JUDGMENT G.C. Mathur, J.
1. The petitioner company constructed a textile factory in the district of Azamgarh in the year 1968-69. According to the petitioner, the factory falls outside the limits of the Municipal Board, Maunath Bhanjan, but its office and gate fall within the limits of the Municipal Board. The Municipal Board has imposed octroi tax on certain articles including cotton, in the year 1950. The petitioner was granted an exemption from the payment of octroi duty on cotton imported by it for its factory for a period of five years. After the expiry of these five years, the petitioner again applied for exemption but exemption was refused. The Municipal Board started demanding octroi duty from the petitioner. The imposition of octroi duty and the liability of the petitioner to pay the same have been challenged in this writ petition on several grounds. Some of the grounds, on which they are challenged, are-
1. That the procedure prescribed for the imposition of taxes by Municipal Boards under Sections 131 to 135 of the U. P. Municipalities Act, 1916, was not followed by the Municipal Board.
2. That the goods, on which octroi is being demanded by the Municipal Board, are not consumed within the limits of the Municipal Board as the factory of the petitioner is situated outside its limits;
3. That the imposition of octroi duty violates Articles 301 to 304 of the Constitution; and
4. That the rate of octroi duty on cotton is excessively high and the rules imposing octroi tax being delegated legislation are void as they are unreasonable.
As, in our opinion, the petitioner is entitled to succeed on the first point, we do not propose to deal with the other points raised.
2. Maunath Bhanjan, which is popularly known as Mau, was formerly a notified area, but later it was converted into a Municipal Board. The proposal for imposing octroi tax originated at the time when the notified area was in existence but it was finalised at a time when the Municipal Board had been constituted The District Magistrate, Azamgarh, was, at all material times, the Administrator of the Municipal Board and all actions were taken by him on behalf of the Municipal Board.
3. There is no dispute that the Municipal Board was competent to impose octroi tax. Sections 131 to 135 prescribed the detailed procedure which must be followed for imposing a tax by a Municipal Board. Sub-section (1) of Section 131 empowers a board, if it desires to impose a tax, to frame proposals by special resolution. The sub-section specifies the matters which the proposals are to contain. The petitioner has not challenged the framing of these proposals by special resolution. Sub-section (2) requires the board to prepare a draft of the rules which it desires the State Government to make in respect of matters referred to in Section 153. Sub-section (3) requires the board to publish the proposals and the draft rules in a particular manner. The petitioner has not asserted that Sub-sections (2) and (3) have not been complied with. There is thus no dispute regarding "compliance with the provisions of Section 131.
4. Section 132 prescribes the procedure for the filing of objections to the proposals or the rules, for the consideration of those objections and for the modification, if necessary, of the proposals and/or the rules. The petitioner has not asserted that any of the provisions of Section 132 has not been followed.
5. Section 133 deals with the power of the State Government or the Prescribed Authority to reject, sanction or modify the proposals. The Municipal Board, Maunath Bhanjan, not being a city board, its proposals were required to be considered by the Prescribed Authority who was the Commissioner. The finalised proposals were submitted to the Prescribed Authority and on April 1, 1950; it sanctioned the proposals. There is no complaint of non-compliance with the provisions of Section 133 also.
6. The main complaint of the petitioner is regarding non-compliance with the provisions of Sections 134 and 135. It is, therefore, necessary to set out these two sections. They read as follows:
"134. Resolution of board directing imposition of tax-
(1) when the proposals have been sanctioned by the Prescribed Authority or the State Government, the State Government, after taking into consideration the draft rules submitted by the board, shall proceed forthwith to make under Section 296 such rules in respect of the tax as for the time being it considers necessary.
(2) When the rules have been made, the order of sanction and a copy of the rules shall be sent to the board, and thereupon the board shall by special resolution direct the imposition of the tax with effect from a date to be specified in the resolution.
135. Imposing of tax -
(1) A copy of the resolution passed under Section 134 shall be submitted to the State Government if the tax has been sanctioned by the State Government and to the Prescribed Authority in any other case.
(2) Upon receipt of the copy of the resolution the State Government or Prescribed Authority, as the case may be, shall notify in the Official Gazette, the imposition of the tax from the appointed date, and the imposition of a tax shall in all cases be subject to the condition that it has been so notified.
(3) A notification of the imposition of a tax under Sub-section (2) shall be conclusive proof that the tax has been imposed in accordance with the provisions of this Act.''
7. The contention of the petitioner is that there has been non-compliance with the provisions of Sections 134 and 135 in the following respects:--
(i) that the rules for the imposition of octroi tax have not been made in accordance with the provisions of Section 134 (1);
(ii) that the special resolution contemplated by Sub-section (2) of Section 134 could only be passed after the rules had been made and sent to the Board, but in the present case the resolution was passed before the rules were made; and
(iii) that there was non-compliance with the provisions of Sub-section (2) of Section 135, inasmuch as the imposition of the tax from the appointed day on the basis of the special resolution under Subsection (2) of Section 134 was not notified.
8. The draft rules are required to be prepared by the Municipal Board under Sub-section (2) of Section 131. After these draft rules have been published, objections invited thereto and considered, they are to be sent to the Prescribed Authority. Sub-section (1) of Section 134 then requires the Prescribed Authority to proceed to make the rules under Section 296 of the Act. Section 296 confers rule making powers. Section 300 prescribes the procedure for making the rules. Sub-section (1) of the section requires that the rules shall be made after previous publication and that they shall take effect only after they have been published in the official gazette. Section 23 of the General Clauses Act lays down the detailed procedure for the making of rules which are required to be made after previous publication. This section requires that the draft rules shall be published together with a notice specifying the date on or after which the draft rules will be taken into consideration.
The authority making the rules is required to consider any objections or suggestions which may be received in respect of the draft rules. Reading Section 300 of the Municipalities Act and Section 23 of the General Clauses Act together the essential requirement is that the draft rules should be published, objections and suggestions thereto should be invited, the objections and suggestions should be considered, the rules should thereafter be finalised and then published in the official gazette. The draft rules in the present case were purported to be published in the gezette of June 9, 1950, and it was notified that they would be taken into consideration on or after June 30, 1950. A copy of the gazette notification is Annexure "4" to the writ petition. We have also examined the original notification as published in the gazette. The actual draft rules were not published and only the rates of octroi duty were published. There was, thus, no prior publication of the draft rules. The rules were made in complete violation of the provisions of Section 23 of the General Clauses Act and of Section 300 of the Municipalities Act.
The learned counsel for the Municipality urged that since these draft rules had been published by the Municipal Board at an earlier stage, no prejudice has been caused to any one by the failure of the publication again, as required by Section 300 of the Municipalities Act and Section 23 of the General Clauses Act. In our opinion, the question whether prejudice has or has not been caused is immaterial. The provisions of Section 300 of the Municipalities Act and of Section 23 of the General Clauses Act are mandatory. The legislature insists that the rules should only be made after prior publication and if the rules have been made without prior publication, there is a clear violation of the mandate of the legislature. Rules made in violation of the mandatory provisions of the law cannot but be held to be invalid. In our opinion, no valid rules, as contemplated by Sub-section (1) of Section 134, were made by the Prescribed Authority in the present case.
9. It was then contended by learned counsel for the Municipal Board that the defect of there being no prior publication of the rules is cured by Sub-section (5) of Section 23 of the General Clauses Act. The sub-section provides:
"(5) The publication in the official Gazette of a rule or bye-law purporting to have been made in exercise of a power to make rules or bye-laws after previous publication shall be conclusive proof that the rule or bye-law has been duly made." The final rules were published in the U. P. Gazette dated July 15, 1950. The question is whether Sub-section (5) cures the infirmity of non-compliance with the essential requirement of Section 300 of the U. P. Municipalities Act and of Section 23 of the General Clauses Act of previous publication. Reliance was placed upon certain decisions of the Supreme Court, interpreting the scope of similar provisions of Sub-section (3) of Section 135 of the U. P. Municipalities Act. This provision reads:
"135 (3). A notification of the imposition of a tax under Sub-section (2) shall be conclusive proof that the tax has been imposed in accordance with the provisions of this Act."
In Raza Buland Sugar Co. Ltd., Rampur v. The Municipal Board, Rampur, AIR 1965 SC 895, there was non-compliance with the provisions of Section 131 (3) of the U. P. Municipalities Act in publication of the resolution proposing to impose the tax. Section 131 (3) requires publication of the resolution in the manner prescribed by Section 94 and Section 94 (3) requires the publication to be in a Hindi paper. The publication by the Municipal Board, Rampur, was in Hindi in a Urdu paper. The Supreme Court held that the requirement of Section 131 (3) regarding publication was mandatory but its requirement regarding the manner of publication was directory. It further held that substantial compliance with the directory provision attracted the operation of the provisions of Sub-section (3) of Section 135. In this view, it was held that Section 135 (3) shut out the inquiry about the non-compliance with the provisions of the later part of Section 131 (3).
10. In the Municipal Board, Hapur v. Raghuvendra Kripal, AIR 1966 SC 693 there was again defect in the publication under Section 131 (3). No publication was made in any local Hindi paper but it was made by affixing a copy of the resolution on the notice board and by beat of drums. The Supreme Court held that the defect was of the same nature as in the case of the Municipal Board, Rampur, and the imposition had the protection of Section 135 (3) with the result that the tax must be deemed to have been imposed according to the procedure laid down in the Act.
11. In Municipal Board, Sitapur v. L. Prayag Narain Saigal, AIR 1970 SC 58 also, the defect was in regard to the publication under Section 131 (3). In this case, there was a publication in a local Hindi paper but the proposal to impose the tax was not separately published but was published as a part of the draft rules. The Supreme Court held that the draft rules incorporated the preliminary proposals and made a mention of the special resolution and as such there was sufficient publication of the proposal. The defect was held to be covered by the provisions of Sub-section (3) of Section 135.
12. We may also refer to the decision of the Supreme Court in Berar Swadeshi Vanaspati v. Municipal Committee, Shegaon, AIR 1962 SC 420 where provisions of Section 67 of the C. P. and Berar Municipalities Act, which are similar to the provisions of Section 135 (3) of the U, P. Municipalities Act, came up for consideration. The imposition there was challenged on the ground that the objections filed had not been properly considered and disposed of. It was held, that the publication of the final notification was conclusive and shut out the inquiry into the question whether the objections had been rejected properly or not.
13. These cases lay down that if there is non-compliance with any directory provision relating to the procedure prescribed for imposition of a tax but there is substantial compliance with that provision then inquiry into such non-compliance is shut out by Sub-section (3) of Section 135. But inquiry into non-compliance with an essential or mandatory provision is not shut out by Section 135 (3). The requirement of previous publication is essential and mandatory under Section 300 of the U. P. Municipalities Act and Section 23 of the General Clauses Act. If there is no previous publication before a rule is finalised then the rule is made in violation 6f the essential and mandatory provisions. Sub-section (5) of Section 23 of the General Clauses Act cannot cure this non-compliance or shut out inquiry thereinto, The rules, having been made without previous publication, must be held to be invalid.
14. The rules were published in the U. P. Gazette dated July 15, 1950. Sub-section (2) of Section 134 of the U. P. Municipalities Act requires that when the rules have been made, the order of sanction and a copy of the rules shall be sent to the Board and thereupon the Board shall, by special resolution, direct the imposition of the tax with effect from a date to be specified in the resolution. It is clear from this provision that the special resolution can only be passed after the rules have been made and have been received by the Municipal Board. In the present case, the order of the District Magistrate, which is equivalent to the special resolution, was passed on June 20, 1950, much before the rules were even finalised or published. In Nizam Ali v. Municipal Board, Fatehpur, 1962 All LJ 226, a learned Single Judge held that the Board can pass a special resolution under Section 134 (2) only after the receipt of the order of sanction and a copy of the rules and that no such special resolution could be passed before the finalization of the rules. The order of the District Magistrate was passed in violation of the provisions of Sub-section (2) of Section 134.
15. Lastly, it has to be considered whether any notification was published as required by Sub-section (2) of Section 135, notifying the imposition of the tax from the appointed date. As we have said above, there was no legal or valid resolution passed in accordance with the provisions of Sub-section (2) of Section 134 which alone could be the foundation or basis of a notification under Section 135 (2). Apart from this legal defect, factually also, there is no such notification under Section 135 (2). Learned counsel for the Municipal Board relied upon Annexure '5' to the writ petition as being a notification under Section 135 (2). This is merely the final publication of the rules required by Section 134 (1). The notification itself states that it was being published under Section 300 of the U. P. Municipalities Act. This notification cannot be equated with a notification under Section 135 (2).
At the time of publication of the final rules under Section 134 (1), the question of notifying the date, from which the tax will be imposed, does not arise as further action under Sub-section (2) of Section 134 and under Sub-section (1) of Section 135 still remains to be taken before the notification under Sub-section (2) of Section 135 can be published. Further, the notification relied upon merely states "the rules shall take effect from July 15, 1950". This does not at all comply with the requirement of Sub-section (2) of Section 135. This provision requires the Prescribed Authority to notify in the official Gazette the imposition of the tax from the appointed date. This the notification in question does not "do. The notification dated July 7, 1950 cannot take the place of notification under Sub-section (2) of Section 135. Dealing with a similar notification in Kedar Nath v. Municipal Board, 1956 All LJ 198 a Division Bench of this Court held that the same could not be treated as a notification under Section 135 (2). It is thus clear that no notification under Section 135 (2) was published in the present case with the result that the octroi tax was not validly imposed.
16. It now remains to deal with an argument raised for the first time during arguments on the basis of facts sought to be placed before us by means of a supplementary counter-affidavit. Learned counsel for the petitioner strongly opposed our entertaining this new plea. There is really no justification for granting permission to raise this new point at all. The facts, on which it is based, were well within the knowledge of the Municipal Board even at the time when it filed the original counter-affidavit in the case. We may mention that as there was some confusion about the facts of the case, we had given time to the Municipal Board to produce certain documents, particularly the Hindi newspapers in which the draft proposals and the draft rules were published. The Municipal Board filed a supplementary counter-affidavit, stating that copies of these Hindi newspapers were not available.
In this very supplementary counter-affidavit it has averred that after July 15, 1950, fresh proceedings were taken for enhancing the rates of Octroi tax and that the defects and shortcomings, which were there in the earlier imposition, were cured by the fresh proceedings. Apart from the fact that the Municipal Board is not entitled to raise this question at this stage, we find no substance in it. What was sought to be done was only to modify the rates of octroi tax and steps were taken only in respect of this modification of the rates. Even the final notification purporting to be under Section 135 (2), which was published in the U. P. Gazette dated May 26, 1951, stated that the amended schedule of rates of octroi tax will come into force from May 20, 1951-If the original imposition of octroi tax was illegal, we do not think that the fresh proceedings for amending the schedule containing rates of octroi tax can validate the imposition. In this view, we did not call upon the petitioner to file any supplementary rejoinder-affidavit.
17. The writ petition is accordingly allowed and a writ in the nature of mandamus is issued to the Municipal Board, Maunath Bhanjan, Azamgarh, directing it not to realise octroi duty from. the petitioner on the basis of the imposition alleged to have been made under the notification dated July 7, 1950, published in the U. P. Gazette dated July 15, 1950. The petitioner is entitled to its costs from the Municipal Board.