Case: The Town Municipal Committee, Amraoti Taluq Vs. Ramchandra Vasudeo Chimote &amp; Another

The Municipal Committee of Amravati has been established under the C. P. and Berar Municipalities Act, 1922 (C. P. and Berar Act II of 1922) hereinafter referred to as the Act. Chapter IX of the Act deals with the imposition, assessment and collection of taxes which might be imposed by the Municipal Committee. Section 66 specifies the taxes which, subject to the provisions of the Chapter, the Committee may from time to time impose. Its first sub-section specifies in its several clauses 15 varieties of taxes and among them is cl. (o) which readsterminal tax on goods or animals imported into or exported from the limits of the Municipality provided that terminal tax under this clause and an octroi under cl. (e) shall not be in force in any municipality at the sameother sub-clauses which are relevant for the consideration of the question arising in the appeal are sub-cls. (2), (3) and (4) Section 66 and they readThe State Government may, by rules made under this Act, regulate the imposition of taxes under this section, and impose maximum amounts of rates for any tax.(3) The first imposition of any tax specified in sub-sec. (1) shall be subject to the previous sanction of the State Government.(4) Subject to the control of the State Government, a committee may abolish any tax already imposed and specified in sub-sec. (1) cls. (a) to (m) inclusive, or may, within the limits imposed under sub-sec. (2), vary the amount or rate of any such tax :Provided that in the case of any municipality indebted to the Government, the abolition of any tax or a reduction in the amount or rate thereof shall be subject to the previous sanction of the State67 lays down the procedure for the imposition of taxes and it provides(1) A committee may, at a special meeting, pass a resolution to propose the imposition of any tax under S. 66.2. When such a resolution has been passed, the committee shall publish in accordance with rules made under this Act a notice defining the class of persons or description of property proposed to be taxed, the amount or rate of the tax to be imposed and the system of assessment to be adopted.(3) ....... ...... ......(4) ....... ...... ......(5) The State Government, on receiving such proposals may sanction or refuse to sanction the same or sanction them subject to such modifications as it may think fit, or return them to the committee for further consideration.(6) No modification affecting the substance shall be made under sub-sec. (5), unless and until the modification has been accepted by the committee at a special meeting.(7) .... .... .... ....(8) A notification of the imposition of tax under this section shall be conclusive evidence that the tax has been imposed in accordance with the provisions of thisprocedure for the variation of the taxes is to be found in S. 68 and it reads(1) A committee may, at a special meeting pass a resolution to propose the abolition of any tax already imposed, or a variation in the amount or rate thereof.(2) ...... ...... ....(3) If the proposal is to increase the amount or rate of any tax the committee shall publish, in the manner prescribed by rules made under this Act, a notice showing in detail the effects of the proposal.(4) Any inhabitant of the municipality objecting to the proposed increase may, within thirty days from the publication of the notice submit his objection in writing to the committee.(5) The committee shall take the proposal and all objections received thereto into consideration at a special meeting, and may modify the proposals as it may think fit, and may pass a final resolution on the proposal.(6) If the proposal requires the previous sanction of the State Government under the provisions of S. 66 sub-sec. (4) or sub-s. (5), the committee shall forward it to the State Government and it shall be dealt with in the manner provided in S. 67, sub-secs. (4), (5) and (6).(7) ....... ....... ......(8) ....... ....... ......(9) The publication in the manner prescribed of the abolition or variation of any tax under this section shall be conclusive proof that such abolition or variation has been made in accordance with the provisions of this Act."From even before the constitution of the municipality under the Act and at a time when the municipal committee was governed by the Berar Municipal Law of 1886 which was in force prior to the Act and whose taxation provisions were continued by the Act of 1922, a terminal tax on goods imported by road or rail had been imposed by the Municipality by virtue of a notification dated August 10, 1916 on several specified kinds of goods. This notification exempted silver, bullion and coin from the operation of this tax. This was superseded by a notification of June 2, 1921 under which the Schedules were modified and the terminal tax imposed was confined to goods imported into or exported out of the Municipal area by rail. The notification of June 1921 was amended from time to time by other items being added and the rates being increased but no change was effected in the taxes imposed after 1936. Under the scheme of the distribution of taxing powers between the provinces and the Central Government underthe Government of India Act, 1935 terminal taxes on goods carried by rail were assigned exclusively to the Federal Center under Item 58 of List I to Sch. VII, but the validity of the levy and collection of the terminal tax in force before the 1st April, 1937 was continued by S. 143 ofthe Government of India Act, 1935 and it was by virtue of this continuance that these taxes were continued to be levied after April 1, 1937. Their continuance after January 26, 1950 when after the repeal ofthe Government of India Act, 1935, the Constitution came into force with the same scheme of distribution of taxing power on the relevant item identical with that under the Government of India Act was by reason of Art. 277 which was practically in the same terms as S. 143 ofthe Government of India Act, 1935. The taxes imposed by the pre-Constitution notification could, therefore be legally levied and collected even after the Constitution came into force.Subsequent to January 26, 1950, there was a notification on December 1, 1959, under which to the list of goods liable to terminal tax imported into or exported out of the Municipal area not merely by rail but also by road were added three new items- silver and silver jewellery, gold and gold jewellery, and precious stones, and these three specified items were subjected to the tax at the same rates as had been imposed on other articles by the notifications which were in force from before the Constitution. Before the notification was issued the procedure indicated by S. 67 was gone through and the Government accorded their sanction to the rules made by the Municipal Committee for the imposition of the tax on the newly added articles. The validity of the tax imposed by this notification was challenged by the 1st respondent who was carrying on business within Amravati municipality in gold, silver and precious stones on the ground of legislative incompetency which had not been saved by Art. 277 of the Constitution, in a petition under Art. 226. The learned Judges of the High Court by a majority accepted the contention raised by the respondent and allowed the petition but granted a certificate of fitness and hence this appeal.

Reasoning: The argument of the learned Attorney-General has to be rejected as lacking any substance for on no construction, wide or narrow, of the expression levy in the phrase continue to be levied can such a case be comprehended. From the mere fact that a State enactment has authorised a municipality to levy a tax it cannot be said that a tax which had never been imposed was "being lawfully levied" by the municipality, not to speak of the tax etc. collected, being "applied to the same purposes before the commencement of the Constitution as contemplated by the concluding portion of theexpression "taxes, duties, cesses" with which Art. 277 opens, has to be read in the context of Part XII in which the Article occurs and so read has to be understood as referring to the class or category of taxes which were levied and collected by the State, municipality etc. before the commencement of the Constitution. In other words, the reference here is to the entries in the legislative lists which permit such taxes to be levied and so read and taken in conjunction with the circumstances that the Article is one designed to prevent the dislocation of the finances of the State or other local authorities, the terms of the Article would be satisfied and the legislative power to continue to levy the tax would be conferred "notwithstanding that the tax, etc., are mentioned in the Union List". This argument, in our opinion, proceeds on ignoring the terms of Art. 277.If, as, is admitted, the sole object sought to be achieved by this provisions for "continuance" is to avoid dislocation of the finances of the State and local authorities, by depriving them of the revenues which they were deriving at the commencement of the Constitution, it would mean that the intention was to permit the existing range of the taxes to be continued not that the Article conferred on them authority to expand the range of their taxation by increasing the rates of duties. This consideration apart, it is not possible to read the words "notwithstanding that the taxes etc., are mentioned in the Union List" as conferring an unlimited legislative power to impose what in effect the argument involves new taxes, though of the same type or nature as existed before the Constitution.But authority apart, we cannot, even if this decision were put aside, accede to the construction for which Mr. Setalvad contends. It is not disputed that in ultimate analysis the answer to the question raised should turn on the meaning of the word levied in the phrase continue to be levied which is the operative word conferring a power.t authority apart, we cannot, even if this decision were put aside, accede to the construction for which Mr. Setalvad contends. It is not disputed that in ultimate analysis the answer to the question raised should turn on the meaning of the word levied in the phrase continue to be levied which is the operative word conferring a power.Mr. Setalvad submits that levied is a word of wide and varying import and includes in its denotation not merely the actual collection of the tax, but the imposition in the sense of the creation of the charge by the statute as well as the ascertainment of the amount due from the tax payer. Mr. Setalvad is right, for before a tax can be collected from any tax payer, its quantum must be ascertained and assessed, and for this to be lawfully done there must be Legislative Sanction - in other words an imposition of the charge - because it is the charge under the Statute that is quantified by the authorities acting under the taxing enactment. The acceptance of this construction however does not lead to the result desired, for what can "continue to be levied" is what "was being lawfully levied" in the same sense of the words "levied", prior to the Constitution. Admittedly, there was no imposition of the charge now sought to be recovered prior to the Constitution i.e., the Act did not impose the charge by S. 66 but merely enabled the Municipal Committee by appropriate procedure to impose the tax. If, of course, this power had been availed of and a charge had been imposed it would be a different matter. So long as the Municipal Committee did not pass the necessary resolutions and impose the tax there was no charge levied on the commodity, so that it could not be said that the tax "was being lawfully levied" before the commencement of the Constitution. The words "was being lawfully levied" obviously mean "was actually levied" and it would not be sufficient to satisfy those words that the Municipal authority could lawfully levy the tax, but had not availed itself of that power.10. There is another circumstance to which also reference may be made. The last portion of Art. 277 uses the words "continue to be levied" and "to be applied to the same purposes". By reason of this collocation between the proceeds of the tax, the Constitution-makers obviously intended the word levy to be understood as including the collection of the tax, for it is only when a tax is collected that any question of its application to a particular purpose would arise. It is apparent that if the word "levied" were understood in the sense which Mr. Setalvad contends, there could be no "application" of the proceeds of the tax to the same purposes as at the commencement of the Constitution. For ex concessis at that date there were no proceeds to be applied. In this connection learned Counsel for the respondent referred us to the decision in Chuttilal v. Bagmal, ILR (1956) Madh-B. 339: ((S) AIR 1956 Madh B. 177) where the relationship between the levy and the application of the tax has been referred to as an aid to the construction of the expression "continue to be levied" in Art. 277. We find ourselves in agreement with the views there expressed.