(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These petitions arise out of common background. They have been heard together and are being disposed of by this common judgement. We may notice the facts as arising in Special Civil Application No.2834/1997.
2. Petitioner no.1 is a company registered under the Companies Act. Petitioner no.2 is the vice- president of the company. The petitioners have challenged the legality and validity of explanation 2(20) of the Surat City Municipal Corporation Octroi Rules, 1973(“the Octroi Rules” for short) introduced vide amendment dated 28.6.1996. To appreciate the challenge of the petitioners, background leading to such amendment be noted in brief.
3. The petitioners have a branch in the city of Surat. The petitioners deal in Viscose Filament Rayon Yarn. 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 value of the goods. In such consent terms arrived at between the parties on 9.10.1980, the term “sales value of goods” was defined as value as shown in sales invoices either to wholesalers or retailers or consumers in Surat for a calender month plus the value of closing stock less the value of opening stock. For such sales value, “cost of goods” was to be worked out as 89% of the sales, invoice value as defined in the earlier clause i.e. “sales value of goods”. In simple terms, the parties agreed that the petitioners shall pay octroi on the 89% of the value of the sales of goods made by the branches within the city of Surat on monthly basis. Such consent terms were presented before this Court and the Court disposed of the petition by order dated 9.10.1980 in terms of such consent terms.
4. In the consent terms it was agreed that “the company will continue to pay octroi on the above basis so long the present Municipal Octroi Rules remains in force.”
5. Surat Municipal Corporation subsequently desired to modify such basis of collection of octroi. For such purpose, Corporation desired that explanation should be added to existing Rule 2(20) of the Octroi Rules providing for collection of octroi on yarn being brought within the city at 100% of the sales value. For such purpose as required under the Bombay Provincial Municipal Corporation Act(“BPMC” for short) and the Rules, objections were invited from the members of the public. In response to such invitation, objections were received from several parties. Such objectors were heard on 21.9.1989 by the committee constituted by the Municipal Corporation. Such objections were not found valid. After disposing of the objections, the Municipal Corporation in the General Board meeting dated 13.6.1996 adopted a resolution to amend the rules by inclusion of explanation to Rule 2(20).
6. The State Government took into consideration the proposal of the Corporation to amend the Octroi Rules and ultimately issued notification dated 2.1.1997 amending the Rule in terms of the resolution passed by the Municipal Corporation .
7. We may notice that Rule 2(20) Of the Octroi Rules before amendment read as under :
“20. “Value of the goods' where the octroi is charged advalorem shall mean the value of the goods made up of the cost price of the goods as ascertained from the original invoice plus shipping dues, insurance, customs 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 the time of entry only. They have challenged amended portion of the rule on various grounds.
10. Counsel for the petitioner Shri A.C. Gandhi submitted that the rule is unconstitutional. He submitted that the Corporation has no authority to collect octroi on the value of the goods at the time of its sale by the manufacturer who brings such goods within the city limit.
10.1) Counsel further contended that there is lack of legislative competence inasmuch as Entry no.52 of List II to Schedule VII which pertains to octroi does not permit either the State Government or the Municipal Corporation to collect duty on such value.
10.2) Counsel submitted that the rule is also ultra vires the Act since section 2(42) of the BPMC Act defining octroi, only permits collection of cess on the value of the goods at the time of its entry. In support of his contention, counsel relied on the following decisions :
1) In case of Indian Oil Corporation v. Municipal Corporation, Jullundhar and others reported in AIR 1993 Supreme Court 844, wherein the Supreme Court was examining the validity of the provisions contained in Punjab Municipal Corporation Act. The Apex Court observed that expression used “imported into the municipal limits” in section 113 thereof should be construed to mean for the purposes of consumption, use or sale. It was observed that entry of goods within the local area for consumption, use or sale therein is made taxable by the State legislature on the authority of Entry 52 of List II of Schedule VII. The Municipality derives its power to tax from the State Legislature and it obviously cannot have any authority more extensively than the authority of the State Legislature. In this context, noticing that under such Entry 52, State Legislature is competent to levy a tax only on the entry of goods for “consumption, use or sale” into a local area, it was observed that Municipality also cannot under a legislation enacted in exercise of such powers have power to levy tax in respect of goods brought into the local area for purposes other than consumption, use or sale. In that context the Apex court read the provisions contained in section 113 of the said Act as also being subject to same limitations as contained in Entry 52. Reliance was also placed on decision of the Division Bench in case of M/s. Indian Alluminium Co. Ltd. v. Bhubaneswar Municipality through in 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 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 invalidating such rules. He submitted that Surat Municipal Corporation had legislative competence to enact such rules to meet with special situation arising out of peculiar facts of the case. He submitted that the petitioners are bringing yarn within the city limits by way of branch transfer and thereafter, sell the same by adding various costs. To avoid pilferage of octroi, amendment in the Rules was found necessary. For such purpose, objections were invited. After considering and rejecting such objections, a resolution of the General Body meeting was adopted. Such resolution was approved by the State Government and only thereafter, the amendment was carried out. In short, he prayed that petition be dismissed.
12. Learned AGP Ms. Maithili Metha appeared for the State and also opposed the petition.
13. Before adverting to the rival contentions, we may notice that while admitting the petition, Learned Single Judge by interim order dated 9.5.1997 restrained the Municipal Corporation from enforcing and implementing the impugned explanation to Rule 2(20) of the Octroi Rules. Such order was challenged by the Corporation before the Apex Court and by an order dated 18.9.1998, the Court permitted the Corporation to collect octroi on the basis of such amended rule, but provided that “in the event of the respondents ultimately succeeding in the said writ petition and in the event of their being entitled to any refund in respect of the amounts so paid, the Corporation shall refund the amount together with interest thereon @12% p.a.”
14. With this background, we need to examine the validity of the amended rule 2(20) of the Octroi Rules. We are conscious that in the present petition, we are examining validity of statutory provision. We are also conscious that burden lies on the person who challenges a statutory provision to establish that the same is ultra vires.
In this respect we may refer to the decision of the Apex Court in case of Public Services Tribunal Bar Association v. State of U.P. and another reported in AIR 2003 Supreme Court 1115. It was observed that it is imperative upon the Courts while examining the scope of legislative action to be conscious to start with the presumption regarding the constitutional validity of the legislation. It was observed that the burden of proof is upon the shoulders of the incumbent who challenges a statutory provision. 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 reported in (2012) 6 Supreme Court Cases 312, this well settled principle of presumption of constitutionality of statutory provision enacted by State or Central Legislature was reiterated.
15. Such principle of presumption of constitutionality also applies to a piece of delegated legislation. In case of St. Johns Teachers Training Institute v. Regional Director, National Council for Teacher Education and another reported in (2003) 3 Supreme Court Cases 321, it was observed that “It is also well settled that in considering the vires of subordinate legislation one should start with the presumption that it is intra vires and if it is open to two constructions, one of which would make it valid and other invalid, the Courts must adopt that construction which makes it valid...”
16. We must however, recall that under challenge before us is not a legislation of the parliament or State Legislature but a rule enacted by the State in its delegated powers of legislation. We highlight this because it is well recognised that delegated legislation does not enjoy the same immunity as the legislation of the Parliament or the State Legislature. Parameters for examining the validity of the legislation either of the Centre or the State Legislation are somewhat different from the parameters on which the statutory provisions enacted under delegated legislation can be judged. The grounds on which a statutory provision enacted by the State or Central Legislature can be struck down are lack of legislative competence or being in conflict with any of the provisions contained in fundamental rights or other articles of the Constitution. In case of State of Madhya Pradesh v. Rakesh Kohli and another reported in (2012) 6 Supreme Court Cases 312, the Apex Court observed that :
“This Court has repeatedly stated that legislative enactment can be struck down by a Court only on two grounds, namely (i) that the appropriate legislature does not have the competence to make the law, and (ii) that it does not take away or abridge any of the fundamental rights enumerated in part-III of the Constitution or any other constitutional provisions.”
17. It is often suggested that a law enacted by the parliament or the State Legislature can be struck down only on one ground namely that of legislative competence. In such expression, both the above-noted parameters are included. If the State or the 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 and (2) violation of any of the fundamental rights guaranteed in Part-III of the Constitution or of any other constitutional provision. There is no third ground.”
The Apex Court thereafter explaining the previous decision in case of State of Tamil Nadu and others v. Ananthi Ammal and others reported in (1995) 1 Supreme Court Cases 519 observed that :
“The use of the word "arbitrary" in Para-7 was used in the sense of being discriminatory, as the reading of the very paragraph in its entirety discloses. The provisions of the Tamil Nadu Act were contrasted with the provision of the Land Acquisition Act and ultimately it was found that Section 11 insofar as it provided for payment of compensation in instalments was invalid. The ground of invalidation is clearly one of discrimination. It must be remembered that an Act which is discriminatory is liable to be labelled as arbitrary. It is in this sense that the expression "arbitrary" was used in Para-7.”
18. While examining the vires of a rule enacted under the powers of delegated legislation, however the scope of challenge is wider. In addition to above two well recognized grounds on which legislation of parliament or of State can be challenged, a rule framed under delegated legislation can also be called in question on the ground that it is ultra vires the Act or that it is wholly arbitrary or irrational.
In this regard we may refer to some of the decisions of the Apex Court.
1) In case of Indian Express Newspapers (Bombay) Private Ltd. and others v. Union of India and others reported in (1985) 1 Supreme Court Cases 641, the Apex Court observed that a piece of subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent legislature. It was held and observed as under :
“75. A piece of subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent legislature. Subordinate legislation may be questioned on any of the grounds on which plenary legislation is questioned. In addition it may also be questioned on the ground that it does not conform to the statute under which it is made. It may further be questioned on the ground that it is contrary to some other statute. That is because subordinate legislation must yield to plenary legislation. It may also be questioned on the ground that 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 be because Parliament is to be presumed not to have intended to authorise the subordinate legislative authority to make changes in the existing law which are uncertain.”
77. In India arbitrariness is not a separate ground since it will come within the embargo of Article 14 of the Constitution. In India any enquiry into the vires of delegated legislation must be confined to the grounds on which plenary legislation may be questioned, to the ground that it is contrary to other statutory provisions or that it is so arbitrary that it could not be said to be in conformity with the statute or that it offends Article 14 of the constitution”
2) In case of Supreme Court Employees' Welfare Association v. Union of India and another reported in (1989) 4 Supreme Court Cases 187, the Apex Court in para 62 observed that delegated legislation or a subordinate legislation must conform exactly to the power granted.
3) In case of J.K. Industries Limited and another v. Union of India and others reported in (2007) 13 Supreme Court Cases 673, the Apex Court referring to and relying on decision in case of Indian Express Newspapers (Bombay) Private Ltd. and others (supra) observed as under :
“63. At the outset, we may state that on account of globalization and socio-economic problems (including income disparities in our economy) the power of Delegation has become a constituent element of legislative power as a whole. However, as held in the case of Indian Express Newspaper v. Union of India reported in (1985) 1 SCC 641 at page 689, subordinate legislation does not carry the same degree of immunity which is enjoyed by a statute passed by a competent Legislature. Subordinate legislation may be questioned on any of the grounds on which plenary legislation is questioned. In addition, it may also be questioned on the ground that it does not conform to the statute under which it is made. It may further be questioned on the ground that it is inconsistent with the provisions of the Act or that it is contrary to some other statute applicable on the same subject matter.
Therefore, it has to yield to plenary legislation. It can also be questioned on the ground that it is manifestly arbitrary and unjust. That, any inquiry into its vires must be confined to the grounds on which plenary legislation may be questioned, to the grounds that it is contrary to the statute under which 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 pertains to taxes to be imposed under the Act. Section 127(1) authorises the Municipal Corporation to impose certain taxes, such as tax on vehicles, boats and animals. Sub-section(2) of section 127 provides that in addition to taxes provided in sub- section(1), the Corporation may impose taxes specified in clauses(a)to (f) thereof. Clause(a) of sub-section(2) pertains to octroi. Section 127(2) so far as relevant for our purpose reads as under :
“(2) In addition to the taxes specified in sub- section(1) the Corporation may for the purposes of this Act and subject to the provisions thereof impose any of the following taxes, namely:-
(a) octroi...”
23. From the above provisions, it can be seen that entry 52 of List II of Schedule VII of the Constitution permits the State Legislature to frame laws for collection of taxes on the goods brought within the limits of the Corporation for consumption, use or sale therein.
24. Pursuant to such legislative powers, the State legislation has made provisions for collection of octroi in the BPMC Act. Section 127 of the BPMC Act which pertains to taxes to be imposed, authorises the municipal corporation to impose certain taxes including octroi. Section 2(42) of the BPMC Act defines the term octroi as to mean cess on the entry of goods into the limits of city for consumption, use or sale therein.
25. Section 149 of the BPMC Act pertains to procedure to be followed for levying certain taxes. Sub- section(1) thereof provides that in the event of the Corporation deciding to levy any of the taxes specified in sub-section(2) of section 127, it shall make detailed provisions insofar as such provision is not made under the Act, in the form of rules, modifying, amplifying or adding to the rules at the time in force for the matters specified in clauses(a) to (e) of sub-section (1) thereof. Clause(a) pertains to the nature of the tax, the rates thereof, the class or classes of persons, articles or properties liable thereto and the exemptions therefrom, if any, to be granted. Section 457 of the BPMC Act pertains to matters in respect of which rules may be made. Sub-section(7) thereof pertains to municipal tax i.e. assessment and recovery of municipal taxes, the conditions on which refunds of municipal taxes should be allowed and in respect of a tax leviable under sub-section(2) of section 127, the matters referred to in sub-section(1) of 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) provided value of the goods for the purpose of collection of octroi to mean the value of goods made up of the cost price of the goods as ascertained from the original invoice plus shipping dues, insurance, customs duty, excise duty, sales tax, vend fee, freight charges, etc. In short all costs relatable to the manufacture, transport and expenditure and other incidental charges in connection with the goods brought within the city limits would form part of the value of the goos for the purpose of collecting advalorem octroi duty. All these parameters however, had one common thread running through namely, that such expenditure was to relate to the event prior to the goods entering the city limits. By virtue of amendment in the rule 2(20), insofar as yarn is concerned, the Surat Municipal Corporation provided that the octroi shall be assessed at 100% on sales value at the rate given in octroi schedule. On such product by virtue of the explanation being added to rule 2(20) of the Octroi Rules, octroi would be collected on the value at which the same would be sold by the petitioner after bringing it within the city limits. It is the case of the petitioner and to which no serious dispute is raised that after the goods are transferred from the petitioner's branch outside the city, within the city limits, before the same are sold, various expenditures have to be incurred such as, administrative expenditure of the branch relatable to such goods, storage and other incidental charges, commission to the dealers and so on. By virtue of amendment to rule 2(20), therefore, when the petitioners bring yarn within the Corporation limits of Surat, they are liable to pay octroi on the value of goods which would include all other direct and indirect expenditures relatable to such goods incurred after the entry in Corporation limits. To our mind such rule is unconstitutional. The rule making authority had no power to frame such rule since origin of powers were traced under section 457 of the BPMC Act read with section 127(2) of the Act. Octroi as is well known is a cess on the goods brought within the limits of a city for consumption, use or sale therein. Once the goods enter the Corporation limits, any expenditure relatable to such goods before they are sold cannot be subject matter of charge of octroi. Taking any other view, would run counter to the State's Legislative 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 Legislature. Since the state Legislature in view of Entry of goods for"
consumption use or sale’ into a local area, the municipality cannot under a legislation, enacted in exercise of the powers conferred by Entry 52 of List II, have the power to levy tax in respect of good brought into the local area for purposes other than consumption, use or sale. section 113 of the Act has, therefore, reasonably to be read subject to the same limitation as are contained in Entry 52 of to be read subject to the same limitation as are contained in Entry 52 of List II of schedule VII. The expression " imported into the city" used in section 113 of the Act, as meaning "imported into the city for any purpose and without any limitation", would amount to attributing to the legislature an intention to give a go-by to the restrictions contained in Entry 52 of List II. That is not permissible. The expression " imported into the city" in section 113, therefore, has to be interpreted as meaning " imported into the municipal limits for purpose of consumption, use or sale" only. thus, construed in the limited sense, section 113 of the Municipal Act is not ultra vires Entry 52 of List II of Schedule VII. In fairness to the learned counsel for the appellant, it must be recorded, that the finding the High court regarding vires of section 113 of the Municipal Act was not seriously questioned before us.”
28. In the present case, what the Surat Municipal Corporation desires to do is to collect the octroi on the value of the goods which would include the expenditure incurred in relation to such goods before the sale but after the goods enter the Corporation limit. The same in our opinion is wholly outside the legislative competence of the rule making body. It is also in conflict with the parent Act and constitutional provisions. We may recall that the BPMC Act defines term octroi in Section 2(42) as to mean cess on the entry of goods into the limits of city for consumption, use or sale therein. Such rules therefore, must be held to be ultra vires.
29. Learned counsel Shri Desai for the respondents however, submitted that in case of the present petitioners and other similar manufacturers of yarn, the goods are brought within the city limits by way of branch transfer. He hinted that at the time of entry of goods the petitioners do not disclose the true value of the goods. Ultimately, when 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 terms were arrived at. We do not find that the Municipal Corporation in any manner agreed that such arrangement arising out of consent terms shall remain in force in perpetuity.
31. Before closing, we may note that collection of octroi has since long being abolished. This issue therefore, would be relevant only from the date of amendment till abolition of collection of octroi. As a consequence of striking down of the rule, the petitioners would be entitled to refund of excess octroi collected. This however, cannot be done without examining the question of unjust enrichment. It is by now well settled that tax or cess even if held to have been collected wrongly including on the ground that the legislation under which it is collected itself is declared unconstitutional, the assessee cannot insist on refund without examination of question of unjust enrichment. Reference in this regard can be made to the decision of the Apex court in case of Mafatlal Industries Ltd. and others v. Union of India and others reported in (1997) 5 Supreme Court Cases 536. In the said decision the Court held that the duty is on the assessee to establish that the incident of duty was not passed on to the consumer. We notice that the Apex Court in its order dated 18.9.1998 had provided that if the petitioners herein ultimately succeed in the writ petition and in the event of their being entitled to any refund in respect of the amounts so paid, the Corporation shall refund the amount together with interest thereupon at the rate of 12% per annum. To our mind these observations do not mean that the petitioners should receive full refund irrespective of the question of unjust enrichment.
32. It is the duty of the petitioners to establish that the incidence of tax was not passed on to the ultimate consumer or third party. Therefore, before the petitioners can claim refund, they shall have to establish that the burden of excess octroi was not passed on to the consumers. This exercise shall have to be undertaken by the respondents.
33. We therefore, direct the respondents to refund the excess octroi collected from the petitioners, however, only after examining the question of unjust enrichment. For such purpose, the petitioners shall approach the Deputy Municipal Commissioner of Surat Municipal Corporation within four weeks from today, producing necessary materials showing whether or not burden of excess octroi was passed on to consumer or third party? After verifying of such details, the Deputy Municipal Commissioner, Surat shall grant necessary refund to the petitioners to the extent the same is available. This exercise shall be completed within a period of four months from the date of representation. Refund to the extent found payable shall carry simple interest at the rate of 12% per annum from the date of collection till payment as provided by the Supreme Court.
34. Petitions are disposed of. Rule made absolute to above extent with no order as to costs.
(Akil Kureshi,J.) (Harsha Devani,J.) (raghu)