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PETITIONER: KATHIAWAR INDUSTRIES LTD.

       Vs.

RESPONDENT: JAFFRABAD MUNICIPALITY

DATE OF JUDGMENT08/08/1979

BENCH: KAILASAM, P.S. BENCH: KAILASAM, P.S. GUPTA, A.C.

CITATION:  1979 AIR 1721            1980 SCR  (1) 243  1979 SCC  (4)  56

ACT:      Octroi-Terminal tax  a kind of octroi-Levy of octroi on uncrushed salt-Uncrushed  salt  crushed  in  factory-Whether conversion into  another commercially  different  article-If amounts to consumption-"Consumption", "Use"-Meaning of.      Saurashtra Terminal  octroi ordinance, 1949, Ss. 2(2) & 3; &  Saurashtra octroi  and Terminal Tax Rules 1949, Rule 3 Schedule I Item No. 23.

HEADNOTE:      In 1948 on the formation of Saurashtra State, Jaffrabad came within  its territorial  limits and the Bombay District Municipal Act, 1901 as adapted and applied to the said State became applicable  to Jaffrabad.  Jaffrabad Municipality the predecessor of  the respondent  was  constituted  under  the Bombay District Municipal Act, 1901.      The State  of Saurashtra, within the territorial limits of which  the said  Municipality  was  situate,  promulgated ordinance No.  47 of  1949 on  31-X-49 called the Saurashtra Terminal octroi  ordinance, 1949.  Section 2  cl. (2) of the said ordinance defines "octroi" as including a terminal tax. Section 3  empowered the  Government to  impose terminal tax and octroi  duty, and provided that octroi may be imposed on "animals or goods, or both, within the octroi limits brought for consumption  or use  therein." Section  4 empowered  the Government to  make rules  in exercise  of which  the  State Government made the Saurashtra octroi and Terminal Tax Rules on 8th  December, 1949.  Rule 3,  the charging rule provided that octroi  is payable  in respect  of  goods  set  out  in Schedule I  of the  Rules and  prescribed that  it shall  be payable at  the nakas  at rates set out therein. Item No. 23 is "Salt  for Factory".  Schedule II  enumerated a  list  of items which  are exempt  from octroi  duty and  contained in Item No. 6, a sub-item in Gujarat which means "salt".      The appellant was running a salt manufacturing works at Jaffrabad. The  company had constructed salt works, grinding mills, trolly-tracks and a jetty at the port site. The major portion of  the salt  works is situated out of the municipal limits. The  salt  is  manufactured  outside  the  municipal limits. The  grinding mills and the part of the trolly-track leading to  jetty came  within the  municipal limits  of the respondent Jaffrabad Municipality.

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    The salt  is prepared  in the  salt  pans  outside  the octori limit  and the  salt which is crushed is taken to the crushing factory  and the salt which is not to be crushed is taken in  uncrushed form.  directly to  the jetty  over  the trolly track  part of which passes through the octroi limits of the  municipality.  The  salt  that  is  crushed  in  the crushing factory  is also  after crushing taken by trolly to the jetty.  From the  jetty  the  salt  whether  crushed  or uncrushed, as the case may be is exported by steamers. 244      The Municipality  demanded from the appellant octroi in respect of salt manufactured by it. The appellant paid under protest  and   filed  a  suit  against  the  respondent  for declaration that  the salt  manufactured by the appellant at its salt  works at  Jaffrabad and  exported uncrushed and/or crushed was  not liable to octroi duty and the goods passing through municipal  limits from the salt works are not liable to  octroi  duty  and  for  an  injunction  restraining  the respondent from  recovering the  amount claimed  as  octroi. Another suit  claiming refund  of the  octroi paid  was also filed.      The two  suits were  decreed, the  court declaring that the salt manufactured by the appellant company is not liable to octroi  duty. The  Municipality being aggrieved preferred appeals and the appellate court while dismissing the appeals and confirming  the decrees of the trial court held that the perpetual injunction  granted by  the trial  court would not apply to the salt entering the octroi limits for consumption or use  for the factory situated within the octroi limits of the Municipality.      The Municipality  preferred second  appeals to the High Court, which allowed them except to the extent of confirming the declaration that uncrushed salt of the appellant company which is directly sent from the stacking ground to the jetty is not  liable to  octroi  provided  the  plaintiff  company followed the  prescribed rules  and formalities.  The  other claims in the suits were however dismissed.      On the  question whether  the salt  manufactured by the appellant outside  the octroi  limits of  the respondent and brought within those limits for the purpose of being crushed into powder in the appellant’s factory situated within those limits and then exported is liable to octroi. ^      HELD: 1. Octroi is leviable on the uncrushed salt which is brought  to the  octroi area  and crushed as the activity would amount  to both  consumption and  use of the uncrushed salt. [249 F]      Burmah Shell  oil Storage   Distributing Co. India Ltd. v. The  Belgaum Borough Municipality [1963] Supp. 2 SCR 216; M/s. Anwarklan  Mahboob Co.  v. The  State  of  Bombay  (now Maharashtra) [161]  1 SCR  709, State of Travancore Cochin & Ors. v. Shanmugha Vilas Cashew Nut Factory & ors. [1954] SCR 53, referred to.      2. In the Constitution of India, Entry 52 in List II in Seventh Schedule  a right  to impose  tax "on entry of goods into the  local  area  for  consumption,  use  or  sale"  is conferred. The  precise meaning  to be  given to  the  words "consumption" and  "use" will  depend upon  the  context  in which they  are used.  These words  are of  wide import, the word "use"  being of wider import than "consumption". [248A. 247H, 249E].      3. While  terminal tax  is a  kind of  octroi which  is concerned only  with the  entry of  goods in  a  local  area irrespective of  whether they  would be  used there  or not, octrois were  taxes on  goods  brought  into  the  area  for

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consumption, use  or sale.  They are  leviable in respect of the goods  put to some use or the other in the area but only if they were meant for such use. [248B]      4. The  word "consumption"  in its  primary sense means the act  of consuming and in ordinary parlance means the use of an  article in  a way  which destroys,  wastes or uses up that article. But in some leal contents the word 245 "consumption" has  a wider meaning. It is not necessary that by the act of consumption the commodity must be destroyed or used up. [248C-D]      In the  instant case  the uncrushed  salt is crushed in the factory  which is  commercially a  different article and the uncrushed  salt must  be held to have been consumed. The uncrushed salt  has been  used and  by the use a new product crushed salt has come into existence. [249E]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal Nos. 2330- 2331 of 1969.      Appeals by  Special Leave  from the  Judgment and order dated 17/ 18-1-69 of the Gujarat High Court in Second Appeal No. 187 and 857/61.      H. S. Parihar and I. N. Shroff for the Appellant.      K. J. John for the Respondent.      The Judgment of the Court was delivered by      KAILASAM,  J.-These   two  Civil  Appeals  are  by  the Kathiawar Industries  Ltd.  by  special  leave  against  the judgment  of   the  Gujarat  High  Court  holding  that  the appellants are  liable to  pay octroi duty on uncrushed salt which is  brought by  the appellant  to the  factory situate within the octroi limits and crushed there.      The appellant  is running a salt manufacturing works at Jaffrabad called  "Nawabsidi Mohmad  Khan Salt  Works".  The company had  constructed salt works, grinding mills, trolly- tracks and  a jetty at e port site. The major portion of the salt works  is situate out of the Municipal limits. The salt is manufactured  outside the  municipal limits. The grinding mills and the part of the trolly-track leading to jetty come within the  municipal limits  of  the  respondent  Jaffrabad Municipality. The  Municipality by  a notice  dated 3-1-1955 demanded from  the appellant  Rs.  7289-6-0  as  arrears  of octroi. The  appellant paid under protest and filed the suit out of  which this  appeal arises  before  the  Civil  Judge Gohilwad, District  Bhavnagar, against  the respondent for a declaration that  the salt  manufactured by the appellant at its salt  works at  Jaffrabad and  exported uncrushed and/or crushed was  not liable  to octroi  duty and  that the goods passing through municipal limits from the salt works are not liable to octroi duty, and for an injunction restraining the respondent from recovering an amount of Rs. 7289-6-0 and for a  further  injunction  restraining  the  Municipality  from hindering or  obstructing the free passage of salt and goods and for  the refund  of Rs.  250. The  appellant also  filed another suit  for the  refund of  Rs. 1271-14-O  paid  under protest. These  two suits  were decreed, the court declaring that the salt manufactured by 246 the appellant  company is  not liable  to octroi  duty.  The court  also   granted  an  injunction  as  prayed  for.  The Municipality preferred  appeals. The  appellate court  while dismissing the  appeals and  confirming the  decree  of  the trial court  observed that  the perpetual injunction granted

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by the trial court would not apply to the salt  entering the octroi  limits  for  consumption  or  use  for  the  factory situated within  the octroi  limits of the municipality. The Municipality preferred  two Second Appeals to the High Court of Gujarat  at Ahmedabad.  A Bench of the High Court allowed the  appeals   except  to   the  extent  of  confirming  the declaration that  uncrushed salt  of the  appellant  company which is directly sent from the stacking ground to the jetty is not  liable to  octroi  provided  the  plaintiff  company followed the  prescribed rules  and formalities.  The  other claims in  the suits were dismissed. Against the judgment of the High Court the plaintiff company has preferred these two appeals.      The only question that falls for consideration in these civil appeals  is  whether  the  salt  manufactured  by  the appellant outside  the octroi  limits of  the respondent and brought by the appellant within those limits for the purpose of being  crushed into  powder in  the  appellant’s  factory situate within  those limits  and then exported is liable to octroi. The  facts as  found by  the High  Court  and  which cannot be questioned are that the salt works consists of (i) salt pans;  (ii) stacking ground for the salt collected from the pans; (iii) trolly track for carrying salt from stacking ground to  the factory  within  the  octroi  limits  of  the Municipality and  to the  jetty which  is outside the octroi limits; (iv)  jetty; (v) Power house; (vi) store-room; (vii) workshop and  (viii) grinding  mill which  is referred to in the evidence as the crushing factory. (f these, the crushing factory and  part of  the trolly track (about 1400 feet) are within the  octroi Limits  of the  Municipality and the rest outside those  limits. Thus  it is  not in dispute that only the crushing factory and part of the trolly track are within the octroi  limits. Th.  salt is  prepared is  the salt pans outside the octroi limit and the salt which is to be crushed is taken  to the  crushing factory and the salt which is not to be  crushed is  taken in  uncrushed form  directly to the jetty over the trolly track part of which passes through the octroi limits  of the Municipality. The salt that is crushed in the  crushing factory is also after crushing taken by the trolly to the Jetty. From the jetty the salt whether crushed or uncrushed,  as the  case may be, is exported by steamers. The High Court has found that the salt which is taken to the crushing factory within the octroi limits for the purpose of crushing and  is crushed  and later  taken to  the jetty  is liable to  octroi. The  question is  whether  this  levy  is sustainable in law. 247      In  1948,   on  the   formation  of  Saurashtra  State, Jaffrabad  came  with  in  the  territorial  limits  of  the Saurashtra State  and the  Bombay  District  Municipal  Act, 1901, as  adapted and  applied to  Saurashtra  State  became applicable to  Jaffrabad. The  Jaffrabad  Municipality,  the predecessor of  the respondent,  was constituted  under  the Bombay District Municipal Act. 1901 .      The State  of Saurashtra, within the territorial limits of which  the said  Municipality was  situate, published  an ordinance on  31-8-1949 being  ordinance,- No.  47  of  1949 called the  Saurashtra Terminal  Tax and  octroi  ordinance, 1949. The  ordinance extended  to the  whole of The State of Saurashtra and  came into  force from  31-8-1949. Section  2 clause (2)  of the ordinance defines ’octroi’ as including a terminal tax.  Section 3  empowers the  Government to impose terminal tax and octroi duty. It provided that octroi may be imposed on  "animals or  goods, or  both, within  the octroi limits  brought  for  consumption  or  use  therein".  Under

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section 4 Government is empowered to make rules. In exercise of the  powers under  the ordinance  the State  Government n made rules relating to octroi known as the Saurashtra octroi and Terminal  Tax Rules  on 8th  December,  1949  which  was published in  the Saurashtra Gazette on 15th December, 1949. Rule 3  is the  charging rule  which provides that octroi is payable in  respect of  goods set  out  in  the  Schedule  I attached to  the Rules  and prescribed  that octroi shall be payable at  the nakas  at rates set out therein. Item No. 23 is "Salt  for Factory".  Schedule II  which gives  a list of items which are exempt from octroi duty contains in item No. 6, a sub-item in Gujarat which means "Salt". Thus under item 23 "Salt  for Factory"  is liable to octroi duty. The octroi duty may be imposed under section 3 on "animals or goods, or both, within  the octroi  limits brought  for consumption or use therein". Oh the facts found, namely that uncrushed salt was brought  into the  factory  situate  within  the  octroi limits and  crushed salt  taken away  for  export  from  the octroi limits  can it be said that the salt thus brought are goods for  consumption or use therein. It is the common case that the uncrushed salt as brought into the octroi limits is crushed and  in the  crushed form  sent  to  the  jetty  for export. The  finding of  the High Court is that the crushing of the  uncrushed salt  and sending  the crushed salt to the jetty within  the octroi  limits will  be  used  therein  as required under section 3.      In this  appeal it  is necessary for us to consider the scope of  the I  words "consumption"  and "use". The precise meaning to be given to the words "consumption" and "use will depend upon the context in 17-475 SCI/79 248 which they  are used. These words are of wide import. In the Constitution of  India, Entry  52  in  List  II  in  Seventh Schedule a  right to  impose tax "on entry of goods into the local area  for consumption,  use or  sale" is conferred. In Burmah Shell  oil Storage  & Distributing  Co. India Ltd. v. The Belgaum  Borough Municipality  this Court  after tracing the history  of octroi  and terminal tax observed that while terminal tax  is a  kind or  octroi which  is concerned only with the  entry of  goods in  a local  area irrespective  of whether they  would be used there or not, octrois were taxes on goods brought into the area for consumption. use or sale. They were  leviable in  respect of the goods put to some use or the  other in  the area  but only  if they were meant for such user.      In considering  the meaning  of the words "consumption" and "use"  this Court  observed in Burmah Shell case (supra) that the  word consumption;  its primary sense means the act of consuming  and in  ordinary parlance  means the use of an article in  a way  which destroys,  wastes or  uses up  that article. But in some legal contexts, the word "consumption’? has a  wider meaning. It is not necessary that by the act of consumption the  commodity must  be destroyed  or used up. n M/s. Anwarkhat  Mahboob Co.  v. The  State  of  Bombay  (now Maharashtra) and others, the question that arose was whether conversion  of   one  commodity  into  another  commercially different article  would amount to consumption. The facts of the case  were that  tobacco was purchased and in the Bombay State the stem and dust from the tobacco was removed. It was contended that  removing the  stem and dust from the tobacco did not  amount to  consumption of tobacco or had the effect of  converting   tobacco  into   an   article   commercially different.  The   Court  held  that  when  the  tobacco  was delivered in  the  State  of  Bombay  for  the  purchase  of changing it  into a  commercially different  article,  viz.,

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biddipatti the  delivery was for the purpose of consumption. This Court  followed the  decision in  State  of  Travancore Cochin and ors. v Sanmugha Vilas Cashew Nut Factory and Ors. wherein it  was held  that the  raw  cashew  nuts  were  put through a  process and  new  articles  of  commerce,  namely cashew nut  oil and edible cashew nut kernels were obtained. The Court  expressed the  view that  the raw  cashew nut  is consumed in  the process.  On the facts the High Court found alter referring  to the  different processes  of  baking  or roasting. Shelling pressing, pealing etc. that although most of the  process is  done by  hand, part  of it  is also done mechanically by  drums. Oil  is extracted  out of  the outer shells as a result of roasting.. After roast- 249 ing the  outer shells  are broken and the nuts are obtained. The i  J poison is eliminated by pealing oil the inner skin. By this  process  of  manufacture.  the  respondents  really consume the  raw cashew  and produce  new commodities.  This Court accepted  this finding and observed at p. 113 that the raw cashew  nuts, after  they reach the respondents, are put through a  process and  new articles  of  commerce,  namely, cashew-nut oil  and edible cashew nut kernels, are obtained. In Anwarkhan Mahboob Co. (supra) this Court gave the example of the  process through  which cotton  is put through before ultimately the final product the wearing apparel is consumed by men,  women and children. The Court observed: "But before cotton has  become a wearing apparel, it passes, through the hands of different producers, each of whom adds some utility to the  commodity received by him. There is first the act of ginning; ginned Cotton is spun into yarn by the spinner; the spun yarn is woven into cloth by the weaver; the woven cloth is made  into wearing  apparel by  the tailor."  At each  of these stages  distinct utilities  are produced  and what  is produced is  at the  next stage  consumed. It  is usual, and correct to speak of raw cotton being consumed in ginning.      Applying this  test the conclusion is irresistible that when  uncrushed  salt  is  crushed  in  the  factory  it  is commercially a different article and the uncrushed salt must be held  to have  been consumed.  The word "use" is of wider import than  "consumption". It  cannot be  denied  that  the uncrushed salt  has been  used and by the user a new product crushed salt has come into existence.      On a  consideration of  the facts  and circumstances of the case  we are  satisfied that  octroi is  leviable on the uncrushed salt  which is  brought-to  the  octroi  area  and crushed as the activity would amount to both consumption and use of  the uncrushed  salt. In  the result the appeals fail and are dismissed with costs. N.V.K.                                    Appeals dismissed. 250