or becomes
inapplicable for any other reason. The second part of the
above submission was that the levy was in the nature of a
fee and not a tax as it had been described as a cess in
entry 49 of List II of the Seventh Schedule to the
Government of India Act, 1935. There is no merit in this
submission also. A cess may either be a tax or a fee.
Whether a cess in a given context is a tax or a fee depends
upon the purpose for which it is levied. The very decision
relied on by the respondents in this connection, namely The
Hingir-Rampur Coal Co., Ltd. & Ors. v. The State of Orissa &
Ors.(1) substantiates the above view. In that case this
Court held that the cess imposed by the Orissa Mining Areas
Development Fund Act, 1952 was a fee relatable to entries 23
and 66 of List II of the Seventh Schedule to the
Constitution having regard to the object and the scheme of
that Act and the purpose for which the cess collected under
it was to be used. There is no doubt that in entry 49 of
List II of the Seventh Schedule to the Government of India
Act, 1935 the expression ’cesses’ is used in the sense of
’taxes’. In entry 52 of List II of the Seventh Schedule to
the Constitution, the expression ’taxes’ is substituted in
the place of the expression ’cesses’ which was in the former
entry 49 in the Government of India Act, 1935 but the nature
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and content of the legislative power under both are the
same. The decision of the Federal Court in the case of the
Punjab Flour and General Mills Co. Ltd. (supra) itself shows
that a cess levied in exercise of the power under entry 49
of List II of the Seventh Schedule to the Government of
India Act, 1935 was a tax irrespective of any refund allowed
or not allowed by the Government as can be seen from the
following observation made by the Federal Court at page 26
of the Report:
"We can see no cause whatsoever for holding that
if cesses are imposed in pursuance of the powers
conferred
332
by entry No. 49 in List II, any provision need be made
for refunds. Whether or not there should be any refunds
in respect of such cesses appears to us to be a matter
open for determination by Provincial or local taxing
authority, and the existence or non-existence of a
provision of system of refunds cannot affect the tax
being or not being a cess within entry No. 49."
It is also significant that the word ’octroi in section
128 (1) (viii) of the Act is found in the group of taxes
referred to in section 128. All sums received by a Municipal
Board on account of the various levies made under section
128 have to be credited to the municipal fund under section
114 of the Act which can be utilised for the purposes of the
Municipal Board as stated in section 120 of the Act. The sum
received as octroi is also dealt with like any other tax.
There is no element of quid pro quo between the person who
pays the octroi and the Municipal Board. Hence octroi being
a tax it was competent to the Provincial Government to make
an order under section 157 (3) of the Act exempting
railborne sugarcane from payment of octroi.
The next submission urged before us is that the
appellants having failed in an earlier writ petition in
which they had questioned the validity of the levy of octroi
cannot now be permitted to challenge the levy again in these
proceedings. The facts bearing on the above contention are
these: In the year 1960, by a notification published in the
Official Gazette dated April 23, 1960 the Municipal Board of
Pilibhit promulgated new rules relating to the levy of
octroi and also published a fresh schedule of rates of
octroi in the Official Gazette dated May 18, 1960. This was
done with the previous sanction of the State Government
under section 133 of the Act. The octroi imposed by these
notifications related to number of articles including sugar,
sugarcane etc. The appellants who were liable to pay octroi
on many of those articles challenged in a petition filed
under Article 226 of the Constitution in Civil Misc. Writ
No. 2310 of 1960 on the file of the High Court of Allahabad
the validity of the levy on the ground that the procedure
followed in imposing octroi at the fresh rates was not valid
It was also pleaded that sugar industry being a controlled
industry levy of octroi on sugar was invalid. By that
notification octroi had been imposed also on the import of
sugarcane into the municipal limits of Pilibhit for purposes
of sale, use or consumption. That petition was
333
dismissed by the High Court. It is urged that because that
petition had been dismissed, it is not open to the
appellants now to contend that the exemption granted under
the order of 1936 was still available. The High Court has
accepted this contention urged on behalf of the respondents.
With due respect, we should say that the conclusion of the
High Court on the above point is erroneous. In the earlier
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writ petition, the appellants had challenged the validity of
the new octroi bye-laws and the imposition of octroi on many
articles brought by them into the municipal limits. By
reason of the dismissal of the writ petition, they would no
doubt be not entitled to reagitate the same question. In
this case the question involved is a different one and that
is whether even if the octroi bye-laws and the imposition of
octroi on sugarcane was good, the Municipal Board of
Pilibhit is competent to recover octroi on sugarcane brought
by rail by reason of the exemption accorded under section
157 (3). There is however, no dispute that octroi would be
payable under the octroi bye-laws when sugarcane is brought
by the appellants by any other means of transport. In the
circumstances, the High Court was in error in holding that
the order of exemption granted under section 157 (3) was the
same as any general rule or special order of the State
Government referred to in sub-section (1) of section 128
subject to which the Municipal Board may impose any tax
referred to therein and the effect of the exemption granted
in 1936 was also in issue in the earlier writ petition. In
that writ petition the said question was neither directly
nor constructively in issue in that case. An exemption
becomes operative only when the tax is validly imposed under
section 128. The restriction that may be imposed by any
general rule or special order of the State Government under
section 128 (1) affects the initial power of the Municipal
Board to levy a tax. An order under section 157 (3) operates
only after a tax is validly imposed with the sanction of the
State Government or of the Commissioner as the case may be,
as stated in section 133 of the Act. It is, therefore, open
to the appellants to contend even after the dismissal of
their earlier petition that they are entitled to the limited
exemption granted by the order of 1936, generally in favour
of a number of sugar factories in several municipal areas.
The decision of the High Court of Allahabad in Vir Singh &
Ors. v. Municipal Board & Anr.(1) also has no bearing on
this question.
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The next question is whether the nature of the tax
levied under clause (viii) of section 128(1) of the Act has
undergone any change after the commencement of the
Constitution. The said clause has not been materially
amended after the commencement of the Constitution. While it
formerly read as ’an octroi on goods or animals brought
within the municipality for consumption or use therein’ now
it reads as ’an octroi on goods or animals brought within
the municipality for consumption, use or sale therein’ by
reason of the addition of the word ’sale’ by an amending Act
passed subsequent to the commencement of the Constitution.
The High Court has observed that after the commencement of
the Constitution there has been a material change in the
nature of octroi levied under the Act and on account of the
framing of the new bye-laws the exemption granted under
section 157(3) would no longer be available for the
following reasons:
"It is significant that under Government of India
Act, 1935, 7th Schedule, List II, item No. 49 provides
cess on the entry of goods into the local area for
consumption or use or sale therein. For the purposes of
cess, it was necessary that the local body should
render some service as principle of quid pro quo
applies. Under the Constitution of India 7th Schedule,
List II, item No. 52 provides for levying taxes on the
entry of goods into the area for consumption or use or
sale therein. The tax certainly is different from cess
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and as such different considerations arise for levying
taxes. Learned counsel for the opposite party has also
pointed out that by Act VII of 1953, section 128(1)
(viii) has been substituted and as such more powers
were conferred on the Municipal Board. The only
difference is that octroi can now be imposed on goods
meant for sale also. The fact remains that the
Government order of 1936 was under section 157(3) of
the Act and as such had the effect of allowing
exemption with regard to levy of octroi duty on
sugarcane according to the rules then in force. When
the rules themselves were changed and new bye-laws had
been enforced, which had the sanction of State
Government or the delegated authority that exemption
could no longer apply unless fresh order was passed
under section 157(3) of the Act."
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With respect, we should express our disagreement with
the above view. As already observed by us, under the
Government of India Act, 1935, octroi leviable under entry
49 of List II of the Seventh Schedule thereto was not a fee
but was a tax. The new set of bye-laws with the modified
rates of octroi brought into force in 1960 by the Municipal
Board though with the sanction of the State Government does
not have the effect of rescinding or annulling the exemption
granted under section 157(3) by the former Provincial
Government. An order under section 157(3) can be withdrawn
or modified by the State Government only. Even if the said
provision is capable of a construction that when the new
bye-law or rates of tax imposed by the Municipal Board with
the sanction of the Government under section 133 which are
totally inconsistent with the exemption granted earlier
under section 157(3) the exemption would cease, in the
instant case we do not find any such irreconcilable
inconsistency between the notification published in 1960 and
the order of exemption made in the year 1936 which is in
respect of a number of municipalities. While under the
notification of 1960 octroi is payable on the import of
sugarcane into the municipal limits for purposes of sale,
use or consumption, by virtue of the order made in 1936
under section 157(3) sugarcane brought by rail and delivered
at the railway siding inside the factory premises alone is
exempted from the levy of octroi. Sugarcane brought by other
means of transport would be governed by the notification
issued in 1960. It is worthy of note that there is no
provision in the notification of 1960 to the effect that the
said exemption is either withdrawn or that sugarcane brought
by rail would be taxable. The order of exemption does not
say that it relates to a particular tax levied under a
specific notification issued by a particular Municipal
Board. It is in general terms and therefore the exemption
would continue to operate even after the notification was
issued in 1960 in supersession of the former notification in
so for as rail-borne sugarcane is concerned. If the
contention urged by the Municipal Board is accepted, then it
would indirectly arm a Municipal Board to get over any order
of exemption passed by the State Government by merely
amending its taxation bye-laws. It may be noted here that in
the case of municipalities other than city municipalities,
the sanctioning authority is the Commissioner and not the
State Government while under section 157(3) the State
Government alone can grant exemption. Hence such a
construction should be avoided. It is significant that for
nearly eight years after the promulgation of the new bye-
laws no claim was made by the Municipal Board in respect of
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octroi payable on rail-borne sugarcane
336
and subsequently the State Government by the letter dated
June 3, 1982 referred to above has enlarged the scope of
exemption by exempting from payment of octroi on sugarcane
brought into the municipal limits of all municipalities for
crushing in the sugar mills irrespective of the mode of
transport employed for bringing it.
On a consideration of all the contentions urged by the
parties before us we hold that the Municipal Board of
Pilibhit was not entitled to collect octroi on sugarcane
brought into its municipal limits by the appellants by rail
on the relevant date. The prosecution, therefore, is not
sustainable.
In the result, this appeal is allowed, the judgment of
the High Court is set aside and the proceedings in the
Magistrate’s court out of which this appeal has arisen are
quashed. There will be no order as to costs.
H.S.K. Appeal allowed.
337