Associated Cement Cos. Ltd. Vs. State of Madhya Pradesh & Anr  Insc 220 (5 April 2005)
Pal, Arijit Pasayat & C.K. Thakker Arijit Pasayat, J.
calls in question legality of the judgment rendered by a Division Bench of the
Madhya Pradesh High Court at Jabalpur upsetting judgment of a learned Single
Judge who held that the Municipal Council, Kymore, presently known as Kymore Nagar
Panchayat (hereinafter referred to as the 'Municipal Council') is bound by the
Government Order dated 15.12.1995 issued by the State Government under the
Madhya Pradesh Municipalities Act, 1961 (in short the 'Act'). Learned Single
Judge was of the view that the power vests with the State Government who issued
the said Government Order and there is no justification on the part of the
Municipal Council in making the impugned demands on the basis of rates fixed by
it. It was consequentially declared that the present appellant was not liable
to pay the differential sum and was only required to pay tax at the rate of
0.20% as fixed by the State Government.
factual position which is almost undisputed is essentially as follows:
appellant, a company registered under the Companies Act, 1956 (in short the
'Companies Act') has its head office at Bombay and is engaged in manufacture of various kinds of cement. It has one
cement manufacturing plant at Kymore known as Kymore Cement Works. On 2.5.1991
the Municipal Council in exercise of powers conferred under Section 127(1)(xvi)
of the Act had resolved to impose export tax on cement and other commodities
which are exported from the limits of the Municipal Council. A Notification was
duly published in the Official Gazette on 12.7.1991 levying terminal tax on
cement at the rate of 0.50 per cent on the price of the cement. Challenge was
made to the said Notification before the High Court and ultimately before this
Court but without any success.
the Notification dated 2nd
May, 1991 was issued
in exercise of power conferred under sub-sections (5) and (7) of Section 129 of
the Act. The State Government accorded sanction to the proposal of the
Municipal Council for imposition of terminal tax within whole of the
municipality in terms of clause (xvi) of sub-section (1) of Section 127 of the
Act. Thereafter, the State Government issued a General Circular i.e. Government
Order dated 15.12.1995 indicating that there must be uniformity in the rates of
export tax all over the State of Madhya Pradesh. So far as cement is concerned, the rate prescribed was
0.20 per cent on the price of the cement. The appellant received a notice on
6.8.1996 followed by a letter dated 23.8.1996 requiring payment of export tax
at the rate of 0.50 per cent on the price of the cement as was prescribed in
the Notification dated 2.5.1991. Since the appellant was paying tax at the rate
of 0.20 per cent it was directed to pay the differential amount.
petition was filed by the appellant questioning the demand. It was contended
that the Municipality is only entitled to recover the export tax on cement at
the rate prescribed by the State Government and not as claimed by the
municipality. It cannot impose tax on its own as the imposition is always
subject to the approval of the State Government. Since the State Government in
order to bring uniformity all over the State of Madhya Pradesh had issued a Government Order dated 15.12.1995 fixing the
rate at 0.20 per cent on the price of cement, the Municipal Council cannot
recover the tax at the old rate.
writ petition was contested by the Municipal Council and it was stated that
there cannot be any challenge to its competence to recover the export tax on
cement at the rate prescribed by the Notification dated 2.5.1991 and the order
passed by the State Government cannot override the said Notification.
Single Judge came to hold that the Municipal Council cannot recover the tax at
the old rate being of the view that when the State Government acted in terms of
Sections 127 and 129 of the Act, the Municipal Council had no option but to
obey. It is to be noted that there were two writ petitions filed by the two
different assessee and one of them was by the present appellant.
Single Judge's order was challenged by filing two Letter Patent Appeals. By the
impugned judgment, the Division Bench held that the levy was a legislative
function of the Municipality and the State Government did not have a statutory
power to interfere with the levy.
to the Division Bench, the Notification dated 2.5.1991 held the field and the
legislative enactment could not have been subjugated or superseded by exercise
of the power by the State Government under any statutory provision or executive
instruction. Once the executive function had been exercised by the Municipal
Council and the levy had been imposed, the State Government could have only
undone the same by another legislative enactment as contemplated under
sub-section (2) of Section 127 of the Act as it stood at the relevant point of
time by framing rules which were subsequently framed under Section 355 read
with Section 127(1)(xvi) of the Act. The rules were known as Terminal Tax
(Assessment and Collection) on the Goods exported from Madhya Pradesh Municipal
Limits Rules, 1996 (in short the 'Rules'). The Rules were published in the
official Gazette on 7.3.1997.
support of the appeal, learned counsel for the appellant submitted that the
relevant period to which the dispute relates is from January to June, 1996. He
submitted that the view taken by the learned Single Judge is the correct view.
On a bare reading of various provisions the position is clear that the Division
Bench's view that the Municipal Council had the legislative competence to levy
the tax and that the State's role in the whole scheme was not in any way
intended to override the powers conferred on it is wrong.
response, learned counsel for the Municipal Council submitted that the Division
Bench has rightly come to hold that the State Government's role was really
advisory and it cannot be said that the State's Government Order/Circular which
was merely in the nature of instruction had the effect of overriding the
Notification dated 2.5.1991.
order to appreciate the rival submissions it would be necessary to take note of
the provisions of Sections 127, 129, 130 and 131 as they stood at the relevant
point of time. They so far as relevant read as follows:- "Section 127- (1)
A Council may, from time to time, and subject to the provisions of this
Chapter, and any general or special order which the State Government may make
in this behalf, impose in the whole or in any part of the Municipality any of
the following taxes, for the purposes of this Act, namely:- xxx xxx xxx (v) an octroi
on animals or goods brought within the limits of the Municipality for sale,
consumption or use within such limits;
xxx (xvi)a terminal tax on goods or animals imported into or exported from the
limits of the Municipality:
that a terminal tax under this clause and an octroi under clause (v) shall not
be in force in any Municipality at the same time;
xxx (xxiii)any other tax, which the State Legislature has power to impose under
the Constitution of India.
xxx (2)The State Government may, by rules made under this Act,-
the imposition, assessment and collection of taxes under this Act;
the evasion of taxes imposed under this Act; and
the maximum and minimum limits as to the amount or rate of any tax.
xxx (4) Subject to the provisions of Article 277 of the Constitution of India,
any tax which immediately before the commencement of this Act, was being
lawfully levied by the Municipal Committee, Municipal Council or Municipal
Board, as the case may be, notwithstanding that such tax is not specified in
sub-section (1), shall continue to be levied by the Council.
The imposition of any tax under this section shall be subject to the provisions
of any other enactment for the time being in force.
129: Procedure in imposing taxes:
Council may pass a resolution to propose the imposition of any tax under
section 127. The proposal shall define 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 and collection to be adopted.
When such a resolution has been passed, the Council shall publish a notice in
the prescribed form and manner along with the resolution.
Any inhabitant of the Municipality objecting to the proposed tax may, within
thirty days from the publication of the notice, submit his objection, in
writing to the Council.
The Council shall take the proposal and all objections received thereto into
consideration at a special meeting, and may modify the proposal so as not to
affect their substance, and may then forward them to the State Government,
along with all objections received, its decisions thereon and its reasons therefor.
If the Council decides to modify the proposals so as to affect their substance,
it shall punish them again in the manner prescribed in sub-section (2) along
with a notice indicating that they are in modification of those previously
published for objection.
The State Government may, on receiving such proposal either refuse to sanction
them or sanction them-
modification or with such modifications not involving in increase of the
proposed rate as it thinks fit; or
subject to such condition as to the application within the Municipality to any
purpose or purposes of this Act as may be specified, of the whole or any part
of the proceeds of such tax, as it may deem fit.
modification affecting the substance shall be made under sub-section (5),
unless and until the modification has been accepted by the Council at a special
any proposal for taxation has been sanctioned under sub-section (5), the State
Government may, by notification direct the imposition of the tax as sanctioned
from such date which shall not be earlier than thirty days from the date of
publication of such notification as may be specified therein, and thereupon the
tax shall come into effect as from the date so specified:
that where the tax so imposed is payable annually-
the tax shall become payable with effect from the Ist day of April, Ist day of
July, Ist day of October or Ist day of January, as the case may be, next
following such imposition;
becomes payable on a date other than the Ist day of April, it shall be payable
quarterly till the Ist day of April next following.
notification of the imposition of a tax under this section shall be conclusive
evidence that the tax has been imposed in accordance with the provisions of
130- Abolition or variation in tax: The Council may, with the prior approval of
the State Government, abolish, suspend or reduce the rate of any tax.
131-Power of State Government in regard to relief in taxes: If, on a complaint
made to it or otherwise, it appears to the State Government that any tax levied
by a Council is unfair in its incidence or that such levy or any part thereof
is obnoxious to the interest of the inhabitants of the Municipality, it may, by
an order, require the Council to remove the objections to any such tax within
such time as may be specified therein, and on the failure of Council to comply
with the order within the time so specified to the satisfaction of the State
Government, the State Government may, by notification and subject to such
conditions or restrictions as may be specified therein, abolish, suspend or
reduce the amount or rate of any tax.
reading of Section 127 shows that the Municipal Council may from time to time
and subject to the provisions of the Chapter (i.e. Chapter VII relating to
"Municipal Taxation") in question and its general or special order
which the State Government may make in that behalf impose in the whole or in
any part of the Municipality any of the taxes for the purposes of the Act.
present dispute relates to clause (xvi) of sub-section (1) of Section 127 of
the Act. Under the constitutional scheme the power to levy the tax of the
nature levied under Section 127 of the Act is that of the State Government
which is clear from the fact that though the Council may impose any tax for the
purposes of the Act, the same is subject to any general or special order which
the State Government may make in that behalf. Furthermore, sub-section (2) of
Section 127 authorises the State Government to regulate the imposition,
assessment and collection of tax under the Act and also prescribes the maximum
and minimum limits as to the amount or rate of tax. The position is also clear
from clause (xxiii) which empowers the Municipality to levy such tax, which the
State Legislature has power to impose under the Constitution of India. The
source of power to levy is the one conferred on the State Legislature. The
Municipality does not have any independent source. The power under Section 127
is exercised by the Municipality by delegation and is a case of delegated
129 is the procedural section dealing with the procedure for imposing taxes.
The conditions contemplated in Section 129 are:
proposal to be passed by the Council for the purpose of imposition of any tax
under Section 127;
a resolution in terms of sub- section (1) is passed the Council is required to
publish a Notification in the prescribed form and manner along with the
sub-section (3) any inhabitant of the Municipality may submit his objection in
writing to the Council within the specified period;
sub-section (4) the proposal and all objections received thereto are to be
placed for consideration at a special meeting.
procedure to be followed when the Council decides to modify the proposal is
also indicated. Sub-section (5) is very relevant for the present dispute in the
sense that on receiving the proposal the State Government has two options. It
may either sanction the proposal or refuse to sanction the same. When the State
Government sanctions the proposal with modification or with such modification
not involving in increase of the proposed rates as it thinks fit or subject to
such conditions as to the application within the Municipality to any purpose or
purposes of the Act which may be specified regarding application of the whole
or any part of the proceeds of the tax. When any proposal for tax has been
sanctioned under sub-section (5), the State Government may under sub- section
(7) by Notification direct the imposition of the tax as sanctioned in the
manner prescribed. Sub-section (8) provides that when a Notification of the
imposition of tax under the Section is issued the same is conclusive evidence
that the tax has been imposed in accordance with the provisions of the Act.
Sub-section (6) is of great importance in the sense that no modification
affecting the substance under sub- section (5) shall be made unless and until
the modification had been accepted by the Council at a special meeting. Section
130 deals with abolition or variation in tax by the Council with prior approval
of the State Government. Section 131 deals with power of the State Government
having regard to the relief in taxes. The provision can be set in motion on
receipt of any complaint or suo motu by the State Government.
latter case, the State Government can act if it appears to it that any tax
levied by Council is unfair in its incidence or that levy or any part thereof
is obnoxious to the interest of the inhabitants of the Municipality. In either
of the situations, the State Government may require the Council to remove
objections to any such tax within a specified time and in case the Council
fails to comply with the order within the time so specified to the satisfaction
of the State Government, it may by Notification and subject to such conditions
or restrictions as may be specified abolish, suspend or reduce the amount or
rate of any tax.
this juncture, it would be relevant to take note of the Government
Order/Circular dated 15.12.1995. The same reads as follows:
Pradesh Government Government of Local Administration Mantralaya, Vallabh Bhawan,
Bhopal No.F4/1/1/A3/95 Bhopal Dt.15.12.1995 To All Commissioners, Municipal
Council, Madhya Pradesh All Chief Municipal Officers, Nagar Palika Parishad/Nagar
Panchayat, Madhya Pradesh Subject: Regarding imposition of terminal Tax There
is provision for levy of terminal tax under Clause xvi of sub-section (1) of
Section 127 of the Madhya Pradesh Municipalities Act, 1961 and procedure for
levy of terminal tax has been laid down under Section 129. In exercise of the
powers conferred under both the sections and cancelling all the earlier
instructions on the subject, the State Government hereby instructs to impose
the terminal tax under the following limits and conditions:
barrier shall be put for recovery of the terminal tax neither contractual
procedure will be adopted. Where barrier post has been established, that should
be immediately removed. For the recovery of the terminal tax the same procedure
should be adopted which is applicable for the recovery of commercial tax and in
the case of Krishi Upaj Mandi their licence holder should be made responsible
for the recovery of the tax. For this purpose if any amendment in the bye-law
is required, that should be done accordingly.
view of the uniformity of the terminal tax in whole of the State, the rate is
proposed in the annexed schedule.
All such goods which are exported out of the country shall be exempted from the
All such other goods which are carried or sent from one place to another within
the State for distribution under the Public Distribution Scheme by the Food
Corporation of India/Civil Supply Corporation/Other Agencies of the State
Government shall also be kept exempted from the terminal tax.
is no provision for imposition of terminal tax under the Madhya Pradesh
Municipal Corporation Act, 1956 but the Municipal Corporation may levy this tax
under the approval of the State Government since many of the Municipal
Corporation have desired to levy terminal tax, the State Government hereby
grant general approval for levy of the terminal tax to all the Municipal
Corporations. The above mentioned conditions shall be applicable in the case of
the Municipal Corporation also.
(C.S. Chadha) Principal Secretary Government of Madhya Pradesh Local
Administration Deptt." Though the Government Order refers Sections 127 and
129 of the Act, it is to be noted that there was no proposal by the Municipal
Council for reduction of the rate of tax. In terms of sub-section (1) of Section
127, the power to impose the tax has to be exercised by the Council which is of
course subject to any general or special order of the State Government. The
Municipal Council exercises the power as a delegatee and the power exercised
under Section 127 as noted above is a delegated legislation. Since the
Municipal Council has not proposed for any variation in the rate of tax the
question of the State Government passing any general or special order in that
regard is not contemplated. It is to be further noted that the Government Order
treats the matter as instruction to all municipalities.
as Section 129 is concerned, there is no question of any suo motu fixation of
rate by the State Government. In fact while acting on the proposal by the
Municipal Council, the State Government can direct modification affecting the
substance of the proposal. But the same cannot be given effect to unless and
until the modification has been accepted by the Council at a special meeting.
In the instant case that contingency has not arisen. Though in terms of Section
131 the State Government can initiate the action for reduction in the rate that
can only be done if the enumerated circumstances exist.
situation has also not arisen in the instant case and admittedly the State
Government has not acted in terms of Section 131 of the Act. Therefore, the
Division Bench is right in its view that the circular of the State Government
dated 15.12.1995 is really of no consequence. Further changes under Section 127
can be introduced in terms of sub-section (2) of Section 127 by framing rules.
In the instant case, the rules were framed in March 1997 and did not have any
therefore, find no reason to interfere with the judgment of the Division Bench
though some of the observations and conclusions are not correct. Ultimate
conclusion that the Municipal Council's stand that Circular dated 15.12.1995
did not bind it to reduce the tax does not suffer from any infirmity.
appeal is accordingly dismissed with no order as to costs.