Case: Associated Cement Cos. Ltd Vs. State Of Madhya Pradesh

under sub-section (5), the State Government may under sub- section (7) by Notification direct the imposition of the tax as sanctioned in the manner prescribed. Sub-section (8) provides that when a Notification of the imposition of tax under the Section is issued the same is conclusive evidence that the tax has been imposed in accordance with the provisions of the Act. Sub-section (6) is of great importance in the sense that no modification affecting the substance under sub- section (5) shall be made unless and until the modification had been accepted by the Council at a special meeting. Section 130 deals with abolition or variation in tax by the Council with prior approval of the State Government. Section 131 deals with power of the State Government having regard to the relief in taxes. The provision can be set in motion on receipt of any complaint or suo motu by the State Government. In the latter case, the State Government can act if it appears to it that any tax levied by Council is unfair in its incidence or that levy or any part thereof is obnoxious to the interest of the inhabitants of the Municipality. In either of the situations, the State Government may require the Council to remove objections to any such tax within a specified time and in case the Council fails to comply with the order within the time so specified to the satisfaction of the State Government, it may by Notification and subject to such conditions or restrictions as may be specified abolish, suspend or reduce the amount or rate of any tax. 13. At this juncture, it would be relevant to take note of the Government Order/Circular dated 15.12.1995. The same reads as follows: "Madhya Pradesh Government Government of Local Administration Mantralaya, Vallabh Bhawan, Bhopal No.F4/1/1/A3/95 Bhopal Dt.15.12.1995 To All Commissioners, Municipal Council, Madhya Pradesh All Chief Municipal Officers, Nagar Palika Parishad/Nagar Panchayat, Madhya Pradesh Subject: Regarding imposition of terminal Tax There is provision for levy of terminal tax under Clause xvi of sub-section (1) of Section 127 of the Madhya Pradesh Municipalities Act, 1961 and procedure for levy of terminal tax has been laid down under Section 129. In exercise of the powers conferred under both the sections and cancelling all the earlier instructions on the subject, the State Government hereby instructs to impose the terminal tax under the following limits and conditions: 1) No barrier shall be put for recovery of the terminal tax neither contractual procedure will be adopted. Where barrier post has been established, that should be immediately removed. For the recovery of the terminal tax the same procedure should be adopted which is applicable for the recovery of commercial tax and in the case of Krishi Upaj Mandi their licence holder should be made responsible for the recovery of the tax. For this purpose if any amendment in the bye-law is required, that should be done accordingly. (2) In view of the uniformity of the terminal tax in whole of the State, the rate is proposed in the annexed schedule. (3) All such goods which are exported out of the country shall be exempted from the terminal tax. (4) All such other goods which are carried or sent from one place to another within the State for distribution under the Public Distribution Scheme by the Food Corporation of India/Civil Supply Corporation/Other Agencies of the State Government shall also be kept exempted from the terminal tax. There is no provision for imposition of terminal tax under the Madhya Pradesh Municipal Corporation Act, 1956 but the Municipal Corporation may levy this tax under the approval of the State Government since many of the Municipal Corporation have desired to levy terminal tax, the State Government hereby grant general approval for levy of the terminal tax to all the Municipal Corporations. The above mentioned conditions shall be applicable in the case of the Municipal Corporation also. Sd/- (C.S. Chadha) Principal Secretary Government of Madhya Pradesh Local Administration Deptt." 14. Though the Government Order refers Sections 127 and 129 of the Act, it is to be noted that there was no proposal by the Municipal Council for reduction of the rate of tax. In terms of sub-section (1) of Section 127, the power to impose the tax has to be exercised by the Council which is of course subject to any general or special order of the State Government. The Municipal Council exercises the power as a delegatee and the power exercised under Section 127 as noted above is a delegated legislation. Since the Municipal Council has not proposed for any variation in the rate of tax the question of the State Government passing any general or special order in that regard is not contemplated. It is to be further noted that the Government Order treats the matter as instruction to all municipalities. 15. So far as Section 129 is concerned, there is no question of any suo motu fixation of rate by the State Government. In fact while acting on the proposal by the Municipal Council, the State Government can direct modification affecting the substance of the proposal. But the same cannot be given effect to unless and until the modification has been accepted by the Council at a special meeting. In the instant case that contingency has not arisen. Though in terms of Section 131 the State Government can initiate the action for reduction in the rate that can only be done if the enumerated circumstances exist. That situation has also not arisen in the instant case and admittedly the State Government has not acted in terms of Section 131 of the Act. Therefore, the Division Bench is right in its view that the circular of the State Government dated 15.12.1995 is really of no consequence. Further changes under Section 127 can be introduced in terms of sub-section (2) of Section 127 by framing rules. In the instant case, the rules were framed in March 1997 and did not have any retrospective effect.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]11. A bare reading of Section 127 shows that the Municipal Council may from time to time and subject to the provisions of the Chapter (i.e. Chapter VII relating to "Municipal Taxation") in question and its general or special order which the State Government may make in that behalf impose in the whole or in any part of the Municipality any of the taxes for the purposes of the Act14. Though the Government Order refers Sections 127 and 129 of the Act, it is to be noted that there was no proposal by the Municipal Council for reduction of the rate of tax. In terms of sub-section (1) of Section 127, the power to impose the tax has to be exercised by the Council which is of course subject to any general or special order of the State Government. The Municipal Council exercises the power as a delegatee and the power exercised under Section 127 as noted above is a delegated legislation. Since the Municipal Council has not proposed for any variation in the rate of tax the question of the State Government passing any general or special order in that regard is not contemplated. It is to be further noted that the Government Order treats the matter as instruction to all municipalities12. The present dispute relates to clause (xvi) of sub-section (1) of Section 127 of the Act. Under the constitutional scheme the power to levy the tax of the nature levied under Section 127 of the Act is that of the State Government which is clear from the fact that though the Council may impose any tax for the purposes of the Act, the same is subject to any general or special order which the State Government may make in that behalf. Furthermore, sub-section (2) of Section 127 authorises the State Government to regulate the imposition, assessment and collection of tax under the Act and also prescribes the maximum and minimum limits as to the amount or rate of tax. The position is also clear from clause (xxiii) which empowers the Municipality to levy such tax, which the State Legislature has power to impose under the Constitution of India. The source of power to levy is the one conferred on the State Legislature. The Municipality does not have any independent source. The power under Section 127 is exercised by the Municipality by delegation and is a case of delegated legislation. Section 129 is the procedural section dealing with the procedure for imposing taxes. The conditions contemplated in Section 129 are: (a) proposal to be passed by the Council for the purpose of imposition of any tax under Section 127; (b) when a resolution in terms of sub- section (1) is passed the Council is required to publish a Notification in the prescribed form and manner along with the resolution; (c) under sub-section (3) any inhabitant of the Municipality may submit his objection in writing to the Council within the specified period; (d) under sub-section (4) the proposal and all objections received thereto are to be placed for consideration at a special meeting. The procedure to be followed when the Council decides to modify the proposal is also indicated. Sub-section (5) is very relevant for the present dispute in the sense that on receiving the proposal the State Government has two options. It may either sanction the proposal or refuse to sanction the same. When the State Government sanctions the proposal with modification or with such modification not involving in increase of the proposed rates as it thinks fit or subject to such conditions as to the application within the Municipality to any purpose or purposes of the Act which may be specified regarding application of the whole or any part of the proceeds of the tax. When any proposal for tax has been sanctioned under sub-section (5), the State Government may under sub- section (7) by Notification direct the imposition of the tax as sanctioned in the manner prescribed. Sub-section (8) provides that when a Notification of the imposition of tax under the Section is issued the same is conclusive evidence that the tax has been imposed in accordance with the provisions of the Act. Sub-section (6) is of great importance in the sense that no modification affecting the substance under sub- section (5) shall be made unless and until the modification had been accepted by the Council at a special meeting. Section 130 deals with abolition or variation in tax by the Council with prior approval of the State Government. Section 131 deals with power of the State Government having regard to the relief in taxes. The provision can be set in motion on receipt of any complaint or suo motu by the State Government. In the latter case, the State Government can act if it appears to it that any tax levied by Council is unfair in its incidence or that levy or any part thereof is obnoxious to the interest of the inhabitants of the Municipality. In either of the situations, the State Government may require the Council to remove objections to any such tax within a specified time and in case the Council fails to comply with the order within the time so specified to the satisfaction of the State Government, it may by Notification and subject to such conditions or restrictions as may be specified abolish, suspend or reduce the amount or rate of any tax15. So far as Section 129 is concerned, there is no question of any suo motu fixation of rate by the State Government. In fact while acting on the proposal by the Municipal Council, the State Government can direct modification affecting the substance of the proposal. But the same cannot be given effect to unless and until the modification has been accepted by the Council at a special meeting. In the instant case that contingency has not arisen. Though in terms of Section 131 the State Government can initiate the action for reduction in the rate that can only be done if the enumerated circumstances exist. That situation has also not arisen in the instant case and admittedly the State Government has not acted in terms of Section 131 of the Act. Therefore, the Division Bench is right in its view that the circular of the State Government dated 15.12.1995 is really of no consequence. Further changes under Section 127 can be introduced in terms of sub-section (2) of Section 127 by framing rules. In the instant case, the rules were framed in March 1997 and did not have any retrospective effect.