1983 (6) TMI 205 - SC - Indian Laws

Supreme Court Upholds Rail-Borne Sugarcane Exemption, Declares Octroi as Tax, Not Fee

Kunwar Ram Nath and others Versus Municipal Board, Pilibhita

The Supreme Court held that the exemption granted in 1936 under Section 157(3) of the U.P. Municipalities Act, 1916, exempting rail-borne sugarcane from ... - Issues Involved:1. Applicability of Exemption Order under Section 157(3) of U.P. Municipalities Act, 1916.2. Nature of the tax levied under Section 128(1)(viii) of the Act.3. Res Judicata regarding the earlier writ petition.4. Change in the nature of the tax post-Constitution.Summary:1. Applicability of Exemption Order under Section 157(3) of U.P. Municipalities Act, 1916:The appellants were prosecuted for not paying octroi on sugarcane brought by railway into their factory premises within the Pilibhit Municipal Board limits. They contended that an exemption was granted by the Government of the United Provinces in 1936 u/s 157(3) of the Act, exempting rail-borne sugarcane from octroi as municipalities rendered no service regarding it. The Supreme Court held that the exemption granted in 1936 continued to be effective and had not been rescinded or modified. The exemption was general and not tied to any specific notification, thus it remained applicable even after the new bye-laws of 1960.2. Nature of the tax levied under Section 128(1)(viii) of the Act:The appellants argued that the tax referred to in the exemption order was a terminal tax or a fee, not an octroi tax. The Supreme Court rejected this argument, clarifying that the octroi levied in 1936 and 1960 were both taxes under the Act, falling within the State List of the Government of India Act, 1935, and the Constitution. The Court emphasized that octroi is a tax and not a fee, as there is no quid pro quo between the payer and the Municipal Board.3. Res Judicata regarding the earlier writ petition:The respondents contended that the appellants could not challenge the levy again as they had failed in an earlier writ petition. The Supreme Court disagreed, stating that the earlier writ petition challenged the validity of the new octroi bye-laws, not the applicability of the 1936 exemption. The current case involved the specific question of whether the exemption was still valid, which was not addressed in the earlier writ petition.4. Change in the nature of the tax post-Constitution:The High Court had observed that the nature of octroi changed post-Constitution, implying that the exemption was no longer applicable. The Supreme Court disagreed, stating that the nature of the tax under Section 128(1)(viii) had not materially changed. The addition of the word 'sale' in the definition did not affect the applicability of the 1936 exemption. The Court held that the exemption continued to operate despite the new bye-laws of 1960, as there was no irreconcilable inconsistency between the two.Conclusion:The Supreme Court allowed the appeal, set aside the High Court's judgment, and quashed the proceedings in the Magistrate's court, holding that the Municipal Board of Pilibhit was not entitled to collect octroi on sugarcane brought by railway by the appellants. The prosecution was deemed unsustainable.