IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 649 of 1980 For Approval and Signature: Hon'ble MR.JUSTICE K.M.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- MAFATLAL INDUSTRIES LTD Versus NAVASARI NAGAR PALIKA, -------------------------------------------------------------- Appearance: 1. Special Civil Application No. 649 of 1980 MR S.I.NANAVATI, Ld.Senior Advocate with Mr.SANJIV DAVE, Advcoate for Petitioner MR MC SHAH for Respondent -------------------------------------------------------------- CORAM : MR.JUSTICE K.M.MEHTA Date of decision: 08/02/2002 ORAL JUDGEMENT 1. Mafatlal Fine Spinning and Manufacturing Company Limited - petitioner company has filed this petition for a writ of mandamus or a writ of prohibition restraining the respondent Municipality - Navsari Nagar Palika, Navsari from recovering octroi on the grey fabrics brought by the petitioner from their Bombay Mills within the octroi limits of the respondent which fabrics, after processing in their process house, are exported back. The petitioner company further prayed that the respondent Municipality be restrained from recovering or taking any coercive measures in that behalf for recovery of octroi as threatened by them from January 1, 1977. The petition was filed somewhere in March 1980. When the matter was placed for hearing before Division Bench of this Court, the Division Bench has admitted the matter on 18th March, 1980, and also granted interim relief in this behalf. 2. The facts giving rise to this petition are as under:- 2.1 Mr.S.I.Nanavati, learned Senior Counsel appearing on behalf of the petitioner has contended that as per the petition the petitioner's company had a unit at Bombay. However petitioner's company took a decision to set up a new process house in the vacant land belonging to the petitioner at Navsari. For that purpose they requested the Navsari Nagar Palika - respondent to give permanent exemption for octroi. It is their contention that new process house was expected to cater the dyeing, printing and finishing requirements of the grey fabrics manufactured at Navsari Mill as also the requirement of the grey fabrics manufactured at the Bombay Mills. It was stated that this change over and shifting of plant and machinery and commissioning of new equipments for the upto date process house at Navsari involved huge investment to the extent of nearly Rs.3.44 Crores. 2.2 It was decided that most of the textile fabrics manufactured in the Bombay Mills were expected to be carried to Navsari in grey condition and after processing they would be despatched back to Bombay or to any other places outside the octroi limits of the respondent. Although the grey textiles were not expected to be brought within the octroi limits of the respondent for consumption, use or sale within the said octroi limits, it was debatable as to whether the grey textiles after they were processed and re-exported from the octroi limits of the respondent, they can be said to have changed its form so as to be a new product and, therefore, not entitled to refund of octroi. If octroi was payable on importing grey textiles within the octroi limits of the respondent, it was so deterrent tax that the entire idea of setting up a new process house at Navsari would have been dropped by the petitioner and, therefore, in order to secure assurance and promise in that behalf that such grey textiles on their being brought within the octroi limits of the respondent would not be liable to octroi, a specific letter dated 24th November, 1968 was addressed by the petitioner to the respondent which is produced at Annexure `A' to the petition. 2.3 In the said letter, after pointing out the benefit to the developing town of Navsari in the matter of employment and prosperity and consequent upon setting up of industry, it was further pointed out that the municipality would, inter alia, benefit by getting octroi on colours, chemicals etc. which will have to be imported for running the process house at Navsari and the respondent-municipality would also get house tax on the process house to be constructed for that purpose. Having pointed out such benefits to the town of Navsari and the respondent in particular, it was specifically stated by the petitioner in the said letter that the proposal to set up Process House at Navsari will be implemented only if the respondent communicates a decision to the petitioner that no octroi will be collected on the grey cloth brought from Bombay Mills within the octroi limits of the respondent for the purpose of processing and to be exported back after such processing. 2.4 On the said letter the Municipality passed the resolution dated 30th December, 1968, which was communicated to the petitioner company on 8th January, 1969. In the said resolution, the Municipality stated that the petitioner company can instal a plant but on condition that whatever the grey cloth brought within the octroi limits of the respondent will be taken back after processing in the process house, no octroi will be collected thereon and such import will be exempt from octroi. It is specifically stated that, as regards process of all chemicals and other items (except grey cloth) imported within the octroi limits are concerned, then it will be liable to octroi as per rules and regulations. It was also stated that for that purpose as per Clause 5(26) of the Octroi Rules and Bye-laws will be applicable and exemption will be granted to that extent. The said resolution has been passed specifically when the petitioner has addressed a letter for complete exemption of the plant in this behalf. 2.5 Relying upon the assurance and promise contained in the said resolution, the petitioner - company set up a process house at the cost of Rs.3.44 Crores and the process house was commissioned from January 1, 1972. 2.6 The petitioner also stated that the Municipality also passed another resolution on September 19, 1970, exempting the section No.1 of the new extension from taxes as per rules clarifying that would merely include machinery and raw materials. The purpose of the said resolution was to exempt machinery and raw materials and the said resolution had nothing to do with the permanent exemption which was granted from octroi on the grey cloth brought within the octroi limits of the respondent for the purpose of processing and which was to be exported back after processing as per the earlier resolution No.467 of dated 30th December, 1968. 2.7 After commissioning of the new process house from January 1, 1972, the petitioner-company used to bring in grey cloth from Bombay Mills within the octroi limits of the respondent for the purpose of processing in their new process house specially set up for the purpose as per the assurance and promise of the respondent contained in their resolution dated 30th December, 1968, and no objection was raised in that behalf and no attempt was made to levy or collect octroi on the said goods even after the period of five years had expired on December 31, 1976. 2.8 The President of the respondent addressed a letter dated 11th October, 1977, and stated that on expiry of five years from commissioning of the new process house, the grey cloth brought for processing has become liable to octroi from January 1, 1977 and the petitioner was called upon to calculate the amount of octroi on such grey cloth brought within the octroi limits from January 1, 1977 and make a declaration in this behalf. 2.9 Thereafter the petitioner addressed a letter dated 20th October, 1977, to the respondent pointing out therein that the petitioner, relying upon the assurance given and promise held out by the respondent by their resolution dated December 30, 1968, had set up a modern process house within the municipal limits of the respondent and thus helped to solve the problem of employment in the town of Navsari and also contributed income of the respondent municipality on other items is also increased substantially by Rs.75,000/- per month from January, 1977. 2.10 Thereafter correspondence ensue between municipality on one hand and the petitioner on the other hand. However, ultimately the Municipality passed the Resolution No.696 of dated 11th February, 1980, and stated that the petitioner is liable to pay octroi in this behalf. 2.11 Being aggrieved and dissatisfied with the said action, the petitioner has filed the present petition before this Court and stated above. 3. Mr.S.I.Nanavati, Learned Senior Advocate for the petitioner has raised several contentions for attacking the said resolution passed by the Corporation for levying octroi in this behalf. However, before the said contention can be considered, let me set out the relevant statutory provisions so that said contentions can be properly explained. 4. He has relied upon the Constitution of India Entry No.52 List 2 which provides as under: "Entry No.52 Taxes on the entry of goods into a local area for consumption, use or sale therein." 4.1 In view of the said power the State Legislature has enacted Gujarat Municipalities Act, 1963. Clause 2 of the said definition provides `octroi' means a tax on the entry of goods into the limits of Municipal Borough for consumption, use or sale thereon. Sec.121(1) provides power to take effectual measures to prevent entry without payment of octroi. Sec.122 provides octroi bye laws to be submitted with proposal for imposition octroi. Sec.123 provides power to examine articles liable to octroi. Sec.124 provides presentation of bills for octroi. Sec.125 provides penalty for evasion of octroi. Sec.127 provides power to seize vehicle or goods on non payment of octroi or toll. Sec.128 provides power to keep account current with person, firm or public body in lieu of levying octroi on introduction of goods. 4.2 He has also referred to Sec.271 which provides municipality to make rules. Sec.271(1) provides prescribing taxes:- Prescribing the taxes to be levied in the municipal borough for municipal purposes, the circumstances in which exemption will be allowed, the conditions on which and the extent to which remissions will be granted, and the system on which refunds will be allowed and paid in respect of such taxes; the limits of the charges or payments to be fixed in lieu of any tax under section 119, the fees to be charged for licences or permissions granted under section 118 and giving copies and stamping weights and measures; the fees for notices demanding payments due on account of any tax and for the issue and execution of warrants of distress and the rates to be charged for maintaining any live-stock distraned; and the mode in which such taxes, charges, payments, fees or rates shall be levied or recovered or be payable and the persons authorised to receive payment of the same and the manner in which auctions of movable and immovable property under section 134 shall be paid. 4.3 He has also referred to Sec.275 of the Act which provides power to make bye-laws: "Sec.275 Power to make bye-laws :- (1) A municipality may from time to time, alter or rescind by laws not inconsistent with this Act. "Sec.275(l) provides octroi :- fixing octroi limits and stations; providing for the exhibition of tables of octroi; regulating, subject to any general or special orders which the State Government may make in this behalf, the system under which refunds are to be made on account thereof when the animals or goods on which the octroi has been paid, or articles manufactured wholly or in part from such animals or goods, are again exported, and the custody of animals or goods declared not to be intended for consumption, use or sale within the municipal borough; and prescribing a period of limitation after which no claim for refund of octroi shall be entertained and the minimum for which any claim to refund may be made." 4.4 Learned counsel for the petitioner thereafter invited my attention to the Navsari Borough Municipality Octroi Rules and Bye-laws. Octroi Rules and Bye-laws and Schedules framed by the Navsari Borough Municipality as required under Section 271(l) and 275(1)(l) of the Gujarat Municipalities Act, 1963. Clause 5 of the said rules provides the following goods shall be exempt from the levy of Octroi particularly 26 of Clause (5) provides as under: "26. Raw materials, semi finished goods, plant and machinery or any articles brought within the limits of the Municipality by a new industry, not for sale but for Manufacturing any goods or for erecting any factory. Explanation: I:- For the purpose of this clause "New Industry" means: (i) Any industry established on or after 1.4.1965. (ii) Any industry which has been established before 1.4.1965 but in which the production of goods has commenced after the 1st April 1965. (iii) In the case of any industry established before 1.4.65 but which has undergone or which undergoes expansion after that date the expanded part of such industry. Explanation.II:- For the purpose of this clause "Expansion" shall not include replacement or overhauling of any existing machinery. Provided that the exemption granted by this clause in respect of any new industry shall remain in force for a period of 5 years from the date of starting of such industry or the date of coming into force of this clause which ever date is later." 4.5A Learned counsel for the petitioner stated that in view of the constitution provisions and the statutory provisions of the Municipality Act, the Municipality has power to levy octroi on entry of goods for the purpose of sale, use and consumption. When the Municipality has power to levy tax, the Municipality has also power to exempt the tax also. 4.5B He, therefore, submitted that therefore the petitioner made specifically representation and on the said representation the Municipality has adopted the same and granted complete exemption so far as grey cloth is concerned. Whereas other items the Municipality has granted exemption for five years and therefore relying upon the said assurance the petitioner's company had installed a plat at the huge cost of Rs.3.44 Crores at Navsari. He, therefore, submitted that after granting said exemption in the year 1968 and thereafter also passed certain other resolutions also where there is no whisper about the power to limit of levy of octroi. Only on 11th October, 1977, for the first time the Municipality comes out with the case that as regards resolution dated 30th December, 1968, granted interpretation even for process house so as to grey cloth the exemption is only for five years and the petitioner is liable to pay from 1.1.77 i.e. after completing five years. 4.5C He further submitted that the respondent-Nagarpalika was very much aware about the high incidence of octroi in this behalf. He further submitted that octroi has the signal distinction of having four "qualifications" which no other levy possesses. It is the only tax which has been unanimously and unequivocally condemned by high-powered bodies specifically appointed to consider the desirability of its continuance. It is the only tax which has generated an epidemic of political schizophrenia. It is the only tax which has institutionalized corruption on so vast a scale that a strong lobby has grown up against its abolition. It is the only impost which taxes the people to a tolerable extent in terms of money and to an intolerable extent in terms of time and energy. (Re: Article of Mr. N.A. Palkhivala on octroi - from "We the Nation" at page 123). 4.5D He therefore submitted that petitioner company therefore made amply clear that as far as grey fabrics entering in the municipal limits, the respondent-Nagarpalika may completely exempt the octroi for ever whereas for other goods are concerned, the exemption may be granted for limited period. 4.6 Learned counsel further submitted that principle of promissory estoppel the Municipality cannot recover the octroi. He further submitted that, relying upon the assurance given by the Municipality, the petitioner has changed this position namely installed the plant at Navsari and after five years now the Municipality can not say that the exemption of grey cloth is not applicable and it is only for limited period of five years. 4.7 In support of the said contention, he has relied upon the judgment of the Hon'ble Apex Court in the case of M/S. MOTILAL PADAMPAT SUGAR MILLS CO.LTD. vs. THE STATE OF UTTAR PRADESH AND OTHERS reported in AIR 1979 SC 621, particularly he has relied upon para 7, 8 and 9 and ultimately in para 24 on page 643 the Hon'ble Supreme Court observed as under: "Para.24 ..... The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Govt. would be held bound by the promise and the promise would be enforceable against the Govt. at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Art. 299 of the Constitution. It is elementary that in a republic governed by the rule of law, no one, howsoever high or low, is above the law. Every one is subject to the law as fully and completely as any other and the Government is no exception. It is indeed the pride of constitutional democracy and rule of law that the Government stands on the same footing as a private individual so far as the obligation of the law is concerned : the former is equally bound as the latter. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx It was laid down by this Court that the Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action. If the Government does not want its freedom of executive action to be hampered or restricted, the Government need not make a promise knowing or intending that it would be acted on by the promisee and the promisee would alter his position relying upon it. But if the Government makes such a promise and the promisee acts in reliance upon it and alters his position, there is no reason why the Government should not be compelled to make good such promise like any other private individual. The law cannot acquire legitimacy and gain social acceptance unless accords with the moral values of the society and the constant endeavour of the Courts and the legislatures must, therefore, be to close the gap between law and the morality and bring about as near an approximation between the two as possible. The doctrine of promissory estoppel is a significant judicial contribution in that direction." On page 651 the Court further observed thus: "We do not think that in order to invoke the doctrine of promissory estoppel it is necessary for the promisee to show that he suffered detriment as a result of acting in reliance on the promise. But we may make it clear that if by detriment we mean injustice to the promisee which would result if the promisor were to recede from his promise, then detriment would certainly come in as a necessary ingredient. The detriment in such a case is not some prejudice suffered by the promisee by acting on the promise, but the prejudice which would be caused to the promisee, if the promisor were allowed to go back on the promise." 4.8 He has also relied upon the judgment of the Hon'ble Supreme Court in the case of UNION OF INDIA AND OTHERS vs. GODFREY PHILIPS INDIA LTD. reported in AIR 1986 SC 806. In that case before the Three Bench Judges of the Hon'ble Supreme Court the question arose from the letter of the Union of India which stated that corrugated fibre board containers are not an integral or essential requirement for the sale of cigarettes and are used for the sole purpose of protecting cigarettes from any damage that may arise during transportation and that the cost of such corrugated fibre board containers should not therefore be included in the value of the goods for the purpose of excise duty cannot be considered to be a special order within meaning of R.8(2) and cannot avail to cigarette manufacturers for claiming exemption of excise duty in respect of corrugated fibre board containers. In that case as regards promissory estoppel is concerned, the Court has relied upon the earlier judgment of the Hon'ble Supreme Court in the case of Motilal Sugar Mills Vs. State of Uttar Pradesh and overruled the Jeet Ram's case and ultimately in para 12 the Hon'ble Supreme Court has expressly approved the law laid down in Motilal's case and disapprove the case of Jeet Ram's case. "Para.12 There can therefore be no doubt that the doctrine of promissory estoppel is applicable against the Goverment in the exercise of its governmental, public or executive functions and the doctrine of executive necessity or freedom of future executive action cannot be invoked to defeat the applicability of the doctrine of promissory estoppel. We must conceded that the subsequent decision of this Court in Jeet Ram vs. State of Haryana (1980) 3 SCR 689 : (AIR 1980 SC 1285) takes a slightly different view and holds that the doctrine of promissory estoppel is not available against the exercise of executive functions of the State and the State cannot be prevented from exercising its functions under the law. This decision also expresses its disagreement with the observations made in Motilal Sugar Mills case (AIR 1979 SC 621) that the doctrine of promissory estoppel cannot be defeated by invoking the defence of executive necessity, suggesting by necessary implication that the doctrine of executive necessity is available to the Government to escape its obligation under the doctrine of promissory estoppel. We find it difficult to understand how a Bench of two Judges in Jeet Ram's case could possibly overturn or disagree with what was said by another Bench of two Judges in Motilal Sugar Mills case. If the Bench of two Judges in Jeet Ram's case found themselves unable to agree with law laid down in Motilal Sugar Mills case, they could have referred Jeet Ram's case to a larger Bench, but we do not think it was right on their part to express their disagreement with the enunciation of the law by a co-ordinate Bench of the same Court in Motilal Sugar Mills." 4.9 He has also relied upon another judgment of the Hon'ble Supreme Court in the case of POURNAMI OIL MILLS vs. STATE OF KERALA reported in AIR 1987 SC 590. 4.10 He has also relied upon the judgment of the Hon'ble Supreme Court in the case of NATIONAL BUILDINGS CONSTRUCTION CORPORATION vs S.RAGHUNATHAN AND OTHERS reported in (1998) 7 SCC 66 particularly para 18 on page 75 in connection with legitimate expectation in this behalf which reads as under: "Para.18 The doctrine of "legitimate expectation" has its genesis in the field of administrative law. The Government and its departments, in administering the affairs of the country, are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without any iota of abuse of discretion. The policy statements cannot be disregarded unfairly or applied selectively. Unfairness in the form of unreasonableness is akin to violation of natural justice. It was in this context that the doctrine of "legitimate expectation" was evolved which has today become a source of substantive as well as procedural rights. But claims based on "legitimate expectation" have been held to require