23 February 1982
Supreme Court


Case number: C.A. No.-001048-001048 / 1970
Diary number: 60025 / 1970
Advocates: S. S. KHANDUSA Vs








CITATION:  1982 AIR  844            1982 SCR  (3) 307  1982 SCC  (1) 637        1982 SCALE  (1)436

ACT:      Central Provinces  & Berar  Municipalities  Act,  1922- Rules made  under the  Act-Rule 27(b)  of the  Octroi Rules- Octroi  duty   paid  on   raw  material  imported  into  the municipality for  manufacture  of  bidis-Manufactured  bidis exported outside  the municipal  limits-Refund, if allowable under rule 27(b).      Words  &   phrases:  "manufacture"  and  "manufacturing process"-Meaning of.

HEADNOTE:      The respondents  manufacture  and  sell  bidis  in  the state. At  the time  of import  of  tobacco  and  other  raw materials into  the municipal  limits for the manufacture of bidis they  paid octroi  duty payable under the rules. Their claim for  refund  of  octroi  duty  on  the  raw  materials utilised for  the bidis which they manufactured and exported outside the  municipal limits  was rejected by the municipal council.      Rejecting the  appellant-council’s contention  that the benefit of  rule 27(b) of the Rules was not available to the respondents for  the reason  that the exported goods (bidis) were not the same or identical as the imported raw materials the Sub-Divisional Officer allowed the respondent’s appeal.      In revision the High Court upheld the order of the Sub- Divisional Officer.      In appeal to this Court it was contended that refund is available under  rule 27(b) only where even after undergoing the manufacturing  process the imported article retained its essential  character  as  such  article  and  the  same  was exported outside  the municipal  limits. (2) The respondents were not  entitled to  refund as  they failed to satisfy the committee  that   the  same  or  identical  goods  had  been exported.      Dismissing the appeal, ^      HELD :  1 (a)  Rule 27(b)  of the Octroi Rules in terms provides for refund of octroi paid on imported raw materials when such raw material is actually used within the municipal limits for  manufacturing the  exported articles, Clause (b) of this  rule itself speaks of the raw materials being "used in the manufacture"



308 so that  use or  consumption which  a manufacturing  process entails was  present to  the mind of the framers of the rule when they  provided for the refund on the export of finished goods manufactured within municipal limits. [313 F-H]      (b) The  well settled  connotation of "manufacture" and "manufacturing process"  is that  as a  result of undergoing the process,  a distinct commercial commodity different from the raw  materials,  comes  into  existence.  Therefore  the expression ’manufacture’  occurring in  rule 27(b) cannot be given a  limited meaning as suggested by the appellant. [313 H, 314 A-B]      2. The  proviso to  the rule is not attracted to a case of manufactured  goods falling under clause (b). The proviso is applicable  to cases  where there  is an  export  of  the imported goods  themselves without  subjecting them  to  any manufacturing process.  It is in such cases that in order to claim refund  the exporter has to satisfy the committee that the same goods on which import duty had been paid were being exported. The  proviso is not a proviso to clause (b) at all but will  be applicable to the other parts of the rule. [314 C, D, E]      3. It  is not just to permit the appellant to raise the plea of  limitation in  the case  because at  one  stage  it acquiesced in  the trial  court’s finding  and did not raise the question  in appeal  before the High Court. While asking for a certificate for appeal the appellant did not raise the question of  limitation before  the High  Court nor  did  it include the  point of limitation in the memo of appeal filed in this  Court. The  point raised  needs investigation  into facts. [316 F-G]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION : Civil Appeals Nos. 1048 of 1970 & 845 of 1971.      Appeals by  certificate from  the judgment  and  decree dated the  11th March  & 15th  November 1969  of the  Madhya Pradesh High  Court (Jabalpur)  in Misc  Petition No.  96 of 1969 and in First Appeal No. 44 of 1966 respectively.                             AND      Civil Appeals Nos. 1047, 1048 & 1049 of 1971.      Appeals by  special leave  from the judgment and decree dated the  17th April, 1971 of the Madhya Pradesh High Court at Jabalpur  in Second  Appeal Nos.  415, 416  & 417 of 1966 respectively.      D.V.  Patel,  S.S.  Khanduja  and  C.L.  Sahu  for  the Appellants in all the Appeals.      Dr.Y.S. Chitale and Rameshwar Nath for Respondent No. 1 in Civil Appeals Nos. 1048/70 & 845 of 1971. 309      Rameshwar Nath  for Respondent  No. 1  in Civil Appeals Nos. 1047-1049 of 1971.      Gopal Subramanium  and S.A. Shroff for Respondents Nos. 2 & 3 in all the appeals.      The Judgment of the Court was delivered by      TULZAPURKAR, J.  The aforesaid  five appeals, the first two on  a certificate  granted by  the Madhya  Pradesh  High Court and  the last  three by  special leave granted by this Court, raise a common question in regard to refund of octori duty collected  by the appellant-Council from the respondent firms and  are, therefore,  disposed of  by common judgment. The principal  question raised  in these  appeals relates to the proper  construction of  Rule 27  of the Octroi Rules of



Damoh Municipal  Council (the  appellant) framed in exercise of powers  conferred by  ss.71, 76  and 85  of  the  Central Provinces &  Berar Municipalities Act, 1922-which Rules were continued in  operation even  after the coming into force of the new Act, the Madhya Pradesh Municipalities Act, 1961 and the question arises in these circumstances :      The two  respondent firms  in the  two sets  of appeals (M/s. Vraj  Lal Manilal & Co. and M/s. Prabhudas Kishoredas) carry on  business of  manufacturing and  selling  bidis  in Damoh and  other cities  in  Madhya  Pradesh  and  for  that purpose they  import tobacco and other raw material into the Municipal limits of Damoh city and after manufacturing bidis out of such imported raw material they export their finished product  (bidis)   outside  Damoh   Municipal  limits.   The respondents’ case  was that at the time of import of tobacco and other  raw material  into the  municipal limits of Damoh they paid  octroi duty  as per Octroi Rules of the appellant Council and  after  utilising  the  said  raw  material  for preparing bidis  when they  exported the  manufactured bidis outside the  limits of  the  appellant  Council,  they  were entitled to  a refund of the octroi duty paid by them on the raw material  so utilized  under Rule 27 of the Octroi Rules but inspite  of refund  vouchers having  been issued  by the concerned official  of the  appellant council and inspite of having complied  with the  Rules and procedure prescribed in that behalf,  the  appellant  Council  refused  to  pay  the amounts of the refund 310 vouchers to them. In Civil Appeal No. 1048 of 1970 since the claim for  refund to  the sum of Rs. 33,409.52 based on 1866 refund vouchers  relating to  the period  from 4.12.1952  to 12.12.1959  arose   under  the   old  Act,  namely,  Central Provinces and  Berar Municipalities Act 1922, the respondent firm M/s  Vraj Lal Mani Lal & Co. filed an appeal before the Sub Divisional  Officer Damoh  under s.  83 (1-A) of the Act against the  refusal of  the appellant-Council  to make  the refund. Apart  from raising  technical pleas  such  as  non- maintainability of  the appeal,  bar of  limitation etc. the appellant Council  resisted the  claim on  merits on the two grounds: (a)  that since  the raw  material had been used or consumed in  the manufacture of bidis and since the exported goods (finished  products) were not the same or identical as the imported  raw material on which the octroi duty had been paid no  refund under  Rule 27  (b)  was  available  to  the respondent firm  and (b) that the respondent firm had failed to prove  to the  satisfaction of  the Municipal  Council as required by  the proviso  to Rule  27 (b)  that the  same or identical goods  were being  exported on which import octroi had been  paid by  them. The  Sub Divisional  Officer by his order dated 30th June, 1961 negatived the technical pleas of the appellant  council, which order was finally confirmed by the High  Court on  25th February,  1963. The Sub Divisional Officer also over-ruled the defences raised by the appellant Council on  merits and  by his  final order dated 4th April, 1964 directed  that  the  amount  of  1865  refund  vouchers aggregating to Rs. 33409.52 minus the amount recovered under 19 vouchers  should be  refunded to the respondent firm. The appellant Council  went in  revision to the State Government but the  same was dismissed on 28th September, 1968. The Sub Divisional  Officer’s   decision  as   well  as   the  State Government’s  order  in  revision  were  challenged  by  the appellant Council  before the  High Court by a Writ Petition (Miscellaneous  Petition  No.  96  of  1969)  but  the  writ petition was  dismissed by  the High  Court summarily and in doing so the High Court followed its earlier judgment in the



case of  Municipal Committee,  Burhanpur v.  Allauddin Aolia Saheb and  Co. where  in regard  to a  similar  refund  rule obtaining in  Burhanpur Municipal  Committee the  Court  had taken the  view that  "Octori duty  paid on  imported  tendu leaves and  tobacco is  refundable under  the provisions  of Rule 25  (b) of the Rules framed under s. 85 of the Act when bidis manufactured within the limits of the Municipal 311 Committee are  exported." In  the  remaining  four  matters, being Civil  Appeals 845,  1047, 1048  and 1049  of 1971 the claims  for  refund  made  by  the  respondents  in  similar circumstances were required to be prosecuted by filing civil suits against the appellant Council, inasmuch as when action was contemplated  by the  respondents, the  new Act, namely, Madhya Pradesh  Municipalities Act  1961 had come into force and no remedy by way of any appeal to Sub Divisional Officer was available.  In each of these suits the appellant Council resisted the claims for refund on merits on the same grounds mentioned above.  The respondents  failed in  their suits in the two  lower courts but succeeded in second Appeals in the High Court.      In these  appeals the  self-same two  contentions  were urged before  us on  behalf of the appellant-council. First, since Octroi duty is a levy on imported goods meant for use, consumption and  sale there  of within  the municipal limits and since the raw material (tobacco) was used or consumed in the manufacture  of bidis  the same  or identical goods were not exported  by the respondent firms and so no refund under Rule 27  (b) was available to the respondent firms. Secondly no attempt  was made  by the respondent firms to satisfy the Municipal Committee  that the  same or  identical goods  had been exported as required by the proviso to Rule 27 (b). For both these  reasons it  was urged that the respondent firms’ claim to refund of octroi should have been rejected. Counsel urged  that   these  points  did  not  arise  and  were  not determined in Allaudin Saheb’s case (supra).      The admitted  facts  in  these  appeals  are  that  the respondent firms, who carry on the business of manufacturing and selling  bidis imported  or brought  into the  municipal limits of Damoh during the relevant period tobacco and other raw material,  that they  paid the  requisite octroi duty on such raw  material on  its import  at the  prescribed rates, that they  utilised the  said raw material for manufacturing bidis and they exported the finished product (bidis) outside the municipal  limits of  Damoh and  it was at that stage of export of bidis that they claimed under Rule 27 (b) a refund of octori  duty paid  by them  on the  raw material from the appellant Council.  The question raised is whether under the said provision  they are entitled to the refund of octroi as claimed by  them. Rule  27 which deals with refund of octroi runs thus: 312           "27. Refund  of  octroi.  On  the  exportation  of      dutiable goods  outside municipal  limits the  exporter      shall be  entitled to  a refund of duty paid on them at      the time of their import, provided that,           (a)  no refund shall be given, if the amount to be                refunded be  less than  Re. 1 or if the claim                be made  after the  expiry of two months from                the date  of export,  unless the  exporter is                able to explain satisfactorily the reason for                the delay.           (b)  the refund  on the  exported goods which have                been  manufactured   within   the   municipal                committee from  imported raw materials liable



              to octroi, shall not exceed the octroi on the                raw materials used in the manufacture, and           Provided that  the exporter  shall not be entitled      to a  refund of  octroi duty  unless he  proves to  the      satisfaction of  the committee  that the  goods brought      for export belong to him and are the same on which duty      was paid  by the  importer in  whose favour  the octroi      receipt is  produced in support of the claim for refund      of duty."      In support  of their  claim for  refund the respondents obviously rely upon cl. (b) of Rule 27 under which refund is available  on   exported  goods  provided  those  have  been manufactured within  the municipal  limits from  out of  the imported raw materials on which octroi has been paid and the clause indicates that quantum of refund shall not exceed the octroi duty  actually paid on such raw materials at the time of  their   import.  Counsel  for  the  appellant,  however, contended that in its very nature octroi is a duty levied on import of goods which are meant for use, consumption or sale within the municipal limits and counsel urged that it cannot be disputed  that when raw material like tobacco is utilized in the  manufacture of  bidis such  raw material  is used or consumed in  the process  of  manufacture  and  it  is  such finished product  (bidis), a  disputed commercial  commodity that  is   being  exported   by  the  respondent-firms  and, therefore, no  refund under  cl. (b)  or Rule  27  would  be available to them. Counsel urged that the word ’manufacture’ occurring in  the clause  must be  given a  limited meaning, that is to say, only such 313 manufacturing process  is contemplated  by that clause which does not  alter or  change  the  identity  of  the  imported commodity  and  only  in  respect  of  the  export  of  such manufactured goods  the refund  would be  available and  not where the  imported commodity  gets converted  into  an  all together different  commercial article. Counsel also invited our attention  to the proviso following cl. (b) which states that the  exporter shall not be entitled to refund of octroi duty unless  he proves  to the satisfaction of the committee that the goods brought for export are the same on which duty had been  paid by  the importer and according to Counsel the ’bidis’ cannot  be said  to be  the same  goods on which the respondent-firms could  be said  to have  paid the  duty. In other words refund is available under cl. (b) in cases where even after undergoing the manufacturing process the imported article or commodity retains its essential character as such article or  commodity and  the same  is exported outside the municipal limits. It is not possible to accept the aforesaid construction sought  to be  placed  on cl. (b) of Rule 27 of the Octroi  Rules by  the appellant’s  counsel  for  reasons which we  shall presently  indicate.  In  the  first  place, though it  is true  that octroi  by its  nature is a levy on import within  the municipal  limits of  articles  or  goods meant for  use, consumption  or sale  therein that  does not prevent a  Municipal Council  from  framing  a  rule  either granting exemption  from that  duty or  refund of  such duty after its  collection in  cases of  certain type  of use  or consumption of  the imported  articles or  goods for certain purposes. Secondly,  a  Municipal  Council  may  do  so  for achieving     certain     objectives     like     increasing industrialisation by  encouraging  manufacturing  activities within its  limits. Clearly the avowed object of Rule 27 (b) appears to  be of  this nature  for in terms it provides for refund of  octroi paid  on imported  raw materials when such raw-material is  actually used  within the  municipal limits



for manufacturing the exported article and it is in light of this  objective   that  the   said  rule  will  have  to  be interpreted. Looked  at from this angle it will be difficult to accept  the narrow  or limited  construction of  the word ’manufacture’ appearing  in  cl.  (b)  as  is  suggested  by Counsel for  the appellant  and the same could not have been intended by  the framers  of the  rule. Further  clause  (b) itself speaks  of the  raw  materials  being  "used  in  the manufacture"     so  that   use  or   consumption  which   a manufacturing process entails was present to the mind of the framers of the Rule when they provided for the refund on the export of  finished goods  manufactured within the municipal limits. Moreover, the well-settled connotation of the 314 concept of ’manufacture’ and ’manufacturing process’ is that as a  result of undergoing the process a distinct commercial commodity  different  from  the  raw  materials  comes  into existence;  it   is  difficult   to  visualise   degrees  of manufacture as suggested by counsel for the appellant and in any case  none could  be attributed  to the  framers of  the Rule.  It   is,  therefore,   not  possible  to  accept  the contention that  the expression  "manufacture" occurring  in cl. (b)  of Rule  27 should be given a limited meaning as is suggested. Turning  to the  proviso on which strong reliance was placed  by the counsel for the appellant, it seems to us that the  proviso by  its very  terms is  not attracted to a case of manufactured goods falling under cl. (b). If cl. (b) confers the  benefit of  refund of octroi duty on the export of goods  manufactured  out  of  raw  material  then  it  is difficult to  appreciate how  the exporter  will be  able to satisfy the  Municipal Committee that the exported goods are the same  or identical  on which  duty has  been  paid,  for admittedly the  exported goods  are the finished product and no import  duty is paid thereon by the exporter. The proviso in our  view is applicable to cases where there is an export of the  imported goods themselves without subjecting them to any manufacturing  process and  it is in such cases that the exporter has to satisfy the Committee that the same goods on which import  duty has  been paid  are being  exported which would entitle the exporter to claim a refund; in other words it is not a proviso to cl. (b) at all but will be applicable to the  other parts of the Rule. It is thus clear to us that when raw  materials like  tobacco etc.  were imported by the respondent-firms within  the limits  of Damoh, on which they paid octroi-duty  and when  they manufactured  bidis out  of such raw-materials  and exported the same they were entitled to get  refund to the extent of quantum mentioned in cl. (b) of Rule 27.      In view of our aforesaid conclusion that the proviso is not applicable  to cases of manufactured goods falling under cl. (b)  of the  rule the  second contention  urged  by  the Counsel for the appellant that the respondent-firms were not entitled to  refund as  they failed to satisfy the Municipal Committee that the same or identical goods had been exported does not  survive. That  apart, the  High  Court  has  on  a conspectus of the Octroi Rules came to the conclusion and in our  view   rightly,  that   the  Octroi  Superintendent  is responsible for  the proper  administration  of  the  Octroi Department in 315 all its  branches which  necessarily includes  that it is he who should be satisfied as to the identity of the goods that are to  be exported  or that are utilized in the manufacture of goods which are to be exported.      The last contention sought to be urged on behalf of the



appellant-council before us related to the bar of limitation to the  respondents’ claim  arising under section 319 (2) of the Madhya  Pradesh Municipalities  Act,  1961  and  counsel fairly stated  that this arises only in Civil Appeal No. 845 of 1971.  The facts in this behalf are these: Civil Suit No. 1-B of  1964, out  of which the aforesaid appeal arises, was filed by  the respondent-firm  M/s Vraj Lal Manilal & Co. on 7.5.1964 claiming refund in respect of goods exported during the years  1959-1964; in other words, part of the claim from 1959 to  31st January,  1962 arose  under 1922 Act while the claim pertaining  to the  period from 1.2.1962 to April 1964 arose under  the  1961  Act,  which  came  into  force  from 1.2.1962. The trial Court as well as the High Court took the view that  non-payment of refund under the 1922 Act could be agitated only by way of an appeal under section 83 and other remedies were  barred under s. 84 of the Act and, therefore, that part  of the  respondent’s claim was dismissed as being not tenable  but both  the Courts  held that  non-payment of refund after  1.2.1962 could  be agitated  by a suit and the same was  tenable On  the question  of limitation  the trial Court held  that that  part of  the claim was not barred but since it  had negatived the respondent’s claim for refund on merits it  dismissed the  respondent’s suit entirely but the High Court,  which reversed the trial Court’s view on merits allowed the respondent’s claim in respect of refund vouchers which had  been  certified  and  presented  after  1.2.1962. Since, however,  it was  not possible for it to sort out the refund vouchers  which had  been certified the High Court by its judgment and decree dated 15.12.1969 remanded the matter to the trial Court for determining the amount payable to the respondent-firm. Upon remand the trial Court on the basis of statements  made   by  the   parties  passed   a  decree  in respondent’s favour  for Rs. 21,023.53 with interest thereon 4% and this decree was drawn up on 23.4.1970.      Section 319 (2) of the 1961 Act runs thus;           "Every such  suit shall  be dismissed unless it is      instituted within 8 months from the date of the accrual      of the alleged cause of action." 316 Relying upon  this provision counsel for the appellant urged that  since   the  suit  had  been  filed  on  7.5.1964  the respondent’s claim  for refund  during  8  months  prior  to 7.5.1964 would  be within  limitation but  the rest  of  the claim  from   1.2.1962  to   7.9.1963  would  be  barred  by limitation and  to that  extent the  decree in favour of the respondent-firm deserves to be modified      We are not inclined to entertain this contention sought to be  urged by counsel for the appellant before us for more than one  reason. It  is true  that this  bar of  limitation under s. 319 (2) was pleaded by the appellant council in its written statement  and an  issue thereon  was also raised at the trial  but the  trial Court  held that the claim arising under  the   new  Act  after  1.2.1962  was  not  barred  by limitation because  cause of  action arose on 24.9.1963 when there was  refusal to  pay or accede to the notice of demand but when  the matter was carried in appeal to the High Court by the  respondent firm against the dismissal of their claim on merits and the High Court reversed the trial Court’s view on merits and held that the plaintiffs’ claim for the period subsequent to  1.2.1962 was liable to be decreed, this point of limitation  arising under  s. 319  (2) was neither raised nor pressed  before the High Court. No contention was raised that the  refusal to  pay on  24.9.1963 did not give rise to the cause  of action  but that  it arose on dates when goods were  exported   and  refund   vouchers  were  presented  or



certified. Had  it been  pressed the  High Court would have, while remanding  the matter  given appropriate directions to the  trial  Court  in  that  behalf.  This  shows  that  the appellant council acquiesced in the trial Court’s finding on the question  of limitation,  namely, the  cause  of  action arose  on   24.9.1963.  Secondly,   while  applying   for  a certificate from the High Court for appeal to this Court the appellant-Council sought  the certificate on points touching the  merits  of  the  claim  and  not  on  the  question  of limitation. Further  in the  Memo of  Appeal filed  in  this Court the  grounds do  not include  the point of limitation. Lastly the point raised cannot be said to be a pure question of law  as it  will  require  investigation  into  facts  to ascertain the exact date or dates of accrual of the cause of action. When  on the  point  of  limitation  the  appellant- Council had  at one  stage acquiesced  in the  trial Court’s finding and  did not raise the question in appeal before the High Court  we do  not think  it would  be fair  or just  to permit the appellant-Council to raise the plea of limitation in this Court, 317 especially when the result of allowing such plea might be to defeat  the just claim of the respondent firm.      In the  result the appeals are dismissed and each party will bear its own costs. P.B.R.                                    Appeals dismissed. 318