1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 6739 OF 2002 M/s. DK Enterprises, having its address at 321, Kumud Villa, JP Road, Opera House, Bombay-400 004. .. PETITIONER .. Versus .. 1) Pimpri Chinchwad Municipal Council, Pimpri-411 018. 2) Regional Manager of Central Warehouse Corporation, Baltoda Bhavan, Church Gate, Mumbai-400 001. 3) Commissioner of Customs, Ice House, 41-A, Sassoon Road, Pune-411 001. .. RESPONDENTS ----------------------------------------------------------------------------------------- Mr. V.A. Sonpal, Advocate with Mr. Sanjay Udeshi, Advocate for petitioner, Mr. D.R. More, Advocate for respondent No.1, Ms. S.I. Shah, Advocate for respondent No.2, Mr. P.S. Jetly, Advocate for respondent No.3. ----------------------------------------------------------------------------------------- 2 CORAM :- V.C. DAGA AND K.K. TATED, JJ. DATE FOR RESERVING THE JUDGMENT :- 30-04-2010. DATE OF PRONOUNCEMENT OF JUDGMENT :- 18-06.2010. JUDGMENT : (Per V.C. Daga, J) This petition is filed by the auction purchaser under Article 226 of the Constitution of India raising a question as to who should bear the liability of the payment of octroi payable to the Pimpri Chinchwad Municipal Corporation (the Corporation) on the goods auctioned by the Commissioner of Customs, which were stored with the Central Warehouse Corporation (Warehousing Corporation), Mumbai for a period more than one year. FACTUAL BACKDROPS :- 2. The factual backdrops giving rise to the aforesaid question is in narrow compass :- On 18th October, 2002 an advertisement appeared in a daily newspaper known as “Mumbai Samachar”, informing the public at large that the Commissioner of Customs, Mumbai through their authorized auctioneers will sell by public auction various items listed in the Catalogue published. The petitioner 3 accordingly participated in the public auction held on 24th October, 2002 and adjudged highest bidder for the goods known as “Die Blocks pertaining to Quality Din 1.274” (Assorted Sizes and Weights) weighing 179.838 M.T. at the rate of Rs.56,205/- per M.T. and paid sum of Rs.25,27,000/- as earnest money and thereafter paid balance amount of Rs. 75,80,795/-. Thus, the petitioner paid total sum of Rs. 1,01,07,795/- towards the value of the goods purchased in the public auction held on 24th October, 2002. 3. The petitioner vide its letter dated 25th October, 2002 approached the Municipal Corporation for moving and shifting the goods bought in public auction. In reply, the Corporation vide its letter dated 27th October, 2002 refused to issue escort pass asked for by the petitioner for want of payment of octroi payable on the goods since goods were not cleared within a period of one year from the date the goods lodged in the warehouse. The petitioner in reply did not accept its liability to pay the octroi duty contending that it was the liability of the Customs Department and/or that of the Central Warehouse Corporation since goods belonged to them. None of them was willing to accept the contention of the petitioner. As such the petitioner filed present petition seeking directions against the 4 respondents to release goods without payment of octroi and prayed for determination of the question with regard the liability to pay octroi to the Municipal Corporation. 4. The petition was initially heard on 5th August, 2003. The Rule was issued and interim relief was granted in favour of the petitioner with direction to furnish security to the extent of octroi liability. The petitioner under interim order could move and shift goods out of the limits of the Municipal Corporation. 5. On being noticed the respondent Nos. 1 and 2 appeared and filed their respective counter affidavits. The affidavit on behalf of the Customs Department stated that the auction was conducted through one M/s Shankar Ramchandra Auctioneer Pvt. Ltd., Pune on behalf of the Customs Department. That the Catalogue along with terms and conditions giving details of the goods to be auctioned on 27th October, 2002 were circulated to all the prospective buyers/bidders which specifically contained a clause reading as “Octroi as applicable to be paid by the tenderer for all Lots. Bids will be exclusive of all the tax structure”, the copy of which was placed on record along with affidavit of one Shri S.L. Ghule, dated 17th March, 2004. 6. One more affidavit duly affirmed by one Shri S.K. Patil on 5 behalf of the Customs was filed reiterating the same contentions and once again reliance was placed on the catalogue containing the terms and conditions of the auction sale said to be conducted on 23rd July, 2003 carrying identical clause reading as “the octroi as applicable to be paid by the tenderer for all Lots. Bids will be exclusive of all the tax structure”. 7. One more affidavit duly affirmed by Mr. B.D. Chikhale on 17th March, 2004 was filed on behalf of the Customs again reiterating the aforesaid identical terms and conditions meant for auction said to be conducted on 23rd July, 2003. That is how Customs Department disowned its liability to pay octroi duty alleging it to be the liability of the petitioner. 8. One more affidavit in reply dated 16th April, 2010 was filed on behalf of the Customs wherein one Mr. Syed Shabbeer Ahmed, Deputy Commissioner (Legal), Customs Pune stated on oath that the total amounts realized from the auction of the goods were Rs.1,01,07,795/-. The Auctioneer was paid a sum of Rs.2,70,905/- towards commission charges, whereas the demand of the Central Warehousing Corporation on account of warehousing charges payable was in the sum of Rs.14,05,750/- and that the customs duty on the subject imports worked out to 6 Rs.61,53,887/-. It was further mentioned that under Section 61 of the Customs Act, interest on delayed payment of duty was required to be calculated and recovered at the rate applicable from time to time for the period 1996 to 2003, however, in absence of the importer, this amount could not be finally worked out. It is further stated that large amount of customs duty is due and recoverable from M/s Patheja Forging & Auto Parts Manufacturers Ltd. (the Importer), as such it was sought to be stated that the balance amount after adjusting all the liabilities shall be either paid or adjusted against their liability. In short, the Customs Department denied its liability to pay octroi and tried to fasten the liability on the auction purchaser/the petitioner. 9. The respondent No.2 Warehousing Corporation in spite of service of the rule did not care to file affidavit in reply till the petition was taken up for final hearing. When the petition was called out for final hearing, the Warehousing Corporation sought time and filed affidavit in reply dated 16th April, 2010 to the petition. 10. The Warehousing Corporation filed one more affidavit dated 25th January, 2010 duly affirmed by one Mr. V.B. Singh, Executive Engineer relying upon the affidavit filed by the 7 Customs Department and sought to state that their recovery on account of warehousing charges is in the sum of Rs. 10,27,659/-. They denied their liability to pay octroi to the Municipal Corporation. 11. After receiving aforesaid affidavits on record, one affidavit came to be filed on behalf of the petitioner stating therein that it had participated in the public auction held on 24th October, 2002 specifically stating therein that there was no announcement or oral or otherwise made by anyone muchless by the auctioneer informing the parties that they would be required to pay the octroi duty. 12. At this juncture, it is also relevant to note that the respondent No.1 Corporation also filed their affidavit in reply to the petition reiterating the liability of the petitioner to pay octroi with further contention that the liability to pay octroi was also that of the Warehousing Corporation considering one of the conditions of the license under which they were permitted to operate Warehouse within the limits of Municipal Corporation. 13. With the aforesaid rival pleadings on record, when the petition was heard, this Court vide order dated 12th April, 2010 was required to direct the respondent No.3-The Commissioner 8 of Customs to indicate on oath, the amount realized, expense incurred and the disbursements made from and out of the sale proceeds realized by them, together with the exact liability of the customs duty on the goods sold through public auction. At the same time, the Warehousing Corporation was also directed to state on oath as to whether or not their warehousing charges were received by them, if not, how much amount is recoverable by them on this account. In compliance, affidavits dated 16th April, 2010 were filed by the respondent Nos. 2 & 3. 14. With the aforesaid pleadings on record, the petition was finally heard. RIVAL SUBMISSIONS :- 15. Mr. Sonpal, the learned Counsel appearing for the petitioner urged that the respondent No.2 was granted permission to warehouse goods without payment of octroi subject to the liability to pay octroi on the goods, if goods were not removed within the period of one year. By notice dated 4th June, 2001 the respondent No.2 was called upon by the Corporation to pay octroi dues on the said goods. The respondent No.2 did not controvert the said notice dated 4th June, 2001. He, thus, submits that it was the liability of the Warehousing Corporation to pay octroi since goods were 9 allowed to remain in the Warehouse for a period of more than one year. He relied upon Rule 22(10)(b) of the Octroi Rules framed by the Corporation, wherein if the goods are retained in the Boded Warehouse for more than one year, full duty is required to be paid by the Importer and if not paid by the Importer then the same becomes payable by the license holder. According to Mr. Sonpal, in the circumstances and facts of this case the liability to pay octroi duty was that of the respondent No.2 and not of the petitioner. He further submits that the cause of action or incidence of tax occurred on 4th June, 2001 i.e. on the date of which the Warehousing Corporation was served with the notice of demand. Admittedly, on this date petitioner was not in picture. He further reiterated that the liability to pay the octroi was that of the respondent No.2 as per the terms of license under which respondent No.2 is permitted to run the business of warehouse and not that of the petitioner. In support of his submissions, he also relied upon the various provisions of the Sale of Goods Act, 1930. 16. The respondent No.1 Municipal Corporation canvassed their contentions through Mr. D.R. More, Advocate and urged that the Municipal Corporation was entitled to recover the octroi on goods retained in Boded Warehouse beyond the 10 period more than one year, on the presumption that the goods have been brought within the limits for the purpose of sale, use or consumption. He pressed into service various provisions of the Act, Rules and Standing Orders in support of his submission. 17. Per contra, Mr. Jetly, the learned Counsel appearing for the Customs Department mainly sought to place reliance on the terms and conditions circulated for the auction sales which were to be conducted on 23rd and 27th July, 2003 and placed reliance on one of the terms mentioned therein reading as under :- “Octroi as applicable will have to be paid by tenderer, he has to make sure to himself from concerned octroi authorities before tender/auction as to what amount of octroi is applicable on goods under tender sale.” 18. Mr. Jetly, further urged that the Customs Commissioner is entitled to recover customs duty on the value of the goods as reflected in the chart filed by Mr. Jetly, without putting his signature or that of any responsible officers representing Customs Department. The customs duty worked out therein gives two calculations, one in the sum of Rs.44,19,940/- with interest liability calculated thereon in the sum of Rs.59,86,561/- in the first chart, whereas for the same bills of entry the 11 Customs liability has been worked out to Rs.61,53,887/- with interest liability thereon is worked out in the sum of Rs. 83,34,209/- in the second chart without explaining as to why two different valuations are worked out. 19. Mr. Jetly, the learned Counsel further urged that the octroi liability was payable by the auction purchaser since it was orally announced by the auctioneer that the liability of octroi shall be on account of the auction purchaser. He placed reliance on the affidavits filed by Shri S.D. Pradhan, S.L. Ghule, S.K. Patil, B.D. Chikhale and S.S. Ahmed in support of this submission. 20. Ms. Shah, the learned Counsel appearing for the respondent No.2, Warehousing Corporation while reiterating the contentions canvassed by Mr. Jetly went on to urge that the Warehousing Corporation is entitled to recover their warehousing charges and that by no means it can be said to be the liability of the Warehousing Corporation to recover octroi charges from the Customs Department and to pay it to the Corporation or that Warehousing Corporation was in no way liable to the octroi duty. The Warehousing Corporation thus refused to accept any liability to pay octroi to the Municipal Corporation. 12 21. In nutshell, Mr. Jetly and Ms. Shah appearing for contesting respondents jointly and severally disowned their liability to pay octroi and tried to thrust said liability on the petitioner. 22. In order to deal with the rival submissions, it is necessary to turn to the relevant statutory provisions impeaching upon the issue involved in the petition with regard to the determination of the tax liability. STATUTORY PROVISIONS:- 23. The octroi is a tax required to be paid as provided and contemplated under the provisions of the Bombay Provincial Municipal Corporation Act, 1949 (the Act). The relevant part of Section 127 of the Act imposing taxes is reproduced herein below; “127. Taxes to be imposed under this Act. 1.For the purposes of this Act, the Corporation shall impose the following taxes viz. a) Property Taxes b) Tax on vehicles, boats, and animals. 2.In addition to taxes specified in Sub Section (1) the Corporation may for the purpose of this Act and subject to the provisions thereof impose any of the following taxes viz. a) Octroi.” 13 As per the aforesaid provisions the Corporation is empowered to levy tax in the nature of octroi and as such the tax becomes statutory liability. 24. The Corporation is empowered to recover the Municipal Taxes in the manner and procedure prescribed under the provision of Section 128. The relevant provision of the said Section 128 of the Act reads as under:- “128. Manner of recovering the Municipal Tax The Municipal Tax may be recovered by the following processes in the manner prescribed by Rules. (1) ------------ (2) ------------ (3) ------------ (4) ------------ (5) In case of octroi and toll, by seizure and sale on goods and vehicles.” The aforesaid provisions enable the Corporation to levy tax and also provide the manner in which taxes are to be recovered. The Corporation under the provisions of the Act is entitled to frame its rules as specifically provided and contemplated under Chapter 29 of the said Act. Under Section 453 of the Act, it has been provided that Rules in Schedule of 14 the Bombay Provincial Municipal Corporation Act to be part of the said Act. The said Section reads as under:- “453. Rules in Schedule to be part of the Act The Rules (Schedule 'D') as amended from time to time shall be part of this Act.” Under Section 454 of the Act, the Corporation is empowered to add to the (Schedule `D') rules not inconsistent with the provisions of the Act to provide for any matter dealt with or for any purposes specified in the said schedule, and may subject to some limitation, amend, alter or annul any rule in the said schedule. 25. The provisions of Section 455 of the Act provides that the Corporation can frame its own Rules and after framing such Rules, it is the duty cast upon the Corporation to seek sanction from the State Government to such Rules before its implementation. 26. Section 457 of the Act deals with the matters in respect of which rules may be made and as per the provisions of Section 457(7) of the Act, the Corporation is specifically empowered to make rules with regard to the Municipal Taxes. 15 The relevant provisions under Section 457 is reproduced below : “457. Matters in respect of which Rules may be made. In particular and without prejudice to generality of the powers conferred under Section 454 of the Bombay Provincial Municipal Corporation Act, 1949, & Rules made hereunder may provide for or regulate all or any of the following purposes and matters viz. 7) Municipal Taxes a) Assessment and recovery of Municipal Taxes. b) The conditions on which representatives of Municipal Taxes shall be allowed. c) In respect of tax leviable under Sub Section (2) of Section 127, the matters referred to in Sub Section (1) of Section 149.” 27. It is, thus, crystal clear that the Act empowers the Corporation to first levy tax and provide the manner in which the tax due and recoverable is to be recovered. The Act also provides for power to make Rules under section 454 and Section 457 of the Act for the purposes of enabling the Corporation to make assessment and recovery of Municipal Taxes and also rules pertaining to taxes leviable under Section 127(2) of the said Act. 28. The respondent No.1 Corporation in exercise of the above powers has framed its octroi Rules and the same has been duly sanctioned by the State and became operative after the said 16 Rules were notified in the notification so published. Similarly as provided under section 465 of the Act, Corporation is empowered and entitled to frame its own regulations which have the statutory force. The respondent No.1 Corporation has framed such regulations and the same are in force. The said regulations have been framed for the purpose of giving true effect to the Rules framed by the Corporation and the manner in which the Corporation should function by determining the various aspects including the matter pertaining to octroi. As provided in octroi rules of the Corporation Definition No.2(m) specifies as to who can be termed as an 'Importer' and Rule 6 thereof provides for maintenance of the warehouse. The relevant part of the Rules is reproduced hereinbelow for immediate reference. “2(m) 'Importer' means a person who imports any goods and includes a person who owes goods at the time of import. 2(g) of the Rule(s) means the rule or rules made by Corporation for levy and recovery of octroi under Section 454 and Section 456 of the Bombay Provincial Municipal Corporation Act, 1949, and sub-sections (7) and (17) of Section 457 of Bombay Provincial Municipal Corporation Act, 1949, and sub section (1) of section 49. 2 (h) 'Standing Order' means standing orders made by Municipal Commissioner under Clause (A)(1) of Section 466 of the Act. As 17 per the Rules which are so framed in force, the Rule 6 of the said Rules provides the manner of maintenance of bonded warehouse. Rule 6 Maintenance of Bonded Warehouse. 1) The Commissioner may maintain the bonded warehouse for detaining dutiable goods for which octroi is not paid or keeping the goods declared to be intended for temporary detention in an eventual export thereof from the octroi limits. 2) The Commissioner may subject to standing orders made in this behalf under Section 466 of the Bombay Provincial Municipal Corporation Act, 1949, permit any importer to maintain and provide bonded warehouse for keeping the goods which are imported by such importer for temporary detention & eventual export and grant license to such importer for that purpose subject to conditions and restrictions laid down in such licence, fee shall be charged for such licence at the rate fixed by the Commissioner from time to time.” Reading of the above rules also make it clear that it provides for maintaining licensed bonded warehouse, meant for temporary detention of goods which are brought within the limits of the Corporation which are meant for eventual export. 29. The rules also provides for applicability of standing order framed under Section 466 of the Act. As per the definition incorporated in the standing order, the definition No.2(6) the 18 'Transporter' shall mean any person or establishment or agency dealing in goods transport business and who has obtained bonded warehouse license and who holds business of trade license from Corporation as per the provisions of the rules. The procedure required to be followed by the bonded warehouse is prescribed in Standing Order No.22, wherein it is provided that the goods brought within the limit can be kept by way of temporary detention meant for eventual export. The respondent No.2 herein is the Manager of Central Warehouse Corporation which has been granted license to run bonded warehouse, as prescribed in Rule 6 of the octroi rules and the procedure which is required to be followed by it is prescribed in Standing Order No.22 of the Municipal Corporation Act. 30. As per the provisions of the Act, rules and the Standing orders, the goods which were detained in a bonded warehouse beyond the prescribed period of one year attracts full octroi as provided and contemplated under the Standing Order No.22 (10) (13) and the same is required to be charged and paid to the Corporation by the Warehouse. The said Standing Order reads as under :- “(a) ---------------- (b) Period of 90 days as specified in Clause (a) above, may extend upto one year for the 19 professionals holding foreign import export license. Provided however that the original time limit for such imported goods shall be the same as 30 days and for every 30 days thereafter it may be extended by the written permission of the Commissioner or the Officer deputed by him in this behalf, on payment of prescribed fees therefor. For such extension of time limit the prescribed fees may be paid either in stages of 30 days each independently or for the full one year. Full octroi shall be charged on the goods remaining in he godown after the period of one year.” (c) -------------- (13) -----------” Thus the above standing order makes it amply clear that in the event goods are detained in a bonded warehouse beyond a prescribed period of one year as provided and contemplated by the aforesaid provisions, the Corporation is entitled to recover the amount of octroi on such goods which are detained in bonded warehouse presumed to have been brought within the limits of the Corporation for the purpose of sale, use or consumption. 31. It is, thus, clear that under Standing Order 22(10)(a), if goods are to be kept in Warehouse beyond a period of 30 days, then permission of the Municipal Commissioner is necessary which cannot be granted for a period more than 90 days. If the goods are not exported within the said specified period then 20 the transporter is liable to pay octroi at the prevailing rate on such goods. As per Clause 22(13) of the Standing Order, the license of the transporter is liable to be suspended in the event of breach of any of the rules or standing orders and if so required, amount of deposit kept for in on license is liable to be forfeited. It is, thus, clear that the liability to pay octroi is a responsibility of the Transporter i.e. Warehousing Corporation as per the license condition. Section 150 of the Customs Act, 1962 provides for procedure for sale of goods and application of sale proceeds thereof. The said Section thus reads :- “(1) Where any goods not being confiscated goods are to be sold under any provisions of this Act, they shall, after notice to the owner thereof, be sold by public auction or by tender or with the consent of the owner in any other manner. (2) The proceeds of any such sale shall be applied - (a) firstly to the payment of the expenses of the sale,