1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.2052 OF 1987 Ceat Tyres of India Ltd. .. Petitioners Versus Nashik Municipal Corporation and Ors. .. Respondents. Mr.E.P.Bharucha, Senior Advocate with Mr.Manoj Sanklecha, H.M.Vakil and D.D. Mehta i/b. Mulla & Mulla C.B.C. for petitioners Mr.Gangal with H.Deshpande and Shri Shailya Deshmukh for respondents CORAM : A.P.SHAH AND S.C.DHARMADHIKARI, JJ. DATE : 23rd MARCH 2005. DATE : 23rd MARCH 2005. DATE : 23rd MARCH 2005. ORAL JUDGEMENT (Per S.C.Dharmadhikari, J) . This petition under Article 226 of the Constitution of India challenges Demand notices issued for collection of octroi duty by first respondent Municipal Corporation of Nashik. First respondent Corporation is constituted under the provisions of Bombay Provincial Municipal Corporations Act, 1949 (Hereinafter referred to as BPMC Act). 2. First petitioner is a company incorporated 2 under the Companies Act and is engaged inter alia in the business of manufacture of scooter/ and passenger car tyres. First petitioner has its factory at Nashik which was within the jurisdiction of the erstwhile Satpur New Township Municipal Council (hereinafter referred to as the Municipal Council). It is not disputed that Municpal Council has levied octroi duty in respect of several goods specified in Octroi schedule dated 1st October 1981 issued under Maharashtra Municipalities (Octroi) Rules 1968 and brought from outside within municipal limits of the said municipal council. 3. It is the case of petitioners that after the notification specifying octroi schedule was issued, they addressed a letter dated 9th October 1981 to the Municipal council pointing out that first petitioner was importing semi finished tyre components from its factory at Bhandup Mumbai, that these components were processed in its factory at Nashik and the semi finished tyres were despatched to the factory at Bhandup for finishing as the said facility was not available at the Nashik factory. This position continued upto 30th March 1984. After this date, Nashik factory of first petitioner started manufacturing 3 scooter Tyres. The provisions of BPMC Act were made applicable to the area of Municipal Council in November 1982. Consequently, the said area merged with the first respondent corporation. 4. The petition, therefore, raises issue of classification of various articles received by the petitioners at their factory in Nashik and the octroi duty leviable thereon under the Octroi Rules. A further and more detailed narration of facts is not necessary. Suffice it to state that after admission of this petition, this Court stayed demand made vide notice dated 28th February 1992 upon payment of 50% of the amount and an undertaking from petitioners that in the event, the petition is decided against them, they would pay the balance 50% in such time and on such terms as may be determined by this Court. As far as future demands are concerned, this Court directed payment to the same extent i.e. 50% and undertaking in the aforesaid terms. It was also directed that future demands will be governed by final judgement in the present petition. On 9th July 1997, parties filed Minutes of Order in this petition. Clauses 2 to 5 of these Minutes of Order read as under:- 4 "2. During the pendency of this petition, the respondents by their letter dated 27.11.1990 (being Exhibit AF 1 to the petition) referred the matter of classification of various goods in respect of which octroi demands had been made to the Secretary, Urban Development Department, Government of Maharashtra for their guidance. 3. The Development Commissioner (Industrial) of the Government of Maharashtra after hearing the petitioner by a communication dated 13.2.1991 (being Exhibit AH-I to the petition) decided the issue of classification. 4. The grievance of the Respondents is that opinion/decision of the Development Commissioner (Industrial) dated 13.2.1991 (being Exhibit AH-I to the petition) was arrived at without affording them a personal hearing. 5. In the circumstances, the State of Maharashtra is directed to appoint the Development Commissioner (Industrial) to opine on the issue of classification of the following goods under the Maharashtra Municipality Octroi Rule, 1968 imported by the Petitioner into Nashik. 1. Natural Rubber 2. Synthetic Rubber 3. Reclaimed Rubber 4. Masticated Rubber 5. Compounded Rubber 6. Butyl Rubber 7. Calendered fabrics 8. Plies 9. Rubber compounds 10. Carbon Black 11. Tube Valves 12. Semifinished rubber components 13. other raw materials:- (a) Crayons (b) Glass beads (c) Poly Rolls (d) Price stickers (e) Electrical/ Engineering goods 5 (f) China Clay (g) Bead wire (h) Bladders (i) Solvent/ Elasto (Oil) . and as to whether such of the above items said to be falling under Entry 70 are Raw Rubber or Latex and also the claim of the petitioners for concessional rate of octroi claim under Schedule II Part IA of the Maharashtra Municipality Octroi Rules, 1968. The Development Commissioner (Industrial) is to give his opinion within 10 weeks from today after permitting the petitioners and respondents to lead evidence in support of their respective contentions. The opinion was sought by parties about the commercial identity and Trade usage of the abovementioned Articles. Additionally, Rubber Board’s opinion on this aspect was sought by the respondents. 5. It was also agreed that in case of overlapping of items, petitioners are at liberty to point out the same to the Development Commissioner (Industry) (D.C.). The D.C. was directed to furnish his report to this Court. The report was later on submitted. Thereafter, parties have filed their replies and written submissions. According to petitioners, the issue raised in the petition can be divided in two parts:- 6 Part (A):- The period between 1981 up to 30th March, 1984, i.e. the period when the petitioners factory imported semi-finished rubber components and returned the same after processing, to their Bombay factory. During this period Octroi was payable at 1% on the cost of processing of the semi-finished rubber components. Part (B):- With effect from 1st April 1984, the petitioners commenced manufacturing of scooter tyres at its factory in Nashik and the issue of classification of various raw-materials received by the petitioners at Nashik to be consumed in the manufacture of tyres in Nashik. 6. As far as Part A period is concerned, it is contended that Municipal Council passed a resolution on 20th November 1981 by which Octroi at 1% was levied only on value addition till such time as the factory commenced its own production. It is contended that in view of transitional provisions (section 493 read with Appendix IV Clause 5 of B.P.M.C. Act) Octroi Levy by 7 Municipal Council continued to remain in force. From 1982 to March 1984, petitioners carried out processing of semi finished Rubber goods and returned the same to Mumbai. They paid octroi at 1% of the processing charges. On 15th November 1985, respondents called upon petitioners to pay for the period November 1982 to August 1985 differential duty of Rs.10,38,983/-. It is contended that upon this demand being served by letter dated 29th November 1985, petitioners called upon respondents to furnish the basis of demand and specific rules/ provisions under which the same has been raised. According to petitioners, octroi has been correctly paid in terms of resolution of Municipal Council dated 20th November 1981. It was contended that by a further letter dated 23rd December 1985, a detailed reply was submitted pointing out that the demand of octroi is time barred. It was contended that a personal hearing be given to them in respect of the demand, inasmuch as, period of recovery of octroi is three months from the date the tax has not been purportedly paid. Petitioners also invited the attention of respondents to Section 493 read with Appendix IV Clause 5 of B.P.M.C. Act and contended that the resolution of the Municipal Council has not been 8 superseded. It continues to hold the field. In the premises, there is no question of payment of any differential amount till 30th March 1984. 7. Insofar as, Part B i.e. period after 30th March 1984 is concerned, it is contended that besides processing semi finished Rubber components for passenger car tyres and returning the same to Bhandup factory, first petitioner also started manufacturing complete scooter tyres at Nashik. Thus, octroi became payable in accordance with the octroi rules. According to petitioners, octroi was leviable at concessional rate stipulated at Part 1A of Schedule II of Octroi Rules. Relying upon Rule 4 of the Octroi Rules, it is contended that the Articles and Goods specified in part 1-A of Schedule II to the Rules like Raw Rubber and Latex lower rate of duty is prescribed. However, this contention of petitioners having not been accepted by respondents, the present petition was instituted on 8th April 1987 to quash and set aside the demand notices dated 15th November 1985, 16th September 1986 and 8th January 1987. It is contended that the demands are bad in law as they have been made without following the principles of natural justice. In any event, the demands 9 were time barred. 8. Thus, the issue arising for consideration in this petition is whether the contention of petitioners with regard to classification of Raw Rubber and Latex as well as other articles at First schedule to Octroi Rules is correct and whether the demands of the respondents based upon classification of the articles brought for consumption and use within the municipal limits are erroneous and liable to be quashed and set aside. 9. As is revealed from the Minutes of the Order, that after filing of this petition, respondents vide letter dated 27th November 1990 referred the matter to the Secretary, Urban Development Department seeking directions to the Municipal Corporation. It appears that on 13th February 1991, Commissioner of Industries, State of Maharashtra heard petitioners but no hearing was given to the respondents. Therefore, the order/ direction issued by him on 13th February 1991 was set aside and this Court recorded agreement of petitioners to once again refer the matter to the D.C. 10 10. The D.C. was to opine on classification of 13 items listed in the order dated 9th July 1997 passed by this Court. He was also to opine on petitioners’ request for concessional rate of octroi under Part 1A of Schedule II to the Octroi Rules. 11. In pursuance of the order dated 9th July 1997, personal hearing was granted by D.C. to petitioners and the respondents. Petitioners at this personal hearing pointed out that 10 items are subject matter of dispute. It was pointed out that classification of items at Sr.No.7, 8, 2, 6, 5 and 9 need not be made independently as they are same goods. In support of their case of concession in octroi duty, petitioners filed affidavits of Dr.Potnis, Technically qualified expert and Mr.A.R.Varadajan another expert from Rubber Industry. It is petitioners’ case that in Rubber Industry, Synthetic Rubber, Reclaimed Rubber, Calendered Fabrics and Compounded Rubber are all considered as Raw Rubber. According to the petitioners, they have to undergo process of vulcanisation before they cease to be Raw Rubber. Sofar as Tube Valve is concerned, it was contended that it is not a Ferrous Metal like Iron or steel but it is made of Brass, which is 11 commercially considered as non ferrous metal. The affidavits and the pleas in writing are part of written submissions filed before the D.C. by petitioners on 20th October 1997. 12. The aforesaid contentions were refuted by respondents and they too filed their written submissions before the D.C. Petitioner filed their rejoinder and pointed out that form 14 was regularly filed by them. They contended that the goods imported by them within municipal limits were duly declared. Apart from this, reliance was placed by petitioners on a clarification issued by Rubber Board dated 4th November 1997. According to petitioners, this clarification clinches the issue of classification in their favour. Even the Rubber Board has clarified that Calendered Fabrics, Synthetic Rubber, Reclaimed Rubber and Rubber Compound are all Raw Rubber. They are in unvulcanised form. 13. The D.C. passed an order dated 26th November 1997 (Exh.AH-9 page 364A - 287). He held that petitioners are not entitled to the benefit of concessional rate of Octroi in respect of :- 12 (a) Re-claimed rubber; (b) Compounded Rubber; (c) Calender Fabrics; (d) Semi-finished rubber components (e) other raw materials except Crayons. 14. Now petitioners are aggrieved by classification of only first three items viz., (a) Re-claimed rubber; (b) Compounded rubber; (c) Calender fabrics; 15. In the amended writ petition, petitioners have challenged the findings of D.C. to this extent only. Respondents filed their affidavit and challenged the findings of D.C. in respect of all items, except Natural Rubber, where D.C. held in favour of petitioners. 16. Before setting out rival contentions, it is worthwhile noting that as far as the following items are concerned, classification made by D.C. is not disputed even by respondents:- (a) Glass bids; 13 (b) Poly Rolls; (c) Electrical/ Engineering goods; (d) Beed-wires; (e) Bladders; (f) Solvent/ Clasto (Oils); 17. Mr.E.P.Bharucha, learned Senior Counsel appearing for petitioners submits that classification as made by respondents as well as D.C. in respect of three items is wholly erroneous, irrational, arbitrary and violates the mandate of Article 14 of Constitution of India. He submits that no tax can be imposed without authority of law. He submits that the Articles which have been classified in Schedule I to Octroi Rules clearly demonstrate that as long as there is no process undertaken or anything done by which the aforesaid articles undergo a change, they have to be treated as Raw Rubber. Respondents are in error while contending that reference made to Raw Rubber and Latex in the Schedule is only to Crude or a Raw Rubber prepared from the leaves bar or Latex or Rubber plant i.e. natural rubber. The whole basis of classification by respondents is that the classification as made cannot be extended artificially to the aforesaid Articles by holding 14 that man-made Rubber in the Crude form or man-made Rubber undergoing chemical and other process is excluded therefrom. In other words, the stand of respondents that only natural rubber falls under entry 70 and is entitled to get a concession is unsustainable. 18. Mr.Bharucha submits that as far as Natural Rubber is concerned, parties are ad-idem. However, as far as Synthetic rubber is concerned, the D.C. has rightly accepted petitioners’ contention that it is Raw Rubber and entitled to concessional rate of Octroi under Part 1A of Schedule II to the Octroi Rules. He submits that it is surprising that this aspect of the matter was not put in issue before the D.C. by respondents but now on affidavit they are disputing the correctness of the findings recorded by D.C. He submits that the stand of the Corporation that Synthetic Rubber when it is brought in a Raw Rubber form, only would be entitled to exemption under the aforesaid provision is not supported by any materials. Therefore, the stand of the petitioners that Synthetic Rubber in its Raw Form would be entitled to get the benefit of Part 1A of IInd Schedule to Octroi Rules deserves to be accepted. 15 Mr.Bharucha in support of his contention that Synthetic Rubber is in fact Raw Rubber commercially as well as technically, relies upon the following materials:- (a) "Natural Rubber and Synthetics" by P.W. Allen wherein it is observed that though there are different technologies for manufacturing natural and synthetic rubber in asmuch as natural rubber is created by nature within the tree while synthetic rubber requires synthesis of monomers followed by polymerisation. However, thereafter the technologies converge and synthetic rubber like natural rubber makes its first appearance in the form of aqueous suspension of rubber particles, the latex. Processing of the latex into marketable and dry raw rubber follows a similar pattern for both. (b) Certificate from Indian Rubber Manufacturer Research Association on examination that Synthetic rubber is raw rubber; (c) Encyclopaedia of Chemistry by 16 Clifford A Hample observing that both natural and synthetic rubber posses similar elastic properties. (d) ISI glossary has defined raw rubber as natural or synthetic rubber. It is well settled that ISI can be looked into to understand how a product is understood in the trade. (e) Certificate from M/s.Synthetics and Chemicals wherein they have stated that they sell Synthetic rubber to Ceat and the same is raw rubber in primary form. (f) Affidavit of Dr.Potnis a person with technical expertise who has on oath stated that synthetic rubber has no elasticity, no tensile strength and abrasion/solvent resistance in the raw form before vulcanisation. (g) Affidavit of A.R.Vardarajan a commercial person in the rubber trade, states that commercially Synthetic rubber is commonly regarded as raw rubber. 17 (h) The Rubber Board by its letter dated 4th November 1997 expressly regards Synthetic Rubber as raw rubber." 19. In addition Mr.Bharucha places reliance upon a decision of the Supreme Court in the case of Dunlop India Ltd. & Madras Rubber Factory Ltd. Vs. Union of India & Ors. reported in 1983 (13) E.L.T. 1566 (SC). Mr.Bharucha further submits that Synthetic Rubber is obtained by Artificial process and such process was not known when the Octroi Rules were brought into force in 1968, is a contention raised by the respondents for the first time in their affidavit filed on 4th October 2004. He submits that this contention is untenable because Synthetic Rubber technology is much older than the Octroi Rules which were brought into force in 1968. In this behalf he relies upon an extract from Encarta Encyclopedia. 20. In any event, submits Mr.Bharucha that while construing any Legislation, future developments in science and technology will have to be taken into consideration. Based upon this principle of interpretation, words would have to 18 be given an extended meaning. He submits that it would be unreasonable to confine words used in a Legislation to the meaning attributable to them at the time Statute was enacted. In this behalf he places strong reliance upon following decisions of the Supreme Court. (i) Sr.Electric Inspector Vs. Laxminarayan Chopra (A.I.R. 1962 (SC) 159 para 8. (ii) State Vs. S.J.Choudhary (AIR 1996(SC 149) para 9; (iii) M/s.Laxni Video Theater Vs. State of Haryana (A.I.R. 1993 (SC) 2328 para 8; (iv) Porritts & Spencer (Asia) Ltd. Vs. State of Haryana (A.I.R. 1979 (SC) 300; 21. As far as re-claimed Rubber is concerned, Mr.Bharucha challenges the finding of the D.C. by contending that re-claimed Rubber is also Raw Rubber, both commercially as well as technically. He takes us through the affidavits of Dr.Potnis and Mr.Varadrajan. He also takes us through the letter dated 4th November 1987 addressed by Indian Rubber Manufacturers Association. He submits that in the light of this letter, the D.C. held that re-claimed Rubber cannot be considered as Raw Rubber. He submits that the D.C. misread and mis-interpreted the certificate 19 dated 4th November 1997. He submits that meaning as understood in commercial parlance of such words/ terms is relevant and in that behalf, he places reliance upon the above decisions of the Supreme Court. 22. As far as masticated rubber is concerned, Mr.Bharucha contends that the D.C. has held that it is Raw Rubber and entitled to concessional rate of octroi under Part 1-A of Schedule II to the Octroi Rules. He submits that even if respondents are challenging this finding now on affidavit, their pleas are totally baseless and devoid of merit. In support of his submission that Masticated Rubber is in fact Raw Rubber, Mr.Bharucha places reliance upon certificate dated 18th August 1997 from Indian Rubber Manufacturers Research Association, in addition to the affidavit filed by Dr.Potnis and Mr.Varadrajan. He also relies upon Rubber Board’s letter dated 4th November 1997 and an unreported decision of Kerala High Court in W.P. 8180 of 1982. 23. Mr.Bharucha submits that on the basis of this material, D.C. has accepted that Masticated Rubber is Raw Rubber. He submits that nothing 20 has been produced by respondents, either before D.C. or before this Court to demonstrate that Masticated Rubber is not Raw Rubber. Mr.Bharucha relies upon a decision of the Supreme Court reported in 1997 (89) E.L.T. 16, wherein it is clearly laid down that burden is on the Revenue as far as classification is concerned. He submits that this burden has not been discharged. On the other hand, petitioners produced evidence in the form of affidavits, mainly from commercial and technical field as well as in Rubber Industry to point out that Masticated Rubber is Natural Rubber. Therefore, the finding of D.C. in that behalf be upheld and the respondents contention be rejected. 24. As far as Compounded Rubber is concerned Mr.Bharucha challenges the finding of D.C. that it is not Raw Rubber and places reliance upon the same materials. He submits that Compounded Rubber is Raw Rubber mixed with chemicals and fillers and it is not finished product. It has a limited shelf life. Before vulcanisation, Rubber Compound will only be a mass of rubber and is shapeless. Therefore, Compounded Rubber is classifiable in entry 86 of Schedule I to the Octroi Rules as a residuary item. It is not 21 classifiable as Rubber or Rubber goods or Articles made on Rubber falling under Entry 70 of the Octroi Rules. He submits that Compounded Rubber is obtained when Raw Rubber is mixed with certain chemicals and carbon black. He submits that the materials produced by petitioners in this aspect have not been dealt with by the D.C. nor is any reference is made to the affidavits filed before him in this behalf. He submits that certificate of the Rubber Board does not in any manner support the case that Compounded Rubber is not Raw Rubber. On the other hand, proper and complete reading of the same would go to show that even the Rubber Board is of the opinion that Compounded Rubber is Raw Rubber and not independent article. 25. As far as Calender Fabrics are concerned, Mr.Bharucha challenges the findings of D.C. and contends that it is nothing but Raw Rubber. He submits that D.C. has completely ignored petitioners’ pleas that Calender Fabrics are not vulcanised. They are used for manufacture of tyres. They cannot be considered as Rubber goods. Reliance has been placed by Mr.Bharucha on various books. He submits that Calender Fabrics when not vulcanised, cannot be considered 22 to be Rubber articles or products and, therefore, would fall under residuary entry i.e. Item 86 of Schedule I of Octroi Rules. The D.C. is in error in classifying them under entry 70. He submits that D.C. ignores voluminous evidence available to him and, therefore, his findings on this item be also set aside. 26. Mr.Bharucha clarifies that as far as semi finished Rubber Components and other raw materials are concerned, D.C. has rejected the case of petitioners except Crayons. The finding and conclusion of D.C. is acceptable to petitioners. As far as Crayons are concerned, although D.C. holds that the same are classifiable under Entry 86 they are entitled to concessional rate of Octroi under Part 1A of Schedule II. Respondents are disputing this only for the sake of raising dispute and no materials have been placed by them in that behalf. 27. Finally, Mr.Bharucha relying upon a decision reported in 1987 E.L.T. 580 submits that if there is a doubt in the matter of classification of any of the items, then such doubt should be resolved in favour of the assessee and not the Revenue. 23 28. In the light of the aforesaid, Mr.Bharucha submits that demands in Part A be quashed and set aside as being time barred and vitiated by breach of principles of natural justice. As far as demands in Part B are concerned, they be classified in the manner suggested above and benefit be granted in payment of Octroi Duty. 29. On the other hand, Mr.Gangal, learned Counsel appearing for respondents submits that petitioners cannot raise any plea of estoppel as far as the dispute raised by the respondents to the classification made by D.C. He submits that even if this petition