The Town Municipal Committee, Amravati
Vs. Ramchandra Vasudeo Chimote & ANR  INSC 52 (3 March 1964)
03/03/1964 AYYANGAR, N. RAJAGOPALA AYYANGAR,
N. RAJAGOPALA SINHA, BHUVNESHWAR P.(CJ) WANCHOO, K.N.
GUPTA, K.C. DAS SHAH, J.C.
CITATION: 1964 AIR 1166 1964 SCR (6) 947
R 1964 SC1172 (12) R 1964 SC1903 (32) D 1978
SC1803 (9) RF 1990 SC1927 (42) E&F 1991 SC 274 (2,3) RF 1991 SC1676 (59)
Terminal Tax-Imposition of terminal tax by
Municipality on silver and silver jewellery, gold and gold jewellery and
precious stones in 1960-These taxes not levied before by Municipality-Whether
saved by Art. 277 of the Constitution"Continue to be levied and to be
applied to the same purposes"-Meaning of-C.P. and Berar Municipalities
Act, 1922, s. 55-Government of India Act, 1935, s. 143(2)Constitution of India,
A terminal tax on goods imported by road or
rail was imposed by the Amravati Municipality by virtue of a notification dated
August 10, 1916. This notification exempted silver, bullion and coins from the
operation of this tax. When terminal taxes on goods imported by rail were
assigned exclusively to the Federal Centre under the Government of India Act,
1935, the municipality was authorised by s. 143 to continue to levy the
terminal taxes which were actually levied before the enforcement of the Act.
Likewise, the terminal taxes imposed by the preConstitution notification were
allowed to be levied and collected even after the Constitution came into force
by virtue of Art. 277 of the Constitution. In 1960, the Municipality levied
terminal taxes on three new items, viz., silver and silver jewellery, gold and
gold jewellery and precious stones.
In a writ petition filed under Art. 226 of
the Constitution, the validity of the newly imposed terminal tax was challenged
by the respondent who was carrying on business, within the limits of the
Municipality, in gold, silver and precious stones on the ground of legislative
The writ petition was granted by the High
Court and the appellant came to this court after obtaining a certificate of
fitness from the High Court.
Dismissing the appeal:
Held: The newly imposed terminal taxes on
silver and silver jewellery, gold and gold jewellery and precious stones had
never been imposed by the Municipality and hence it could not be said that
those were "being lawfully levied" by the Municipality and
"applied to the same purposes" before the commencement of the
Constitution as required by Art. 277 of the Constitution. Art. 277 was not
intended to confer an unlimited legislative power to impose what in effect were
new taxes, though of the same type or nature as existed before the
Rama Krishna Ramanath v. The Janpad Sabha,
Gondia,  Supp. 3 S.C.R. 70 and Chuttilal v. Bagmal and Balwantrai, I.L.R.
 M.B. 339. referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 598 of 1962.
Appeal from the judgment and order dated
March 18, 1961 of the Maharashtra High Court (Nagpur Bench) at Nagpur in
Special Civil Application No. 30 of 1960.
Civil Appeals Nos. 695 and 700 of 1962.
Appeals from the judgment and orders dated
October 12, 1961 and March 18, 1961 of the Madhya Pradesh High Court in Misc.
Petitions Nos. 122 of 1961 and 319 of 1960
949 M. C. Setalvad and S. Shaukat Hussain,
for the appellant (in C.A. No. 598/62).
W. S. Barlingay and A. G. Ratnaparkhi, for
respondent No. 1 (in C.A. No. 598 of 1962).
S. G. Patwardhan, Udai Pratap Singh and M. S.
Gupta, for the appellant (in C.A. No. 695/62).
A. N. Goyal, for respondent No. 1 (in C.A.
No. 695/ 62).
1. N. Shroff, for respondent No. 2 (in C.A.
M.C. Setalvad and M. S. Gupta, for the
appellant (in C.A. No. 700/62).
G. S. Pathak, J. B. Dadachanji, O. C. Mathur
and Ravinder Narain, for the respondents Nos. 1 to 4 and 6 to 9 (in C.A. No.
1. N. Shroff, for respondent No. 10 (in C.A.
March 3, 1964. The Judgment of the Court was
delivered by AYYANGAR, J.-These three appeals which are on certificates of fitness
granted by the High Courtís the first by the High Court of Bombay at Nagpur and
the two others by the High Court of Madhya Pradesh-raise a common question as
regards the construction of Art. 277 of the Constitution and the validity of
certain terminal taxes imposed by the respective appellant-municipal
authorities under notifications issued under Ch. IX of the C.P. & Berar
Municipalities Act, 1922, subsequent to the coming into force of the
Constitution, and so have been heard together.
Civil Appeal 598 of 1962 is an appeal from
the High Court of Bombay at Nagpur and has been filed by the Municipal
Committee of Amravati against a decision of the High Court allowing the 1st
respondent's petition under Arts. 226 and 227 of the Constitution. The Municipal
Committee of Amravati has been established under the 950 C.P. & Berar
Municipalities Act, 1922 (C.P. & Berar Act II of 1922) hereinafter referred
to as the Act. Chapter IX of the Act deals with the imposition, assessment and
collection of taxes which might be imposed by the Municipal Committee.
Section 66 specifies the taxes which, subject
to the provisions of the Chapter, the Committee may from time to time impose.
Its first sub-section specifies in its several clauses 15 varieties of taxes
and among them is cl. (o) which reads:
"The terminal tax on goods or animals
imported into or exported from the limits of the municipality provided that
terminal tax under this clause and an octroi under cl. (e) shall not be in
force in any municipality at the same time-,' The other sub-clauses which are
relevant for the consideration of the question arising in the appeal are
sub-cls. (2),(3) and (4) of s. 66 and they read :
(2) The State Government may, by rules made
under this Act, regulate the imposition of taxes under this section, and impose
maximum amounts of rates for any tax.
(3) The first imposition of any tax specified
in subsection (1) shall be subject to the previous sanction of the State
(4) Subject to the control of the State
Government, a committee may abolish any tax already imposed and specified in
sub-section (1) clauses (a) to (in) inclusive, or may, within the limits
imposed under sub-section (2), vary the amount or rate of any such tax :
Provided that in the case of any municipality
indebted to the Government, the abolition of any tax or a reduction in the
amount or rate thereof shall be subject to the previous sanction of the State
Government." 951 Section 67 lays down the procedure for the imposition of
taxes and it provides :
"67. (1) A committee may, at a special
meeting, pass a resolution to propose the imposition of any tax under section
(2) When such a resolution has been passed,
the committee shall publish, in accordance with rules made under this Act, 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) (4) (5) The State Government, on
receiving such proposals, may sanction or refuse to sanction the same, or
sanction them subject to such modifications as it may think fit, or return them
to the committee for further consideration.
(6) No modification affecting the substance
shall be made under sub-section (5), unless and until the modification has been
accepted by the committee at a special meeting.
(7) (8) A 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 this Act." The procedure for
the variation of the taxes is to be found in s. 68 and it reads "68. (1) A
committee may, at a special meeting, pass a resolution to propose the abolition
of any tax already imposed, or a variation in the amount or rate thereof.
(2) 952 (3) If the proposal is to increase
the amount or rate of any tax, the committee shall publish, in the manner
prescribed by rules made under this Act, a notice showing in detail the effects
of the proposal.
(4) Any inhabitant of the municipality
objecting to the proposed increase may, within thirty days from the publication
of the notice, submit his objection in writing to the committee.
(5) The committee shall take the proposal and
all objections received thereto )into consideration at a special meeting, and
may modify the proposals as it may think fit, and may pass a final resolution
on the proposal.
(6) If the proposal requires the previous
sanction of the State Government under the provisions of section 66,
sub-section (4) or sub-section (5), the committee shall forward it to the State
Government and it shall be dealt with in the manner provided in section 67,
sub-sections (4), (5) and (6).
(9) The publication in the manner prescribed
of the abolition or variation of any tax under this section shall be conclusive
proof that such abolition or variation has been made in accordance with the
provisions of this Act." From even before the constitution of the
municipality under the Act and at a time when the municipal committee was
governed by the Berar Municipal Law of 1886 which was in force prior to the Act
and whose taxation provisions were continued by the Act of 1922, a terminal tax
on goods imported by road or rail had been imposed by the Municipality by
virtue of a notification dated August 10, 1916 on several specified kinds of
goods. This notification exempted silver, bullion and coin from the operation
of this tax. This was superseded by a notification of June 2, 1921 under which
the Schedules were modified and the terminal tax 953 imposed was confined to
goods imported into or exported out of the Municipal area by rail. The
notification of June 1921 was amended from time to time by other items being
added and the rates being increased but no change was effected in the taxes
imposed after 1936. Under the scheme of the distribution of taxing powers
between the provinces and the Central Government under the Government of India
Act, 1935 terminal taxes on goods carried by rail were assigned exclusively to
the Federal Centre under item 58 of List I to Sch. VII, but the validity of the
levy and collection of the terminal tax in force, before the 1st April, 1937
was continued by s. 143 of the Government of India Act, 1935 and it was by
virtue of this continuance that these taxes were continued to be levied after
April 1, 1937 Their continuance after January 26, 1950 when after the repeal of
the Government of India Act, 1935, the Constitution came into force with the
same scheme of distribution of taxing power on the relevant item identical with
that under the Government of India Act, was by reason of Art. 277 which was
practically in the same terms as s. 143 of the Government of India Act, 1935.
The taxes imposed by the pre-Constitution notification could, therefore, be
legally levied and collected even after the Constitution came into force.
Subsequent to January 26, 1950 there was a
notification on December 1, 1959, under which to the list of goods liable to
terminal tax imported into or exported out of the Municipal area, not merely by
rail, but also by road were added three new items-silver and silver jewellery,
gold and gold jewellery, and precious stones, and these three specified items
were subjected to the tax at the same rates as had been imposed on other
articles by the notifications which were in force from before the Constitution.
Before the notification was issued the procedure indicated by s. 67 was gone
through and the Government accorded their sanction to the rules made by the
Municipal Committee for the imposition of the tax on the newly added articles.
The validity of the tax imposed by this notification was challenged by the 1st
respondent who was carrying on business within Amravati municipality in gold,
silver and precious stones, 954 on the ground of legislative incompetency which
had not been saved by Article 277 of the Constitution, in a petition under
Article 226. The learned Judges of the High Court by a majority accepted the
contention raised by the respondent and allowed the petition but granted a certificate
of fitness and hence this appeal. The facts of the other two appeals are nearly
similar but we shall refer to them after dealing with the, common question
which arises in these appeals.
It is common ground that the right to levy a
terminal tax is now vested in the Union Parliament under Entry 89 of the Union
List which reads :
"Terminal taxes on goods or passengers
carried by railway, sea or air; taxes on railway fares and freights", so
that if the levy by the appellant of the terminal tax on the newly added items,
and the same principle would apply to an increase in the rate of the duty, had
to rest on the independent taxing power of the State, the same would have to be
struck down for want of legislative competence.
Besides it is necessary to add that whereas
under the notifications in force prior to 1st April 1937-when Part III of the
Government of India Act was brought into force, articles imported into or
exported out of the municipal area by road were not subject to the tax, and
that state of affairs continued till long after the Constitution came into
force, a terminal tax was imposed by the impugned notification of December 1959
on goods imported or exported by road tax which it was not open to the State to
impose even with the aid of Art. 277. But ignoring this feature of the impugned
notification, insofar as it brought in goods carried by road within the scope
of the terminal tax, it is admitted that the validity of the imposition cannot
be justified if it was a fresh imposition. What is, however, urged in support
of the validity of the imposition is that the same is saved by Art. 277 which
"277. Any taxes, duties, cesses or fees
which, immediately before the commencement of this Constitution, were being
lawfully levied by the 955 Government of any State or by any municipality or
other local authority or body for the purposes of the State, municipality,
district or other local area may, notwithstanding that those taxes, duties,
cesses or fees are mentioned in the Union List. continue to be levied and to be
applied to the same purposes until provision to the contrary is made by
Parliament by law." If learned Counsel for the appellant is right in his
contention 'that the impugned tax which he is now seeking to sustain, 'was the
tax which "was being lawfully levied" by the municipality before the
commencement of the Constitution he would certainly be well-founded in the
submission that the fact that the terminal taxes are under the distribution ,of
taxing powers under the Constitution assigned to the Union would make no
difference for the valid continuance of the levy. The question, therefore, is
whether this was -the tax which was being levied by the municipal authority
before the Constitution and for whose continuance the Article provides.
The first submission of Mr. Setalvad for the
appellants was that this condition would be satisfied whenever a ,terminal tax
(without reference either to the article on which it was levied or the rate)
was being lawfully levied by the municipality prior to the commencement of the
,Constitution and as in this case admittedly a terminal tax was being levied on
certain articles that condition was satisfied.
His argument was that the words 'tax or duty'
in the opening part of Art. 277 should be read as meaning a tax or duty under a
specified legislative Entry, and if such a tax or duty was being levied before
the commencement of the Constitution other duties of the same type or falling
within the same category might be imposed after the Constitution notwithstanding
that such duties or taxes were mentioned in the Union List by reason of the
words "shall continue to be levied". Secondly, he said that the word
'levy' meant not merely the ascertainment, i.e., assessment and collection of
the tax but included its imposition, i.e., also the charging and if that
expression were understood in that wide sense it would comprehend a case where
other 956 items than those originally specified were brought into the fold of
the taxing provision. The learned Attorney-General who appeared for the State
and supported Mr. Setalvad, however, went a step further and submitted that it
was not even necessary that a terminal tax should be actually imposed and was
being collected prior to the Constitution, but that it was sufficient if the
State enactment had vested in the municipality a power to levy such a tax. The
argument of the learned Attorney-General has to be rejected as lacking any
substance, for on no construction, wide or narrow, of the expression 'levy' in
the phrase 'continue top be levied' can such a case be comprehended. From the
mere fact that a State enactment has authorised a municipality to levy a tax it
cannot be said that a tax which had never been imposed was "being lawfully
levied" by the municipality, not to speak of the tax etc. collected being
"applied to the same purposes" before the commencement of the
Constitution as contemplated by the concluding portion of the Article.
Coming next to what one might term the
narrower submission of Mr. Setalvad we do not find it possible to agree with it
either. His first submission may be expanded thus : The expression "taxes,
duties, cesses" with which Art. 277 opens, has to be read in the context
of Part XII in which the Article occurs and so read has to be understood as referring
to the class or category of taxes which were levied and collected by the State,
municipality etc. before the commencement of the Constitution. In other words,
the reference here is to the entries in the legislative lists which permit such
taxes to be levied, and so read and taken in conjunction with the circumstance
that the Article is one designed to prevent the dislocation of the finances of
the State or other local authorities, the terms of the Article would be
satisfied and the legislative power to continue to levy the tax would be
conferred "notwithstanding that the tax, etc. are mentioned in the Union
List". This argument, in our opinion, proceeds on ignoring the terms of
If, as is admitted, the sole object sought to
be achieved by this provision for "continuance" is to avoid
dislocation of the finances of the State and local authorities, 957 by
depriving them of the revenues which they were deriving at the commencement of
the Constitution, it would mean -that the intention was to permit the existing
range of taxes to be continued, not that the Article conferred on them
authority to expand the range of their taxation by subjecting new items to
taxation or by increasing the rates of duty. This consideration apart, it is
not possible to read the words "notwithstanding that the taxes etc. are
mentioned in the Union List" as conferring an unlimited legislative power
to impose what in effect the argument involves new taxes, though of the same
type or nature as existed before the Constitution. The question of the proper
construction of s. 143(2) of the Government of India Act, 1935 which is for all
practical purposes identical with Art.
277 came up for consideration before this
Court in Rama Krishna Ramanath v. The janpad Sabha, Gondia(1). There it was
submitted on behalf of the respondent-local authority that by virtue of s. 143
(2) of the Government of India Act the Provincial Legislature was vested with a
plenary power to legislate in respect of every tax which was being lawfully
levied by local authorities prior to the commencement of the Government of
India Act. This Court rejected that contention and observed "Section 143
(2) which is a saving clause and obviously designed to prevent a dislocation of
the finances of Local Governments and of local authorities by reason of the
coming into force of the provisions of the Government of India Act distributing
heads of taxation on lines different from those which prevailed before that
date, cannot be construed as one conferring a plenary power to legislate on
those topics till such time as the Central Legislature intervened. Such a
construction would necessarily involve a power in the Provincial Legislature to
enhance the rates of taxation-a result we must say from which Mr. Sanyal did
not shrink, but having regard to the language of the section (1)  Supp. 3
958 providing for a mere continuity and its
manifest purpose this construction must be rejected." No doubt, even the
words "continue to be levied and to be applied to the same purposes"
might import and imply a limited legislative power in the State. The scope of
this limited power was also examined by this Court in the same case and it was
"In the context the relevant words of
the subsection could only mean 'may continue to be levied if so desired by the
Provincial Legislature' which is indicated by or is implicit in the use of the
expression 'may' in the clause 'may be continued until provision to the
contrary is made by the Federal Legislature.' This would therefore posit a
limited legislative power in the Province to indicate or express a desire to
continue or not to continue the levy. If in the exercise of this limited power
the Province desires to discontinue the tax and effects a repeal of the
relevant statute the repeal would be effective. Of course, in the absence of
legislation indicating a desire to discontinue the tax, the effect of the
provision of the Constitution would be to enable the continuance of the power
to levy the tax but this does not alter the fact that the provision by its
implication confers a limited legislative power to desire or not to desire the
continuance of the levy subject to the overriding power of the Central
Legislature to put an end to its continuance and it is on the basis of the
existence of this limited legislative power that the right of the Provincial
Legislature to repeal the taxation provision under the Act of 1920 could be
rested. Suppose for instance, a Provincial Legislature desires the continuance
of the tax but considers the rate too high and wishes it to be reduced and
passes an enactment for that purpose, it cannot be that the legislation is
incompetent and that the State Government 959 must permit the local authority
to levy tax at the same rate as prevailed on April 1, 1937 if the latter
desired the continuance of the tax.
If such a legislation were enacted to achieve
a reduction of the rate of the duty, its legislative competence must obviously
be traceable to the power contained in words 'may continue to be levied' in s.
143 (2) of the Government of India Act." Dealing next with the import of
the words 'may continue to be levied' the same was summarised in these terms :
(1) The tax must be one which was lawfully levied by a local authority for the
purpose of a local area, (2) the identity of the body that collects the tax,
the area for whose benefit the tax is to be utilised 'and the purposes for
which the utilization is to take place continue to be the same, and (3) the
rate of the tax is not enhanced nor its incidence in any manner altered, so
that it continues to be the same tax. It is obvious that if these tests were
applied the submission on behalf of the appellant cannot be accepted.
But authority apart, we cannot, even if this
decision were put aside, accede to the construction for which Mr. Setalvad
contends. It is not disputed that in ultimate analysis the answer to the
question raised should turn on the meaning of the word 'levied' in the phrase
'continue to be levied' which is the operative word conferring a power. Mr. Setalvad
submits that 'levied' is a word of wide and varying import and includes in its
denotation not merely the actual collection of the tax, but the imposition in
the sense of the creation of the charge by the statute, as well as the ascertainment
of the amount due from the tax payer. Mr. Setalvad is right, for before a tax
can be collected from any tax payer, its quantum must be ascertained and
assessed, and for this to be lawfully done there must be legislative
sanction-in other words an imposition of the charge -because it is the charge
under the Statute that is quantified' by the authorities acting under the
taxing enactment. The acceptance of this construction however does not lead to
the result desired, for what can "continue to be levied" is what
"was being lawfully levied" in the same sense of the, 960 word
"levied", prior to the Constitution. Admittedly, there was no
imposition of the charge now sought to be recovered prior to the Constitution,
i.e., the Act did not impose the charge by s. 66 but merely enabled the
Municipal Committee by appropriate procedure to impose the tax. If, of course,
this power had been availed of and a charge had been imposed it would be a
different matter. So long as the Municipal Committee did not pass the necessary
resolutions and impose the tax there was no charge levied on the commodity, so
that it could not be said that the tax "was being lawfully levied"
before the commencement of the Constitution. The words "was being lawfully
levied' obviously mean "was actually levied" and it would not be
sufficient to satisfy those words that the Municipal authority could lawfully
levy the tax, but had not availed itself of that power.
There is another circumstance to which also
reference may be made. The last portion of Art. 277 uses the words
"continue to be levied" and "to be applied to the same
"purposes". By reason of this collocation between the concept of the
levy and of application of the proceeds of the tax-, the Constitution makers
obviously intended the word 'levy' to be understood as including the collection
of the ,tax, for it is only when a tax is collected that any question of its
application to a particular purpose would arise. It is apparent that if the
word "levied" were understood in the sense which Mr. Setalvad
contends, there could be no "application" of the proceeds of the tax
to the same purposes as at the commencement of the Constitution. For ex
concessis at that date there were no proceeds to be applied.
In this connection learned Counsel for the
respondent referred us to the decision in Chuttilal v. Bagmal and Balwantrai(1)
where the relationship between the levy and the application of the tax has been
referred to as an aid to the construction of the expression "continue to
be levied" in Art. 277. We find ourselves in agreement with the views
The decision of the High Court is, therefore,
correct and "the appeal fails.
(1) I.L.R.  Madhya Bharat 339.
961 CIVIL APPEAL No. 695 OF 1962.
In this appeal a notification was issued
under sub-ss. (5) and (7) of s. 67 of the C.P. & Berar Municipalities Act,
1922, on December 9, 1960 imposing a terminal tax on gunpowder imported into or
exported out of the municipal area by rail. It is admitted that previous to the
Constitution there was no tax imposed on gun-powder. The position in this case
is, therefore, identical with that in Civil Appeal No. 598 of 1962 which we
have just disposed of and it follows that this appeal also fails and should be
CIVIL APPEAL No. 700 OF 1962.
In Civil Appeal 700 of 1962 the original
notification imposing terminal taxes in respect of goods coming into or going
out of the municipal area by rail was one dated March 17, 1926 which was
operative from April 1, 1926. This was amended by a notification under s. 67
(5) of the C.P. Berar Municipal Act, 1922 dated September 23, 1960 by which new
articles were included to the list of items imported into or exported from the
municipal area by rail subject to the terminal tax and besides the rate of tax
on the previously existing items was also increased. It was this inclusion of
new articles for the levy of terminal tax by the notification of 1960 and the
increase in the rate of duty on articles, already subjected to tax, that was
impugned in the writ petition filed by the respondent before the High Court.
On our reasoning on the basis of which we
have dismissed Civil Appeal 598 of 1962 it would follow that this appeal should
also fail. We can see no difference between the inclusion of new items and the
increase in the rate of duty because if there is an increase it would not be a
mere continuance of the duty which had been lawfully levied which is the only
purpose and function of Art. 277. The judgment of the High Court allowing the
writ petition of the respondent was therefore correct.
In the result, ;all the three appeals fail
and are dismissed with costs of the contesting respondent or respondents. in