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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 631 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 633 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 634           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