Poona City Municipal Corporation Vs.
Dattatraya Nagesh Deodher  INSC 153 (5 May 1964)
05/05/1964 GUPTA, K.C. DAS GUPTA, K.C. DAS
MENON, P. GOVINDA HIDAYATULLAH, M.
CITATION: 1965 AIR 555 1964 SCR (8) 178
R 1966 SC 249 (16,32,62) RF 1976 SC1207 (102)
R 1979 SC 246 (5)
Octroi-Tax on refund-Imposition if valid-Tax,
if becomes fee-Whocan claim refund--Suit for recovery--Limitation--Availability
of 179 benefit--Bombay Provincial Municipal Corporation Act, 1949 (Bom. 59 of
1949), &v. 127, 487.
The respondent, who had been carrying on the
business of securing refund of octroi duty on behalf of persons who had paid
duty and were entitled to refund, claimed the refund of money paid as octroi
duty by his principals in respect of the period commencing from February 15,
1950, the date from which the appellant became a Municipal Corporation under
the Provincial Municipal Corporation Act, 1949. After deducting ten percent of
the amount in accordance with r. 18(3) of the Octroi Rules, framed by the
Municipal Authorities, the appellant--Corporation paid the balance to the
The representation of the respondent that
from the date from which the Corporation had come into existence, the deduction
had become invalid in law. was turned down by the appellant.
Thereupon the respondent filed a suit for
recovery of the balance with interest. The defence was that the deduction was
valid; that in any case, the respondent who was not the person who paid the
amount, was not entitled to bring the suit, and that the suit was barred by
limitation. The trial court held the respondent was entitled to bring the suit
and also that it was not barred by limitation but the deduction was valid and
it dismissed the suit. On appeal, the District Court disagreeing with the trial
court, held that the deduction was not valid in law, but the plaintiff was not
entitled to bring such a suit and that the suit was barred by limitation and it
dismissed the appeal. On a further appeal the High Court found in favour of the
respondent on all the three points and allowed the appeal.
HELD:-(i) A tax on octroi refund is not one
of the taxes which the Bombay Municipal Corporation could impose. Apart from
the absence of power to impose such a tax, which is clear from the earlier
parts of s. 127 of the Bombay Act of 1949 there is the categorical prohibition
in sub-s. (4) against the imposition of any such tax by the Corporation.
(ii) Assuming, without deciding, that such a
levy can be validly made by way of fees under s. 466, since no standing order
was made under s. 466 prescribing any fee, it is not possible to justify the
deductions as _ levy of fee.
(iii)The tax did not become a fee merely
because the new Act (Bom. Act 59 of 1949), prohibited the imposition of such a
(iv)Cl. 5(a) of Appendix IV furnishes no
justification for the levy often percent deduction after February 15, 1950 when
the Act 59 of 1949with its categorical prohibition in s. 127(4) against the
imposition by the Corporation of a tax which the State Legislature had no power
to impose under the Constitution became applicable.
(v)The respondent having made the claim in
accordance with the rules was the person entitled to receive what amount was
legally refundable, and so he was also entitled to bring the suit. / 180
(vi)The suit was not barred by limitation. The benefit of s. 487 of Act 59 of
1949 would be available to the Corporation only if it was held that this
deduction was "an act done or purported to be done in pursuance or
execution or intended execution of the Act."
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 582 of 1961.
Appeal from the judgment and decree dated
August 25, 1959 of the Bombay High Court in Appeal No. 774 of 1956.
S. G. Patwardhan, S. B. Tarkunde, J. B.
Dadachanji, O. C. Mathur and Ravinder Narain, for the appellant.
A.Y. Vishwanatha Sastri, M. R. Kotwal and
Naunit Lal, for the intervener.
May 5, 1964. The Judgment of the Court was
delivered by DAS GUPTA J.-This appeal is by the defendant, the Municipal
Corporation for the City of Poona, in a suit for recovery of money. The Poona
Municipality was formerly a Municipality under the Bombay District Municipal
Act of 1901 (Act 3 of 1901). In 1925 it became a Municipal Borough under the Bombay
Municipal Boroughs Act of 1925 (Act XVIII of 1925).
Later, under the Bombay provincial Municipal
Corporation Act, 1949, Municipal Authority for the City of Poona became a
Corporation known by the name of Municipal Corporation for the City of Poona.
It appears that from the time when the City
was a Municipality under Act 3 of 1901, an octroi duty was being levied on
goods imported within the Municipal limits of the City. When such goods were
exported out of the city municipal limits within specified periods, refund used
to be given in respect of the duty so recovered.
The respondent has for many years been
carrying on business of securing refund of octroi duty on behalf of persons who
had paid the duty and were entitled to refund. In respect of the period from
the 15th February, 1950 to the 14th September, 1950, the respondent made a
claim on behalf of his principals, for the refund of Rs. 73,650/to 181 which,
according, to him, they were entitled. The Municipality however paid to him
only 90 per cent of this amount.
The remaining 10 per cent was deducted in
accordance with Rule 18(3) of the Octroi Rules which had been framed by the
The respondent then represented to the
Corporation that with effect from the 15th February, 1950, the date from which
the Corporation came into existence under the Provincial Municipal Corporation
Act, 1949, this deduction of 10 per cent had become invalid in law and claimed
that this amount should be paid to him. The Corporation however refused to
concede this claim. The respondent then brought this suit for recovery of Rs.
7,364/15/(being 10 per cent of Rs.
73,650/the amount alleged to have been
illegally withheld) with interest.
The main defence raised by the Corporation to
the Plaintiff's claim was that the deduction of 10 per cent was legally valid.
It was further urged that, in any case, the plaintiff who was not the person
who paid the amount, was not entitled to bring the suit. Lastly, it was
contended that the suit was barred by limitation.
The trial Court held that the plaintiff was
entitled to bring the suit and also that it was not barred by limitation. It
held however that the deduction of 10 per cent from what was paid as tax was
valid. Accordingly, it dismissed the suit.
On appeal by the plaintiff, the District
Court, Poona, held, disagreeing with the trial Court, that the deduction of 10
per cent of what had been realised was not valid in law. It was however of
opinion that the plaintiff was not entitled to bring such a suit. It was also
of opinion that the suit was barred by limitation. In this view, it dismissed
The plaintiff then appealed to the High Court
of Judicature at Bombay. The High Court has found in favour of the plaintiff on
all the three points raised. It held that the deduction of 10 per cent was
invalid in law, that the plaintiff was entitled to sue, and that the suit was
not barred 182 by limitation. Accordingly, the High Court allowed the appeal,
and made a decree in favour of the Plaintiff for Rs. 7,364/15/with interest
thereon at 4 per cent from the date of the suit and interest at the same rate
from the date of the judgment, with costs throughout.
The appellant Corporation challenges the
correctness of the High Court's decision on all the three points.
The principal question for decision in this
appeal is whether the deduction of 10 per cent as provided for in Rule 18(3) is
invalid at least from the 15th February, 1950. The Rule runs thus:"A
deduction of ten per cent shall in all cases be made before refunding the
amount of octroi duty on exportation of goods either in transit as per rule 13
or otherwise under rule II (2). " It is necessary to mention here that the
legality of such a deduction prior to February 15, 1950 is not in controversy before
us. We shall proceed on the basis that this provision in Rule18(3) was valid in
law prior to the 15th February, 1950. The question is whether even though valid
then, it has ceased to be valid in law. To find the correct answer to this
question it is necessary to be clear first as to the legal basis on which this
levy by way of deduction was being made prior to 15th February, 1950.
It appears from Ex. D 72, the copy of the
Government resolution dated the 6th March, 1922, that the Poona Municipality started
this practice of levying this 10 per cent deduction from February 1921. The
question of its legality appears to have been raised quite early. The Legal
Remembrancer to the Government of Bombay expressed his view on this question in
these words:"The special powers conferred in the last sentence of clause
(f) of section 48(1) of the Bombay District Municipal Act seems to negative the
power of the Municipality (of Shirpur) to make any deduction from the refunds
by means 183 of rules regulating the system, for making refunds referred to in
the earlier part of the clause. The charge on refunds appears, however, to be a
kind of tax which may be imposed under s. 59(b) (xi) of the Act." On this,
the Councillors of, the Municipality passed a resolution that a 10 percent tax
should be levied on all octroi refund, under section 59 (b) (xi). This proposal
was submitted to the Government of Bombay for sanction and was duly approved.
It may be mentioned here that s. 59 (b) (xi)of Act 3 of 1901 which deals with the
question of a Municipality's powers to impose taxes sets out in the cls.
(i) to (x) various taxes which the
Municipalities can impose and then mentions in cl. (xi) the words "any
The Government appears to have accepted the
view of the Legal Remembrancer that the levy by way of deduction of 10 per cent
from; the amount to be refunded should be authorised as a tax on octroi
refund,, this being " any other tax" within the meaning of s.
59(b)(Xi). It is no longer open to dispute that after Government's sanction was
received, the Municipality could under the old. Act legally levy such tax. It
is also not disputed that the deductions that continued to be made under Rule
18(3) were all along made under this authority, as a tax levied under s. 59(b)
(xi) of the Bombay District Municipal Act, 1901. The levy of the tax continued
even after Act 3 of 1901' ceased to be applicable to Poona and it became a
Municipal Borough under the Bombay Municipal: Boroughs Act, 1925. The validity
of such: continuation does not also appear to have been challenged The Bombay
Provincial Municipal Corporation Act 1949 was applied to Poona on the 15th
February, 1950 From that date therefore the powers of taxation of the
municipality, became governed by s. 127 of the Act. This section first
authorises a Corporation under the Act to impose, (a) property taxes; (b). a
tax on vehicles, boats and animals. It then mentions in the second sub-section
certain other taxes which the Corporation may impose: In cls. (a) to (f)-(a) is
octroi, (b) a profession tax, (c) a tax on dogs, (d) a theatre tax, (e) a toll
on animals and vehicles and (f) mentions "any other 184 tax which the
State Legislature has power under the Constitution to impose in the
State". Sub-section (4) provides:"Nothing in this section shall
authorise the imposition of any tax which the State Legislature has no power to
impose in the State under the Constitution." A tax on octroi refund is not
thus one of the taxes which the Bombay Municipal Corporation could impose' It
is not one of the specified taxes. Nor is it a tax which the State Legislature
has power under the Constitution to impose in the State. Apart from this
absence of power to impose such a tax, which is clear from the earlier parts of
s. 127, we have the categorical prohibition in, sub-section 4 against the
imposition of any such tax by the Corporation.
Mr. Patwardhan next tried to persuade us that
even if this levy could not be made under the new Act as a tax, it could be
made as a fee. In support of his argument he drew our attention to s. 147 and
s. 466 of the new Act. The first sub-section of section 466 provides that the
Commissioner of the Corporation may make standing orders consistent with the
provisions of the Act and the rules and bye laws in respect of the matters
specified. One of the matters specified is "determining the supervision
under which, the routes by which and the time within which the goods intended
for immediate exportation shall be conveyed out of the City and the fees
payable by persons so conveying the goods." [s. 466 (1)A(f)]. Section 147
dealing with a controversy, that may arise, whether the importation of some
goods into the City has been for the purpose of consumption, use or sale
therein, says: "Until the contrary is ,proved any goods imported into the
City shall be presumed to have been imported for the purpose of consumption,
use or sale therein, unless such goods are conveyed from the place of import to
the place of export by such routes, within such time, under such supervision
and on payment of such fees there for as shall be, determined by the standing
orders." It is obvious that reference to fees in this section is to such
fees as may be prescribed by standing orders under 185 the provisions of s.
466(1)A(f). It is unnecessary for us to decide for the purpose of the present
appeal, whether the I provision of s. 466 for determination of fess payable by
persons conveying goods imported into the City is valid in law or not.
Assuming, without deciding, that such a levy can be validly made by way of fees
under s. 466, what we find is that in fact there has been no standing order
prescribing any fees. It may be mentioned in this connection that sub-section 2
of s. 466 lays down that no order made by the Commissioner under cl. A of
sub-section (1) shall be valid unless it is approved by the Standing Committee
and confirmed by the State Government. It is not the case of the appellant
Corporation that any Standing Order was made at all under s. 466 prescribing
any fees. It is not possible therefore to justify the deductions that were made
in the present case as a levy of fee.
The appellant relied next on cl. 5(a) of
Appendix IV to the Act read with s. 493. Section 493 provides that provisions
of Appendix IV shall apply to constitution of the Corporation and other matters
specified therein. Appendix IV is headed "Transitory Provisions" and
is plainly intended to deal with the position that arose as a result of the
repeal of the old Act. (s. 490). The relevant portion of cl. 5 (a) is in these
words:"Save as expressly provided by the provisions of this Appendix or by
a notification issued under paragraph 22 or order made under paragraph 23, (a)
any appointment, notification, notice, tax, order, scheme, licence, permission,
rule, bye-law, or form made, issued, imposed or granted under the Bombay
District Municipal Act, 1901 or the Bombay Municipal Boroughs Act, 1925 or any
other law in force in any local area constituted to be a City immediately
before the appointed day shall, in so far as it is not inconsistent with the
provisions of this Act, continue in force until it is superseded by 186 any
appointment, notification, notice tax, order, scheme, licence, permission,
rule, byelaw, or form made, issued, imposed or granted, under this Act or any
other law as aforesaid as the case may be;" Mr. Patwardhan readily
conceded that the 10 per cent deduction, as a tax on octroi refund could not
get the protection of el. 5(a) for the simple reason that such taxation is on
the face of it inconsistent with s. 127(4) of the Act.
He asked us, however, to regard this levy as
a fee, and on that basis, argued that this should continue in force under cl.
(a) of s. 5 of Appendix IV since the levy of such a fee is consistent with the
provisions of s. 466 of the Act. If in fact a fee was being realised' under the
old Act, it may be that levy of such fees could continue in force until
superseded by any order under the new Act as coming under an order issued
"under the District Municipal Act, 1901, or the Bombay Municipal Boroughs
Act, 1925". In fact, however, this was not levied as a fee, but was levied
as a tax. The tax did not become a fee merely because the new Act (Act LIX of
1949) prohibited the imposition of such a tax. We are clearly of opinion there for
that cl. 5(a) of Appendix IV furnishes no justification for the levy of the ten
per cent deduction' after the 15th February, 1950 when the Act LIX of 1949 with
its categorical prohibition in s. 127(4) against the imposition by the
Corporation of a tax which the State legislature had no power to impose under
the Constitution became applicable. The defence that the deduction of 1 0 per
cent of the amount collected as octroi was legally valid has thus been rightly
rejected by, the High Court.
We also agree with the High Court's
conclusion' that the plaintiff was entitled to bring the present suit. The
Poona City Municipality's Octroi Rules and Bye-laws under which the claim, for
refund can be made define "a claimant" as a per-son "Who produces
the duly receipted import bill and the corresponding, export
certificates," [Rule 2, cl. (g)]. It is not disputed that for the several
cases in respect of which this deduction of ten per cent had 'been made, by the
Corporation the plaintiff was the person 187 who produced "the duly
receipted import bill and the corresponding export certificate." Indeed,
it is on that basis that 90 per cent of the amount paid by different exporters
was refunded by the Corporation to the claimant.
It is difficult to understand how if the
plaintiff was entitled' to claim and obtain refund 'in respect of 90 per cent
of the amount paid, he was not entitled to make the claim with respect to the
remaining 10 per cent.
It may be pointed out that as the receipted
import bill and the corresponding export certificates in respect of the goods
in question have already been made over by the plaintiff to the defendant
Corporation, it will not be possible for the merchants who actually imported
the goods and then exported them, to make any fresh claim. For, no claim would
be accepted without the receipted import bill and the corresponding export
certificates. Mr. Patwardhan faintly argued that the definition of a claimant
in the Rules is only in respect of 90 per cent of the octroi refund. There is
obviously no substance: in this argument.
Rule 1 1 deals with the procedure of claims
to refund and requires that claimant should produce a duly receipted import
bill and an export certificate relating to such goods. [Rule II (2) (iv)].
These provisions are entirely independent of Rule 18(3) which lays down that a
deduction of ten per cent shall in all cases be made before refunding the
amount of octroi duty in certain circumstances. It is, in our opinion, clear
that the plaintiff having made the claim in accordance with the rules was the
person entitled to receive what amount was legally refundable. As we have found
that the deduction of ten per cent could not legally be made, in other words,
the entire amount paid was refundable, it follows that the plaintiff was the
person entitled to obtain the refund and so he was also entitled to bring the
There remains for consideration the
appellant's plea of limitation. For this plea, the appellant relies on s. 487
of Act LIX of 1949. The material part of the section runs thus:(1) No suit
shall be instituted against the Corporation or against the Commissioner, or the
188 Transport Manager, or against any municipal officer or servant in respect
of any act-done or purported to be done in pursuance or execution or intended
execution of this Act or in respect of any alleged neglect or default in the
execution of this Act:(a) until the expiration of one month next after notice
in writing has been, in the case of the Corporation, left at the chief
municipal office and, in the case of the Commissioner or of the Transport
Manager or of a municipal officer or servant delivered to him or left at his
office or place of abode, stating with reasonable particularity the cause of
action and the name and place of abode of the intending plaintiff and of his
attorney, advocate, pleader or agent, if any, for the purpose of such suit, or
(b) unless it is commenced within six months next after the accrual of the
cause of action." The benefit of this section would be available to the
Corporation only if it was held that this deduction of ten per cent was
"an act done or purported to be done in pursuance or execution or intended
execution of this Act." We have already held that this levy was not in
pursuance or execution of the Act. It is equally clear that in view of the
provisions of s. 127(4) (to which we have already referred) the levy could not
be said to be "purported to be done in pursuance or execution or intended
execution of the Act." For, what is plainly prohibited by the Act cannot
be claimed to be purported to be done in pursuance or intended execution of the
Act. Our conclusion is that the High Court has rightly held that the suit was
not barred by limitation.
All the points raised in the appeal fail. The
appeal is accordingly dismissed.