Full Judgment Text
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PETITIONER:
.M/S. HINDUSTAN GUM & CEEMICALS LTD.
Vs.
RESPONDENT:
STAIE OF HARYANA & ORS.
DATE OF JUDGMENT19/08/1985
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
MISRA, R.B. (J)
CITATION:
1985 AIR 1683 1985 SCR Supl. (2) 630
1985 SCC (4) 124 1985 SCALE (2)361
ACT:
Punjab Municipal Act 1911, Section 5 and Punjab
Municipal Haryana Amendment and Validation) Act 1971,
Sections 2 and 4 Octroi - Levy of octroi in the extended
area of a municipality declared invalid by the Supreme Court
- statue amended retrospectively removing the defect found
by the Court and validating the levy and collection of
octroi - Legislature, Whether competent to amend the statute
effect of.
HEADNOTE:
Section 5(4) of the Punjab Municipal Act 1911 as it
stood prior to the amendment prescribed: "When any local
area has been included in a municipality under sub-section
(3) of Section 5, this Act, and except as the State
Government may otherwise by notification direct, all rules,
bye-law, orders, directions aud powers made, issued or
conferred under this Act and in force throughout the whole
municipality at the time, shall apply to such area.
By a notification dated August 10, 1965 issued under
Section 5(3) of the Act, the area within which the factory
of the appellant was situated was included within the
municipality of Bhiwani. Thereafter, the-municipal Committee
commenced to impose and collect octroi from the appellant in
respect of the guar imported by the appellant into its
factory within the extended municipal limits of Bhiwani from
outside. The appellant filed a Writ Petition in the High
Court for restraining the municipality from levying and
collecting the octroi on the ground that when an area of any
municipality was extended, there could be no automatic
imposition of octroi which was in force within the limits of
municipal area before such extension in that extended area
unless the procedure prescribed by section 62 of the Act was
complied with. In another writ petition, the Atlas Cycle
Industries Ltd. also raised a similar contention before the
High Court. The High Court dismissed both the writ Petitions
by a common judgment on 18th May, 1970 holding that by
virtue of section 5 (4) of the Act 811 taxes, octroi etc.
which were being levied within the municipal limits before
the extension of the
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municipal limits came to be applicable automatically to the
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A extended area of the municipality. The Supreme Court in an
appeal filed by the Atlas Cycle Industries Ltd., reversed
the judgment of the High Court on August 11, 1971 holding
that the notifications under the Act are the only authority
and mandate for imposition and charge of tax, and since
notifications are not made applicable to included areas
under section 5(4) of the Act, the High Court was wrong in
holding that the municipality was competent to levy and
collect octroi from the appellant by virtue of the
provisions contained in Section 5(4) of the Act.
After the aforesaid decision in Atlas Cycle Industries
Ltd., the Sate Legislature passed Punjab Municipal (Haryana
Amendment & Validation) Act 1971. Section 2 of the Amending
Act substituted the word "rules" in sub Section (4) of
Section 5 of the Act by the words and sign "rules,
notification" and further provided that those words and sign
should be deemed always to have been substituted. By section
4 of the Amending A t the levy of octroi against and
collection from the appellant and others within the extended
limits of all the municipalities in Haryana were validated.
Dismissing the Appeal,
^
HELD: 1. lt is permissible for a legislature to
overcome the effect of a decision of a Court setting aside
the imposition of the tax by passing a suitable legislation
amending the relevant provisions of the statue concerned
with retrospective effect ant by validating assessments e
earlier. [638 D-E]
In the instant case, since the word ’notification has
now been inserted in Section 5(4) of the Act with
retrospective effect, the basis on which the decision in
Atlas Cycle Industries Ltd. was rendered has been removed
because the deficiency in section 5(4) noticed by the
Supreme Court has been made good and the levy and collection
of octroi have also been validated. The Amending Act
satisfies the tests laid down by Supreme Court in Sh.
Prithvi Cotton Mill case. The Amending Act, thus,
neutralises the effect of the decision in Atlas Cycle
Industries Ltd. which can no longer be relied upon after the
amendment of the Act. The levy and collection of octroi in
the area which was included within the municipal limits of
Bhiwani with retrospective effect from August 10, 1985 in
accordance with the notification issued earlier are,
therefore no longer open to question. [640 C-E]
632
Bagalkot City Municipality v.Bagalkot Cement Co.,
[1963] Suppl. 1 S.C.R. 710, referred to.
Shri Prithvi Cotton Mills Ltd. & Anr. v. Broach Borough
Municipality & Ora. [1970] 1 S. C. B. 388 relied upon.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 598(N)
of 1972.
From the Judgment and Order dated 18.5.1970 of the
Punjab and Haryana High Court in Civil Writ No. 2743 of
1968.
V.C. Mahajan and Mrs. Urmila Sirur for the Appellant.
Harbans Lal, R.N.Poddar (not present) and Serv Mitter
for the Respondents.
The Judgment of the Court was delivered by
VENKATRAMIAH , J. The appellant in this appeal by
certificate is a limited company having its registered
office at Calcutta. It is carrying on the business of
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processing guar at its factory situated Bhiwani, formerly
within the State of Punjab and now in the State of Haryana,
and exporting the outer shell to the United States of
America. The inner part of guar is used as fodder for cattle
in India. For the purpose of processing, the appellant, has
to bring into its factory premises guar from outside mandis.
Prior to August 10, 1965, the appellant’s factory was
situated outside the local limits of the Municipal Committee
of Bhiwani, but with effect from that date by reason of the
extension of the local limits of the said Municipal
Committee by the Notification No. MCII (XIII)-II 61/31330
dated August 10, 1965 issued under section 5(3) of the
Punjab Municipal Act, 1911 (Punjab Act No. III of 1911)
(hereinafter referred to as ’the Act’) by the then Punjab
Government, the factory premises came within the municipal
limits of Bhiwani. The said Notification was published in
the Punjab Government Gazette dated August 13, 196 and with
effect from that date the Municipal Committee of Bhiwani
commenced to impose and collect octroi from the appellant in
respect of the guar imported by the appellant into its
factory within the extended municipal limits of Bhiwani from
outside. The appellant resisted the levy of octroi. When its
attempts to get exemption from payment of octroi failed, it
filed a writ
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petition under Article 226 of the Constitution before the
High Court of PunJab and Haryana in Civil Writ No. 2743 of
1968 questioning the imposition of octroi on several grounds
one of them being that without complying with the legal
formalities necessary for the imposition of octroi in the
extended area o the municipality, it was not open to the
Municipal Committee to levy octroi on guar brought by the
appellant into its factory from outside. The petition was
contested by the State Government and the Municipal
Committee of Bhiwani. That petition was dismissed by the
High Court of PunJab and Haryana by its judgment dated May
18, 1979. Aggrieved by the judgment cf the High Court, the
appellant has filed the above appeal after obtaining the
necessary certificate under Article 133 (1)(a) of the
Constitution from & the high court.
Section 5 of the Act, as it stood at the relevant time,
read as follows:
5(1). The State Government may, by notification
published in the Official Gazette and in such
other manner as it may determine, declare its
Intention to include within a municipality any
local area in the vicinity of the same and defined
in the notification whether such local area is a
municipality or a notified area under this Act or
not.
(2) Any inhabitant of a municipality or local area
in respect of which a notification has been
published under sub-section (1), may, should he
object to the alteration proposed, submit his
objection in writing through the Deputy
Commissioner to the State Government within six
weeks from the publication of the notification in
the Official Gazette; and the State Government
shall take such objection into consideration.
(3) When six weeks from the publication of the
notification have expired, and the State
Government has considered the objections if any
which have bee submitted under sub-section (2),
the State Government may, by notification, include
the local area in the municipality.
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(4) When any local area has been included in a
municipality under sub-section (3) of this
section, this
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Act, and, except as the State Government may
otherwise by notification direct, all rules, bye
laws, orders, directions and powers made, issued,
or conferred under this Act and in force
throughout the whole municipality at the time,
shall apply to such area.
Before the High Court the appellant relied upon the
decision of this Court in Bagalkot City Municipality v.
Bagalkot Cement Co. [1963] Suppl. 1 S.C.R. 710, in support
of its contention that when an area of any municipality was
extended there could be no automatic imposition of octroi
which was in force within the limits of municipal area
before such extension in the extended area unless the
procedure prescribed by section 62 of the Act was complied
with. The High Court distinguished the above decision from
the present case by relying upon sub-section (4) of section
5 of the Act which prescribed that when any local area was
included in a municipality under sub-section (3) of section
5 of the Act, and, expect as the State Government may
otherwise by notification direct all rules, bye laws,
orders, directions and powers made, or conferred under the
Act and in force throughout the whole municipality at the
time, would apply to such area. The High Court noticed that
in the Bombay District Municipal Act, 1901 which governed
the Bagalkot City Municipality’s case (supra) there was no
provision corresponding to sub Section (4) of section 5 of
the Act and it took the view that by virtue of section 5(4)
of the Act all taxes, octroi etc. which were being levied
within the municipal limits of Bhiwani before the extension
of the municipal limits came to be applicable automatically
to the extended area of the municipality. On the above basis
the Writ Petition was dismissed on May 18, 1970. Along with
the said writ petition the High Court also dismissed some
other writ petitions which had been filed by some other
petitioners carrying on business at Sonepat town against
the State of Haryana and the municipal committee of Sonepat
In which a similar contention had been raised. One of those
writ petitions was Civil Writ No. 2014 of 1967 on the file
of the High Court of Punjab and Haryana filed by the Atlas
Cycle Industries Limited, Sonepat. The Atlas Cycle
Industries Limited preferred an appeal against the said
common judgment but that appeal came to be disposed of by
the decision of this Court on August 11, 1971 in Atlas Cycle
Industries Ltd. v. State of Haryana & Anr. [1972] 1 S.C.R.
127. By that decision this Court reversed the judgment of
the High Court and allowed the appeal holding that the High
Court was wrong in holding that the municipality in that
case was competent to levy and collect octroi from the
appellant therein by virtue of the provisions
635
contained in section 5(4) of the Act. A writ in the nature
of mandamus was issued to the Sonepat municipality, the
respondent in that case, restraining it from levying against
and collecting from the appellant therein any octroi in
respect of raw materials, components and parts imported by
it info its factory under the notification levying octroi
which was in force in the said local area before its limits
were extended. In reaching the above conclusion, this Court
observed at pages 133-135 thus:
Section 62 (10) of the Act indicates that there is
imposition of tax only when the state Government
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shall notify the imposition of the tax and shall
in the notification specify a date on which the
tax shall come into force. In the absence of
imposition of tax by a notification under section
62 (10) of the Act the municipality is not
competent to impose levy or collect tax. Section
62(10) of the Act enacts that a notification of
the imposition of tax shall be conclusive evidence
that the tax has been imposed in accordance with
the provisions of the Act. lt is the notification
under the statute which is conclusive evidence of
the imposition of tax.
The controversy in the present appeal is solved by
finding out as to whether the notification dated
3rd November, 1942 imposing octroi within the
limits of the Sonepat Municipality became
applicable by reason of the provisions, contained
in section 5(4) of the Act. It is noticeable at
the outset that section 5(4) of the Act speak of
rules, bye Laws, orders, directions and powers and
does not significantly mention ’notification’. It
is apposite to consider section 6, 7 and 8 of the
Act which deal with the effect of exclusion of
local area from the municipality. In the case of
exclusion of an area from the Municipality it is
provided in section 8(1) (a) of the Act that This
Act and all notifications, rules, bye laws,
orders, directions and powers issued, made or
conferred under the Act, shall cease to apply
thereto. When the Act provided for notifications
ceasing to apply in the case of exclusion of local
areas, and in the immediately preceding section 5
refrained from using the word ’notifications’
becoming applicable in the case of inclusion of
areas the legislative intent is unambiguous and
crystal clear that notifications could not become
applicable to an included area on the strength of
section 5(4) of the Act.
636
The word ’notification’ cannot be said to be
synonymous with rules, bye-laws, orders,
directions and powers for two reasons. First, the
Act in the present case speaks of notifications
for imposition of tax and uses the word
notification’ separately from the other words
"rules, bye laws, orders, directions and powers n
In the case of exclusions of area, the Act speaks
of notification ceasing to apply to excluded areas
whereas in the case of inclusion of areas the Act
significantly omits any notification being
applicable to such area. Secondly, the General
Clauses Act in section 21 speaks of power to issue
notifications, orders, rules or bye-Laws refers to
power under the statute. Section 62(10) of the Act
speaks of notification of the imposition of tax.
Such a notification is the statutory basis of
imposition and levy of tax.
Bye-laws are entirely different from notifications
imposing tax as will be manifest from section 188
of the Act. Under that section the committee may
by bye-laws as mentioned in clause (g) thereof fix
limits for the purpose of collecting octroi where
collection of octroi has been sanctioned and may
prescribe routes by which articles which are
subject to octroi may be imported into
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municipality, Bye-laws fixing the limits and
prescribing the routes by which articles which are
subject to octroi may be imported obviously cannot
be equated with notification of imposition of
octroi.
.................................................
In the first place, a taxing provision always
receives a strict interpretation for the obvious
reason that there must be clear and express
language imposing a tax and the date from which
such tax shall come into effect. Notifications
under the Act are the only authority and mandate
for imposition and charge of tax. Notifications
under the Act are the only authority and mandate
for imposition and charge of tax. Notifications
are not made applicable to included areas under
section 5(4) of the Act.
Following the above decision of this Court which was
delivered on August 11, 1971 we should have allowed this
appeal and issued directions similar to those issued in the
above decision to the respondents in this case also. But
after the above
637
decision of this Court, the State Legislature of Haryana
proceeded to amend the Act by passing the Punjab Municipal
(Haryana Amendment and Validation) Act, 1971 (hereinafter
referred to as ’the Amending Act’). The Amending Act was
published in the Haryana Government Gazette on November 16,
1971. Section 2 and section 4 of the Amending Act are
material for purposes of this appeal. By section 2 of the
Amending Act the Legislature substituted the word rules" in
sub-section (4) of section 5 of the Act by the words and
sign rules, notification and further providing that those
words and sign should be deemed always to have been
substituted. By reason of this amendment the expression
’notification’ should be deemed always to have been present
in section 5(4) of the Act including the date on which the
municipal limits of Bhiwani were extended bringing within
them the factory of the appellant also. By section 4 of the
Amending Act, the levy of octroi against and collection from
the appellant and others within the extended limits of all
the municipalities in Haryana were validated. Section 4 of
the Amending Act read thus:-
"4. Validation: (1) Notwithstanding any judgment,
decree or order of any court or other authority to
the contrary.................................. any
octroi levied, charged or collected or purporting
to have been levied, charged or collected before
the commencement of this Act and any action taken
or thing done before the commencement in relation
to such assessment, reassessment, levy or
collection under the provisions of the principal
act and the rules made thereunder shall be deemed
to be as valid and effective as if such
assessment, re-assessment, levy or collection or
action or thing had been made, taken or done under
the principal Act as amended by this Act and the
rules and bye-laws made thereunder and accordingly
-
(a) All acts, proceedings or things done or taken
by the Committees or by the officers of the
Comities or by any other authority in connection
with the assessment, re-assessment, levy or
collection of such tax or octroi shall, for all
purposes, be deemed to be and to have always been
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done or taken in accordance with the law;
(b) no suit or other proceedings shall be
maintained or continued in any court or before any
authority for the refund of any such tax or
octroi; and
638
(c) no court shall enforce any decree or order
directing the refund of any such tax or octroi.
(2) For the removal of doubts, it is hereby
declared that nothing in sub Section (1) shall be
construed as preventing any person-
(a) from questioning in accordance with the
provision of the principal Act, as amended by this
Act, any assessment, re-assessment, levy or
collection of tax or octroi referred to in sub-
section (1): or
(b) from claiming refund of any tax or octroi
paid by him in excess of the amount due from him
by way of tax or octroi under the principal Act,
as amended by this Act.
Reliance 18 now placed by the respondents On the
amendment of section 5(4) of the Act made with retrospective
effect and the validating provisions contained in the
Amending Act in support of their case. It is now well
settled that it is permissible for a competent Legislature
to overcome the effect of a decision of a Court setting
aside legislation amending the relevant provisions of the
statute concerned with retrospective effect, thus taking
away the basis on which the decision of the Court had been
rendered and by enacting an appropriate provision validating
the levy and collection of tax made before the decision in
question was rendered. In Shri Prithivi Cotton Mills Ltd &
Anr. v. Broach Borough Municipality & Ors. [1970] 1 S.C.R.
388, a Constitution Bench of this Court has laid down the
requirements which a validating law should satisfy, in order
to validate the levy and collection of a tax which had been
declared earlier by a Court as illegal. Hidayatullah, C.J.
speaking for this Court observed in the above decision at
pages 392-393 thus:-
"When a legislature sets out to validate a tax
declared by a court to be illegally collected
under an ineffective or an invalid law, the cause
for ineffectiveness or invalidity must be removed
before validation can be said to take place
effectively. The most important condition, of
course, is that the legislature must possess the
power to impose the tax, for, if it does not, the
action must ever remain ineffective and illegal.
Granted legislative competence, it is not
sufficient to declare merely that the decision
639
of the Court shall not bind for that is tantamount
to reversing the decision in exercise of judicial
power which the legislature does not possess or
exercise. A court’s decision must always bind
unless the conditions on which it is based are so
fundamentally altered that the decision could not
have been given in the altered circumstances.
Ordinarily, a court holds a tax to be invalidly
imposed because the power to tax is wanting or the
statute or the rules or both are invalid or do not
sufficiently create the jurisdiction. Validation
of a tax so declared illegal may be done only if
the grounds of illegality or invalidity are
capable of being removed and are in fact removed
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and the tax thus made legal. Sometimes this is
done by providing for jurisdiction where
Jurisdiction had not been properly invested
before. Sometimes this is done by re-enacting
retrospectively a valid and legal taxing provision
and then by fiction making the tax already
collected to stand under the re-enacted law. Some
time the legislature gives its own meaning and
interpretation of the law under which the tax was
collected and by legislative fiat makes the-new
meaning binding upon courts. The legislature may
follow any one method or all of them and while it
does so it - may neutralise the effect of the
earlier decision of the court which becomes
ineffective after the change of the law. Whichever
method is adopted it must be within the competence
of the legislature and legal and adequate to
attain the object of validation. If the
legislature has the power over the subject matter
and competence to make a valid law, it can at any-
time make such a valid law and make it
retrospectively so as to bind even past
transactions. The validity of a Validating law,
therefore, depends upon whether the legislature
possesses the competence which it claims over the
subject-matter and whether in making the
validation it removes the defects which the courts
had found in the existing law and makes adequate
provisions in the validating law for a valid
imposition of the tax.
In the instant case the only ground on which this Court
had found the levy of octroi in the extended area of a
municipality to be invalid was that the provisions of
section 5(4) of the Act were inadequate in the absence of a
reference to the notifications issued under the Act also in
that sub-section. By the
640
Amending Act the word ’notification’ had been inserted in
sub section (4) of section 5 of the Act with re respective
effect. If the expression ’notification’ had been there in
that sub-section on the date on which the municipal limits
were extended, this Court would have upheld the levy and
collection of control in its judgment in Atlas Cycle
Industries Ltd. case (supra). This Court found that sub-
section (4) of section 5 which did not contain the word
’notification’ was inadequate for the purpose of upholding
the levy and collection of octroi in the extended local
area. Since the word ’notification’ has now been inserted in
section 5(4) of the Act with retrospective effect, the basis
on which the said decision was rendered has been removed
because the deficiency in section 5(4) noticed by this Court
has been made good and the levy and collection of octroi
have also been validated. The Amending Act satisfies the
tests laid down by this Court in the decision in Shri
Prithvi Cotton Mill’s case (supra) for overcoming an earlier
decision of a court in such circumstances. The Amending Act
thus neutralises the effect of the decision in the case of
Atlas Cycle Industries Ltd. case (supra) which can no longer
be relied upon by the appellant after the amendment of the
Act as stated above. There is no other contention urged by
the appellant in support o its appeal. The levy and
collection of octroi in the area which was included within
the municipal limits of Bhiwani with retrospective effect
from August 10,1965 in accordance with the notification
issued earlier are, therefore, no longer open to question.
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In the result this appeal fails and the order of
dismissal of the writ petition passed by the High Court is
affirmed but on a ground different from the ground on which
the High Court had dismissed it. There shall, however, be no
order as to costs.
M.L.A. Appeal dismissed.
641