# SHROFF & CO., ETC v. MUNICIPAL CORPORATION OF GREATER BOMBAY AND ANOTHER, ETC. AUGUST 12, 1988

- **Citation:** [1988] Supp. 2 S.C.R. 406
- **Court:** Supreme Court of India
- **Decided:** 1988-08-12
- **Case number:** Civil Appeal No. 737 of 1988
- **Bench:** Sabyasachi Mukharji, S. Ranganathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shroff-co-etc-v-municipal-corporation-of-greater-bombay-and-another-etc-august-10106
- **Pages:** 28

## Headnote

Bombay Municipal Corporation Act, 1888-Sections· 192, 1940ctroi-Levy and collection of.
Bombay Municipal Corporation Levy of Octroi Rules, 1965Rules 2(5), 2(7)(a)-Countervailing duty-Whether inc/udible in
assessable value for imposition of octroi.
Bombay Prohibition Act, 1949-Sections 2( 14), 2(20), 2(36), 26,
105. 106 and 192-Manner of levy of excise duty-Duty allracted at the
point of import.
The appellants were registered partnership firms carrying on
business of dealing in wines and spirits and were licensed to import and
store liquors in their bonded warehouse at Bombay. They were also
holders of licence issued under the Maharashtra Foreign Liquor
(Import and Export) Rules, 1963 framed under the Prohibition Act of
1949 of the State Government.
The Maharashtra Foreign Liquor (storage in Bond) Rules, 1964,
under which, an importer could import liquor and store the same in a
warehouse without payment of countervailing duty, were amended on
28th July, 1976 and 28th June, 1983, to impose octroi on the assessable
value which includes customs duty paid on import of liquor.
The appellants filed a writ petition in the High Court, challenging
the inclusion of the countervailing duty in the assessable value for octroi
on the ground that the said duty was not incurred 'till the date of
removal of the goods from the place of import'.
A Single Judge of the High Court allowed the writ petition. The
respondent filed Letters Patent Appeals against the decision of the
Single Judge. The Division Bench of the High Court by the impugned
judgment held that countervailing duty was includible in the assessable
H value for the imposition of octroi.
406
SHROFF & CO. v. MUNICIPAL CORPN.
407
Dismissing the appeal, the Court,
HELD: Per Sabyasachi Mukharji, J.
Countervailing duty .is imposed for the purpose of setting off or
compensating some other duty so as to place the home producer on an
equal footing with the importer of foreign goods. The essence of
countervailing duty is to set off the effect of non-payment· of tax on
manufacture meant to protect the indigenuous production. [417H; 418AJ
Bringing goods with intention to use and not in transit is
decisive and any imposition on that would form part of the duty which
could be imposed at the time of entry and could be included in the
Octroi. [427C]
For goods in transit section 194A of the Bombay Municipal
Corporation Act, 1888 provides an exemption in accordance with the
octroi Rules. Section 105 of the Bombay Prohibition Act, 1949, read
with Sections 2(14), 2(20) and 2(36) makes the position clear that the
taxable event in the case of excise duty would be manufacture or
production and in the case of countervailing duty, import within the
State. [427C-E]
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The Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964
were framed subsequent to the Act of 1949. The charge and.incidence of
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countervailing duty under the Act and the relevant Notifications of 1949
were already subsistin!:· By subsequent framing of the storage in Bond
Rules, incidence or charge cannot be deflected or altered. Under Rule
2(2) administrative facility is granted for deferred payment to the asses.
see. The words "without payment of duty" indicate that duty has become chargeable and the incidence was complete; if, however, the assesF
see complies with the Rules, he is given a facility to defer payment. This
clearly shows that duty has become payable already. This is only consis·
tent with the fact that the charge or incidence has already been attracted on the taxable event taking place, namely, the manufacture or
production in the case of excise duty or import in the State in the case of
countervailing duty. The fact that a bond has to be executed means the
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goods, to be stored, have already been the subject matter of duty or
charge. If they have been so, there is no question of bonding them with
an undertaking to make payment of.duty at the lime of removal or
before removal from bond. Normal rule is pre-payment of dut

## Text

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SHROFF & CO., ETC.
v.
MUNICIPAL CORPORATION OF GREATER BOMBAY AND
ANOTHER, ETC.
AUGUST 12, 1988.
[SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.)
Bombay Municipal Corporation Act, 1888-Sections· 192, 1940ctroi-Levy and collection of.
Bombay Municipal Corporation Levy of Octroi Rules, 1965Rules 2(5), 2(7)(a)-Countervailing duty-Whether inc/udible in
assessable value for imposition of octroi.
Bombay Prohibition Act, 1949-Sections 2( 14), 2(20), 2(36), 26,
105. 106 and 192-Manner of levy of excise duty-Duty allracted at the
point of import.
The appellants were registered partnership firms carrying on
business of dealing in wines and spirits and were licensed to import and
store liquors in their bonded warehouse at Bombay. They were also
holders of licence issued under the Maharashtra Foreign Liquor
(Import and Export) Rules, 1963 framed under the Prohibition Act of
1949 of the State Government.
The Maharashtra Foreign Liquor (storage in Bond) Rules, 1964,
under which, an importer could import liquor and store the same in a
warehouse without payment of countervailing duty, were amended on
28th July, 1976 and 28th June, 1983, to impose octroi on the assessable
value which includes customs duty paid on import of liquor.
The appellants filed a writ petition in the High Court, challenging
the inclusion of the countervailing duty in the assessable value for octroi
on the ground that the said duty was not incurred 'till the date of
removal of the goods from the place of import'.
A Single Judge of the High Court allowed the writ petition. The
respondent filed Letters Patent Appeals against the decision of the
Single Judge. The Division Bench of the High Court by the impugned
judgment held that countervailing duty was includible in the assessable
H value for the imposition of octroi.
406
SHROFF & CO. v. MUNICIPAL CORPN.
407
Dismissing the appeal, the Court,
HELD: Per Sabyasachi Mukharji, J.
Countervailing duty .is imposed for the purpose of setting off or
compensating some other duty so as to place the home producer on an
equal footing with the importer of foreign goods. The essence of
countervailing duty is to set off the effect of non-payment· of tax on
manufacture meant to protect the indigenuous production. [417H; 418AJ
Bringing goods with intention to use and not in transit is
decisive and any imposition on that would form part of the duty which
could be imposed at the time of entry and could be included in the
Octroi. [427C]
For goods in transit section 194A of the Bombay Municipal
Corporation Act, 1888 provides an exemption in accordance with the
octroi Rules. Section 105 of the Bombay Prohibition Act, 1949, read
with Sections 2(14), 2(20) and 2(36) makes the position clear that the
taxable event in the case of excise duty would be manufacture or
production and in the case of countervailing duty, import within the
State. [427C-E]
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The Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964
were framed subsequent to the Act of 1949. The charge and.incidence of
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countervailing duty under the Act and the relevant Notifications of 1949
were already subsistin!:· By subsequent framing of the storage in Bond
Rules, incidence or charge cannot be deflected or altered. Under Rule
2(2) administrative facility is granted for deferred payment to the asses.
see. The words "without payment of duty" indicate that duty has become chargeable and the incidence was complete; if, however, the assesF
see complies with the Rules, he is given a facility to defer payment. This
clearly shows that duty has become payable already. This is only consis·
tent with the fact that the charge or incidence has already been attracted on the taxable event taking place, namely, the manufacture or
production in the case of excise duty or import in the State in the case of
countervailing duty. The fact that a bond has to be executed means the
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goods, to be stored, have already been the subject matter of duty or
charge. If they have been so, there is no question of bonding them with
an undertaking to make payment of.duty at the lime of removal or
before removal from bond. Normal rule is pre-payment of duty at the
time or before the import. The purpose of the import is decisive. If
goods are brought for the purpose of commerce or trade, these are
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imported. i4l7G-H; 428A-C; 430A-B]
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408
SUPREME COURT REPORTS
(1988] Supp. 2 S.C.R.
Countervailing duty also does not form part of the incidental
charges. Countervailing duty is contained in Rule 2(7)(a) of the Octroi
Rules. This Rule uses the words "excise duties" as also the words "all
other incidental charges." Section 105 of the Bombay Prohibition Act,
1949 itself talks of excise duties so as to include both excise duty as well
as contervailing duty. Therefore, the normal connotation of the words
"excise duties" would take in countervailing duty also. Apart from that
charges include taxes. [430C, E-F]
Contervailing duty is an incident of importation and as such it
was includible as an octroi even prior to 28th June, 1983. [431A]
Per S. Ranganathan, J. (concurring)
The language of section 105 which imposes the charge, of section
106 which talks of payment and of the rules, leaves no doubt that the
duty is attracted at the point of import (i.e. physical entry of the goods
into the taxing territory) and that only the payment of duty is deferred,
D in case the goods imported are removed to a bonded warehouse, to a
later point of time, for purposes of convenience of collection. It will not
be appropriate to construe the prov'isions in such a manner as imposing
a liability on some persons (who have no bonded warehouse) at one
point of time and on the others, at a different point of time. If the
liability to pay the duty itself were referrable to a later point of time, the
E insistence on a bond in the terms prescribed would appear to be
redandant. The provision that where the facility is availed of, the
assessee would pay duty at the rate prevalent at the later point of time
(often higher than at the point of import but not necessarily so) is rather
a logical consequence of the privilege of deferment given to the assessee. [432C-E]
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So far as the two periods after 28th July, 1976 were concerned,
there could be no doubt that this was included. The specific inclusion of
the word "countervailing" duty and broader reference to duties
"incurred or liable to be incurred" in the 1983 amendment, only
further clarifies the position prevalent even prior to 28. 7 .1983. The
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words "incidental charges" have a very wide meaning particularly in a
context where duties and tax are referred to and the idea seems to be to
include all items that will be taken into account by an importer as part
of his cost. In regard to the period till 28. 7 .1978, the position should be
the same for the first period also. [432F-H; 433A]
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Mis J.E. Bilimoria & Sons, Nagpur v. Corporation of the City of
SHROFF & CO. v. MUNICIPAL CORPN.
409
Nagpur, Special Civil Application No. 779 of 1971, decided on
23.12.1976 by Bombay High Court; Kalyani Stores v. The State of
Orissa and O(hers, [1966] I SCR 865; Mis. Mohan Meakin Breweries
Ltd. Ghaziabad v. State of V.P. and Others, [1979] U.P.T.C. 284; Mc
Dowell & Company Limited v. The Commercial Tax Officer, [1985] 3
SCR 791; State of Bombay v. M/s. S.S. Miranda Limited, [1960] 3 SCR
397; The Central India Spinning and Weaving and Manufacturing Company Ltd., The Empress Mills, Nagpur v. The Municipal Committee,
Wardha, [1958] SCR 1102, 1114; Brown v. State of Maryland, [1827] 12
Wheat 419, 442; Corpus Juris Volume 62 page 729; Canada Sugar
Refining Company Ltd. v. The Queen, [1898] Appeal Cases 735; Wilson
v. Chambers and Company Proprietary Limited, 38 Commonwealth
Law Reports 131; Halsbury's Laws of England, fourth Edition,
Volume 12, paragraph 889, p. 313; Mohan Meakin Breweries Ltd. v.
Excise and Taxation Commissioner, Chandigarh & Others, [1976]
Suppl. SCR 510 at 517; In re Bill to amend !jection 20 of·the Sea
Customs Act, I878 and Section 3 of the Central Excises and Salt Act,
I944, [1964] 3 SCR 787; R.C. Jail v. Union of India, [1962] Suppl. 3
SCR 436; M/s. Chatturam Hori/ram Ltd. v. C.I.T. Bihar & Orissa,
[1955] 2 SCR 290 at 297-298; The Gramophone Company of India v.
Birender Bahadur Pandey, [1984) 2 SCR 664; D.G. Gouse & Co. v.
State of Kera/a, [1980] 1 SCR 804· at 815 and State of Orissa v.
Chakobhai, [1961] 1 SCR 719 at 726, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 737
of 1988.
From the Judgment and Order dated 25.11.1987 of the Bombay
High Court in Appeal No. 217 of 1986.
WITH
SL.P. (Civil) Nos. 2617 & 2618 of 1988.
From the Judgment and Order dated 25.11.1987 of the Bombay
High Court in Writ Petition No. 948 of 1982 and Appeal No. 591 of
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Soli J. Sorabjee, G.E. Vehanvati, J.R. Gagrat, P.G. Gokhale,
R.J. Gagrat, R.B. Hathikhanawala and Miss Sushma Manchanda for
the Appellants.
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RajinderSachhar, L.M. Singhvi, K.C. Dua and Abhishek Singhvi
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410
SUPREME COURT REPORT'
[19881 Supp. 2 S.C.R.
for the Petitioner in S.L.P. No. 2617/1988.
Anil B. Divan and D.N. Misra for the Respondents.
D.N. Misra for the Respondent in S.L.P. No. 2618/88.
The following Judgments of the Court were delivered:
SABYASACHI MUKHARJJ, J. This appeal by special leave is
directed against the decision of the Division Bench of the High Court
of Bombay dated 24th/25th November, 1987. The other two special
leave petitions challenge the same judgment and the points and the
facts involved are also more or less identical and it is, therefore, desirable to deal with the facts of the first appeal. Disposal of the first
appeal would entail the disposal of the other two special leave
petitions.
The appellants are registered partnership firms carrying on business of dealing in wines and spirits and are licensed to import and store
liquors in their bonded warehouse at Maulana Shaukat Ali Road,
Bombay. The appellants are also holders of licence issued under the
Maharashtra Foreign Liquor (Import and Export) Rules, 1963 framed
under the Prohibition Act of 1949 being Act No. XXV of 1949 of the
State Government. As early as 1888 Bombay Municipal Act was enacted empowering the Bombay Municipal Corporation to levy octroi on
goods brought to the city. We shall refer to the provisions of the said
Act as relevant to the present purpose later. In 1949 Bombay Prohibition Act (hereinafter called 'the Act') was passed. The provisions of
the Act and the Rules which will be referred to hereinafter empowered
the State Government to impose excise and other duties. In 1965
Maharashtra Foreign Liquor (Storage in Bond) Rules, 1964 were enacted. Under these rules, the importer can import liquor and store the
same in warehouses without payment of countervailing duty. The
Octroi Rules were amended time and again on 28th July, 1976 and
28th June, 1983 to impose octroi on the assessable value which
includes customs duty paid on import of liquor. The appellah.ts herein
filed writ petition challenging the inclusion of countervailing duty in
the assessable value for octroi on the ground that the said duty was not
incurred 'till the date of removal of the goods from the place of
import'. On 28th June, 1983 the words 'countervailing duty' were
included in the definition of Rule 2(7)(a) of the Bombay Municipal
Corporation Levy of Octroi Rules, 1965. A learned Single Judge of the
High Court of Bombay allowed the writ petition on 14the January,
SHROFF & CO. v. MUNICIPAL CORPN. IMUKHARJI, J.I
411
1986 holding that countervailing duty was neither incurred nor was it
liable to be incurred until after the bonded liquor had been removed
from the place of import and allowed the wrii petition. Respondents
herein filed Letters Patent Appeals against the decision.of the learned
Single Judge. The Division Bench by the impugned judgment reversed
the judgment of the learned Single Judge and held that countervailing
duty was includible in the assessable value for the imposition of octroi.
In pursuance oflhe same the Deputy Assessor and Collector (Octroi),
Bombay°, issued notice demanding payment of octroi amounting to
Rs.76,70,308.71. The facts and circumstances of the other two special
leave petitions are more or less identical and are governed by the same
judgmento
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The sole question, therefore, involved in this appeal is, whether
countervailing duty is includible in the octroi. Octroi, as Shri Soli J.
Sorabjee appearing for the appellants in the instant appeal drew our
attention, is governed by Entry 52 of List II of the.Seventh Schedule
being tax on the entry of goods into a local area for consumption, use D
or sale therein. It is submitted that in order to be a valid octroi, there
must not only be a physical entry of the goods within the limits of the
municipality but the entry of the goods must be either for consumption, use or sale. Bearing in mind the basic constitutional provision,
therefore, octroi should be so construed as to follow upon the entry of
goods either for consumption or for use or for sale and not mere
phsyical entry.
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Section 105 of the Act provides as follows:
"105. (1) An excise duty or countervailing duty, as the
case may be, at such rate or rates as the State Government F
shall direct may be imposed either generally or for any
specified local area on-
(a) any alcoholic liquor for human consumpti9n,
(b) any intoxicating drug or hemp,
(c) opium,
(d) any other excisable article, when imported, exported,
transported, possessed, manufactured or sold in or frobi
the State, as the case may be:
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SUPREME COURT REPORTS
[1988] Supp. 2 S.C.R.
Provided that duty shall not be so imposed on any
article which has been imported into the territory of India
and was liable on such importation to duty under the Indian
Tariff Act, 1934, or the Sea Customs Act, 1878 or on any
medicinal or toilet preparation containing alcohol, opium,
hemp or other narcotic drugs or narcotics."
Section 2(14) of the Act defines "excise duty" and ."countervailing duty" as follows:
"2(14) 'excise duty' and 'countervailing duty' means such
excise duty or countervailing duty, as the case may be, as is
meniioned in entry 51 in List II of the Seventh Schedule to
the Constitution."
Section 106 of the Act provides as follows:
"106. Subject to any regulations to regulate the time, place
and manner of payment made by the Commissioner in this
behalf, the duties referred to in section 105 may be levied
in one or more of the following ways:
(a) in the case of an excisable article imported-
(i) by payment either in the State at the time of its
import or in the State or territory of export at the time of its
export, or
(ii) by payment upon issue for sale from a warehouse
established or licensed under the provisions of this Act;
(b) in the case of an excisable article exported by payment
in the State at the time of its export, or in the State or
territory of import;
( c) in the case of excisable articles transported-
(i) by payment in the district from which they are
transported, or
(ii) by payment upon issue, for sale from a warehouse established or licensed under the provisions of this
Act;
SHROFF & CO. v. MUNICIPAL CORPN. IMUKHARJI, J.I
413
( d) in the case of spirit or beer manufactured in any distillery established or any distillery or brewery licensed under
this Act-
(i) by a rate charged upon the quantity produced in
or issued from the distillery.orbrewery,.as the case maybe,
·· br issued from a warehouse established or licensed under
this Act, or,
(ii) by rate i;harged in accordance with suh scale of
equivalents calculated on the quantity .of materials used or
by the degree or attenuaiion of the wash or wort, as the
case may be, as the State Government may prescribe;
(e) in the case of intoxicating drugs manufactured in the
State by payment upon the quantity produced or manufactured or issued from a werehouse established or licensed
under this Act:
ProVided···that where payment is made upon issue for
sale from a wherehouse established or licensed under this
Act, such payment shall be at the rate of the duty in force at
· th.e date of issue from the werehouse:
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Provided further that where one and the same person
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is permitted-
(i) to manufacture or import and to ·sell, or
(ii) to manufacture and export, country liquor or any
intoxicant, such duty may be levied in consideration of the
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joint privileges ·granted, as the Collector deems fit."
Section 26 of the Act provides as follows:
"26. The State Government may-
(a) establish a distillery in which spirit may be
manufactured in accordance with a licence issued under
this Act on such conditions as the State Government deems
fit to impose;
(b) discontinue any distillery established;
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SUPREME COURT REPORTS
[1988] Supp. 2 S.C.R.
( c) license, on such conditions as the State Government deems fit to impose, the construction and working of
a distillery or brewery;
( d) establish or license a warehouse wherein any
intoxicant hemp, mhowra flowers or molasses_may be
deposited and kept without payment of duty; and
( e) discontinue any warehouse so established."
In the licence held by the appellants for storage in bond of
foreign liquor there is a provision that no liquor shall be removed by
them from the licensed premises for consumption within the State
except on payment of excise duty and fees.
Section 192(1) of the Bombay Municipal Corporation Act, 1888
as amended provides as follows:
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"192. (1) Except as· hereinafter provided, a tax, at rates
not exceeding those respectively specified in Schedule· H,
shall be levied in respect of the several articles mentioned
in the said Schedule, or so many of them or such of them as
the Corporation shall from year to year in accordance with
section 128 determine on the entry of the said articles into
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Greater Bombay for consumption, use or sale therein. The
said tax shall be called an 'octroi'."
In other words, it provides for a tax in accordance with section
128 on the entry of the articles into Greater Bombay for consumption,
use or sale therein. The said tax shall be called "octroi". It is
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appropriate at this stage to refer to Rule 2(7)(a) of the Octroi Rules as
amended from time to time:
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"I. Prior to 28th July, 1976.
'Value of the articles' where the Octroi is charged ad
valorem shall mean the value of article made up of the cost
price of the Articles as ascertained from the original
invoice plus shipping dues, insurance, excise duties: salestax, vend fees, freight charges, carrier charges and all other
incidental charges incurred by the importer till the arrival
of the article at the place of import.'
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SHROFF & CO. v. MUNICIPAL CORPN. [MUKHARJI, J.J
415
II: With Effect From 28th July, 1976.
'Value of the articles' where the Octroi is charged ad
valorem shall mean the value of the articles made up of the
cost price of the articles as ascertained from original
invoice plus shipping dues, insurance, customs duties, exA
cise duties, sales-tax, vend fees, freight charges, carrier
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charges and all other incidental charges excepting octroi
incurre'd by the importer, till the articles are removed from
the place of import'.
III. After 28th June, 1983 and onwards.
'Value of the articles' where octroi is charged ad valorem
shall mean the value of the articles as ascertained from
original invoice plus shipping dues, insurance, customs
duties, excise duties, countervailing duty, sales-tax, transport fee, vend freight charges, carrier charges and all other
incidental charges, excepting octroi incurred or liable to be
incurred by the importer till the articles are removed from
the place of import."
Our attention was drawn to Octroi Rules applicable to Nagpur
City as considered in a Division Bench judgment reported in 1977
Maharashtra Law Journal 293 by Masodhkar and Kemble, JJ. The said
rules provided for the imposition of octroi on goods and animals
brought within the octroi limits of the Nagpur Municipal Corporation
for sale, consumption or use therein.
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Our attention'was also drawn to certain different provisions as
considered by the Division Bench consisting of Mohta and Qazi, JJ.
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on November 30, 1985. It is instructive at this stage to refer to the
Rules in respect of levy, assessment and colleciion of octroi. Rule 2(2)
defines "import" to mean conveying of any article liable to octroi into
Greater Bombay from any other area outside Grater Bombay. "Place
of Import" has been define in Rule 2( 4) to mean the Docks, Bunders,
Wharfs, Railway Yards, Sidings, Depots, Air Port Terminus, MuniciG
pal Octroi Posts at roads across Greater Bombay limits and such other
places at which the articles arrive within Greater Bombay for the
purposes of import. Section 12 of the Customs Act, 1962 imposes
customs duty and provides that except as otherwise provided in that
Act, or any other law for the time being in force, duties of customs
shall be levied at such rates as may be specified under the Customs
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SUPREME COURT REPORTS
[1988] Supp. 2 S.C.R.
Tariff Act, 1975 or any other law for the time being in force, on goods
imported into, or exported from India.
The learned Single Judge in his judgment noted that a question
[
almost identical to the question posed above came to be considered by
· the Nagpur Bench of the Bombay High Court in Special Civil ApplicaB
lion No. 779 of 1971, Mis. J.E. Bilimoria & Sons, Nagpur v. Corporation of the City of Nagpur. A Division Bench comprised of Masodhkar
and Kemble, JJ upheld the petitioners' contention by their judgment
dated 23rd December, 1976. Rule IO(a) framed under the City of
Nagpur Corporation Act, 1948, read thus:
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"R. lO(a) Where the duty is chargeable on weight, gross
profit including that of the package or container shall be
adopted. When the duty is chargeable ad valorem the value
thereof shall be the cost price to the importer plus all incidental charges, such as custom duty, insurance, excise
duty, sales-tax and freight and such other charges incurred
by the importer, till the arrival of the goods at the octroi
naka, if these have not already been included in the cost
price."
The Division Bench in that case held, construing the rule, that it
did not operate upon liabilities attached to imported goods that arose
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after the goods had entered the limits of the city of Nagpur for use,
consumption or sale. Thus, the value at the entry was only relevant for
the purposes of calculation of the octroi and not its appreciation or
depreciation thereafter but prepaid or pre-incurred though not paid
duties before the goods were imported into Nagpur would be the part
of the value. It was held that that would not be the position of duties or
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charges which were not incurred at the time of the entry of the goods
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within Nagpur but which were charged when the goods were dealt with
after such entry .. The Nagpur Munic.ipal Corporation was, therefore,
directed not to collect octroi upon bonded liquor brought into the
limits of Nagpur without payment of excise duty by adding the excise
duty payable in the 111cidcntal charges co11tcrnplatcd by Rule IO(a).
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The learned Judge was of the view that section 192( l) of the Bombay
Municipal Corporation Act empowered the collection of octroi upon
entry of articles into Greater Bombay for consumption, use or sale.
'[he emphasis is upon the entry of the goods into the city limits. Octroi
therefore is attracted on entry. The taxable event for octroi is the entry
of the goods. But the question is when do the goods enter? The
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learned Single Judge was of the view that the liquor in bond is
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SHROFF & CO. v. MUNICIPAL CORPN. IMUKHARJI, J.l
417
imported when it is conveyed into Greater Bombay from outside
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Greater Bombay. When it is conveyed into Greater Bombay by road
the place of import is the octroi post on the road across the limits of
Greater Bombay. Nagpur rule applied to the charges incurred by the
importer till the arrival of the goods at the Octroi Naka. The learned
Single Judge noted that it would not be proper to include within th~
word 'incur' the charges to be incurred after .the import, and that th~
~
Bombay rule as it is now read used the words 'liable to be incurred."
Rule 2(7)(a) as it read before 28th July, 1976 mentioned charges
incurred till the arrival of the articles at the place of import. The
charge of countervailing duty incurred subsequent to the arrival of the
bonded liquor at the place of import fell outside the rule as it then C
read. Between 28th July, 1976 and 27th June, 1983 the rule mentioned
charges incurred till the articles were removed from the plac~ of import. Inasmuch as the charge.of countervailing duty was incμrred after
the bonded liquor had been removed from the place of import, the rule
,,
as it then read could not apply to such countervailing duty. The rule a~
,
it reads subsequent to 28th June, 1983 mentions countervailing duty D
but among charges incurred or liable to be incurred till the articles ar!'
'removed from the place of import. According to the learned Single
Judge, the countervailing duty is neither incurred nor is liable to be
incurred until after the bonded liquor has been removed from the
place of import. He was, therefore, of the view that the countervailing
duty could not be included in the value,of the octroi.
·
E
The Division Bench disagreed. It has to be emphasised that Rule
: of the Octroi Rules deals with the definition of various terms and the
expression "import" under Rule 2(2) means conveying of any article
liable to octroi into Greater Bombay from any o_ther area outside
Greater Bombay. Rule 2(5) defines expression "date of import'' which F
means the date on which the octroi is paid and in the event of nonpa yrr1ent of octroi at the tin1e of import on account of any inadvertence, error or misunderstanding, it shall mean the date on which the
articles are cleared from the place of import. The question is when the
liability to pay countervailing duty was incurred by the importers of
liquor. We have noticed Entry 51 of List II and also Section 105 of the G .
Prohibition Act. Excise Duty is in essence a tax on manufacture or
production of goods and.excise duty can be levied only on such goods
as are manufactured or produced within the State. The countervailing
duty on the other hand is imposed for the purpose of setting off the
compensating some other duty so as to place the home producer on an
equal footing with the importer of foreign goods. The essence of H
A
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c
418
SUPREME COURT REPORTS
I 1988] Supp. 2 S.C.R.
countervailing duty is to set off the effect of non-payment of tax on
manufacture. It is meant to protect the indigenous production.
The nature of countervailing duty was explained by this Court in
Ka/yani Stores v. The State ofOrissa and others. [1966] I S.C.R. 865.
There this Court observed that power to levy countervailing duties
under Entry 51 List II is meant to be exercised for the purposes of
eq ual1Sing, the burden on alcoholic liquors imported from outside the
State and the burden placed by excise duties on alcoholic liquors
manufactured or produced in the State. Therefore, countervailing
duties can only be levied if similar goods are actually produced or
manufactured in the State on which excise duties are being levied.
Our attention was also drawn to the decision of the Allahabad
High Court in Mis. Mohan Meakin Breweries Ltd. Ghaziabad v. State
of U.P. and others, [1979] U.P.T.C. 284, where it was held that the
excise duty is a single point duty, that is, if it is charged at the stage of
manufacture or at the stage of transport, it cannot be charged at both
D the points.
Shri Divan, appearing for the Corporation, drew our attention to
Rules 18, 19 and 31 of the Import and Export Rules. Rule 3(2) of the
Maharashtra Foreign Liquor (Import and Export) Rules, 1963 defines
"bonded warehouse" to mean a place appointed by the State GovernE
ment as a bonded warehouse for the storage in bond of Indian-made
foreign liquor and includes a bonded laboratory. "Importing place"
has been defined under Rule 3(8) to mean any place in India outside
the State of Maharashtra to which foreign liquor is to be sent from the
State of Maharashtra. Rule 11 of the said Rules is as follows:
F
"11. Issue of pass.-(1) On receipt of the application
made under rule 10, the Collector shall make such inquiries
as he may deem necessary and if he sees no objection he
may-
(a) where the foreign liquor is to be imported in
G
bond, require the importer to execute a bond, in Form C,
with two sureties, for the payment of the amount of duty
leviable on the foreign liquor to be imported or a general
bond, in Form D which would remain in force for a period
of three years, along with two sureties for the payment of a
sum sufficient to cover the amount of duty leviable on the
H
total quantity of foreign liquor which may be imported by
l
SHROFF & CO. v. MUNICIPAL CORPN. [MUKHARJI, J.]
419
him from time to time during the period of three years, and
on the execution of the bond grant an import-in-bond pass
inFormE:
Provided that the execution of the bond .under this ·
clause may be dispensed with by the Collector in the case of
any importer of known good standing who has deposited
with the Collector a sum which in the opinion of the Collector is sufficient to cover the amount of duty payable by
him.
(b) where the foreign liquor is to be imported on
pre-payment of duty in the State of Maharashtra, grant an
import pass in Form F provided that the duty leviable under the Act on the foreign liquor to be imported has been
paid.
(2) Every pass granted under sub-rule(!) shall show
the designations of the officers by whom, and the places at
which, the consignment of liquor to be imported is to be
inspected en route under the 15 aid examined on arrival at
the place of import under rule 16. In cases of import by
road, one of the inspecting officers shall be the Prohibition
and Excise Officer-in-charge of the taluka in which the
place where the consignment enters the limits of the State
is situated. In cases of import by rail direct to the place of
import, one of the inspecting officers shall be the Prohibition and Excise Officer-in-charge of the place where the
railway station to which the consignment is to be booked is
situated.
(3) Every pass granted under sub-rule(!) shall be in
four parts. Part I shall be retained on the records of the
officer issuing the pass; Parts II and III shall be sent by post
to the Excise Officer at the exporting place with a request
to endorse on Part III the quantity of foreign liquor in litres
A
B
c
D
E
F
and proof litres issued to the importer and thereafter to
G
return Part III to th~ officer issuing the pass. Part IV shall
be handed over to the importer or his agent together with
the Form "Certificate-2" annexed thereto.
( 4) No pass under sub-rule (I) shall be granted unless
the foreign ·liquor is to be exported to th,e place of import
H
A
B
c
D
E
F
G
H
420
SUPREME COURT REPORTS
[ 1988] Supp. 2 S.C.R.
from a distillery, brewery or bonded warehouse in the
exporting place.··
Rule 18 enjoins as follows:
"18. Deposit of consignment in, and withdrawal from the
bonded warehouse in the case of import in bond. (1) Where
the foreign liquor is imported in bond, the consignment
shall, after it is examined under rule 16, be sent to the
bonded warehouse together with Part IV of the pass and
the certificate. Particulars of the consignment shall be
entered by the Officer-in-charge of such warehouse in the
register of deposits and withdrawals which shall be kept in
such form as the Director may direct. Where the consignment is of rectified spirit imported for use in a bonded
laboratory, it shall be allowed to be removed to the bonded
laboratory and the Prohibition and Excise Officer-incharge of such laboratory snail after entering particulars
about it in the register of receipts verify its quantity and
strength. On(.eceipt of the Chemical Analysers report, the
officer-in-charge of the bonded warehouse or laboratory
shall fill in the various columns on the reverse of Part IV of
the pass. The co11signment shall then be allowed to be
removed from the 'bonded warehouse under a transport
pass on payment of-
(a) the duty leviable under the Act, on the foreign liquor
imported,
(b) the fees prescribed under the Bombay Foreign Liquor
and Rectified Spirit (Transport) Fees Rules, 1954, and
(c) other charges, if any, payable in respect of the consignment.
The officer-in-charge of the bonded warehouse shall then
prepare a copy of the Part IV of the pass and forward it to
the Collector for record with Part I of the pass in his office.
(2) the whole consignment of the foreign liquor
imported into and stored in the bonded warehouse under
these rules shall be removed from the warehouse at one
SHROFF & CO. v. MUNICIPAL CORPN. [MUKHAIUI, J.]
421
and the same time and within a fortnight from the date of
A
receipt in the warehouse. If any liquor remains in the
warehouse for a longer period than a fortnight, warehouse
rent at the rate of one paisa per week, per litre, or at such
other rate as may from time to time be fixed by the
Director shall be charged, but in no case shall a consignment or any part thereof be allowed to be kept in bond for
B
a period exceeding one month."
Rule 19 provides as follows:
"19. Release of consignment after examination in cases of
imports of Indian-made foreign liquor on pre-payment of C
duty. (1) Where the foreign liquor is imported on prepayment of duty in this State, the examining officer shall
note the result of his examination under rule 16 on the
reverse of Part IV of the pass and on the certificate. He
shall then allow the consignment to be removed if he is
satisfied that the full amount of duty on the foreign liquor D
imported and the fees leviable under the Bombay Foreign
Liquor and Rectified Spirit (Transport) Fees Rules, 1954,
have been paid or that the importer has agreed in writing to
pay any excess amount of duty or fees that may be found to
be due from him on the result of the examining officer's
examination or on receipt of the report of the Chemical
E
Analyser to Government. He shall then hand over Part IV
of the pass to the importer after making a note thereon in
this respect and keeping a copy of Part IV of the pass. A
similar note shall also be made on the certificate which
shall be kept by the examining officer.
(2) On result of his examination or on receipt of the
C.hemical Analyser's report, as the case may be, the
examining officer shall calculate th.e amount of duty and
F
the aforesaid fees due on the consignment and forward the
copy of Part IV of the pass to the Collector stating what
excess amount of duty or fees, if any, is recoverable from
G
the importer. The Collector shall then take the necessary
steps to recover the amount from the importer. The copy of
Part JV of the pass shall be recorded by the Collector with
Part I of the pass· keeping note thereon as to the excess
amount of duty or fees paid by the importer."
H
422
SUPREME COURT REPORTS
(1988] Supp. 2 S.C.R.
A
Therefore, clearance from bonded warehouses, it was contended
on behalf of the respondents, envisaged payment of an incurred liability. Our attention was drawn to the observations of this Court in Mc
Dowell & Company Limited v. The Commercial Tax Officer, (1985] 3
SCR 791 and reliance was placed on the observations at page 814 of
the report that these cases establish that in order to be an· excise duty
B (a) the levy must be upon 'goods' and (b) the taxable event must be the
manufacture or production of goods. It was further submitted that
countervailing duty is an incidental charge. Our attention was drawn
to the expression "incidental" in the Words & Phrases, Permanent
Edition, 20A, pages 100-101 and also to Webster's New Twentieth
Century Dictionary, page 922 and Webster's Third New International
C Dictionary page 1142.
In State of Bombay v. M/s. S.S. Miranda Limited, [1960] 3
S.C.R. 397, the respondent held a trade and import licence for foreign
liquor as well as a vendor's licence under the Bombay Abkari Act. It
kept liquor in a bonded warehouse. On April 2, 1948, the appellant
D asked the respondent to remove the liquor from the bonded warehouse
after paying the necessary excise duty. The respondent paid the duty,
got the transport permits and took over the liquor, some of which was
sold. On December 16, 1948, the appellant issued a notification doubling the duty on foreign liquor and called upon the respondent to pay
the additional duty on the liquor which was still lying in its godown.
E The respondent contended that the imposition of additional duty on
the stock on which duty had already been paid at the time of its issue
from the bonded warehouse was illegal.. The appellant's case was that
the respondent was bound to pay the duty prevailing on the transport
of liquor at the time of transporting the same from its premises to
another place within the State of Bombay. It was held that the imposiF tion of the additional excise duty was illegal. Once the duty had been
paid the liquor could be transported free from any further imposition,
except where it was transported to a region where the duty was different from the region where the duty was paid. There was no power in
the State Government to impose duty at every movement during the
course of the trade. Though there was power in the legislature to levy
G duty at every movement of liquor, it had not exercised that power; nor
had it delegated such power to the State Government. There at page
402 of the report, the Court had considered section 3( 10) of the
Bombay Abkari Act which defines "to transport" to mean "to move to
one place from another place within the State". On the construction of
the present Rules, it was contended on the authority of the said deciH sion that unless there was movement, there was no imposition of the
SHROFF & CO. v. MUNICIPAL CORPN. [MUKHARJI, J.I
423
cquntervailing duty. But that is not a correct assessment of the nature
A
of, duty.
Our attention was also drawn to the observations of this Court in
The Central India Spinning and Weaving and Manufacturing Company
Ltd., The Empress Mills, Nagpur v. The Municip'al Committee,
Wardha, f1958] S.C.R. 1102. There at page 1107 of the report this
B
Court observed that 'import' is derived from the Latin word importare
which means 'to bring in' and 'export' from the Latin word exporture
which means to carry out but these words were not to be interpreted
only according to the'ir literal derivations. Lexico-logically these do
not have any reference to goods in 'transit' a word derived from transire bearing a meaning similar to transport, i.e., to go across. The C
dictionary meaning of the words 'import' and 'export' is not restricted
to their derivative meaning but bear other connotations also. According to Webster's International Dictionary the word "import'.' means to
bring in from a foreign or external source; to introduce from without;
especially to bring (wares or merchandise) into a place or country from
a foreign country in 14e transactions of commerce; opposed to export., D
Similarly "export" according to Webster's International Dictionary
means "to carry away; to remove; to carry or send abroad especially to
foreign countries as merchandise or commodities in the way of commerce; the opposite of import". The Oxford Dictionary gives a similar
meaning to both these words. At page 1113 of the report, it observed
as follows:
E
"By, giving to the words "imported into m exported from"
their derivative meaning without any reference to the ordinary connotation of these words as used in the commercial
sense, the decided cases in India have ascribed too general
a meaning to these words which it appears from the setting, F
context and history of the clause was not intended.