24 April 1996
Supreme Court


Case number: Appeal Civil 61 of 1989






DATE OF JUDGMENT:       24/04/1996


CITATION:  JT 1996 (4)   488        1996 SCALE  (3)809



JUDGMENT:                       J U D G M E N T Mrs. Sujata V. Monohar. J.      Delay in filing supplementary affidavit is condoned .      The appellant,  Fertilizer corporation of India carries on the  business of  manufacturing  fertilizers.  It  has  a factory situated  at Gorakhpur.  Prior to  1982, the area in which the  factory of the appellant is situated, was outside the city  limits of Gorakhpur. This area was governed by the U.P. Town  Areas Act,  1914  and  it  had  a  Notified  Area Committee  constituted  under  this  act  to  discharge  the functions specified  under this  Act The  city of Gorakhpur. prior to  16.11.1981, had  a municipality  constituted under the  U.P.   municipalities  Act,   1916.  With  effect  from 16.11.1981, by reason of a notification issued under Section 3(1) of  the U.P. Nagar Mahapalika Adhiniyam. 1959. the city of  Gorakhpur   ceased  to   be   governed   by   the   U.P. municipalities Act  of 1916  and became  a Nagar  Mahapalika governed by  the Uttar  Pradesh Nagar  Mahapalika Adhiniyam, 1959.      Thereafter the area in which the appellant’s factory is situated was  brought within  the limits  of Gorakhpur  city with effect  from 15th  of June,  1982.  by  a  notification issued under  Section 3(2)  of  the  U.P.  Nagar  Mahapalika Adhiniyam, 1959 (hereinafter referred to as the Adhiniyam of 1959). As  a result.  the area  in which  the factory of the appellant  is  situated,  which  was  previously  under  the jurisdiction of  the Notified Area Committee, came under the jurisdiction of the Nagar Mahapalika of Gorakhpur city.      The dispute  in these  appeals relates  to the levy and recovery  of  octroi  from  the  appellant  for  the  period 7.4.1979 to 22.12.1982. A sum of Rs.2.19 lakhs was recovered from the  appellant by the Notified Area Committee by way of octroi for  the period  7.4.1979 to 14.6.1982, and an amount of Ps.4.78  lakhs was  recovered by  the Nagar Mahapalika of Gorakhpur  city   by  way   of  octroi   from  14.6.1982  to 22.12.1982.  It   is  the   contention  of   the  appellant-



Corporation that  it is  not liable  to pay  octroi for  the period 7.4.1979  to 15.6.1982  or for any period thereafter. The appellant  made a representation to the Administrator of the Mahapalika  claiming refund  of the  octroi paid for the said   periods    but   the   Administrator   rejected   the representation. The  appellant thereafter filed petitions in the Court  of Small  Causes under  Section 472  of the  said Adhiniyam  of     1959.  These  petitions  were  allowed  on 30.8.1982 and the appellant was granted refund of the octroi paid as  also a  permanent injunction  restraining the Nagar Mahapalika   from recovering octroi. The Nagar Mahapalika of Gorakhpur preferred  two appeals  against these  orders, The District Judge,  however, dismissed  these  appeals  by  his order dated  4.10.1986. The  order the  District  Judge  was challenged by  the Nagar  Mahapalika of  Gorakhpur  city  by filing two  writ petitions  before the  Allahabad High Court The High  Court by  its judgement  and order dated 7.12.1987 allowed these writ petitions. Hence the present appeals have been filed by the appellant before us.      We have to examine Whether octroi was validly collected from the  appellant for the aforesaid periods I. 7.4.1979 to 14.6.1982      Prior to   7.4.1979 the Notified Area Committee had the power to levy octroi under the U.P. Town Areas Act, 1914.      On 7th  of April,  79, the  Uttar Pradesh  Urban  Local Self-Government  Laws   (Amendment)  Ordinance,   1979   was promulgated which has  been subsequently replaced by an Act. This Ordinance  6  of  1979  made  amendments  to  the  U.P. Municipalities Act,  1916, as  also the U.P. Town Areas Act. 1914. By reason of Section 3 of the said Ordinance. the U.P. Town Areas  Act. 1914 was amended. As a result, the power of a Notified  Area Committee  under the  U.P. Town  Areas Act, 1914, to levy. inter alia, octroi was taken away.      Prior to  the said  Ordinance. the  Notified Town  Area Committee, under  Section 14(1)(g)  of the  U.P. Town  Areas Act. 1914  had the  power to  impose any  tax  mentioned  in Section 128(1)  of the  U.P. Municipalities  Act. 1916. This included the  power to  levy octroi  which was  provided for under Section  128(1)(viii) of  the U.P. Municipalities Act. 1916. By reason of the amendment made by the said Ordinance, the power  to levy , a tax mentioned in Section 128(1)(viii) of the U.P. Municipalities Act, 1916 was taken away from the Notified Area  Committees under  the U.P.  Town  Areas  Act, 1914.      Therefore, with  effect from 7.4.1979 the Notified Area Committee had  no power  to levy and collect octroi from the appellant. this  position continued  upto 14.6.1982 when the area which  was under  the jurisdiction of the Notified Area Committee became  a part  of the Gorakhpur Nagar Mahapalika. Clearly. therefore.  the sum of Rs.2.19 lakhs which has been collected by the Notified  Area Committee from the appellant for the  period    7.4.1979  to  14.6.1982  is  Without  the authority of law. II. 15.61982 to 22.12.1982      From 15.6.1982,  the area  in which  the factory of the appellant is  situated become  a part  of Gorakhpur    Nagar Mahapalika. It is the contention of the respondent that even when Gorakhpur  city  had  a  municipality  under  the  U.P. Municipalities Act, 1916, octroi was being validly levied in Gorakhpur city.  After  the  Gorakhpur  City    Municipality became Gorakhpur  Nagar Mahapalika  under the  Adhiniyam  of 1959.  octroi  was  continued  in  the  city  of  Gorakhpur. Therefore,  when  the  Nagar  Mahapalika  of  Gorakhpur  was extended to  the area  in which the factory of the appellant is situated,  this  area  also  became  subject  to  octroi.



Therefore. the  appellant is  bound and liable to pay octroi from 15.6.1982.  This submission  has been challenged by the appellant.      Now, under  sub-section (2)  Section 3 of the Adhiniyam of 1959  ( as  it stood  at the  relevant time  ), the State Government may  from time  to time,  after consultation with the Mahapalika,  by a  notification in the official Gazette, alter the  limits specified  for any  city under sub-section (1) so  as to  include or  to exclude therefrom such area as may be specified accordingly a notification was issued under Section 3(2).  As a  result, as  from 15th of June, 1982 the Area in which the appellant’s factory is situated came to be included in  the limits  of Gorakhpur  city. Section 3(4) of the said Adhiniyam of 1959 provides as follows :      "3(4);  Where   by    reason  of  a      notification under sub-section (2),      any area  is  included  in  a  city      declared under subsection (1), such      area shall  thereby become  subject      to   all    notifications,   rules.      regulations,    bye-laws.    orders      directions  issued  or  made  under      this or  any other enactment and in      force  in  the  city  at  the  time      immediately preceding the inclusion      of such  area, and  all taxes  fess      and charges imposed under this Act,      shall be  and continue to be levied      and  collected   in  the  aforesaid      area."      Therefore. by  reason of  sub-section (4) of Section 3. once the  area in  which the appellant’s factory is situated is included  in Gorakhpur  city, all  notifications.  rules. bye-laws etc.  of Gorakhpur  city  in  force.  automatically apply to  the freshly included area; and all taxes. fees and charges imposed  under  the  Adhiniyam  can  be  levied  and collected from the newly included area.      Section 3(4), however. was not in existence at the time when the  appellant’s factory area was included in Gorakhpur city. Section  3(4) has  been inserted in the said Adhiniyam of 1959  by reason  of the  Uttar Pradesh  Local Urban Self- Government Laws  (Amendment) Act,  1987, being U.P. Act 3 of 1987. Section  6 of  the Amending Act which adds Section (4) to the  U.P. Adhiniyam  of 1959  provides that  section 3(4) shall be and shall always be deemed to have been inserted in the  said   Adhiniyam.  therefore.  Section  3(4)  has  been inserted with  retrospective effect  and will  apply to  the levy and  collection of  octroi in  the newly  included area with effect  from 15th of June. 1989. Section 18 of the said Amending Act 3 of 1987 further provides  as follows :      "18(l)     Notwithstanding      any      judgment, decree  or order  of  any      court of  other  authority  to  the      contrary, any tax. fee or collected      levied.  charged  or  collected  or      purporting  to  have  been  levied,      charged  or  collected  before  the      commencement of  the Uttar  Pradesh      Urban  Local  Self-Government  Laws      (Amendment)  Act.   1987  and   any      action taken  or thing  done before      such commencement  in  relation  to      the assessment.  reassessment, levy      or collection  of such  tax, fee or      charge under  the provisions of the



    principal  Act   referred   to   in      Chapter IV  or Chapter  V,  as  the      case may  be, and  the  rules  made      thereunder shall  be deemed  to  be      valid  and  effective  as  if  such      assessment, reassessment.  levy  of      collection or  action or  thing had      been made,  taken or done under the      principal  Act   referred   to   in      Chapter IV or Chapter V as the case      may   be, as  amended by  the Uttar      Pradesh Urban Local Self-Government      Laws (Amendment)  Act, 1987 and the      rules and bye-laws made thereunder.      (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   the   Questioning   in      accordance with  the provisions  of      the principal  Act referred  to  in      Chapter IV  or Chapter  V.  as  the      case may be as amended by the Uttar      Pradesh Urban Local Self-Government      Laws  (Amendment)  Act.  1987,  any      assessment, re-assessment.  levy or      collection of any tax fee or charge      referred to in sub-section (1): or      (b) from  claiming  refund  of  any      amount paid by him in excess of the      amount due  from him  by way of any      tax.  fee   or  charge   under  the      principal  Act   referred   to   in      Chapter IV  or Chapter  V,  as  the      case may be as amended by the Uttar      Pradesh Urban Local Self-Government      Laws (Amendment) Act, 1987.      Therefore, any  tax, fee  or charge  levied, charged or collected before the Amending  Act 3 of 1987 shall be deemed to be  as valid  and effective  as if  such assessment.  re- assessment. levy  or collection had been done under the said Adhiniyam of  1959 as amended by the Amending Act 3 of 1987. By reason  of these retrospective amendments. it is not open to the  appellant to  challenge the  imposition of octroi in the extended area of Gorakhpur city with effect from 15th of June. 1982.      In the  case of  Hindustan Gum  and Chemicals  Ltd.  v. State of  Haryana &  Ors. (1985  (4) S.C.C  124. the factory premises of the appellant were included within the municipal limits of’  Bhiwani by  a notification dated 10th of August, 1965. issued under Section 5(3) of the Punjab Municipal Act. 1911.   Sub-section   (4)   of   Section   5   was   amended retrospectively by  the Punjab  Municipal (Haryana Amendment and Validation)  Act, 1971,  whereby the levy and collection of octroi  in the  extended area  were  validated.  In  sub- section    (4).    the    expression    "notification    was retrospectively added  thereby including  within its scope a notification imposing  octroi which would only automatically apply with  retrospective effect  to the extended area. This Court held that the reason of the retrospective amendment of Section 5(4).  imposition of octroi in the extended area was valid from the date when the new area became included within the municipal limits. The facts of the present case are very similar to  this case.  Therefore, by reason of the Amending and Validating  Act 3  of 1987.  the levy  and collection of



octroi in the extended area of Gorakhpur city must be upheld with effect from 15.6.1982.      In the  case of Bhaskar Textile Mills Ltd v. Jharsuguda Municipality &  Ors (1984  (2) SCC  25, para  20), a similar provision in Section 5 of the Orissa Municipal Act. 1950 was considered by  this Court.  Section 5  which is  worded in a manner similar  to Section  3(4) which  is before  us. inter alia, provided  that any bye-law immediately in force before the inclusion  of new  area shall be deemed to apply to such new  area.   The  Court   said  that  when  the  area  of  a municipality is  extended to  cover a new area. the existing municipal bye-laws  automatically apply to the extended area and no  separate steps as prescribed under the Municipal Act are necessary  to be  taken before applying such bye-laws to the extended area. It was contended before this Court in the above case  that when  the Municipal  Act requires  specific step to  the before bye- laws can be enacted and enforced in the municipal  area is  extended to  cover new areas. It was contended that  the bye-laws  will not be enforceable in the new area  without such  steps being taken. This argument was negatived by this court in view of the provisions of Section 5 of  the Orissa  municipal  Act  of  1950.  Following  this decision, the argument of the appellant that procedure under Sections 199  to 219  of  the  adhiniyam  of  1959  must  be following for  imposing octroi in the extended area, must be rejected.      The  appellant   next  contended  that  even  prior  to 15.6.1982 octroi was not validly levied and collected in the original  Gorakhpur   city.  The  appellant  contended  that procedure under  Section 199 to 219 of the said Adhiniyam of 1959 was  at no  time followed for the levy of octroi in the original Gorakhpur  city. Hence octroi could not be extended to the newly included area of t he appellant’s factory after 15.6.1982. According  to the respondent, however. even prior to  16.4.1981.   (when  the   Adhiniyam   of   1959   became applicable).  under   the  U.P.  Municipalities  Act,  1916. Section  128(1)(viii)   authorized   the   municipality   of Gorakhpur to  levy octroi. the municipality of Gorakhpur had levied octroi  . When the municipality of Gorakhpur city was succeeded by the Mahapalika of Gorakhpur city under the said Adhiniyam of  1959 with  effect from 16.4.1981, the existing octroi was  continued. Section  577 of the said Adhiniyam of 1959.  inter   alia,  provides   that  any   tax,  bye-laws, regulation etc.  imposed under  the U.P. Municipalities Act, 1916, shall,  in so  far as it is not’ inconsistent with the provisions of  the Adhiniyam.  continue in force until it is superseded by  any tax  etc. imposed  under the Adhiniyam of 1959. The respondent. therefore. rightly submits that it was not required  to follow  the procedure under Sections 199 to 219 of  the said  Adhiniyam of 1959 as octroi was not levied under the  Adhiniyam of  1959. It  was  levied  earlier  and continued under  Section 577  when Gorakhpur city came under the Adhiniyam  of 1959.  Octroi which  was imposed under the U.P. Municipalities Act. 1916 remained in force. This octroi was, levied  and collected  from the  extended area when the extends area became a part of Gorakhpur city.      It was  also contended  by the appellant that by reason of the  Uttar Pradesh  Urban  Local  Self-  Government  Laws (Amendment) Ordinance.  1979 referred  to earlier, the power to levy  octroi under  the U.P. Municipalities Act, 1916 was also taken  away. just as it was taken away in the case of a Notified Area Committee under the U.P. Town Areas Act. 1914. This contention,  however. has  no merit.  Section 2  of the said  Ordinance   deals   with   amendment   to   the   U.P. Municipalities Act, 1916. lt substitutes tor clause (vii) of



sub-section (l)  of Section 128, a new clause (vii) which is set out  there. This clause deals with imposition of a toll. Clause (viii) of sub-section (1) of Section 128, which deals with the imposition of octroi, is not in any manner affected by the said ordinance of 1979.      The Ordinance,  however, also amends Section 338 of the U.P. Municipalities Act. 1916. It is this amendment which is relied upon  by the  appellant.  Section  338  of  the  U.P. Municipalities   Act,  1916  deals  with  the  extension  of certain  enactments  to  and  imposition  of  taxes  in  and constitution of  committees for  notified areas. It provides that the State Government may by notification apply or adopt to a notified area the Provisions of any section of this Act or impose  in the  whole or a part of such notified area any tax which  might he imposed under the provisions of the U.P. Municipalities Act,  1916 as  if the  notified area  were  a municipality. To this the Ordinance has made an amendment by carving out  an exception.  It has  provided that  the taxes which can  be so  imposed on  a notified area shall be taxes other than  those taxes  referred to  in clauses  (vii)  and (viii) of  sub-section (1) of Section 128. These two clauses deal with  toll and  octroi. The  amendment thus. takes away the right  to impose  octroi in  any notified area. Notified area is  described in  Section 337  as an  area other than a municipality. town area or agricultural village which may be so notified by the State Government by a notification as set out therein.  In such  a  notified  area  octroi  cannot  be imposed under  Section 338  as  amended  by  the  Ordinance. Section 338 has no application to a municipality constituted under the U.P. Municipalities Act, 1916. Such a municipality has and  continues to  have the power to impose octroi under Section  128(1)(viii)  of  the  said  Act.  the  contention. therefore,  that   the  Gorakhpur   municipality  prior   to 16.4.1981 had  no power  to levy  octroi must  be  rejected. octroi was  validly levied  and imposed  in  Gorakhpur  city under the  U.P. Municipalities Act, 1916 and it continued to the validly  levied when  Gorakhpur city came to be governed by the  U.P. Adhiniyam of 1959. Hence octroi was leviable in the extended area which became a part of Gorakhpur city With effect from 15.6.1982.      To sum  up. the Notified Area Committee had no power to levy and  collect octroi from the appellant from 7.4.1979 to 14.6.1982 by  virtue of  the said  Ordinance 6  of 1979. But with effect  from 15.631982  the  Gorakhpur  Mahapalika  has validly levied octroi on the appellant.      The respondent  has tried  to justify the collection of octroi  by  the  Notifies  Area  Committee  for  the  period 7.4.1979 to 14.6.1982 on basis of Section 18 of the Amending Act 3  of 1987.  The respondent  contends that  by reason of Section 18  of the  Amending Act of 1987  which has been set out earlier  any purported  levy and  collection of  tax has been validated.  A perusal  of Section 18. however. makes it clear that  what  is  validated  is  a  purported  levy  and collection of  octroi under  the provisions of the principal Acts referred  to in  Chapters IV or V of the Amending Act 3 of 1987.  These two  chapters of the said U.P. Act 3 of 1987 deal  with   the  said   Adhiniyam  of  1959  and  the  U.P. Municipalities   Act.   1916   respectively.   Section   18. therefore. will  not validate  a purported  levy  of  octroi under the  U.P. Town  Areas Act. 1914 levied by the Notified Area Committee.      It is  lastly, submitted by the appellant that it is by virtue of  the retrospective  introduction of subsection (4) of Section 3 in the said Adhiniyam of 1959 that the levy and collection of  octroi  from  15.6.1982  is  validated.  This



retrospective imposition  puts an unreasonable burden on the appellant. The  appellant has relied upon a decision of this Court in  J.K. Cotton Spinning and Weaving Mills Ltd. & Anr. v. Union  of India  & Ors.  [1988 (1) SCR 700 AT 713]  where this Court  has said  in Connection  with the  retrospective levy  of   excise  duty,   that  the  period  of  limitation prescribed under Section 11A of the Central Excises and Salt Act. 1944  would apply  even  to  the  levy  and  collection retrospectively of  excise duty.  The ratio of this judgment cannot apply  to the  present case  since we  have not  been shown any  provision similar  to Section  11A  in  the  said Adhiniyam   of 1959. What is more. in the present case. from January 1983  to 7.12.1987,  which is  the date  of the High Court judgment.  the collection  of octroi by the respondent was stayed by reason of court orders. Therefore, all that we can observe is, that the respondent shall collect octroi for any period  subsequent to  in accordance with the provisions of law.  But the  respondent who  is the  successor  of  the Notified   Area Committee,  is also  liable to refund to the appellant  octroi  collected  for  the  period  7.4.1979  to 14.6.1982 Looking  to the fact that the appellant has closed its unit.  it will  be open  to the respondent to adjust the amount of  octroi refundable  to the  appellant against  the liability of  the appellant  to  pay  octroi  for  a  period subsequent to  22.12.1982 the  respondent  is  entitled,  in accordance with  law. to  collect such  octroi  for  periods subsequent to 22.12.1982.      The appeals are accordingly partly allowed. There will. however. be no order as to costs.