IN THE HIGH COURT OF BOMBAY AT GOA. WRIT PETITION NOS. 416 OF 1993 AND 465 OF 1996. WRIT PETITION NO. 416 OF 1993. (1) Alcon Resort Holdings Limited, a company registered under the Companies Act, 1956, having its registered office at Velho Building, Panaji, Goa. (2) Shri Victor M. Albuquerque, Director, Alcon Resort Holdings Pvt. Ltd., Velho Building, Panaji, Goa. ... Petitioners. Versus (1) The Dy. Collector & Sub- Divisional Officer, South Goa, Margao, Goa. (2) The Under Secretary (Urban Development), Government of Goa, Secretariat, Panaji, Goa. (3) The Dy. Collector & Sub- Divisional Officer, Panaji, Goa. (4) The State of Goa, through its Secretary (Urban Development), Secretariat, Panaji, Goa. ... Respondents. Mr. M.S. Sonak with Mr. D. Pangam and Miss P. Bharne, Advocates for the Petitioners. Mr. V.P. Thali, Addl. Advocate General with Miss S. Linhares, Addl. Govt. Advocate for the Respondents. WRIT PETITION NO. 465 OF 1996. (1) Mrs. Angela Pereira de Andrade Rebello, r/at Mangor Hill, Vasco da Gama. (2) Mr. Francisco Xavier Rosario Gerson Rebello, r/at Mangor Hill, Vasco da Gama. ... Petitioners. Versus (1) State of Goa through Chief Secretary, Govt. of Goa, having office at Secretariat, Panaji, Goa. - 2 - (2) Sub-Divisional Officer and Deputy Collector, South Goa, Margao, Goa. (3) District Magistrate and Collector, South Goa District, Collectorate, Margao, Goa. ... Respondents. Mr. M.S. Sonak with Mr. D. Pangam and Miss P. Bharne, Advocates for the Petitioners. Mr. V.P. Thali, Addl. Advocate General with Mr. H.R. Bharne, Government Advocate for the Respondents. Coram: S. RADHAKRISHNAN & P.V. HARDAS, JJ. Date: 14th August 2002. ORAL JUDGMENT (PER RADHAKRISHNAN, J.) In both the above petitions the basic challenge is with regard to levy of conversion fee under Section 32 of the Goa, Daman and Diu Land Revenue Code, 1968. The learned counsel for the petitioners has basically challenged the levy of conversion fee on three grounds (a) the said conversion fee is totally arbitrary, irrational and discriminatory and, therefore, violative of Article 14 of the Constitution of India, (b) the aforesaid levy though is termed as ‘fee’, the State construed the same to be a ‘tax’, that is to say a fee is levied in the guise of tax without rendering any service and (c) the State has no legislative competence to collect the aforesaid conversion fee by way of tax as the same was not permissible under Entry 45 or 49 of the concurrent list of the VIIth Schedule of the Constitution of India, that is to say, that the State lacks legislative - 3 - competence to levy this tax. 2. In the above matters we have heard the learned counsel only on the first issue, that is, whether the levy of the said conversion fee is totally discriminatory in the sense the same is irrational, arbitrary and violative of Article 14 of the Constitution of India. Since we are clearly of the view that the aforesaid levy is patently discriminatory, irrational and violative of Article 14 of the Constitution of India, we are not deciding the other two issues, which are referred to hereinabove as (b) and (c), are expressly kept open. 3. The brief facts are that the predecessors-in-title of Alcon Resort Holdings Limited had applied to the Deputy Collector and Sub-Divisional Officer on 26th September 1988 for conversion of an area of 73,650 square metres from agricultural use to non-agricultural use under Section 32 of the Land Revenue Code. At the time when the aforesaid application was made, there was no provision for any conversion fee under Section 32. The petitioners had obtained the necessary approval from the Planning Authorities and by the letter dated 4th November 1988, the petitioners informed the Deputy Collector that they - 4 - had obtained the requisite approval from all the Authorities and, therefore, sought the expeditious grant of Conversion Certificate/Sanad pursuant to their application dated 26th September 1988. 4. On 28th November 1988 the Goa Land Revenue Code (Amendment) Act, 1988 was brought into force whereby Section 32(6) of the Land Revenue Code, 1968 was amended. The said Section 32(6) as unamended reads as under:- "32(6) When the land is permitted to be used for a non-agricultural purpose, a sanad shall be granted to the holder thereof in the form prescribed under the rules." After the said amendment, the said Section 32(6) now reads as under:- "32(6) When the land is permitted to be used for a non-agricultural purpose, a sanad shall be granted to the holder thereof in the form prescribed under the rules on payment of the fees at the rates mentioned as under:- (i) on personal Rs. 2/- per sq. housing metre. (ii)on commercial Rs. 5/- per sq. housing/ metre. industrial and commercial constructions. Provided that no such fees shall be leviable in cases where sanad is granted -- - 5 - (i) for area not exceeding two hundred square metres; (ii)for the purpose of churches, temples, mosques, gurudwaras, sports, hospitals, or educational, charitable, cultural or religious institutions." Therefore, from the above amendment it is clear that as far as conversion of agricultural land to non-agricultural use for personal housing is concerned, the conversion fee was prescribed as Rs. 2/- per square metre and as far as conversion of agricultural land for commercial housing/industrial and commercial constructions is concerned, the same was provided at Rs. 5/- per square metre. 5. Ultimately the State Government granted approval for conversion of land on 16th January 1989 and the actual conversion sanad was issued on 20th February 1989. Thereupon, for the first time, the respondents made a demand from the petitioners, by a letter dated 20th July 1989, demanding a sum of Rs. 3,68,250/- at the rate of Rs. 5/- per square metre being the conversion fee. This demand was disputed by the petitioners and various correspondence was exchanged between the parties and finally a demand notice was served on the petitioners dated 13th April 1993, which demand has been impugned in the above Writ Petition No. 416 of 1993. - 6 - 6. As far as this petition is concerned, the actual area which has been converted wherein construction is permissible, out of the 73,650 square metres, is only 18,425 square metres, that is to say, the maximum land permissible to be utilised for non-agricultural purpose is 18,425 square metres, out of which, in fact, the petitioners in reality actually utilised 10,000 square metres for such construction. 7. As far as the second petition, that is Writ Petition No. 465 of 1996 is concerned, the challenge is with regard to the rate for commercial housing/industrial and commercial construction which was increased from Rs. 5/- in the year 1988 to Rs. 15/- in the year 1994. Therefore, in both the above petitions the basic challenge that the conversion fee initially which was Rs. 5/- for commercial construction and from the year 1994 was increased to the rate of Rs. 15/- is on the ground that the said levy is totally arbitrary, irrational and discriminatory in the sense the aforesaid conversion fee rate of Rs. 5/- or Rs. 15/-, as the case may be, is applicable to the entire State of Goa uniformly irrespective of the fact whether the plot is situated in a developed City like Panaji or a town or in an absolute rural and village area. To put it in other words, the conversion fee at Rs. 5/- or Rs. 15/- is - 7 - being levied uniformly for commercial use all throughout the State of Goa in 1988 and 1994 onwards respectively. As far as conversion of non-agricultural plot into residential use is concerned, the conversion fee at Rs. 2/- per square metre was provided in the 1988 Amendment but in the 1994 Amendment there was no change with regard to private residential use. The learned counsel for the petitioners strongly contended that the aforesaid levy has not taken into account any rational circumstances or factors and, therefore, submitted that unequals are being treated as equals, thereby the same is violative of Article 14 of the Constitution of India. To put it in other words, the learned counsel for the petitioners submitted that as far as the land in a totally rural and village area is concerned, if the same were to be converted for the purpose of commercial use today, the person has to pay Rs. 15/- per square metre and in a developed City like Panaji also, the person has to pay the same Rs. 15/- per square metre. Even in the City of Panaji there are certain areas having better amenities and certain areas are congested. Even there, there is no distinction made. To put it in other words, the entire State of Goa is treated on the same basis and the levy of Rs. 15/- per square metre is made by way of conversion fee for changing agricultural land to commercial use, which has no rational basis at all and the same has to be - 8 - struck down by this Court as clearly violative of Article 14 of the Constitution of India. 8. The learned counsel for the petitioners in that behalf referred to various Judgments starting with a Judgment of the Hon’ble Apex Court in New Manek Chowk New Manek Chowk New Manek Chowk Spg. and Wvg. Mills Co. Ltd., etc. v. Municipal Spg. and Wvg. Mills Co. Ltd., etc. v. Municipal Spg. and Wvg. Mills Co. Ltd., etc. v. Municipal Corporation of the City of Ahmedabad and others Corporation of the City of Ahmedabad and others Corporation of the City of Ahmedabad and others, A.I.R. 1967 S.C. 1801 wherein an almost similar issue had cropped up and the Apex Court dealing with the same has observed as under:- "(10) There is nothing in the counter affidavit to show that conditions in the City of Ahmedabad with regard to textile mills are such as would make the method laid down at p. 164 of Faraday’s book applicable. The affidavit does not purport to show that the factories were constructed at or about the same time or in groups or were so similar in their operation that their rental value could be determined at per foot super of floor area applying the contractor’s basis. There is nothing to show that any textile factory was valued on the contractor’s basis and that from the figures of valuation so worked out, the rental value per foot super of floor area was determined. On the other hand, the affidavit suggests that because in various cities it was common to let out premises on the basis of floor area, the municipal authorities of Ahmedabad had resorted to this method for fixing the rateable value. We can take judicial notice of the fact that sometimes godowns or buildings constructed for office purposes are let out on the basis of - 9 - floor area; but even then, the rate would vary according to the nature of the building and according to the site of the building in the city. It would also depend upon the age of the building and the amenities provided therein. It would be impossible to say that in the City of Ahmedabad a tenant would be willing to pay at the same rate of rent for factory accommodation, no matter where the building was situate or when it was put up or how it was constructed. (11) Our attention was also drawn to other well known books on Rating like Ryde on Rating, Bean and Lockwood on Rating and Graham Lyre on Rating. Incidentally, we may refer to Witton Booth on Valuations for Rating (Fourth Edition) at p. 125 wherein the learned author states: "Reductions of floor areas to units, as already described, are necessary to effect reliable comparisons, but it is merely a mechanical process used in preparing material for the valuation, the actual valuation being the decision and application of the appropriate rate or rental value per unit of area. This may be exactly to a standard, and, indeed, it probably will be to the majority of properties where these are so nearly alike in character as to be regarded for rating purposes as identical. Where, however, rates or rental values per unit of area are applied indiscriminately, without discernment -- on the wholesale, as it were -- inequalities are certain to arise, and these give rise to the whole method being caustically referred to as "valuations by the foot rule"". (12) The above comment is sufficient to show that this method can only be applied where the majority of properties are so nearly alike in character as to be regarded identical for rating purposes. - 10 - There is no such statement in the affidavit. (13) We are, therefore, not satisfied that conditions prerequisite for determination of annual value of textile factories in Ahmedabad on the basis of rental value per foot super of floor area existed at the relevant time nor has it been shown to us that the so-called contractor’s basis was adopted by the municipal authorities of Ahmedabad. The method is not also one which is generally recognised by authorities on rating. Applied indiscriminately -- as it appears to have been done in this case -- it is sure to give rise to inequalities, as there has been no classification of the factories on any rational basis. Further, there does not seem to be any basis for dividing the factories and the buildings thereof under two general classes as buildings used for processing and buildings for non-processing purposes. What was said by this Court in Lokmanya Mills’ case, 1962-1 SCR 306=(AIR 1961 SC 1358) (Supra) applies with equal force to what has been done here and we must hold that the municipality did not observe the law and failed in its duty to determine the rateable value of each building and land comprised in each of the textile factories in terms of R. 9(b) of the rules under the Bombay Provincial Municipal Corporations Act, 1949 so far as the assessment book for the year 1966-67 is concerned. (14) Mr. Setalvad argued that at that stage there is only a proposal and even if the municipality had acted arbitrarily it was open to the assessees to take objection thereto and have proper valuations made and the assessment book prepared properly. We cannot accept this argument. If the municipality fails in its initial duty to act in terms of R. 9(b) it does not lie in its mouth to say that any irregularity, - 11 - however, patent on the face of it, is open to correction. Moreover, the methods of correction in this regard are really illusory. The Small Causes Court cannot decide the applicability of Art. 14 of the Constitution and according to the Judgment of the Bombay High Court in Balkrishna v. Poona Municipal Corporation (1963) 65 Bom. L.R. 119, (by which the District Judge would be bound): "....... the words used in S. 406(1) of the Act ....... do not cover the vires of the tax or the legality of the tax which is sought to be levied." Earlier, the learned Judges had pointed out after noting Ss. 406 to 413 that: "the decision of Judge aforesaid upon any appeal against any such value or tax if no appeal is made therefrom under S. 411 and if such appeal is made the decision of the District Court in such appeal shall be final." From this it follows that it would be useless for the assessee to take objections or file appeals against the decisions on rateable value to the authorities prescribed by the Act if he was challenging the determination of the rateable value as being violative of Art. 14 of the Constitution. It is no answer to such a charge to say that the rateable value could be determined properly by the municipal authorities acting under the Act and the rules thereunder when they do not resort to any of the well-known methods of valuation and cannot justify their arbitrary method." Finally the Apex Court found that the aforesaid levy to be totally irrational and as such violative of Article 14 of the Constitution of India. - 12 - 9. Thereafter the learned counsel for the petitioners also referred to a Division Bench Judgment of our High Court in Rajab Mahal Co-operative housing Rajab Mahal Co-operative housing Rajab Mahal Co-operative housing Society Ltd. v. State of Maharashtra and others Society Ltd. v. State of Maharashtra and others Society Ltd. v. State of Maharashtra and others, A.I.R. 1980 Bombay 358. In this case also on a similar set of facts and circumstances our High Court found that the levy of uniform tax was totally irrational and violative of Article 14 of the Constitution of India. In that behalf it may be relevant to note the observation in paragraph 21 of the aforesaid Judgment, which reads as follows:- " Our attention was drawn to the statement of objects and reasons as also the preamble of the Act to indicate the object of this Act. Both read together merely suggest that in addition to the property tax based upon rateable value collected under the municipal tax, the State Government wanted to augment its own income and, therefore, additional property tax was being levied on the basis of the floor area, as indicated earlier. There is, therefore, no doubt that this measure was introduced under the powers vested in the Maharashtra Legislature by Entry 49 of List II of VII Sch. of the Constitution. It is essentially a property tax. This distinction, as pointed out above, does not make the Maharashtra Act a piece of legislation any distinct from the Kerala Act, which was already struck down as unconstitutional. It may be that the area of operation of the present Act is limited to Corporation areas and that the premises which are chosen for imposing the tax are residential premises, as defined in Cl. (o) of S.2 of the Act. This - 13 - Act on a bare perusal and on the face of it refuses to make any distinction between different areas of the same town and the degree of development which may be different in different localities under the same Municipal administration. In fact, in the arguments addressed to us even references were made to the so-called post locality of the Fort areas and the Malabar Hill and the backward areas which still surround the suburbs, and also the erstwhile villages which have all become the Municipal Corporation area of Greater Bombay by virtue of the extension of the area of the Corporation by Government from time to time. Obviously, therefore, all areas are not equally developed and the fact that only a few towns are comprised within the operation of the Act does not distinguish this Act from the Kerala piece of legislation. The essence of the criticism of the Supreme Court so far as the Kerala Act was concerned, was not that it operated in a large field comprising the whole State, but the vice was that the Act operated uniformly to all areas which can be so dissimilar and can have no comparison to one another. That fact is still available for being argued in respect of the towns for which the present Act operates. With the growth of towns when Corporations are required to be set up for better administration, the State Government has always issued notifications describing the limits of the Corporations. Judicial notice can be taken of all these notifications which include several surrounding villages which are automatically made part of the Corporation areas. It is common knowledge that the newly added areas do not at once improve and come to the standard or level of improvement as in the posh locality or localities in certain areas. Then again the material used, the nature of structure, the cost of construction and the capacity to yield income vary immensely. They - 14 - are not found to be equal, not only from locality to locality but in certain circumstances from building to building. This being the reality of life, any piece of legislation which forgets this factual aspect and seeks to equalise by mere legislative direction unequal buildings are bound to suffer from the vice indicated by the Supreme Court in the State of Kerala case." 10. In the above Judgment our High Court had found that unequals were being treated equally and the authority had not taken the reality into account and had blindly treated everyone alike. In the aforesaid Judgment of our High Court the Division Bench has also referred to the earlier Judgment of the Apex Court in New Manek Chowk Spinning and Weaving Mills Co. Ltd. New Manek Chowk Spinning and Weaving Mills Co. Ltd. New Manek Chowk Spinning and Weaving Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad. v. Municipal Corporation of the City of Ahmedabad. v. Municipal Corporation of the City of Ahmedabad. Ultimately in paragraph 32 in the above Division Bench Judgment of our High Court it is observed as under:- " These are all the arguments addressed to us, and the Judgments cited on either side. We have hardly any doubt that there is no rational classification at all in the impugned Act so far as the different flats are concerned. Merely to say that all flats with floor areas of more than 125 square meters are selected for taxation is not to make a classification at all, much less a rational classification. Not only all buildings are not similar but in an old established town there are bound to be buildings constructed at various times, the materials used in such construction are also changing from time to time. In Bombay, for instance, there would be some buildings almost a hundred years old when reinforced concrete was not known at all. We have - 15 - already enumerated several factors which make two flats of identical floorage entirely different from each other. There is no need to reiterate the same factors. If, therefore, this Act seeks to treat unequals as equals and imposes a uniform or flat tax irrespective of the various rational considerations which ought to enter a tax structure, the Act and the tax obviously offend the provisions of Art. 14. We may state again that there was a second leg to the argument of Mr. Seervai challenging the legislative competence of the State Government in imposing the impugned tax. If the tax is a property tax, he had also asserted that the impugned Act offends Art. 19 as well. Since we find that the challenge under Art. 14 is insurmountable and that part of the petitioners’ challenge is already covered by the decision of the Supreme Court, it is not necessary to consider the other points raised in the petition. We accordingly leave those points expressly open." Our High Court in the above Judgment also took the view that the Act seeks to treat unequals as equals and imposes a uniform or flat tax irrespective of the various rational considerations which ought to have been considered in a tax structure, the same was not done, hence, offending the provisions of Article 14 of the Constitution of India. 11. The learned counsel for the petitioners also brought to our notice a similar state of affairs in a Division Bench Judgment of the Kerala High Court in The The The State of Kerala, represented by the Chief Secretary to State of Kerala, represented by the Chief Secretary to State of Kerala, represented by the Chief Secretary to Govt., Trivandrum and others v. Haji K. Haji K. Govt., Trivandrum and others v. Haji K. Haji K. Govt., Trivandrum and others v. Haji K. Haji K. - 16 - Kunhippokker Kutty Naha. and others Kunhippokker Kutty Naha. and others Kunhippokker Kutty Naha. and others, A.I.R. 1967 Kerala 114 wherein in paragraph 16 the Division Bench of the Kerala High Court has observed as under:- " The classification on the basis of