# ATLAS CYCLE INDUSTRIES LIMITED v. STATE OF HARYANA AND ANOTHER

- **Citation:** [1992] Supp. 3 S.C.R. 699
- **Court:** Supreme Court of India
- **Decided:** 1992-12-17
- **Bench:** L.M. Sharma, S. Ratnavel Pandian, B.P. Jeevan B Reddy, S.P. Bharucha, S. Mohan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/atlas-cycle-industries-limited-v-state-of-haryana-and-another-11661
- **Pages:** 29

## Headnote

Punjab Municipal Act, 1911: Sections 5(4), 62, 70(2)(c) and
71-0ctroi-Levy of by Municipal Council of Sonepat-Whether Valid. Constitutional validity of section 5(4) upheld.
C
Constitution of India, 1950: Article 14-0ctroi-lmposition of-Punjab
Municipal Act, 1911-Section 5(4)-Constitutiona/ validity of.
Words and Phrases--Octroi-Meaning of.
A notification was issued under Section 62(10) of the Punjab D
Municipal Act on 3rd November, 1942 which stated that the Municipal
Committee of Sonepat had imposed a tax called 'octroi' on the articles
mentioned in the Schedule to the said notification which were imported
into the octroi limits of Sonepat municipality.
On 11th February, 1948, it was notified that the limits of Sonepat
municipality for the purpose of collection of octroi would be the boun·
daries of the municipality as fixed from time to time.
On 15th September, 1966 a notification was issued in pursuance
E
of the provisions of Section 5(1) whereby the intention of including the F
areas specified in the Schedule thereto within the municipal limits of
Sonepat was declared, and the inhabitants of the municipality were
invited to submit objections in writing to the proposed inclusion. The
area on which the factories of the petitioner were situated was proposed
to be included within the municipal limits.
,Q
On 3rd November, 1966 the petitioner filed objections to the
inclusion of the proposed area within the municipal limits of Sonepat,
and contended that the additional taxes that were already being collected
by the Central and State Government considerably increased the cost
of the production of the petitioner's bicycles, that the 'octroi' alone would H
699
700
SUPREME COURT REPORTS (1992) SUPP. 3 S.C~:.
A be Rs~1.30 per bicycle manufactured; that the burden would thus be
unbearable and suggested that the proposed inclusion of the Industrial
Unit within the municipal limits should be dropped.
On 11th August, 1967, the notification issued und~r Section 5(3)
included within the municipal limits of Sonepat the area in which the
B factories of both tbe petitioners stood, and on 18th August, 1967, octroi
was levied upon the materials imported by the two companies into the
municipal limits of Sonepat.
The petitioners filed writ petitions in 1967 in the High Court
C challenging the collection of octroi and inclusion of the industrial area
within the municipal limits. The saine having been dismissed by the
High Court, they filed appeals to this Court. This Court in Atlas Cycle
Industries Ltd. v. State of Haryana, [1972) 1SCR127, allowed the appeals
and the writ petitions on the ground that no notifications as required
were issued and made applicable to the included areas under Section
D 5(4) of the Act, and the municipality was restrained from levying and
collecting octroi from the petitioners.
On 15th November, 1971, the Punjab Municipal (Haryana Valida·
tion and Amendment) Act ,1971 amended Section 5(4) to include the word
E 'notification' to enable the levy of octroi. The Validation and Amendment
Act also validated with retrospective effect the levy and collection of octroi.
Thereupon the petitioners filed the present writ petitions in this
Court and contended that the right of representation against the levy
of octroi was an important safeguard, that the petitioners bad been
F
deprived of the right to make a representation under Section 62(3)
against the imposition of octroi upon the area in which the factories
were situated; they had, therefore, been discriminated against, so the
provisions of Article 14 of the Constitution were violated, and Section
5(4), in so far as it bad the effect of imposing octroi upon those areas,
G · was unconstitutional. It was further contended that the retrospective
imposition of octroi was bad under Article 14 because it singled out
those which were atrected by the retrospectivity and denied them the
opportunity of representation.
The writ petitions were contested on behalf of the respondent by
H con

## Text

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(
I
ATLAS CYCLE INDUSTRIES LIMITED
A
v.
STATE OF HARYANA AND ANOTHER
DECEMBER 17, 1992
[L.M. SHARMA, CJ., S. RATNAVEL PANDIAN, B.P. JEEVAN
B
REDDY, S.P. BHARUCHA AND S. MOHAN, JJ.]
Punjab Municipal Act, 1911: Sections 5(4), 62, 70(2)(c) and
71-0ctroi-Levy of by Municipal Council of Sonepat-Whether Valid. Constitutional validity of section 5(4) upheld.
C
Constitution of India, 1950: Article 14-0ctroi-lmposition of-Punjab
Municipal Act, 1911-Section 5(4)-Constitutiona/ validity of.
Words and Phrases--Octroi-Meaning of.
A notification was issued under Section 62(10) of the Punjab D
Municipal Act on 3rd November, 1942 which stated that the Municipal
Committee of Sonepat had imposed a tax called 'octroi' on the articles
mentioned in the Schedule to the said notification which were imported
into the octroi limits of Sonepat municipality.
On 11th February, 1948, it was notified that the limits of Sonepat
municipality for the purpose of collection of octroi would be the boun·
daries of the municipality as fixed from time to time.
On 15th September, 1966 a notification was issued in pursuance
E
of the provisions of Section 5(1) whereby the intention of including the F
areas specified in the Schedule thereto within the municipal limits of
Sonepat was declared, and the inhabitants of the municipality were
invited to submit objections in writing to the proposed inclusion. The
area on which the factories of the petitioner were situated was proposed
to be included within the municipal limits.
,Q
On 3rd November, 1966 the petitioner filed objections to the
inclusion of the proposed area within the municipal limits of Sonepat,
and contended that the additional taxes that were already being collected
by the Central and State Government considerably increased the cost
of the production of the petitioner's bicycles, that the 'octroi' alone would H
699
700
SUPREME COURT REPORTS (1992) SUPP. 3 S.C~:.
A be Rs~1.30 per bicycle manufactured; that the burden would thus be
unbearable and suggested that the proposed inclusion of the Industrial
Unit within the municipal limits should be dropped.
On 11th August, 1967, the notification issued und~r Section 5(3)
included within the municipal limits of Sonepat the area in which the
B factories of both tbe petitioners stood, and on 18th August, 1967, octroi
was levied upon the materials imported by the two companies into the
municipal limits of Sonepat.
The petitioners filed writ petitions in 1967 in the High Court
C challenging the collection of octroi and inclusion of the industrial area
within the municipal limits. The saine having been dismissed by the
High Court, they filed appeals to this Court. This Court in Atlas Cycle
Industries Ltd. v. State of Haryana, [1972) 1SCR127, allowed the appeals
and the writ petitions on the ground that no notifications as required
were issued and made applicable to the included areas under Section
D 5(4) of the Act, and the municipality was restrained from levying and
collecting octroi from the petitioners.
On 15th November, 1971, the Punjab Municipal (Haryana Valida·
tion and Amendment) Act ,1971 amended Section 5(4) to include the word
E 'notification' to enable the levy of octroi. The Validation and Amendment
Act also validated with retrospective effect the levy and collection of octroi.
Thereupon the petitioners filed the present writ petitions in this
Court and contended that the right of representation against the levy
of octroi was an important safeguard, that the petitioners bad been
F
deprived of the right to make a representation under Section 62(3)
against the imposition of octroi upon the area in which the factories
were situated; they had, therefore, been discriminated against, so the
provisions of Article 14 of the Constitution were violated, and Section
5(4), in so far as it bad the effect of imposing octroi upon those areas,
G · was unconstitutional. It was further contended that the retrospective
imposition of octroi was bad under Article 14 because it singled out
those which were atrected by the retrospectivity and denied them the
opportunity of representation.
The writ petitions were contested on behalf of the respondent by
H contending that the levy and collection of octroi was no longer open to
ATLAS CYCLE IND. v. STAIB OF HARYANA
701
the question by the petitioners, and that Section 5 and 62 of the Act A
operated in different fields. Under the provision of Section S the. State
Government was concerned with determining whether ·or not the local
area of the municipality should be extended and objections were invited
and CQnsidered in this regard, while Section 62 set out the procedure
which was required to be followed by the Committee of a municipality B
when it proposed to impose a tax under Section 61 and objections were
invited and considered by the Committee and the State Government in
this regard. There was no hostile discrimination against the petitioners,
and, in any event, it was open to a party withiP the proposed extended
limits of the municipality to represent there against on the ground that
the levy of municipal tax upon that area would have adverse consequenC
ces; and that, in fact, the petitioners had made such a repa-esentation.
On the question of the constitutional validity of Section 5(4) of the
Punjab Municipal Act, 1911, as amended by the Punjab Municipal
(Haryana) Amendment and Validation Act, 1971.
Dismissing the writ petition, this Court
HELD: (By the Court)
D
Section 5(4) of the Punjab Municipal Act, 1911, as amended by E
Haryana Act No. 41 of 1971 is constitutional and valid. There is no
scope for the plea that the petitioners have been discriminated against
in that they were given no opportunity to object to the imposition of
octroi, and the retrospective operation of section 5(4). (704-DJ
(L.M. Shanna, CJ!; S. Ratnavel Pandian, B.P. Jeevan Reddy, S.P.
F
Bhamcha, JJ. - per Bharncha /.)
1. Section S of the Act empowers the State Government to declare by
notification its intention to include within the municipality any local area
in the vicinity and defined in the notification. To such proposal any
inhabitant of the municipality and of the local ·area proposed to be in- G
eluded may object, and the State Government is obliged · to take that
objection into consideration. If, having considered all objections the State
Government decides to include the local area in the municipality, it may
do so by notification. Section 5(4) sets out the consequences of such
extension of the municipality by such inclusion. ft is tlie St.ate Govern- H
702
SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.
A
ment, theref~re, which has to decide whether or not any local area in the
vicinity of the municipality should be included within the municipality.
B
c
f715-U-DJ
2. The object of ·the inquiry under Section S is to determine the
feasibility and the desirability of so doing. In the event that a local area
in the vicinity of the municipality is included in the municipality that
local area becomes subject to all rules, notification, by-laws, orders,
directions and powers then in force in the municipality. That local area,
therefore, becomes· subject to· all taxes imposed within the municipality.
[715-D,E]
· 3. The object of the inquiry under Section 5 is different trom the.
9bject of the inquiry under Section 62. The object of the inquiry under
Section S is far broader. It would be open to an inhabitant of the local area
proposed to be included within the municipality to object under Section 5
D to such inclusion even upon the ground that a municipal tax should not
be imposed that local area. Planning regard to the differences in the
objects of Sections 62 and 5 and of the inquiries thereunder, there was no
discrimination against the petitioners in so far as the retrospective opera-
·tion of Section 5( 4) was concerned. In the instant case, the petitioners had
raised the objection, under the provision of Section 5, that the inclusion
E
of the local area upon which their factories were situated .within the
municipality would make them liable to pay octroi which they would be ill
able to afford. This reinforced the conclusion that they had not been
discriminated against. [715-H; 716-A-Cl
F
4. Power is conferred by Section 70(2)(c) and section 71 upon the
Committee and the S~te Government respectively to exempt wholly or in
part any person or class of persons or any property or description of
property from payment of any tax. [716-B]
_ In the instant case, the petitioners and other manufacturers sought
G such examption and were given partial exemption from the payment of
octrot [716-B]
Atlas Cycle Industries Ltd. v. State of Haryana & Anr., [1972) 1 SCR
127, referred to.
· "
H
Visakhapatnam Municipality v. Kandregu.la Nukaraju & Ors., -[197~] 1
ATLAS CYCLE IND. v. STATE OF HARYANA
703
SCR 544, distinguished.
A
(per Mohan J.)
1. The power to tax by the State can be exercised only by the State
Legislature. The extent of the power is fixed by the Constitution. The said
Legislature can impose all taxes as are covered by the subjects enumerated B
in List II (State List) under the Seventh Schedule. In so far as, the
municipalities or 'local self governments are concerned, they are authorised
by the State to levy some of these taxes for their own purposes. [717-B-C]
2. The power to tax is a necessary adjunct of a system of local 'selfgoverrament'. The amounts collected byway of taxes are mainly intended to C
enable them to meet their fiscal needs in the municipal area. [717-E]
3. Under the Punjab Municipal Act, 1911 the power to levy the octroi
is traceable to Section 61(2). The procedure as to the levy is set out under
section 62. The power to fix the municipal limits within which octroi could D
be levied, is traceable to section 168. (717-G; 718-F]
In the instant case, by a notification dated 3.11.1942 octroi came to be
levied in Rohtak district in exercise of powers conferred by sections 188 and
189. On 11.12.1948 a bye-law notified that the limits of Sonepat Municipality
for the purpose of collection of octroi shall be the boundaries of the E
Municipality of Sonepat. On 15.9.1966, in exercise of powers under section
5(1), the intention to alter the limits of Sonepat municipality was notifed.
Objections were invited and the petitioner filed objections on 3.11.1966,
which were considered and were over-ruled by a notification dated 11.8.1967
under section 5(3) of the Act. It is thus clear thatit is by virtue ofinclusion of
the area within the municipal limits octroi had came to be levied in the F
included area. It was the legal consequence of section 5( 4). Thus, the levy was
already there. The newly added area becomes subject to the levy by a le&al
consequence and not by an imposition_ under sectio~s 61~nd6;and.other
relevant sections relating to bye-laws. (719-G-ff; 720-B; 723-F]
Municipal Board of Hapur v. Raghubir Singh, [1966) 2 SCR 891; Jothi G
Timber Mart v. Calicut Municipality, 1970 SC 264;Atlas Cycle Industries Ltd.
v. State of Haryana & Anr., [1972) 1 SCR 127 and Hindustan Gum and
Chemicals Ltd. v. State of Haryana & Ors., (1985) 4 SCC 124, referred to.
Visakhapatnam Municipality v. Kandrecula Nukaraju & Ors., {1976) 1 H
704
SUPREME COURT REPORTS (1992] SUPP. 3 S.C.R.
A SCR 544, distinguished.
B
ORIGINAL JURISDICTION : Writ Petition (C) No. 1 of 1972.
(Under Article 32 of the Constitution of India).
WITH
Writ Petition (C) No. 54 of 1972.
Harish N. Salve, H.S. Parihar, Kuldeep S. Parihar, R.P. Kapur and
Sanjay Kapur for the Petitioner.
C
Manmohan, K.C. Bajaj and Ms. Indu Malhotra for the Respondents.
L.K.P. Pandey, S.K. Verma and B.R. Kedia for the Intervenors.
The Judgments of the Court were delivered by
D
BHARUCHA, J.: These writ petitions under Article 32 of the Constitution of India challenge the constitutionality of Section 5( 4) of the
Punjab Municipal Act, 1911, as amended by the Punjab Municipal
(Haryana Amendment and Validation) Act (Haryana Act No. 41of1971),
in so far as it has the effect of imposing octroi upon that area of the local
limits of the municipality of Sonepat in which the petitioners' factories are
E
situated.
-.
The relevant facts of the first writ petition may be noted. On 3rd
November, 1942 a notification was issued under Section 62(10) of the
Punjab Municipal Act (hereinafter.called "the said Act") which stated that
the Municipal Committee of Sonepat had imposed a tax called 'octroi' on
F
the ar~icles mentioned in the Schedule to the notification when imported
into the octroi limits of Sonepat municipality. On 11th February 1948 it was
notified that the limits of Sonepat municipality for the purpose of collection
of octroi would be the boundaries of the municipality as fixed from time
to time. On 15th September 1966 a notification was issued in pursuance of
the provisions cf Section 5(1) of the said Act whereby the intention on of
G including the areas specified in the Schedule there to within the municipal
limits of Sonepat was dedared and the inhabitants of the municipality and
of the-local area 1n respect of which the notification was published were
invited to submit objections in writing to the proposed inclusion. The area
upon which the factories of the petitioners are situated was proposed· to
be included within the municipal limits of Sonepat. On 3rd November 1966
H
the petitioner filed objections to the inclusion of the proposed areas within
' · ...
~.
-.
ATLAS CYCLE IND. v. STATE OF HARYANA [BHAH.UCHA)
705
the municipal limits of Sonepat. The Petitioner stated that it understood A
that the proposed inclusion was intended to increase the income of the
Sonepat municipality by bringing the different industries around Sonepat
within its. limits thereby making them pay all municipal taxes. Such additional taxes would add considerably to the cost of production of the
petitioners' bicycles and the octroi alone would be Rs.1.30 per bicycle
manufactured. The petitioner was "already groaning under the heavy B
Central and State taxes. If saddled with additional local taxes, the burden
will become unbearable." The petitioner therefore asked that the proposed
inclusion of the industrial area within the municipal limits of Sonepat
should be dropped. On 11th August 1967 a notification was issued under
Section 5(3) of the said Act by the Governor of Haryana. (This was because
the State of Haryana had been created on 1st November, 1966 by bifurcation of the State of Punjab). The notification under Section 5(3) included
within the municipal limits of Sonepat the area upon which the factories
of both the petitioners stood. On and from 18th August, 1967 octroi was
levied upon materials imported by them into the municipal limits of
Sonepat.
In 1968 the Manufacturers' Association of Sonepat, of which the
petitioners were members, made a representation, consequent upon which
the Sonepat municipality reduced the rate of octroi chargeable upon cycles,
tyres, tubes and parts imported, inter alia, by the petitioners.
In 1967 the petitioners filed writ petitions in the High Court of
Punjab and Haryana for writs of mandamus restraining the municipality of
Sonepat from levying against and collecting from them any octroi in respect
c
D
E
of raw materials, components and parts imported by them into their
factories situated in the industrial area of Sonepat. The High Court having F
dismissed the writ petitions, appeals were filed in this Court. This Court
based its judgment (Atlas Cycle Industries Ltd. v. State of Haryana & Anr.,
[1972] 1 SCR 127), upon the provisions of Section 5( 4) of the said Act, as
it then read. Section 5(4), as it then read, spoke of rules, bye-laws, orders,
directions and powers. It did not mention notifications. Notifications under
the said Act were the only authority and mandate for the imposition and G
charge of taxes. Notifications were not made applicable to included areas
under Section 5( 4). Therefore, the appeals were allowed and the Sonepat
municipality was restrained from levying against and collecting from the
petitioners any octroi in respect of raw materials, components and parts
imported by them into their factories.
H
A
B
c
D
E
F
G
706
SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.
Consequent upon this judgment the petitioners were refunded the
octroi that had been collected from them.
On 15th November, 1971 was passed the Punjab Municipal (Haryana
Validation and Amendment) Act (hereinafter called "the Validation and
Amendment Act") which amended Section 5( 4) to include within it the
word 'notification'. The Validation and Amendment Act also validated with
retrospective effect and levy and collection of octroi in these terms:
"4. Validation (1) Notwithstanding any judgnient, decree
or order of any court or other authority to the contrary,
any assessment, reassessment, levy or collection of any tax
made or purporting to have been made at the rate of fifteen
per centum instead of twelve-and-a-half per centum and
any octroi levied, charged or collected or purporting to
have been levied, charged or collected before the commencement of this Act· and any action taken. or thing done
before such commencement in relation of the· principal Act
and the rules made thereunder shall be deemed to be as
valid and effective as if such assessment, reassessment levy
or collection or action or thing had been made, taken or
done under the principal Act as amended by this Act and
the rules and bye-laws made thereunder .... "
Thereupon the present writ petitions were filed.
To be able to better appreciate the arguments which have been
advanced the relevant provisions of the said Act are set out. Section 5 (after
inclusion of the word 'notification' in sub- section ( 4) thereof) read, so fat
as is material for our purposes, thus:
"5( 4) ·when any local area has been included in a
municipality under sub-section (3) of this section, this Act,
and, except as the State Government may otherwise by
notification direct, all rules, notification, bye-laws, orders,
directions and powers made, issued or conferred under this
Act and in force throughout the whole municipality at the
time, shall apply to such are.a."
Section 61 of the said Act empowered the Committee of a municipality to
H impose in the whole or any part of a municipality the taxes set out therein
II
ATLAS CYCLE IND. v. STATE OF HARYANA [BHARUCHA)
707
subject to any general or special orders which the State Government might A
make in this behalf and to the Rules. The power was circumscribed by·
stating that the imposition should be for the purposes of the said Act and
in the manner directed by it. The taxes mentioned in sub-section (1) did
not include octroi. For the purpose of octroi the relevant provision of
Section 61 is sub-section (2) which reads thus:-
"61(2). Save as provided in the foregoing clause, with the
previous sanction of the State Government any other tax
which the State Legislature has power to impose. in· the
State under the Constitution."
Section 62 deals with the procedure to impose taxes and reads thus:
"62. Procedure to impose taxes-(1) A committee may, at a
special meeting, pass a resolution to propose the imposition of any tax under Section 61.
(2) When such a resolution has been passed the committee shall publish a notice, defining the class of persons
or description of property proposed to be taxed, the
amount or rate of the tax to be imposed, and the system
of assessment to be adopted.
(3) Any inhabitant objecting to the proposed tax may,
within thirty days from the publication of the said notice,
submit his objection in writing to the committee; and the
committee shall at a special meeting take his objection
into consideration.
(4) If the committee decides to amend its proposals or
any of them, it shall publish amended proposals along with
a notice indicating that they are in modification of the
previsously published for objection.
(5) Any objections which may within thirty days be
received to the amended proposals shall be dealt with in
the manner prescribed in sub-section (3).
(6) When the committee has finally settled its
B
c
D
E
F
G
proposals it shall, if the proposed tax falls under clauses
H
708
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.
(b) to (f) of sub-section (1) of section 61 direct that the
tax be imposed, and shall forward a copy of its order to
the effect through the Deputy Commissioner to the State
Government and if the proposed tax falls under any other
provision, it shall submit its proposals together with the
objection if any made in connection therewith to the
Deputy Commissioner.
(7) If the proposed tax falls under clause (a) of subsection (1) of section 61, the Deputy Commissioner, after
comidering the objections received under sub-sections (3)
and (5) may either refuse to sanction the proposals or
return them to the committee for further consideration,
or sanction them without modification or with such
modification not involving an increase of the amount to
be imposed, as he deems fit, forwarding to the State
Government a copy of the proposals and his order of
sanction; and if the tax falls under sub-section (2) of
section 61, the Deputy Commissioner shall submit the
proposals and objections with his recommendations to the
State Government.
(8) '.I'he State Government on receiving proposals for·
taxation under sub-section (2) may sanction or refuse to
sanction the same, or return them to the committee for
further consideration.
(9) (Omitted by Government of India (Adaptation of
Laws) Order, 1937.)
(10) (a) When a copy of order under sub-section (6)
and (7) has been received, or
(b) when a proposal has been sanctioned under subsection (8) the State Government shall notify the imposition of the tax in accordance with such order of proposal,
and shall in the notification specify a date not less than
one month from the date of the notification, on which the
tax shall come into force.
·-
~·
ATLAS CYCLE IND. v. STATE OF HARYANA [BHARUCHA]
709
(11) A tax leviable by the year shall come into force
on the first day of January or on the first day of April or
on the first day of July or on the first day of October in
any year, and if it comes into force on any other than the
first day of the year by which it is leviable, shall be leviable
by the quarter till the first day of such year than next
ensuing.
(12) A notification. of the imposition of a tax under this
Act shall be conclusive evidence that the tax has been
imposed in accordance with the provisions of the Act."
Sections 70 and 71 empower the committee and the State Government
respectively to, inter alia, exempt in whole or in part from the payment of
any tax any person or class of persons or any property or description of
property.
A
B
c
Mr. Salve, learned eounsel for the petitioner, submitted that the right D
of representation was an important safeguard and he relied upon the
judgments of this Court in Prakash Chandra Mehta v. Commissioner and
Secretary, Government of Kera/a & Ors., (1985] 3 SCR 697, andBaldev Singh
and Others v. State of Himachal Pradesh and Others, (1987] 2 SCC 510.
There can be no doubt about the correctness of this proposition.
Mr. Salve submitted that the petitioners had been deprived of the
right to make a representation under Section 62(3) against imposition of
octroi upon the area in which their factories were situated. The petitioners
had, therefore, been discriminated against so that the provisions of Article
14 of the Constitution were violated and Section 5( 4), in so far as it had
E
the effect of imposing octroi upon those areas, was unconstitutional.
F
Great emphasis was laid by learned counsel upon the judgment of
this Court in Visakhapatnam Municipality v. Kandregula Nukaraju & Ors.,
[1976] 1 SCR 544. In exercise of powers contained in the District
Municipalities Act, 1920, the Government of Andhra Pradesh had declared
its intention to include within the limits of the Visakhapatnam municipality G
the local area comprised in the villages of Ramakrishnapuram and
Sriharipuram. The District Municipalities Act, 1920 was repealed by the
Andhra Pradesh Municipalities Act, 1965 which came into force on 2nd
April, 1965. On 24th March, 1966 the Government of Andhra Pradesh,
acting in exercise of powers conferred by Section 3(3) of the 1965 Act, H
710
SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.
, A issued .a notification including within the limits of the appellant
municipality the area comprised in the villages of Ramakrishnapuram and
B
. Sriharipuram with effect from 1st April, 1966. On 24th March, 1970 and
10th June, 1970 the Municipal Council declared its intention to levy property tax in the. areas newly included within the municipal limits and, after
considering objections, p;issed a resolution on 28th August, 1970 confirming the levy .of property tax on lands and building situated within the
municipal limits from 1st October, 1970. However, it issued notices to the
contesting respondents demanding property tax from them not from 1st
October, 1970 but from 1st April 1966, that is to say, from.the date when
the villages of Ramakrishnapuram and Sriharipuram were included within
C the municipal limits. The contesting respondents filed the writ petition
asking for a declaration that the levy of property tax for the period prior
to 1st October, 1970 was illegal. The inclusion of the villages of Ramakrishnapuram and Sriharipuram within the limits of the appellant
municipality was found by the court to be in order. The true question for
D the Court's consideration, it said, was whether property tax which could be
levied under the 1920 Act could be lawfully levied under that Act, after the
repeal of that Act, on property situated in the areas included within the
_municipal limits after the constitution of the municipality. Section 391{1)
of the 1965 Act expressly repealed t~e 1920 Act from which it would follow',
ordinarily, that no action could be taken under the 1920 Act, but the
~ appellant muni~ipality contended that clause 12 of Schedule IX of the 1965
Act kept the repealed enactment alive for tax purposes and, therefore, the
municipality had the authority to impose the tax under the 1920 Act. It was
found, upon an analysis of clause 12, that it had no application. The Court
then proceeded to consider the provisions of the 1965 Act in so far as they
F
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obliged the Municipal Councils to impose certain kinds of taxes. Under
Section 18(1)(a) every Municipal Council was obliged to levy the taxes
. therein stated. Under sub-section .(2) the Municipal Council was obliged
to set out in its resolution determining to levy tax the rate at which and the
date from which it would be levied. The first proviso to this sub-section
required that "befor~ !)assing a resolution imposing a tax for the first time"
or increasing the rate of an existing tax, the Municipal Council shall publish
a notice in the prescribed manner declaring its intention and inviting
objections thereto, which it was obliged to consider. Thereafter, by reason
of Section 83, when a council determined, subject to the provisions of
Section 81, to levy any tax for the first time to at a new rate, its Secretary
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ATLAS CYCLE IND. v. STATE OF HARYANA [BHARUCHAJ
711
had forthwith to publish a notification in the prescribed manner specifying A
the rate at which, the date from which and the period of levy, if any, for
which, such tax would be levied. Section 83 was thus expressly sul?ject to
section 81 and, under the latter provision, no tax could be imposed "for the
first time" unless the procedure prescribed therein was followed. Since the
procedure prescribed therein had not been followed in the case before the
court in regard to the period prior to 1st October, 1970, the levy of property B
tax on the properties of the contesting respondents for that period was
without authority of law, The court said that the municipality might have
been levying property tax since long on property situated within its limits.
But, until 1st April, 1966, the villages of Ramakrishnapuram and
Sriharipuram were outside those limts. Qua the areas newly included within C
the municipal limits the tax was being imposed for the first time and,
therefore, it was incumbent on the municipality to follow the procedure.
prescribed by the first proviso to section 81(2)~ The residents and tax·
payers of those areas never had an opportunity to object to the imposition
of the tax and that valuable opportunity cowd not be denied to them. It
was obligatory upon the municipality not only to invite objections to the D
proposed tax, but also to consider the objections received by it within a
specified period. The policy of the law was to afford to those likely to be
affected by the imposition of the tax a reasonable opportunity to object to
the proposed levy. According to the appellant municipality, the residents
of Ramakrishnapuram and Sriharipuram had an opportunity to object to E
the imposition of tax when the State Government issued a notification
under Section 3(1)(b) of the 1965 Act declaring its intention to include the
two villages within the limits of the municipality. The Court did not fmd it
possible to accept this submission. When the State Government issued a
notification under this proviso any resident of the local area concerned
could "object to anything therein contained" meaning thereby anything
contained in the notification. Such notification contained only the declaration of the Government's intention "to include within a municipality any
local area in the vicinity thereof and defined in such notification". The right
F
of objection would, therefore, be limited to the question whether a particular area should, as proposed, be included within the municipal limits. G
It would be premature at that stage to offer objections to the imposition
of any tax because it was only after the final notification was issued under
Section 3(3) that the question would arise about the imposition of a tax on
the newly included areas. A notification under Section 3(3) had to be
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712
SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.
A
followed by a resolution under Section 81(1) if the municipality wanted to
impose a tax and, for the resolution to be effective, the procedure
prescribed by the first proviso· to Section 81(2) had to be followed. The
appellant municipality was found to have short-circuited the mandatory
procedure and thereby deprived the contesting respondents of the valuable
B
right of objecting to the imposition of the tax.
Mr. Salve submitted, accordingly, that octroi had been imposed for
the first time on the area in which the petitioners'. factories were situated
without giving to the petitioners the valuable right of representation thereagainst provided by Section 62 of the srud Act, an opportunity which had
C been given.to residents of the original area of the municipality when octroi
was imposed upon that area. Accordingly, the petitioners had been discriminated against and there had been a violation of Article 14 of the
Constitution.
In the alternative, Mr. Salve submitted, at the very least, the
D
retrospective imposition was bad under Article 14 because it singled out
those who were affected by the retrospectivity and denied them the opportunity of representation. The submission may be explained thus: when the
area of the municipality was extended to include that ·upon which the
petitioners' factories stood, Section 5(4) did not contain the word
E
'notification' and, therefore,· the imposition of octroi within that area was
bad. When Section 5( 4) was amended to include the word 'notification'
octroi was imposed retrospectively but the petitioners had, in the circumstances, no opportunity to represent then against such imposition.
Mr. Manmohan, learned counsel for the respoundents, drew our
F
attention to the judgment in Hindustan Gum and Chemicals Ltd. v. State
of Haryana and Others, [1985) 4 SCC 124. In this case the appellant had a
factory which, priO£ to 10th August 1965, was situated outside the local
limits of the Bhiwani Municipal Committee but with effect from that date,
by reason of the extension of the local limits of the Municipal, Committee
by a notification issued under Section 5(3) of the said Act, the factory
G premises of the appellant had come within the municipal limits of Bhiwani.
The appellant filed a writ petition questioning the imposition of octroi, inter/
alia, on the ground that it was not open to the Municipal Committee to
levy octroi without complying with the legal formalities necessary for its
imposition in the extended area. This Court noted its earlier judgment in
H Atlas Cycle Industries Limited v. State of Haryana and Anr., (ibid) and the
•
ATLAS CYCLE IND. v. STATE OF HARYANA [BHARUCl-IA]
713
fact that the Validation and Amendment Act had included the word A
'notification' in Section 5( 4) of the Act and validated the levy of octroi
retrospectively. The Court held that if the expression 'notification' had
been there in that sub-section on the date on which the municipal limits
were extended, this Court would have upheld the levy and collection of
octroi in its judgment in Atlas Cycle Indusries Limited case. This court B
found that sub-section (4) of Section 5 which did not contain the word
'notification' was inadequate for the purpose of upholding the levy and
collection of octroi in the extended local area. Since the word 'notification'
had now been inserted in Section 5( 4) of the Act with retrospective effect,
the basis on which the said decision was rendered had been removed
because the deficiency in Section 5(4), noticed by this Court, had been C
made good and the levy and collection of octroi had also been validated.
The Amending Act satisfied the tests laid down by this court in its decision
in Sri Prithvi Cotton Mills case for overcoming an earlier decision of a court
in such circu111stances. The Amending Act thus neutralised the effect of
the decision in the case of Atlas Cycle Industries Limited which could no D
longer be relied upon by the appellant after the amendment of the Act as
stated above. There was no other contention urged by the appellant in
support of its appeal. "The levy and collection of octroi in the area which
was included within the municipal limits of Bhiwani with retrospective effect
from August 10, 1965 in accordance with the notification issued earlier, are,
there/ ore, no longer opon to question."
E
(emphasis supplied).
Mr. Manmohan submitted that having regard to what the Court had
said, as emphasised above, the levy and collection ofoctroi was no longer F
open to question by the petitioners.
Mr. Manmohan urged that Sections S: and 62 of the said Act operated
in different fields. Sub-sections (1) to (3) of Section 5 dealt with the
procedure that had to be followed when the local limits of a municipality
were proposed to be extended and, once that had been done, the conseG
quences that followed were set out in sub-section 4. Under the provisions
of Section 5 the State Government was concerned with determining
whether or not the local area of the municipality should be extended and
objections were invited and. considered in that regard. Section 62 of the
said Act set out the procedure which was required to be followed by the H
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714
SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.
committee of a municipality when it proposed to impose a tax under
Section 61 and objections were invited and considered by the Committee
and the State Government in this regard. In Mr. Manmohan's submission,
therefore,. there was no hostile discrimination against the petitioners. ·He
submitted that, in any event, it was open to a party within the proposed
extended limits of the municipality to represent thereagainst on the ground
that the levy of municipal tax upon that area would have adverse consequences; and he pointed out that the petitioners had, in fact, made such a
representation.
Mr. Manmohan also drew our attention to the power of the committee and the State Government to grant exemption from payment of
IQunicipal taxes . in apropriate cases and he said that the petitioners had
actually availed of such exemption.
Learned counsel distinguished the judgment in the Visakhapatnam
Municipality case by pointing out that the scheme of the said Act was quite
different from that of the Andhra Pradesh MuniCipality Act, 1965.
Section 61 of the said Act empowers the committee of a municipality
to impose a tax. A tax may be so imposed only after the committee has .
passed a resolution at a special meeting as required by sub-section (1) of
Section 62. Thereafter the committee is obligecJ, by sub-section (2) of
Section 62, to publish a notice defming the class of persons or the description of the property to be taxed, the amount or rate of the proposed tax
and the system of assessment proposed to be adopted. Any inhabitant, that
is to say, any person ordinarily residing or carrying on business or owning
or occupying immovable property within the municipality is entitled, by
reason of sub-section (3), to submit objections to the proposed tax to the
committee and the committee is obliged to take such objections into
consideration. When the committee has finally setted its proposals, after
considering the objections received, it is obliged to forward its proposals
and all objections received to the Deputy Commissioner or, through him,
to the State·. Government, as the nature of the tax may require, wh:o may
sanction c;r refuse the same. Upon sanction being given, the State Government must notify the imposition of the tax and such notification is, by
reason ·of sub-section (12) of Section 62, condusive evidence that it has
been imposed upon the municipality in accordance with the provisions of
the said Act. It is, therefore, the committee of a municipality which imposes
•
' '
AlLAS CYCLE IND. v. STATE OF HARYANA [BHARUCHA, J.]
715
a tax. Before 1t imposes a tax, it is obliged to set forth its proposals in A
regard to the same in a notice and any inhabitant of the municipality is
entitled to raise objections thereto, which the committee is bound to
consider the object of the inquiry under Section 62 is, hence, to determine
whether or not it is feasible and desirable to impose the tax.
'
Section 5 of the said Act empowers the State Government to declare B
by notification its intention to include within the municipality any local area
in the vicinity and defined in the notification. To such. proposal any
inhabitant of the municipality and of the local area proposed to be included
may object and the State Government is obliged to take that objection into
consideration. If, having considered all objections, the State. Government C
decides to include that local area in the municipality, it may do so by
notification. Sub-section (4) of Section 5 (as amended as aforementioned)
sets out the consequence of the extension of the municipality by inclusion
within it of such local area and it says that all rules, notification, bye-laws,
order, directions and powers made under the said Act. in force throughout
the whole municipality at the time would apply to such local area. It is the D
State Government, therefore, which has to decide whether or not any local
area in the vicinity of the municipality should be included within the
municipality. The object of the inquiry under Section 5 is to determine the
feasibility and desirability of so doing. In the event that a local area in the
vicinity of the municipality is included in the municipality, that local area E
becomes subject to all rules, notifications, bye-laws, orders, directions and
powers then in force in the municipality. That local area, therefore, therefore, becomes subject to all taxes imposed within the municipality.
The object of the inquiry under Section 5 is different from the object F
of the inquiry under Section 62.