2025 (9) TMI 1218 - HC - Indian Laws

Municipal terminal tax quashed where export or import journey does not commence or terminate within municipal limits

M/s Jindal Steel and Power Limited and Mr. Rajat Saha Versus State of Chhattisgarh, Kirodimal Nagar Panchayat Raigarh and Municipal Corporation, Raigarh,

HC allowed the petitions and set aside the municipal demand notices. The court held terminal tax under the Municipalities Act is payable only where the ... Maintainability of petition - availability of alternative remedy - Levy of Terminal Tax under the Municipalities Act on goods manufactured within its limits when the export journey of those goods commences outside its limits - HELD THAT:- The terminal tax on goods imported or exported is similar in its incidence and is payable on goods on their journey ending within the municipal limits or commencing therefrom, and not where the goods were merely in transit through the municipal limits and had their terminus elsewhere. Manufacture of goods within the municipal limits is not the litmus test for imposition of terminal tax. This being the position, the contention of the respondent No.2 that since the plant lies within the limits of respondent No.2 and the manufacture of goods takes place within its municipal limits Terminal Tax is liable to be paid, does not appear to have any force and is liable to be discarded. In other words, merely because the plant lies within its limits and some activities relating to processing of goods take place, does not empower that Municipal Corporation to levy terminal tax unless goods have actually been exported from the area of respondent No.2. Similarly, respondent No.2 cannot levy terminal tax if goods are stored in a Stockyard lying within its premises as only after goods leave the factory gate does their export journey commence. Terminal tax can be imposed by the municipality from where goods are exported only after commencement of their journey. Since, in the facts of the present case, the export journey of goods commences from Chiraipani Gram Panchayat once saleable goods are dispatched from the factory premises through MLSM gate, the respondents have no jurisdiction to demand terminal tax. There is no dispute that the manufacturing plant of the petitioners fall within the four municipal limits (I) Municipal Corporation, Raigarh (respondent No.2 in WPT No. 49/2014), Kirodimal Nagar Panchayat (Respondent No.2 in WPT No. 118/2014), Chiraipani Gram Panchayat and Khairpur Gram Panchayat (not a party in the present petitions). It is also evident from the record that the Terminal Tax under the Municipalities Act can be imposed on the goods that are exported from the limits of the Municipal Area only, but since in the cases in hand the petitioner-Company does not export goods from the limits of respondent No. 2 in both the cases, the respondents have wrongly issued impugned Demand Notices on a fallacious assumption that the goods dispatched from the petitioner's plant are exigible to terminal tax. The conclusion drawn by respondent No. 2 that the steel products manufactured by the petitioner-Company are exported by the petitioner No.1 from within the limits of respondent No.2 is not in conformity with the documents on record in both the cases because there is nothing to demonstrate on behalf of the respondents that the petitioner-Company is either engaged in the export of the scheduled goods or does it sell any of the scheduled goods for the purpose of export from the said limits. This Court is of the considered opinion that the demand notices issued by respondent No.2 acting upon the document of Annexure P-1 in WPT No. 118/2014 and resolution dated 31.12.2010 and 15.04.2013, are liable to be set aside - Petition allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a Municipal Council/Nagar Panchayat can lawfully levy Terminal Tax under the Municipalities Act on goods manufactured within its limits when the export journey of those goods commences outside its limits (i.e., whether mere halt, storage or processing within municipal limits attracts terminal tax). 2. Whether a direction/letter issued by a higher municipal/statutory authority to Nagar Panchayats to impose Terminal Tax (and consequent municipal resolutions adopted thereon) is intra vires the Municipalities Act or vitiated for failure to comply with statutory requirements, including opportunity to object. 3. Whether the description of scheduled goods in the Terminal Tax Rules includes primary products or inputs (e.g., whether steel products fall within an entry describing 'iron and all sorts of machinery'), and whether misclassification or erroneous factual assumptions by the Council invalidate the levy. 4. Whether writ jurisdiction under Article 226 ought to be declined on the ground of availability of alternate statutory remedies, delay, laches or estoppel arising from prior payment of tax. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework: Terminal Tax under the Terminal Tax (Assessment and Collection) Rules, 1996 is imposed on 'goods exported from the Municipal limit' pursuant to powers under the Madhya Pradesh Municipalities Act, 1961 and Municipal Corporation Act, 1956 (Sections referenced in Rules). The taxing statute and Rules are subject to the principle that taxing statutes are strictly construed and doubts resolved in favour of the taxpayer. Issue 1 - Precedent Treatment: The Court relied on apex and High Court authorities holding that terminal tax is not leviable on goods merely in transit; manufacturing within municipal limits is not the sole test - the real test is export/transport commencing from the municipal limits. Decisions cited include Central India Spinning & Weaving (on meaning of 'terminal tax'), Associated Cement Co. (on transport modality and levy), and other authorities holding terminal tax not leviable on goods merely carried to a railway station or in transit. Issue 1 - Interpretation and reasoning: The Court analysed the meaning of 'terminal'/'terminus' (dictionary and Corpus Juris) and applied the canon of strict construction of taxing statutes. It reasoned that 'terminal' connotes the end or commencement point of a journey connected with motion, not any intermediate halt. Terminal tax is payable where the journey commences or terminates within municipal limits, not where goods are merely stored, processed or transhipped en route. Factual findings established that the export journey in the instant matters commences from Chiraipani Gram Panchayat (outside respondents' municipal limits) via the MLSM gate and that goods passing through respondent limits were in transit; hence respondents lacked jurisdiction to demand terminal tax. Issue 1 - Ratio vs. Obiter: Ratio: Terminal tax cannot be levied by a municipal authority where goods are merely in transit through its limits and the export journey commences outside its limits; manufacture within municipal limits alone is not sufficient to impose terminal tax. Obiter: General observations on corpus and dictionary meanings supporting strict construction. Issue 1 - Conclusions: The Court concluded that the demand notices imposing Terminal Tax were unsustainable because the requisite export/commencement of journey from respondents' limits was not proved; thus demands were quashed. Issue 2 - Legal framework: Sectional scheme requires municipal resolutions (Section 129 of the Act of 1961) to impose taxes, with specified particulars, and the State authority's communications to municipalities must be in accord with statutory powers and procedures, including consideration of objections where required. Issue 2 - Precedent Treatment: The Court applied principles of statutory construction and procedural fairness; it relied on precedent stressing that powers under municipal statutes and rules must be exercised in accordance with statutory prescriptions and that taxing measures must follow mandated procedures. Issue 2 - Interpretation and reasoning: The Court examined the 24.03.2001 letter from the higher authority and the municipal resolutions adopted in purported pursuance. While noting submissions that the letter was without authority or failed to afford opportunity for objections, the Court's dispositive reasoning on the core issue (absence of export from municipal limits) rendered detailed invalidity analysis of the higher authority letter unnecessary to decide the petitions on merits. The Court did, however, quash the specific letter and resolutions insofar as they affected the petitioners. Issue 2 - Ratio vs. Obiter: Ratio: Municipal action predicated on an erroneous assumption of jurisdiction (i.e., imposing terminal tax where export does not commence within municipal limits) is liable to be set aside; procedural defects in state directions may be relevant but were not necessary to decide the core issue here. Obiter: Observations on the scope and validity of the 24.03.2001 communication vis-à-vis statutory authority. Issue 2 - Conclusions: The Court quashed the challenged municipal resolutions and the state letter insofar as they operated against the petitioners, as the Council had acted on a fallacious premise of jurisdiction. Issue 3 - Legal framework: Classification of goods for levy depends on the language of the schedule/entries in the Terminal Tax Rules and statutory interpretation principles distinguishing primary products from goods 'made of' such products; taxing entries are to be read narrowly. Issue 3 - Precedent Treatment: The Court considered jurisprudence (including a full bench) holding that primary products (e.g., glass sheets) are distinguishable from goods made of that product and cannot be equated with finished articles unless the legislative entry so provides. Issue 3 - Interpretation and reasoning: The petitioners argued that their product (steel) did not fall within the scheduled entry for 'iron and all sorts of machinery.' The Court was not persuaded that the classification defeated the levy because iron is a raw material for steel and, on the record, the Court accepted that iron is integral to steel production; consequently, it did not sustain the narrow classification challenge. However, this classificatory point was not decisive because the Court's primary ground for quashing was absence of export from municipal limits. Issue 3 - Ratio vs. Obiter: Obiter/miscellaneous: The Court did not lay down a definitive, novel rule on inclusion/exclusion of steel under the particular scheduled entry; it declined to uphold the petitioners' classification argument on the facts and observed that iron being raw material for steel undermined that challenge. Issue 3 - Conclusions: Classification objection was not accepted on the record; the Court declined to order refund of amounts paid on the basis of estoppel arising from the petitioners' delay and prior payments. Issue 4 - Legal framework: Exercise of writ jurisdiction under Article 226 is discretionary; exhaustion of statutory remedies and availability of efficacious alternate remedies are relevant considerations; exceptions exist where orders are without jurisdiction, principles of natural justice breached, fundamental rights engaged, or vires of legislation challenged. Issue 4 - Precedent Treatment: The Court considered Supreme Court exposition on the discretionary nature of writ jurisdiction and exceptions permitting direct writ relief despite alternate remedies (Radha Krishnan Industries and related authorities). Issue 4 - Interpretation and reasoning: The Court opted to adjudicate the petitions on merits regarding the core legal question (jurisdiction to levy terminal tax) and held that availability of alternate remedy or delay did not bar exercise of writ jurisdiction when the petition was otherwise appropriate. However, regarding refund claims, the Court invoked estoppel and delay to deny restitution of amounts earlier paid. Issue 4 - Ratio vs. Obiter: Ratio: High Court may exercise writ jurisdiction even where alternate remedies exist if facts warrant; parties who accept payment without timely challenge may be estopped from later claiming refund. Obiter: Noted discretion and exceptions summarized from precedent. Issue 4 - Conclusions: The Court entertained the writ petitions on merits, quashed the impugned demands and resolutions as applied to the petitioners, and declined to grant refund relief because of delay and estoppel arising from prior payments.