TMI Blog2012 (8) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... rn. The petitioners bring such yarn within the city of Surat from their another branch located outside the city limits. Upon such goods entering the city limits, the Surat Municipal Corporation collects octroi duty in terms of the Octroi Rules. The dispute is with regard to valuation of the goods on the basis of which such octroi should be calculated. The case of the petitioners is that the octroi can be collected at the prescribed rate on the total value of the goods at the time of entry in the city limits and any further expenditure incurred by the petitioners after the goods enter the city cannot be taken into consideration for ascertaining their octroi liability. When such issues resulted into disputes between the petitioners, other companies and agencies dealing in the similar products and the Surat Municipal Corporation, Writ Petition came to be filed before this Court being Special Civil Application No.1812/1978. Eventually, such petition came to be disposed of by a consent order. There was compromise between the petitioners and the Surat Municipal Corporation. The formula was worked out through consensus under which the petitioners agreed to pay octroi on 89% of the sales v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stoms duty, excise duty, sales tax, vend fee, freight charges, carriage charges and all other incidental charges incurred by the importer till the arrival of the goods at the import Naka. ● Explanation to such rule was added by virtue of above-noted amendment which reads as under: Yarn imported by the manufactures under the transfer invoice, Octroi shall be assessed at 100% on sales value at the rate given in Octori Schedule framed under Rule-4 of the Octroi Rules, And this shall supersede the agreement arrived at by virtue of the Court's direction. 8.From the above, it can be seen that by virtue of such explanation added to rule 2(20) of the Octroi Rules, in case of yarn being brought within the limits of Surat Municipal Corporation, octroi would be collected at the rate specified in schedule at the value assessed at 100% on sales value. In other words, the octroi would be collected on yarn being brought by manufacturer within the city limits on the total value of sales of such yarn by such manufacturers. 9.It is this amendment which the petitioners oppose. It is their contention that for collection of octroi, value of goods can be adopted as obtained at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Chairman, Opposite party reported in AIR 1994 Orissa 11 wherein it was observed that for collection of octroi taxable event is entry of goods within municipal limits. 10.3) Counsel further submitted that the rule is wholly discriminatory. Only in case of yarn 8/27 manufacturers, such formula is adopted. All other goods brought within the municipal limits continue to invite octroi on the value assessed at the time of entry. 10.4) Counsel submitted that the amended rule amounts to double taxation. He submitted that on the goods brought by the petitioners within the city limit, octroi duty is added along with other expenditures incurred. Therefore, if octroi is assessed on the sales value which includes octroi, it would amount to collecting octroi on octroi and would therefore, amount to double taxation. 10.5) Counsel lastly submitted that amendment is in violation of the consent terms arrived between the parties which had become the order of the Court. 11.On the other hand, learned counsel Shri Prashant Desai appearing for Surat Municipal Corporation opposed the petition contending that rules are statutory in nature. The petitioners have not made out any case for inval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In case of Mohd. Hanif Quareshi and others v. State of Bihar reported in AIR 1958 Supreme Court 731, the Constitution Bench of the Supreme Court observed that the presumption of constitutionality attaching to all enactments is founded on the recognition by the the Court of the fact that the legislature correctly appreciates the needs of its own people. We are not oblivious to the fact that this decision was overruled in the case of State of Gujarat v. Mirzapur Moti Kureshi Kasab Jamat and others reported in AIR 2006 Supreme Court 212 but on another issue. In case of the State of Jammu Kashmir, v. Triloki Nath Khosa and others reported in AIR 1974 Supreme Court 1, yet another Constitution Bench of the Supreme Court referring to and relying on the decision in case of Mohd. Hanif Quareshi and others (supra), reiterated this principle. In para.24 of the judgement, it was observed that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principle. In a recent decision in case of State of Madhya Pradesh v. Rakesh Kohli and another rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Legislation does not have competence to enact a law as per the list contained in Schedule VII, such a case would fall squarely within the expression of lacking in legislative competence. Equally if such statutory provision is opposed to any of the fundamental rights contained in Part III of the Constitution or is in conflict with other provisions contained in the Constitution, it would be impermissible to the parliament or to the State to enact such a provision and could thus also be stated to be without legislative competence. Besides these categories sometimes, the statutory provision being irrational, arbitrary, come up for discussion. However, such ground also has to be examined within above two parameters. The Apex Court in case of State of A.P. and others v. Mc. Dowell Co. and others reported in (1996) 3 Supreme Court Cases 709, observed that: In India, the position is similar to the United States of America. The power of the Parliament or for that matter, the State Legislatures is restricted in two ways. A law made by the Parliament or the Legislature can be struck down by courts on two grounds and two grounds alone, viz., (1) lack of legislative competence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is unreasonable, unreasonable not in the sense of not being reasonable, but in the sense that it is manifestly arbitrary. In England, the Judges would say Parliament never intended authority to make such rules. They are unreasonable and ultra vires . The present position of law bearing on the above point is stated by Diplock. L.J. In Mixnam's Properties Ltd. v. Chertsey Urban District Council thus: The various special grounds on which subordinate legislation has sometimes been said to be void...can, I think, today be properly regarded as being particular applications of the general rule that subordinate legislation, to be valid, must be shown to be within the powers conferred by the statute. Thus, the kind of unreasonableness which invalidates a bye-law is not the antonym of unreasonableness in the sense in which that expression is used in the common law, but such manifest arbitrariness, injustice or partiality that a court would say: Parliament never intended to give authority to make such rules; they are unreasonable and ultra virese , ... if the courts can declare subordinate legislation to be invalid for uncertainty as distinct from unenforceable ... this must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch it is made, to the grounds that it is contrary to other statutory provisions or on the ground that it is so patently arbitrary that it cannot be said to be in conformity with the statute. It can also be challenged on the ground that it violates Article 14 of the Constitution. 19.With above background in mind, we may examine the challenge of the petitioners to the provisio to rule 2(20) of the Octroi Rules. 20.List II of Schedule VII to the Constitution is the State list and contains entries of subject with respect to which State Legislation has exclusive powers to frame the law. Entry 52 thereof pertains to tax on entry of goods into local area and reads as under 52. Taxes on the entry of the goods into a local area for consumption, use or sale therein. 21.In terms of such legislative powers, the State Legislature has made certain provisions under the BPMC Act for assessment, collection, etc., of octroi. Section 2(42) of the BPMC Act defines the term octroi as under: 42. Octroi means cess on the entry of goods into limits of a city for consumption, use or sale therein. 22.Chapter XI of the BPMC Act pertains to municipal taxation. Section 127 thereof pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 149. 26.It was in exercise of such powers that Surat Municipal Corporation had framed the Surat City Municipal Corporation Octroi Rules,1973. Such rule making powers can be traced under the statutory provisions made in the BPMC Act. Section 127 of the BPMC Act pertains to municipal Taxes which includes octroi. For framing such legislation, the State Legislature traces its authority under Entry no. 52 of List II of schedule VII to the Constitution. It goes therefore, without saying that the rules itself cannot be in excess of power of the State Legislature to enact a law with respect to the subject. Surely, a piece of delegated legislation cannot be in excess of the legislative power of the State Legislature under which such rule making powers have been delegated. In the present case, the State had the competence to enact law to collect octroi for entry of goods in limits of a Corporation when such goods were brought for consumption, use or sale therein. The Surat City Municipal Corporation Octroi Rules therefore, had to conform to such limitations. 27.With this background, if we revert back to the impugned amendment, it emerges that prior to such amendment, rule 2(20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to enact law with respect to such collection of taxes under Entry no. 52 of list II of schedule VII to the Constitution. In fact State Legislature has not even enacted any such law which can be stated to be outside of its legislative competence under Entry no. 52. It is subordinate legislation i.e. rule making body which has framed the Octroi Rules which transgresses such boundary. In this respect we may refer to the decision of the Apex Court in case of Indian Oil Corporation (supra). In the said decision the Apex Court while examining the validity of provisions contained in Punjab Municipal Corporation Act with respect to collection of octroi interpreted certain expression in section 113 namely imported into the Municipal limits as to mean for purposes of consumption, use or sale . Thus interpreted, the Apex Court held that the provision of section 113 was intra vires. It was held and observed as under : 9. Entry of goods within the local for area for consumption, use or sale therein is made taxable by the state Legislature on the authority of Entry 52 of List legislature and it obviously cannot have any authority more extensive than the authority of the state Legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods are sold, the price is indicated by adding expenditures stated to have been incurred after the goods enter the limits of the Corporation which may not be wholly truly. We are however, of the opinion that this would be a clear of evasion of tax. To plug such loopholes and to control pilferage of revenue, measures would be available under the Act and the Rules and in any case no rule which the rule making body is not authorised to enact can be upheld merely on this count. Under the circumstances, amended portion of rule 2(20) amended vide notification dated 2.1.1997 is held to be unconstitutional and therefore, struck down. 30.We are however of the opinion that the contention for the counsel of the petitioner that respondents were bound by the consent order passed by this Court in the earlier round of litigation and that therefore, no such amendment could have been effected, cannot be accepted. In such consent terms itself, it was provided that such terms will continue to operate so long as the Municipal Octroi Rules remain in force. Thus when the rule itself was amended, it cannot be stated that Municipal Octroi Rules remained in force as they were when the consent ter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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