M/S. HINDUSTAN GUM & CHEMICALS LTD. v.

STATE OF HARYANA & ORS.

AUGUST 19, 1985

[E.S. VENKATARAMIAll AND R.B. MISRA, JJ. J

Punjab Municipal Act 1911, Section 5 and Punjab Municipal (Haryana Amendment and Validation) Act 1971, Sections 2 and 4 - Octroi - Levy of octroi in the extended area of a municipality declared invalid by the Supreme Court - Statute amended retrospectively removing the defect found by the Court and validating the levy and collection of octroi - Legislature, Whether competent to amend the statute effect of.

Section 5(4) of the Punjab Municipal Act 1911 as it stood prior to the amendment prescribed: "When any local area has been included in a municipality under sub-section (3) of Section 5, this Act, and, except as the State Government msy otherwise by notification direct, all rules, bye-laws, orders, directions and powers made, issued or conferred under this Act and in force throughout the whole municipality at the time, shall apply to such area~

By a' notification dated August 10, 1965 issued under Section 5(3) of the Act, the area within which. the factory of .the appellant was situated was included within the municipality of .

Bhiwani. Thereafter, the Municipal Coalllittee coaaenced to impose and collect octroi from the appellant in respect of the imported by the appellant into its factory within the extended municipal limits of Bhiwani from outside. The appellant filed a Writ Petition in the High Court for restraining the municipality

from levying and collecting the octroi on the ground that when an area of any municipality was extended, there could be no automatic imposition of octroi which was in force within the limits of municipal area before such extension in that extended G . area unless the procedure prescribed by Section 62 of the Act was

complied with. In another writ petition, the Atlas Cycle Industries Ltd. also raised a similar contention before the High Court. The High Court dismis.sed both the Writ Petitions by a COlllllOn judgment on 18th May, 1970 holding that by virtue of

H section 5 (4) of the Act all tues, octroi etc. which were being levied within the municipal limits before the extension of the

HINDUSTAN CilEMICALS v. STATE 631

municipal limits came .. to be applicable automatically to the extended area of the municipality •. The Supreme Court in an appeal filed by the Atlas Cycle Indus tries Ltd. , reversed the judgment of the High Court on August 11, 1971 holding that the notifications under the Act are . the only authority and mandate for imposition and charge of tax, and since notifications are not made applicable to included areas under section 5( 4) of the Act,

the High Court was wrong in holding that the municipality was competent to levy and collect octroi from the appellant by virtue of the provisions contained in Section 5(4) of the Act.

After the llforeaaid decision in Atlas Cycle Industries Ltd., the State Legislature passed Punjab Municipal (Haryana Amendment & Validation) Act 1971. Section 2 of the Amending Act substituted the word "rules" in sub Section (4) of Section 5 of the Act by the words and sign "rules, notification" and further provided that those words and sign should be deemed always to have been substituted. By sectio~ 4 of the Amending Act the levy of octroi against and collection from the appellant and others within the extended limits of all the municipalities in Haryana were validated.

Dismissing the Appeal;

HEW:

1. It is permissible for a legislature to overcome the effect of a decision of a Court setting aside the imposition of the tax . by passing a suitable legislation amending the relevant provisions of the statute concerned with restrospective effect and by validating assessments made earlier. (638 D-E) ·

In . the instant case, since the word . 'notification has now been inserted in Section 5(4) of the Act with retrospective effect, the basis on which the decision in Cycle 1Dduatrie8 Ltd. was rendered has been removed becsuse the deficiency in Section 5( 4) noticed by the Supreme Court has been made good and the lev)' and collection of octroi have alao been validated. The AiMudlng Act satisfies the teats laid down by Supreme Court in Sh. Pritbvi Cotton ll1lls case. The Amenc!in8 Act, thus, neutral! - ses the effect of the decision in Atlas Cycle Industries Ltd. which can no longer be relied upon after the 8!¥0clment of the Act. The levy and collection of octroi in . the area which was

included within the municipal.limits of Bhiwani with retrospective effect from August 10, 1985 in accordance with the ootification issued earlier are, therefore no longer open to question.

[640 C-E]

Ba&alkot City .. micfpaUty y. Baplkot Caent Co., (1963] Suppl. 1 s.c.a. 710, referred to.

Sbri Prithrl Cotton Hilla Ltd. & Aur. v. Broach Borough Jtmiclpality & Ors. [1970] l s. c. R. 388, relied upon.

CIVIL APPELLATE JURISDICTIO~ : Civil Appeal No. 598(N) of 1972.

From the Judgment and Ordr dated 18.5.1970 of the Punjab and llaryana High Court in Civil Writ No. 2743 of 1968.

v.c. Mahajan and Mrs. Urmila Sirur for the Appellant.

llarbans Lal, R.N.Poddar (not present) and Serv Mitter for the Respondents.

Tne Judgmeat of the Court was delivered by

VENKA'.rAl!AMIA, J • The .ppellant in this appeal by certi - ficate is a limited company ha, ing its regiatered offie at :; aicutta. It is carrying on the business of processing guar at its factory •ituated Bhiwani, formerly within the State of Punjab and now in the State of Haryana, and exporting the outer shll to the United States of Amul.ca. Y.1e inner part of guar is used as fodder for cattle in India. For the purpose of processing, the appellant, has to bring into its factory premises guar from outside mandis.

Prior to August 10, 1965, the appellant's factory was situated outside the local limits of the Municipal Committee of Bhiwani, but -.ith effect from that date by reason of the extension of the local limits of the said Municipal Committee by the Notification. No. MCII (XIII)-II 61/31330 dated August 10, 1965 issued under section 5(3) of the Pua.Jab Municipal Act, 1911 (Punjab Act No. III of 1911) (hereinafter referred to as 'the Act') by the then Punjab Government, the factory premises -e within the mur.icipal limits of Bhiwani. The said Notification was

published in the Punjab Government Gazette dated August l.3, 196~ and with effect from that date the Municipal Coamittee of Bhiwani comnenced to impose and collect octroi from the appellant in respect of the imp.orted by the appellant into its factory within the extended municipal limits of Bhiwani from outside. The

appellant resisted the levy of octroi. When its attempts to get exemption from payment of octroi failed, it filed a wri~

petition under Article 226 of the Constitution before the High Court of Punjab and Haryana in Civil Writ No. 2743 of 1968 questioning the imposition of octroi on several grounds one of them being that without complying with the legal formalities necessary for th~ imposition of octroi in the extended area of the municipality, it was not open to the Municipal COllDilittee to levy octroi on guar brought by the appellant into its factory from outside. The petitioa was contested by the State Government and the Municipal Committee of lihiwani. That petition was dismissed by the High Court of Punjab and Haryana by its judgment dated May 18, 1979. Aggrieved by the judgment of the High c;, urt, the appellant has filed the above appeal after obtaining the necessary certificate under Article 133 (l)(a) of the Constitution from the high court.

Section 5 of the Act, as it stood at the relevant time, read as follows:-

".5. ( 1) The State Government may, by notification published in the Official Gazette and in such other manner as it may determine, declare its intention to include within a municipality any 16cal area in the vicinity of the same and defined in the notification whether such local area is a municipality or a notified area under this Act or not.

(2) Any inhabitant of a arunicipality or local area in respect of which a notification has been published under sub-section {l), may, should he object to the alteration proposed, submit his objection Ntiting through the Deputy Coilllllissioner to the Sta' c Government within six weeks from Lhe publication of the notification in the Official Gazette; and the State Government shall take such objection into consideration.

(3) When six weeks from the publication of the notification have expired, and the State Government has . conSiciered the objections if any which have beeu submitted under sub-section (2), the State Government may, by notification, include the local arec in the municipality.

( 4) When any local area has been included in a municipality under sub-section (3) of this section, this

Act, and, except as the State Govenunent may otherwise by notification direct, all rules, bye laws, orders, directions and powers made, issued, or conferred.under this Act and in force throughout the whole 1111.1nicipality at the time, shall apply to such area."

Before the High Court the appellant relied upon the decision of this Court in Bagalkot City Municipality v. llagallmt CeEnt Co. [1963] Suppl. 1 s.C.R. 710, in support of its contention that when an area of any municipality was extended there could be no automatic• imposition of octroi which was in force within the limits of municipal area before such extension in the extended area unless the procedure prescribed by section 62 of the Act was complied with. The High Court distinguished the above decision from the present case by relying upon sub-section (4) of section 5 of the , .Act which prescribed that when any local area was included in a municipality under sub-section (3) of section 5 of the Af!t, and, expect as the State Govnunent may otheNise by

notifition direct all rules, bye laws, orders, directions and powers made, or conferred under the Act and in force throughout the whole municipality at the time, would apply to such area. The High Court noticed that in the Bombay District Municipal Act, 1901 which governed the Bagal'kot City Municipality's case (supra) there was no provision corresponding to sub Section (4) of section 5 'of the Act and it took the view that by virtue of section 5(4) of the Act all taxes, octroi etc. which were being levied within the municipal limits of Bhiwani before the extension of the municipal limits came to be applicable automatically to.the extended area of the municipality. On the above basis the Writ Petition was dismissed on May 18, 1970. Along with the said writ petition the High Court also dismissed some other writ petitions which had been filed by some other petitioners carrying on business at Sonepat town against the State of llaryana and the municipal committee of Sonepat in which a similar contention had been raised. One of those writ petitions was Civil Writ No. 2014 of 1967 on the file of the High Court of Punjab and Haryana filed by the Atlas Cycle Industries Limited, Sonepat. The Atlas Cycle Industries 'Limited preferred an appeal against the said common judgment but that appeal .came to be disposed of by the decision of this Court on August.-11, 1971 in Atlas Cycle Industries Ltd.

v. State of llaeyana & Anr [197.2] 1 s.c.R. 127. By that decision this Court reversed the judgment of the High Court and allowed the appeal holding that the High Court was wrong in holding that the municipality in that case was competent to levy and collect octroi from the appellant therein by virtue of the provisions

contained in section 5(4) of the Act. A writ in the nature of A ma0 dmg1s was issued to the Sonepat munitipality, the respondent in that.case, restraining it from levying against and collecting from the appellant therein any octroi in respect of raw materials, components and parts imported by it into its factory under the notification levying octroi which was in force in the said local area before its limits were extended. In reaching the E above conclusion, this Court observed at pages 133-135 thus:

"Section 62 (10) of the Act indicates that there is in:unposition of tax only when the state Government shall notify the imposition of the tax and shall in the notf ication specify a date on which the tax shall C come into force. In the absence of imposition of tax . by a notification under section 62 (10) of the Act the municipality is not competent to impose levy or collect tax. Section 62(10) of the Act enacts that a notification of the imposition of taX shall be con-' clusi ve evidence that the tax has been imposed in D accordance with the provisions of the Act. It is the notification under the satute which is conclusive evidence of the imposition of tax.

The controversy in the present appeals is solved by finding out as to whether the notification dated 3rd E November, 1942 imposing octroi within the limits of the Sonepat Municipality became applicable by reason of the provisions contained in section 5( 4) of the Act. It is noticeable at the outset that section 5(4) of the Act speak ot" rules, bYe laws, orders, directions and powers and does not significantly mention 'notification'. It is apposite to consider section 6, F 7 and 8 of' the Act which deal with. the effect of exclusion of local area from the municipality. In the case of exclusion of an area from the Municipality it is provided in Section 8(1) (a) .of the Act that "This Act and allnotifications, rules, bye -laws, orders, directions and .powers issued, made or conferred under G the Act, shall cease to apply thereto." When the Act provided for notifications ceasing to apply in the case of exclusion of local areas, and in the iL 'lll.ediately preceding section 5 refrained from using the word _'notifications' _becoming applicable in the case of inclusion of areas the legislativ~ intent is unambiguous -and crystal clear that notifications could H not become applicable to an included area on the strength of section 5(4) of the Act.

[1985] SUPP.2 S.C.R•

The word 'notification' cannot be said to be synonr mous with rules, bye-laws, orders, directions and

powers for two reasons. First, the Act in the present case speaks of notifications for imposition of tax and uses the word 'notification' separately from the other words "rules, bye laws, orders, directions and powers". In the caae of exclusions of area, the Act speaks of notification ceasing to apply to excluded areas whereas in the case of inclusion of areas the Act significantly omits any notification being applicable to such area. Secondly, the General Clauses Act in section 21 speaks of power to issue notifications, orders, rules or bye-laws refers to power under the statute. Section 62(10) of the Act speaks of notification of the imposition of tax Such a notification is the statutory basis of imposition and levy of tax.

Bye-laws are entirely , different from notifications imposing tax as will be manifest from section 188 of the Act. Under that section the conmittee may by bye-laws as .mentioned in clause (g) thereof fix l.imits for the purpose of collecting octroi where collection of octroi has been sanctioned and may prescribe routes by which articles which are subject to octroi may be imported into municipality, Bye-laws fixing the limits and prescribing the routes by which articles which are subject to octroi may be imported obviously cannot be equated with notification of imposition of octroi . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

In the first place, a taxing provision always receives a strict interpretation for the obvious reason that there DJ.1st be clear and express language imposing a tax and the date from which such tax shall come into effect. Notifications under the Act are the only authority and mandate for imposition and charge of tax. Notifications under the Act are the only authority and mandate for imposition and charge of tax.

Notifications are not made applicable to included areas under section 5(4) of the Act."

Following the above decision of this Court which was delivered on August 11, 1971 we sho.uld have allowed this appeal and issued directions similar to those issued in the above dectsion to the respondents in this case also. But after the alx>ve

decision of this Court, the State Legislature of Haryana proceeded to amend the Act by passing the Punjab Municipal (Haryana Amendment and Validation) Act, 1971 (hereinafter referred to as 'the Amending Act'). The Amending Act was published in the Haryana Government Gazette on November 16, 1971. Section 2 and section 4 of the Amending Act are material for purposes of this appeal. By seection 2 of the Amending Act the Legislature substituted the word "rules" in sub-section (4) of section 5 of the Act by the words and sign "rules, notification" and further providing that those words and sign should be deemed always to have been substituted. By reason of this amendment the expression 'uotification' should be deemed always to have been present in section 5(4) of the Act including the date on which the 1Dllllicipal limits of Bhiwani were extended. bringing within them the factory of the appellant also. By section 4 of the Amending Act, the levy of octroi against and collection from the "ppellant and others within the extended limits of "11 the muru.cipalities in Haryana were validated. Section 4 of the Amending Act read thus:-

"4. Validation:

(1) Notwithstanding any judgment, decree or order of any court or other "uthority to the contrary•.• •.••.••••••••••.••.•••••. ~.-............. any octroi levied, charged or collected or purporting to have been levied, charged or collected before the commencement of this Act "nd any action taken or thing done before the coumencement in relation to such assessment, reassesSment, levy or collection under the provisions of the principal act and the rules made thereunder shall be deemed to be as vdid "nd effective as if such assessment, re-assessment, levy or collection or action or thing had been made, taken or

done under the principal Act as amended bY this Act F and the rules and bye-1"ws made thereunder and accordingly -

(") All acts, proceedings or things done or taken bY the Coumittees or by the officers of the Coumittees or by "ny other authotrity in connection with the assess- G ment, re-assessment, levy or collection of such taxor octroi shall, for all purposes, be deemed to be and to have always been done or taken in accordance with the law;

(b) no suit or other proceedings shall be maintained or continued in any court or before any authority for H the refund of any such tax or octroi; and

(c) no court shall enforce any decree or order directing the refund of any such tax or octroi.

(2) For the removal of doubts, it is hereby declared that nothing in sub Section (1) shall be construed as preventing any person-

(a) from que.stioning in accordance with the provisions of the principal Act, as amended by this Act, any assessment, re-assessment, levy or collection of tax or octroi referred to in sub-section (1) ;. or

(b) from claiming refund of any tax or octroi paid by him in excess of the amount due from him by way of tax or octroi under the principal Act, ss amended by this Act ...

Reliance is now placed by the respondents on the amendment of section 5(4) of the Act made with retrospective effect and the validating provisions contained in the Amending Act in support of their case. It is 'now well settled that it is permissible for a competent Legislature to overcome the effect of a decision of a Cou•t setting aside legislation amending the relevant provisions of the statute concerned with retrospective effect, thus taking away the basis on which the decision of the Court had been rendered and by enacting an appropirate provision validating the levy and collection of tax made before the decision in question was rendered. In Shri Pritlrrl Cotton Hills Lt:d. & Anr. v.

Broach Borough llunicipalit:y & Ors [1970] l s.c.R. 388, a Constitution Bench of this Court has laid down the requirements which a validating law should satisfy, in order to validate the levy and collection of a tax which had been declared earlier by a Court as illegal.· Hidayatullah, c.J. speaking for this Court observed in the above decision at pages 392-393 thus:-

''When a legislature sets out to validate a tax declared by a court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition, of course, is that the legislature must possess the power to impose the tax, for, if it does not, the action must ever remain ineffective alld illegal. Granted legislaUve competence, it is not sufficient to declare merely that the decision I

of the Court shall not bind for that is tantamount to A reversing the decision in . exercise of judicial power which the legislature does not possess or exercise. A court 1 s decision must always bind unless the conditions on which- it is based are so fundamentally

alteed thatthe dP.cision could not have been:-give11-.in the altered circumstances. Ordinarily,. a court holds a B tax to be invalidly imposed because the power to . tax is wanting - or the statute ot: the ruls Ol'. 'both- are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only .if the gr0unds of illegality' or invalidity are capable of being removed arid a:re . i.n fact removed c and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had not been proj>erly ii1veSted befOre. Sometimes. 'this is dOne 'by re-enacting' retrospectively a valid and legal taxing provision and then by fiction making the i:ax already collected to. stand under 'the ore-enacted law.

D Some time the legislature gives its own meaning and interpretation of the law under which the tax was collected and by legislative fiat makes the new meaning binding upon courts. The legislature may follow any one method or all of them and while it doescso it may neutralise the effect of the eariier decision of

the court which becomes ineffective after the cha'ri.ge

. E . of the law. Whichever method is adopted it must be

within the competence of the legislature arid legal and adequate to attain the object of validation. tf the legislature has the power over the ·uJ>ject matter and competence to make a Valid law, ft can at anY time make such a valid law and make it retrospectively so F as to bind even past transactions. The validity of a Validating law, therefore, depends upon whether the .legislat11re possesses the competence which it claims

over ' the subject-matter and whether in making the validation it removes the defects which the courts had found in the existiilg law and makes adequate. provi- G sions in the validating law for a valid imposition of the tax."

In the instant case the only ground on which this Court had found. the levy of octroi in the extended area of a municipality to be invalid was that the provisions of section 5(4) of the. Act were inadequate in the absene of a reference to the notifications issued under the .Act also in that sub-section. By the

Amending Act the word 'notification' r.ad been inserted in subsection (4) of section 5 of the Act With retrospective effect. If the expression 'notification' had been there in that sub-section on the date on which the municipal limits were extended, this Court . would have upheld the levy and collection of control in its judgment in Atl&ll Cycle ludustd.ea Ltd. case (supra). This Court found that sub-section ( 4) of section 5 which did not contain the word 'notification' was inadequate for the purpose of upholding the levy and collection of octroi in the extended local area. Since the word 'notification' has now been inserted in section 5(4) of the Act With retrospective effect, the basis on which the said decision was rendered has been removed because the deficiency in section 5(4) noticed by this Court has been made good and the levy and collection of octroi have also been validated. The Amending Act satisfies the tests laid down by this Court in the decision in Shri PrithVi Cotton Hill 'a case ·(supra) for overcoming an earlier decision of a court in such circumstances.

The Amending Act thus neutralises the effect of the decision in the case. of Atlas Cycle ludustd.es Ltd. case (supra) which can no longer be relied upon by the appellant after the amendment of the Act as stated above. There is no other contention urged by the appellant in support of its appeal. The levy and collection of octroi in the area which was.included Within the municipal limits of Bhiwani With retrospective effect from August 10,19.65 in accordallC"e With the notification issued earlier are, therefore, no longer open to question.

In the result this appeal fails and the order of dismissal F of the writ petition peased by the High Coutt is affirmed but on a ground different from the ground on which the High Court had dismissed it. There ahall, however, be no order as to costs.

I Appeal dismissed.