Case: Bengal Nagpur Cotton Mills Vs. Board Of Revenue, Madhya Pradesh &amp; Ors

2. The appellant, Bengal Nagpur Cotton Mills Ltd., Rajnandgaon is a limited company incorporated under the Indian Companies Act. and carries on business of manufacturing textiles at Rajnandgaon with its head office at Calcutta. Rajnandgaon was the capital of the former State of Nandgaon in the Eastern States Agency Group before it merged with the State of Madhya Pradesh. A mill called the Central Provinces Mills Ltd., was established in the year 1893 by the then Ruler raja Bahadur Balram Dass, who owned most of the shares. The mill was in difficulties owning to heavy losses, and in 1896, the Ruler agreed to sell it to M/s. Shaw Wallace and Company. On August 5, 1896 the Ruler wrote a letter to Shaw Wallace and Company promising to assist the mill in various ways if the company purchased it. The mill was bought by Messrs. Shaw Wallance and Company on September 13, 1896 and its name was changed to Bengal Nagpur Cotton Mills Ltd. In 1897, there was an agreement between the Raja Bahadur and Shaw Wallance and Company, which contained the following terms amongThe Rajah will assist the New Company by the special privilege of freeing its manufactured goods from octroi duties and by enhancing the present octroi of three pies per rupee ad valorem on imported goods which are the product of other mills outside the said State to one anna per rupee ad valorem.3. The Rajah will cause that octroi on goods imported into Nandgaon by the New Company: such as cotton, fuel, oil, stores and C(*as in the original) will be levied at the same scale of rates as that levied by the Nagpur Municipality on goods imported by the cotton mills in*** ***"6. The Rajah agrees that his personal claims against the old company shall as from the date of sale be considered as discharged by the undertaking agents as aforesaid that the New Company will pay to the Rajah a royalty of twenty five per cent per annum on all net profits of the New Company after payment out of such net profits to the proprietors of a dividend of ten per cent per annum on the share capital of the New Company including in such capital such money as may be raised by ways of** **It appears that the increase of octroi on imported goods produced by other mills was later found to hamper the trade and commerce of the State, and the appellant-company was persuaded to forgo the protection, and the Municipal Committee, by a special resolution passed on April 13, 1901, restored the original rate of three pies per rupee. On October 29, 1906, another agreement was executed by the Ruler and the appellant-company. This was necessary because differences had arisen about the correct interpretation of the agreement, and the Ruler had a large claim on the appellant-company for royalty. This agreement again referred to the concessions which the Ruler had granted to the appellant company. On March 1, 1943 there was yet another agreement between the Ruler and the appellant-company. That agreement came into force from January 1, 1941. It was divided into three parts and Part III referred to the concessions in the followingSave only as modified in manner aforesaid the Principal Agreement * (*Agreement of 1896) is confirmed as valid and subsisting.And the Darbar in consideration of the relief given to it by the Company by reason of the modification in the Principal Agreement as stated hereby declares that the Darbar will at all times hereafter as hitherto use its power and authority in maintaining and protecting the company under its special favour and hereby confirms the privileges and rights heretofore enjoyed by the company and in particular the Darbar with the intent to bind the Chief for the time being thereof hereby covenants with the Company as follows:1. That the company shall during the currency of the Principal Agreement continue to enjoy freedom from all cesses duties (whether excise octroi or otherwise) licences taxes or other impositions leviable either by the said State or by the Municipality of Rajnandgaon or other local Authority in the said State on any goods manufactured by the Company and on any machinery raw materials or Mill Stores imported into the said State by the Company for its own use for theworking of the Mills.".... .... ....From the time of the execution of the agreement of 1943, the Municipal Committee, Rajanandgaon did not collect octroi and other duties contemplated by the agreement as indeed it had not, ever since 1896. On December 31, 1947, Nandgaon State merged with the State of Madhya Pradesh. It seems that for a few years the Municipal Committee did not recover octroi from the appellant-company. On September 20, 1952 the Municipal Committee at a general meeting passed a resolution in the followingCommittee, therefore, resolves that the so-called Darbar agreement of 1943 is not binding on this Committee when the State Government has already started collecting taxes and cesses exempted under Clause 1 of Chapter III and, therefore, the Committee shall levy octroi duty (on the imports) and other legitimate dues on Bengal Nagpur Cotton Mills from 1st November,October 19, 1952, the Deputy Commissioner, Durg suspended the resolution, but on May 19, 1953, the Government of Madhya Pradesh rescinded the order of suspension. The Municipal Committee on June 14, 1953, informed the appellant-company that octroi would be collected retrospectively from November 1, 1952 and asked the appellant-company to furnish full particulars including cost of imports made by it after that date. The appellant-company files an appeal before the Deputy Commissioner, Durg, under S. 83(1) of the Central Provinces and Berar Municipalities Act, challenging the imposition of octroi. The Deputy Commissioner, by his order dated March 13, 1954, quashed the imposition and the demand made, but the Board of Revenue, Madhya Pradesh, on September 15, 1956, purporting to act under S. 83-A of the Municipalities Act, set aside the order of the Deputy Commissioner a revision filed by the Municipal Committee. The appellant-company thereupon filed a petition under Arts 226 and 227 of the Constitution for the writs above mentioned. On the High Courts dismissing the petition, the present appeal has been filed.

Court's reasoning:
8. The Municipal Committee had already imposed octroi in the State but the ruler ordered the Municipal Committee not to collect the dues from the appellant-company because of the agreement. No doubt, the Dewan who entered into the agreement of 1943, was also the local government and the Chief Officer of the Municipality, but the capacity of the Dewan in entering the agreement was different from his capacity as the head of the Municipality or as the local government of Nandgaon State. His action as the Dewan in foregoing the collection of octroi was not anything he did on behalf of the Municipality but on behalf of the sovereign. The resulting position, thus, was that the sovereign did not collect octroi from the appellant company because of the agreement, and the Municipal Committees rules and bye-laws, though they applied to the appellant company, remained in suspense because of the Rulers desire. After the State merged with the State of Madhya Pradesh and the Municipal Committee was not controlled in any ways by Ruler or by his agreement, the imposition of octroi upon the appellant company which was in suspense, began to take effect from such date as the Municipal Committee chose to determine. The Municipal Committee ceased to be subject to the wish of the Ruler after the merger, and for a time it did not collect octroi from the appellant company because the succeeding Government was accepting the royalty. In 1952, the Municipal Committee resolved to recover octroi from the appellant-company in accordance with the original imposition of the tax in the State and there was nothing which stood in the way of the Committee. The resolution was neither a fresh imposition of octroi because it had already been imposed nor the cancellation of an exemption because the Municipal Committee had not granted an exemption to the appellant-company. The resolution only indicated that on and from a particular date, the Municipal Committee would recover octroi which it had already imposed a long time ago upon all and sundry and to which the appellant-company was also subject and which was no longer affected by the will of the quondam sovereign. The agreement of the Ruler bound the Municipal Committee only indirectly, because the Ruler to whom the amount recovered would have gone, had agreed to forgo it, but the Rulers desire that octroi should not be collected ceased to operate from the moment he ceased to be the Ruler.9. The Resolution of the Municipal Committee was thus in order and the demand was rightly made. The point about limitation was properly abandoned because it has no substance.