Kathiawar Industries Ltd. Vs.
Jaffrabad Municipality [1979] INSC 144 (8 August 1979)
KAILASAM, P.S.
KAILASAM, P.S.
GUPTA, A.C.
CITATION: 1979 AIR 1721 1980 SCR (1) 243 1979
SCC (4) 56
ACT:
Octroi-Terminal tax a kind of octroi-Levy of
octroi on uncrushed salt-Uncrushed salt crushed in factory-Whether conversion
into another commercially different article-If amounts to
consumption-"Consumption", "Use"-Meaning of.
Saurashtra Terminal octroi ordinance, 1949,
Ss. 2(2) & 3; & Saurashtra octroi and Terminal Tax Rules 1949, Rule 3
Schedule I Item No. 23.
HEADNOTE:
In 1948 on the formation of Saurashtra State,
Jaffrabad came within its territorial limits and the Bombay District Municipal
Act, 1901 as adapted and applied to the said State became applicable to Jaffrabad.
Jaffrabad Municipality the predecessor of the respondent was constituted under
the Bombay District Municipal Act, 1901.
The State of Saurashtra, within the
territorial limits of which they said Municipality was situate, promulgated
ordinance No. 47 of 1949 on 31-X-49 called the Saurashtra Terminal octroi
ordinance, 1949. Section 2 cl. (2) of the said ordinance defines
"octroi" as including a terminal tax.
Section 3 empowered the Government to impose
terminal tax and octroi duty, and provided that octroi may be imposed on
"animals or goods, or both, within the octroi limits brought for
consumption or use therein." Section 4 empowered the Government to make
rules in exercise of which the State Government made the Saurashtra octroi and
Terminal Tax Rules on 8th December, 1949. Rule 3, the charging rule provided
that octroi is payable in respect of goods set out in Schedule I of the Rules
and prescribed that it shall be payable at the nakas at rates set out therein.
Item No. 23 is "Salt for Factory". Schedule II enumerated a list of
items which are exempt from octroi duty and contained in Item No. 6, a sub-item
in Gujarat which means "salt".
The appellant was running a salt
manufacturing works at Jaffrabad. The company had constructed salt works, grinding
mills, trolly-tracks and a jetty at the port site. The major portion of the
salt works is situated out of the municipal limits. The salt is manufactured
outside the municipal limits. The grinding mills and the part of the
trolly-track leading to jetty came within the municipal limits of the
respondent Jaffrabad Municipality.
The salt is prepared in the salt pans outside
the octori limit and the salt which is crushed is taken to the crushing factory
and the salt which is not to be crushed is taken in uncrushed form. directly to
the jetty over the trolly track part of which passes through the octroi limits
of the municipality. The salt that is crushed in the crushing factory is also
after crushing taken by trolly to the jetty. From the jetty the salt whether
crushed or uncrushed, as the case may be is exported by steamers.
244 The Municipality demanded from the
appellant octroi in respect of salt manufactured by it. The appellant paid
under protest and filed a suit against the respondent for declaration that the
salt manufactured by the appellant at its salt works at Jaffrabad and exported
uncrushed and/or crushed was not liable to octroi duty and the goods passing
through municipal limits from the salt works are not liable to octroi duty and
for an injunction restraining the respondent from recovering the amount claimed
as octroi.
Another suit claiming refund of the octroi
paid was also filed.
The two suits were decreed, the court
declaring that the salt manufactured by the appellant company is not liable to
octroi duty. The Municipality being aggrieved preferred appeals and the
appellate court while dismissing the appeals and confirming the decrees of the
trial court held that the perpetual injunction granted by the trial court would
not apply to the salt entering the octroi limits for consumption or use for the
factory situated within the octroi limits of the Municipality.
The Municipality preferred second appeals to
the High Court, which allowed them except to the extent of confirming the
declaration that uncrushed salt of the appellant company which is directly sent
from the stacking ground to the jetty is not liable to octroi provided the
plaintiff company followed the prescribed rules and formalities. The other
claims in the suits were however dismissed.
On the question whether the salt manufactured
by the appellant outside the octroi limits of the respondent and brought within
those limits for the purpose of being crushed into powder in the appellant's
factory situated within those limits and then exported is liable to octroi.
HELD: 1. Octroi is leviable on the uncrushed
salt which is brought to the octroi area and crushed as the activity would
amount to both consumption and use of the uncrushed salt. [249 F] Burmah Shell
oil Storage Distributing Co. India Ltd. v. The Belgaum Borough Municipality
[1963] Supp. 2 SCR 216;
M/s. Anwarklan Mahboob Co. v. The State of
Bombay (now Maharashtra) [161] 1 SCR 709, State of Travancore Cochin & Ors.
v. Shanmugha Vilas Cashew Nut Factory & ors. [1954] SCR 53, referred to.
2. In the Constitution of India, Entry 52 in
List II in Seventh Schedule a right to impose tax "on entry of goods into
the local area for consumption, use or sale" is conferred. The precise
meaning to be given to the words "consumption" and "use"
will depend upon the context in which they are used. These words are of wide
import, the word "use" being of wider import than
"consumption". [248A.
247H, 249E].
3. While terminal tax is a kind of octroi
which is concerned only with the entry of goods in a local area irrespective of
whether they would be used there or not, octrois were taxes on goods brought
into the area for consumption, use or sale. They are leviable in respect of the
goods put to some use or the other in the area but only if they were meant for
such use. [248B]
4. The word "consumption" in its
primary sense means the act of consuming and in ordinary parlance means the use
of an article in a way which destroys, wastes or uses up that article. But in
some leal contents the word 245 "consumption" has a wider meaning. It
is not necessary that by the act of consumption the commodity must be destroyed
or used up. [248C-D] In the instant case the uncrushed salt is crushed in the
factory which is commercially a different article and the uncrushed salt must
be held to have been consumed. The uncrushed salt has been used and by the use
a new product crushed salt has come into existence. [249E]
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 2330- 2331 of 1969.
Appeals by Special Leave from the Judgment
and order dated 17/ 18-1-69 of the Gujarat High Court in Second Appeal No. 187
and 857/61.
H. S. Parihar and I. N. Shroff for the
Appellant.
K. J. John for the Respondent.
The Judgment of the Court was delivered by
KAILASAM, J.-These two Civil Appeals are by the Kathiawar Industries Ltd. by
special leave against the judgment of the Gujarat High Court holding that the
appellants are liable to pay octroi duty on uncrushed salt which is brought by
the appellant to the factory situate within the octroi limits and crushed
there.
The appellant is running a salt manufacturing
works at Jaffrabad called "Nawabsidi Mohmad Khan Salt Works". The
company had constructed salt works, grinding mills, trolly- tracks and a jetty
at e port site. The major portion of the salt works is situate out of the
Municipal limits. The salt is manufactured outside the municipal limits. The
grinding mills and the part of the trolly-track leading to jetty come within
the municipal limits of the respondent Jaffrabad Municipality. The Municipality
by a notice dated 3-1-1955 demanded from the appellant Rs. 7289-6-0 as arrears
of octroi. The appellant paid under protest and filed the suit out of which
this appeal arises before the Civil Judge Gohilwad, District Bhavnagar, against
the respondent for a declaration that the salt manufactured by the appellant at
its salt works at Jaffrabad and exported uncrushed and/or crushed was not
liable to octroi duty and that the goods passing through municipal limits from
the salt works are not liable to octroi duty, and for an injunction restraining
the respondent from recovering an amount of Rs. 7289-6-0 and for a further
injunction restraining the Municipality from hindering or obstructing the free
passage of salt and goods and for the refund of Rs. 250. The appellant also
filed another suit for the refund of Rs. 1271-14-O paid under protest. These
two suits were decreed, the court declaring that the salt manufactured by 246
the appellant company is not liable to octroi duty. The court also granted an
injunction as prayed for. The Municipality preferred appeals. The appellate
court while dismissing the appeals and confirming the decree of the trial court
observed that the perpetual injunction granted by the trial court would not
apply to the salt entering the octroi limits for consumption or use for the
factory situated within the octroi limits of the municipality. The Municipality
preferred two Second Appeals to the High Court of Gujarat at Ahmedabad. A Bench
of the High Court allowed the appeals except to the extent of confirming the
declaration that uncrushed salt of the appellant company which is directly sent
from the stacking ground to the jetty is not liable to octroi provided the
plaintiff company followed the prescribed rules and formalities. The other
claims in the suits were dismissed. Against the judgment of the High Court the
plaintiff company has preferred these two appeals.
The only question that falls for
consideration in these civil appeals is whether the salt manufactured by the
appellant outside the octroi limits of the respondent and brought by the
appellant within those limits for the purpose of being crushed into powder in
the appellant's factory situate within those limits and then exported is liable
to octroi. The facts as found by the High Court and which cannot be questioned
are that the salt works consists of (i) salt pans; (ii) stacking ground for the
salt collected from the pans; (iii) trolly track for carrying salt from
stacking ground to the factory within the octroi limits of the Municipality and
to the jetty which is outside the octroi limits; (iv) jetty; (v) Power house;
(vi) store-room; (vii) workshop and (viii) grinding mill which is referred to
in the evidence as the crushing factory. (f these, the crushing factory and
part of the trolly track (about 1400 feet) are within the octroi Limits of the
Municipality and the rest outside those limits. Thus it is not in dispute that
only the crushing factory and part of the trolly track are within the octroi
limits. Th. salt is prepared is the salt pans outside the octroi limit and the
salt which is to be crushed is taken to the crushing factory and the salt which
is not to be crushed is taken in uncrushed form directly to the jetty over the
trolly track part of which passes through the octroi limits of the
Municipality. The salt that is crushed in the crushing factory is also after
crushing taken by the trolly to the Jetty. From the jetty the salt whether
crushed or uncrushed, as the case may be, is exported by steamers.
The High Court has found that the salt which
is taken to the crushing factory within the octroi limits for the purpose of
crushing and is crushed and later taken to the jetty is liable to octroi. The
question is whether this levy is sustainable in law.
247 In 1948, on the formation of Saurashtra
State, Jaffrabad came within the territorial limits of the Saurashtra State and
the Bombay District Municipal Act, 1901, as adapted and applied to Saurashtra
State became applicable to Jaffrabad. The Jaffrabad Municipality, the
predecessor of the respondent, was constituted under the Bombay District
Municipal Act. 1901 .
The State of Saurashtra, within the
territorial limits of which they said Municipality was situate, published an
ordinance on 31-8-1949 being ordinance,- No. 47 of 1949 called the Saurashtra
Terminal Tax and octroi ordinance, 1949. The ordinance extended to the whole of
The State of Saurashtra and came into force from 31-8-1949. Section 2 clause
(2) of the ordinance defines 'octroi' as including a terminal tax. Section 3
empowers the Government to impose terminal tax and octroi duty. It provided
that octroi may be imposed on "animals or goods, or both, within the
octroi limits brought for consumption or use therein". Under section 4
Government is empowered to make rules. In exercise of the powers under the
ordinance the State Government n made rules relating to octroi known as the
Saurashtra octroi and Terminal Tax Rules on 8th December, 1949 which was
published in the Saurashtra Gazette on 15th December, 1949.
Rule 3 is the charging rule which provides
that octroi is payable in respect of goods set out in the Schedule I attached
to the Rules and prescribed that octroi shall be payable at the nakas at rates
set out therein. Item No. 23 is "Salt for Factory". Schedule II which
gives a list of items which are exempt from octroi duty contains in item No. 6,
a sub-item in Gujarat which means "Salt". Thus under item 23
"Salt for Factory" is liable to octroi duty. The octroi duty may be
imposed under section 3 on "animals or goods, or both, within the octroi
limits brought for consumption or use therein". Oh the facts found, namely
that uncrushed salt was brought into the factory situate within the octroi
limits and crushed salt taken away for export from the octroi limits can it be
said that the salt thus brought are goods for consumption or use therein. It is
the common case that the uncrushed salt as brought into the octroi limits is
crushed and in the crushed form sent to the jetty for export. The finding of
the High Court is that the crushing of the uncrushed salt and sending the
crushed salt to the jetty within the octroi limits will be used therein as
required under section 3.
In this appeal it is necessary for us to
consider the scope of the I words "consumption" and "use".
The precise meaning to be given to the words "consumption" and
"use will depend upon the context in 17-475 SCI/79 248 which they are
used. These words are of wide import. In the Constitution of India, Entry 52 in
List II in Seventh Schedule a right to impose tax "on entry of goods into
the local area for consumption, use or sale" is conferred. In Burmah Shell
oil Storage & Distributing Co. India Ltd. v. The Belgaum Borough
Municipality this Court after tracing the history of octroi and terminal tax
observed that while terminal tax is a kind or octroi which is concerned only
with the entry of goods in a local area irrespective of whether they would be
used there or not, octrois were taxes on goods brought into the area for
consumption. use or sale.
They were leviable in respect of the goods
put to some use or the other in the area but only if they were meant for such
user.
In considering the meaning of the words
"consumption" and "use" this Court observed in Burmah Shell
case (supra) that the word consumption; its primary sense means the act of
consuming and in ordinary parlance means the use of an article in a way which
destroys, wastes or uses up that article. But in some legal contexts, the word
"consumption'? has a wider meaning. It is not necessary that by the act of
consumption the commodity must be destroyed or used up. n M/s. Anwarkhat
Mahboob Co. v. The State of Bombay (now Maharashtra) and others, the question
that arose was whether conversion of one commodity into another commercially
different article would amount to consumption. The facts of the case were that
tobacco was purchased and in the Bombay State the stem and dust from the
tobacco was removed. It was contended that removing the stem and dust from the
tobacco did not amount to consumption of tobacco or had the effect of
converting tobacco into an article commercially different. The Court held that
when the tobacco was delivered in the State of Bombay for the purchase of
changing it into a commercially different article, viz., biddipatti the
delivery was for the purpose of consumption.
This Court followed the decision in State of
Travancore Cochin and ors. v Sanmugha Vilas Cashew Nut Factory and Ors.
wherein it was held that the raw cashew nuts
were put through a process and new articles of commerce, namely cashew nut oil
and edible cashew nut kernels were obtained.
The Court expressed the view that the raw
cashew nut is consumed in the process. On the facts the High Court found alter
referring to the different processes of baking or roasting. Shelling pressing,
pealing etc. that although most of the process is done by hand, part of it is
also done mechanically by drums. Oil is extracted out of the outer shells as a
result of roasting.. After roast- 249 ing the outer shells are broken and the
nuts are obtained.
The i J poison is eliminated by pealing oil
the inner skin.
By this process of manufacture. the
respondents really consume the raw cashew and produce new commodities. This
Court accepted this finding and observed at p. 113 that the raw cashew nuts,
after they reach the respondents, are put through a process and new articles of
commerce, namely, cashew-nut oil and edible cashew nut kernels, are obtained.
In Anwarkhan Mahboob Co. (supra) this Court
gave the example of the process through which cotton is put through before
ultimately the final product the wearing apparel is consumed by men, women and
children. The Court observed: "But before cotton has become a wearing
apparel, it passes, through the hands of different producers, each of whom adds
some utility to the commodity received by him. There is first the act of
ginning; ginned Cotton is spun into yarn by the spinner; the spun yarn is woven
into cloth by the weaver; the woven cloth is made into wearing apparel by the
tailor." At each of these stages distinct utilities are produced and what
is produced is at the next stage consumed. It is usual, and correct to speak of
raw cotton being consumed in ginning.
Applying this test the conclusion is
irresistible that when uncrushed salt is crushed in the factory it is
commercially a different article and the uncrushed salt must be held to have
been consumed. The word "use" is of wider import than
"consumption". It cannot be denied that the uncrushed salt has been
used and by the user a new product crushed salt has come into existence.
On a consideration of the facts and
circumstances of the case we are satisfied that octroi is leviable on the
uncrushed salt which is brought-to the octroi area and crushed as the activity
would amount to both consumption and use of the uncrushed salt. In the result
the appeals fail and are dismissed with costs.
N.V.K. Appeals dismissed.
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