TaxTMI 
TaxTMI 
2022 (11) TMI 287
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....ed 26.03.2015 referred the issue for the decision of a larger bench. The reference order took note of a previous Constitution Bench ruling in Diamond Sugar Mills Ltd. & Anr. v. State of Uttar Pradesh & Anr. (1961) 3 SCR 242 where the court held that a "local area" would be an area which is administered by a local body such as a municipality, a district Board, a local board, a Panchayat or the like and that factory premises are not covered by the aforesaid expression. The court also took note of the Constitution (Seventy-fourth) Amendment Act, 1992 which introduced Article 243-Q relating to the constitution and administration of municipal bodies and held that having regard to these developments, the issues which need adjudication in the present appeals have to be considered by a larger bench. Hence, the appeals are listed before this Bench. 2. For a proper determination of the issues involved, it would be necessary first to notice Entry 52 of List II which authorises State Legislatures to levy entry tax: "taxes on the entry of goods into a local area for consumption, use or sale therein".2 3. The term "local area" has not been defined in the Constitution; however, by Article 367....
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....n the factories or in work was unconstitutional. The High Court by its impugned judgment dismissed SAIL's writ petition holding that the Orissa entry tax did not violate any constitutional prohibition and was in conformity with Article 304(a) of the Constitution. SAIL relied on notification dated 15.04.1995 as modified on 07.03.1996 and 17.11.2014. It contended that the effect of these was to exclude the areas in its industrial area, which were part of the Rourkela Municipality; consequently, they ceased to be a "local area" under the Orissa Act. 6. OCL challenged the levy imposed upon it contending that by virtue of certain notifications dated 23.12.1998, the industrial townships set up by it were excluded from the local limits of the Rajgangpur Municipality It, therefore, argued that the inclusion of its industrial township as a local area by virtue of the definition of that term in the Orissa Act was unconstitutional. OCL contended that having regard to the agreement (hereafter "Agreement")6 which it had entered into with the Municipal Council, in regard to the provision of services and the nature of services provided, its industrial township could not be characterised as a loc....
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....the Seventh Schedule to the Constitution) declared in Diamond Sugar Mills (supra) is applicable, even after introduction of Article 243-Q, under Part IX-A of the Constitution. The purpose of introducing that provision was to strengthen functioning of local bodies because they were unable to perform effectively as vibrant units of self-government. The proviso to the article allows the Governor to exclude an area industrial establishment in which an industrial township may be set up and in which certain municipal services may be provided by such establishment. Counsel submitted that such industrial establishment cannot be equated with an area administered by local authority i.e., local self-government such as a municipal or town area. Therefore, its exclusion, by the proviso to Article 243-Q meant that it could not be considered as a local area, under any law, made by any state. The levy of entry tax, into such areas covered by industrial establishments, lawfully declared as such, therefore, had to fail. 11. OCL's counsel also relied on the ruling of this Court in Union of India v RC Jain (1981) 2 SCC 308 and Housing Board of Haryana v Haryana Housing Board Employees' Union (1996) 1....
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.... Learned counsel also asserted that exemption given to OCL from payment of octroi was made after taking into account that the amount of Rs. 2 crores deposited by it would be enough to set off the loss of octroi and that the municipality was compensated for even the potential future loss of revenue. 14. Mr Bagaria, learned senior, relied on Diamond Sugar Mills (supra) to urge that meaning of the term 'local area' as expounded in that decision must be applied in the present case to declare SAIL's industrial area as not a 'local area' within the meaning of Entry 52 of List II. It was further argued that merely because SAIL provided municipal services within its industrial township area, does not make its area a 'municipality' or 'local authority'. Furthermore, no powers, authority and responsibilities of municipalities under Article 243-W13 were endowed upon SAIL by the State Government to enable it to function as an institution of self-government and neither has SAIL been authorized to levy, collect and appropriate any taxes or duties or tolls or fee. The exclusion of industrial establishments, was also in the light of proviso to Article 243-Q. It was submitted that by Article 243....
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....nior counsel submitted, furthermore, that levy of retrospective tax upon entry of goods, into industrial areas, was arbitrary, given that the original definition did not impose any tax, on goods which entered into those areas or local limits. 18. Learned counsel appearing on behalf of HINDALCO adopted the submissions made on behalf of OCL and SAIL. Learned counsel additionally argued that the UP Entry Tax Act of 2007, to the extent it was retrospective, has to be struck down, as it is unfair and arbitrary. (ii) Respondents' contentions 19. Mr. Rakesh Dwivedi, learned senior Advocate appearing on behalf of the State of Orissa had submitted that the notifications cover not only the factory premises but also the other areas consisting of factory premises, residential colonies, other areas including roads, sewage, several common amenities, play fields, open spaces, and other associated facilities and thus claiming that only the factory premise of OCL constitute industrial township should not be accepted. 20. Reliance was placed on the contents of the impugned notification to submit that the industrial township was open to public use and the concerned Rajanagar Municipality has righ....
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.... some connection between trading facilities provided and taxes levied needs to be established. The fact that OCL provides compensation for making the municipal services available inside the limits of industrial township cannot be considered to be relevant as they are already receiving other benefits in the form of other taxation reliefs. 25. It was further submitted that the Article 243-Q of the Constitution was inserted much after the judgment in Diamond Sugar Mills (supra). The idea behind that provision is a recent phenomenon and does not find any correspondence history of India before the advent of the Constitution. The concept had evolved on account of the emergence of large industries where employees also occupied spaces which are similar to virtual townships with municipal services being provided by industrial establishments. 26. The counsel sought to distinguish the present case from NOIDA (supra) by arguing that while in latter, the court held that an industrial township cannot be equated with a municipality defined under Article 243-(P)(e)17 as industrial township is specified on account of non-constitution of municipality, nevertheless the court did not decide an impor....
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....ered in the context of pointed authorization by the state enactment - U.P. Sugarcane (Regulations of State and Purchase) Act, 1953 in Section 20 and the U.P. Sugarcane Cess Act, 1956 in Section 3 to State to collect entry tax "into the premises of a factory". The challenge in that judgment was on the ground that the levy was invalid as it was beyond the legislative competence of the State - the argument being that the factory premises could not be characterised as a "local area". This Court analysed Entry 52, by first considering the historical context in which it was enacted (for which it traced the previous legislation i.e., Entry 49 of List II of the Seventh Schedule to the Government of India Act, 1935). The court previously held that etymologically "local" is "relating to" or "pertaining to" a place. 31. Keeping these in mind, and also after considering the entry in Encyclopaedia Britannica relating "local area" for the purpose of collection of octroi as an indirect or consumption tax levied by political units, this Court concluded that under the Government of India Act, 1919 imposed a levy on import of goods into an area administered by local body i.e., a local government au....
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....opment Act, 1962, the Kalol industrial area was notified as a municipal area under Section 264A of the Gujarat Municipalities Act, 1963. Another notification excluded that area from the Saij Gram Panchayat under Section 9(2) of the Gujarat Panchayats Act, 1961. The contentions urged was that the notification and the resolution were contrary to Parts IX and IX-A of the Constitution of India. This Court repelled the argument stating that the Gujarat Industrial Development Act, 1962 operates in a different sphere from Parts IX and IX-A of the Constitution as well as the Gujarat Panchayats Act, 1961 under the Gujarat Municipalities Act, 1962. The later enactments dealt with local self-government whereas the Gujarat Industrial Development Act, 1962 operates for orderly establishment and organization of industries in the State. It was further noticed that the industrial areas had been notified long back in 1972. 34. This Court repelled the argument with respect to the violation of Article 243-Q. It was noticed that Article 243-Q constitutes three types of municipalities i.e. nagar panchayat, a municipal council and a municipal corporation. It noted that by virtue of the proviso, and hav....
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.... areas which were declared as industrial areas under the U.P. enactment but in respect of which no notification had been issued under Article 243-Q, the levy of taxes by Panchayats was questioned. The court noticed Section 12A of the U.P. Industrial Areas Development Act, 1976, which reads as follows: "12-A. No panchayat for industrial township --- Notwithstanding anything contained to the contrary in any Uttar Pradesh Act, where an industrial development area or any part thereof is specified to be an industrial township under the proviso to clause (1) of Article 243-Q of the Constitution, such industrial development area or part thereof, if included in a Panchayat area, shall, with effect from the date of notification made under the said proviso, stand excluded from such Panchayat area and no Panchayat shall be constituted for such industrial development area or part thereof under the United Provinces Panchayat Raj Act, 1947 or the Uttar Pradesh Kshettra Panchayats and Zila Panchayats Adhiniyam, 1961, as the case may be, and any Panchayat constituted for such industrial development area or part thereof before the date of such notification, shall cease to exist." 37. The court ....
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....ty which are contemplated by Part IXA of the Constitution. The main thrust of the argument of the learned counsel for the appellant that the High Court having not adverted to the notification dated 24.12.2001 issued under proviso to Article 243Q (1) the judgments relied on by the High Court for dismissing the writ petition is not sustainable. We thus have to focus on proviso to Article 243Q (1). For the purpose and object of the industrial township referred to therein whether industrial township mentioned therein can be equated with Municipality as defined under Article 243PEUR. Article 243P (e) provides that the "Municipality means an institution of self-government constituted under Article 243Q. Whether the appellant is an institution of self-government constituted under Article 243Q is the main question to be answered? Subclause (1) of Article 243Q provides that there shall be constituted in every State- a Nagar Panchayat, a Municipal Council and a Municipal Corporation, in accordance with the provisions of this Part. The proviso to sub-clause (1) provides that: "Provided that a municipality under this clause may not be constituted in such urban area or part thereof as the Go....
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....That articulation was relevant because the levy of tax involved in that decision imposed a duty on the entry of goods into factory premises. The court, in that context, held as it did, that entry tax can be imposed in relation to a local area, and the incidence is the point of entry. 41. In the present case, two or more sets of law, operate within the two states. The first set of statutes are the enactments, that impose the levy, which is entry tax. The incidence is entry into a local area. A "local area" is defined as including industrial establishments, or estates. The second set of laws that are involved, are the concerned municipalities laws, such as the Orissa Act of 1950- which by proviso to Section 4 (1) excludes industrial areas, from the rigours and requirements of the municipalities' enactments. In the U.P. Entry Tax law, "local area" has been defined expansively, to cover all areas, including industrial establishment areas. By the UP Municipalities Act, 1916, a municipality and a municipal area have been defined as follows: '(9) "Municipality" means an institution of self Government referred to in clause (e) of Article 243P of the Constitution. (9A) "Municipal area....
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.... municipal areas, they cease to be local areas, and cannot be treated as such for the purpose of levy of entry tax. As noticed earlier, all the judgments, dealing with provisions of Part IX-A of the Constitution were not rendered in the context of applicability or imposition of entry tax, or whether such areas excluded by virtue of notifications under proviso to Article 243-Q(1) ceased to be local areas. To this Court, it is plain that the introduction of Part IX-A by the 74th Amendment to the Constitution was with the intention of strengthening units of local selfgovernment, and ensuring that they were subjected to minimum democratic standards. The proviso to Article 243-Q(1), therefore, has to be read in context, that industrial areas and estates, administered in terms of some legal regime, where some municipal services were provided, could be exempt from the requirements spelt out in Part IX-A of the Constitution. These provisions spell out the elements of democratic governance, such as representation of different sections of society, regularity of elections, a three-tier structure of local government, reservation, mechanism for deciding election disputes, and elected bodies whi....
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....poses of local affairs of the State" since no one denies that industrial areas are also part of the State. The record in the present case indicates that the areas excluded from the municipality in OCL's case comprise of several villages. The material on record placed by SAIL also acknowledge that not less than 24,000 houses exist in its industrial area. Likewise in the case of HINDALCO as also SAIL indicate that the industrial estates or area cover large areas. If one keeps these facts in mind, there can be no doubt that such areas would fall within the description "local areas". 46. Reliance placed upon Diamond Sugar Mills (supra) by the appellants in this case is misplaced because in that decision, the Court had to deal with a different set of facts. The levy on sugarcane imposed by the State of U.P. was on the incidence of entry into factory premises. The Court, therefore, correctly concluded that factory premises per se could not constitute a local area. The subsequent decision in Shakti Kumar Sancheti (supra) explained that entry into the State with the ultimate destination within the State, constituted a taxable event the moment the goods, i.e. the vehicles reached within th....
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....t, the fresh law was enacted by the State of U.P., with retrospective effect which on the application of principles enunciated by this Court, in Sri Prithvi Cotton Mills v. Baroda Borough Municipality & Ors. 1970 (1) SCR 388, is valid. 50. In view of the foregoing discussions, this Court finds no reason to interfere with the decision of the Orissa and Allahabad High Courts. The special leave petition and appeals are consequently dismissed as unmerited without any order on costs. FOOT NOTE 2 This entry was omitted by the Constitution (One Hundred and First) Amendment Act, 2016. 3 (f) "Local area" means the areas within the limits of any - (i) Municipality constituted under the Orissa Municipal Act,1950 (Orissa Act 23 of 1950); (ii) Grama Panchayat constituted under the Orissa Grama Panchayats Act, 1964 (Orissa Act 1 of 1965); (iii) Other local authority by whatever name called, constituted or continued in any law for the time being in force, and includes the area within an industrial township constituted under Section 4 of the Orissa Municipal Act, 1950 (Orissa Act 23 of 1950). 4 By Section 3, a levy and collection of tax on the entry of scheduled goods into local ar....