2000 (3) TMI 190 - SC - Indian Laws

Supreme Court Rules Cutting Cloth for Export Not Subject to Octroi Duty

MAFATLAL INDUSTRIES LTD. Versus NADIAD NAGAR PALIKA

The Supreme Court allowed the appeal, determining that cutting cloth pieces within octroi limits did not amount to consumption or use, as no new ... Whether cloth pieces of 100 meters length brought into octroi area and cutting into smaller pieces within that area and then exported would be liable to levy of octroi? Held that:- The High Court took the view that when the cloth pieces of 100 meters length were cut to smaller pieces, some utility was added as cutting was done to meet the requirement of excise rules and demands of consumers. The High Court erred in coming to the conclusion as by cutting of cloth into smaller pieces no commercially different article can be assumed to have been produced. Thus in the case in hand cutting of cloth pieces into smaller sizes would not amount to consumption or use of the cloth of 100 meters length and, therefore, octroi is not leviable. Appeal allowed. Issues:1. Liability to pay octroi duty under Section 99 of Gujarat Municipal Act, 1963 for cutting cloth pieces within octroi limits.2. Interpretation of legal provisions related to octroi duty on goods brought into the octroi area for consumption, use, or sale.3. Application of legal precedents regarding the concept of consumption and use in the context of processing goods within octroi limits.Analysis:1. The Supreme Court considered the appeal against the Gujarat High Court's judgment holding the appellant liable to pay octroi duty under the Gujarat Municipal Act, 1963 for cutting cloth pieces within the octroi limits. The High Court concluded that the cloth pieces, when cut within the octroi limits, were used and consumed, thus attracting octroi duty.2. The Court analyzed the legal provisions related to octroi duty under the Act, emphasizing that octroi can be levied when goods are brought into the octroi area for consumption, use, or sale. Mere physical entry of goods into the octroi area does not automatically trigger the levy of octroi. The key question was whether cutting cloth pieces within the octroi area for export would render them liable to octroi duty.3. Referring to legal precedents such as the case of M/s. Anwarkhan Mahboob Co. v. The State of Bombay, the Court explored the concept of consumption with respect to processing goods. It was established that for octroi duty to apply, there must be a transformation of the commodity into a different commercial product through processing. The Court also cited the case of Khatiawar Industries Ltd. v. Jaffrabad Municipality to support this interpretation.4. Ultimately, the Court held that cutting cloth pieces into smaller sizes within the octroi limits did not amount to consumption or use of the cloth. Since no commercially different article was produced through cutting, octroi duty was deemed inapplicable. The Court disagreed with the High Court's view that utility was added to the cloth through cutting, emphasizing that no new commercial commodity was created.5. Drawing parallels with a previous case involving the export of Horlicks powder, the Court clarified that the mere act of cutting cloth pieces did not enhance the commodity to constitute consumption or use within the octroi limits. Therefore, the appeal was allowed, and it was determined that octroi duty was not leviable on the cloth pieces brought into the octroi limits for cutting and subsequent export.