Bangalore Woollen, Cotton and Silk Mills Co. Ltd. vs Corporation of the City of Bangalore

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 448 and 449 of 1957

Decision Date: 5 April 1961

Coram: J.L. Kapur, S.K. Das, M. Hidayatullah, J.C. Shah

In this matter, the petitioner was Bangalore Woollen, Cotton and Silk Mills Co. Ltd., which brought forward a writ petition against the Corporation of the City of Bangalore, represented by its Commissioner. The Supreme Court delivered its judgment on 5 April 1961. The bench that considered the case consisted of Justice J.L. Kapur, Justice Aiyyar, Justice T.L. Venkatramana Das, Justice S.K. Hidayatullah, Justice M. Shah and Justice J.C. Shah. The decision was reported in the official law reports as 1962 AIR 562 and 1961 S.C.R. Supl. (3) 707, and it was subsequently cited in several later cases such as D 1966 SC1686, RF 1981 SC 991, RF 1987 SC1059 and others.

The petitioners, invoking article 32 of the Constitution, challenged the legality of an octroi duty imposed on the import of cotton and wool. Their challenge rested on two main grounds. First, they argued that the final resolution authorising the tax had not been published in the Government Gazette as required by section 98(2) of the City of Bangalore Municipal Corporation Act, and that this procedural lapse rendered the tax invalid. Second, they contended that the imposition of the octroi duty infringed the constitutional provisions contained in article 276, which deals with taxation on imports and exports, and article 301, which guarantees freedom of trade, commerce and intercourse.

The Court held that the octroi duty did not violate articles 276 or 301 of the Constitution. It observed that the precedent set in Hamdard Dawakhana (Wakf) v. Union of India [1960] 2 S.C.R. 671 was not applicable to the present dispute. The Court also referred to the decision in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 S.C.R. 809 for guidance. According to the Court, section 38(1)(b) of the City of Bangalore Municipal Corporation Act expressly validates any defect or irregularity in the proceedings under the Act provided that such defect does not affect the merits of the case. The failure to publish the final resolution, the Court explained, did not affect the merits of the tax imposition and therefore could not be regarded as fatal to the levy. Moreover, the Court rejected the argument that the placement of section 38(1)(b) within a chapter dealing with municipal authorities limited its operation only to matters concerning those authorities; the provision was held to have a broader application.

The Court also considered earlier authorities such as Harla v. State of Rajasthan [1952] S.C.R. 110 and State of Kerala v. P.J. Joseph [A.I.R. 1958 S.C. 296], which were cited for their relevance to the validation of procedural defects. It concluded that the claim that the octroi duty contravened article 276 of the Constitution was untenable. The Court pointed out that entry 52 in List II of the Constitution and entry 49 in the Government of India Act 1935 both pertain to taxes on the entry of goods into a local area, and these entries are not governed by article 272 of the Constitution or by section 142‑A of the Government of India Act, which relate to a distinct head of taxation. Consequently, the octroi duty fell within the permissible scope of taxation as defined by the constitutional and statutory framework.

In this case the Court noted that the statutes dealing with taxes on professions, trades and callings were distinguished from earlier decisions such as Municipality of Chopda v. Motilal Manekchand (I.L.R. 1958 Bom 483), Gajadhar Hiralal Ginning and Pressing Factory v. The Municipal Committee, Washim (I.L.R. 1958 Bom 628) and Secretary, Municipal Committee, Karanja v. The New East India Press Co. Ltd. (A.I.R. 1949 Nag 215). The Court observed that Schedule III of Part V contains Classes I to VII that enumerate specific articles subject to tax and that Class VIII provides for taxation of “other articles which are not specified” when such articles are approved by the Corporation. It was held that the combined effect of sections 97 and 130 together with Part V of Schedule III, including Class VIII, uses language of a very general character, effectively treating all articles as if they were intended to be taxable. This reasoning followed the precedent set in Anwarkhan Mahboob Co. v. The State of Bombay (1961 1 S.C.R. 709).

The judgment recorded that the matter arose on civil appeal numbers 448 and 449 of 1957 together with writ petitions numbers 97 and 107 of 1961. These appeals were taken from the order dated 27 September 1956 of the Mysore High Court in writ petitions 44 and 45 of 1955. The appellant was represented by counsel for the Attorney‑General for India together with other counsel, while the respondents were represented by counsel for the appellant and respondents respectively. The judgment was delivered on 5 April 1961 by Justice Kapur.

The Court explained that a Divisional Bench had referred two questions for consideration under the proviso to clause (3) of Article 145. The first question was whether the present imposition of octroi duty violated Article 276 or Article 301 of the Constitution. The second question concerned whether the failure to publish the final resolution of the tax in the Government Gazette rendered the tax invalid. The Court stated that the factual background had already been set out in the Divisional Bench’s order and need not be repeated.

The appellants, in both the appeals and the writ petitions filed under Article 32, challenged the constitutionality of the octroi duty on cotton and wool that the respondent Corporation had imposed within its octroi limits. The Court described the procedure for levying municipal taxes as prescribed by section 98 of the City of Bangalore Municipal Corporation Act (Act 69 of 1949). According to that provision, a resolution to impose a tax must be passed by the Corporation, published in the Official Gazette and in local newspapers, after which ratepayers may lodge objections. The Court noted that all requirements of section 98 had been satisfied except for the publication of the notification in the Government Gazette required by sub‑section (2). The respondents argued that this omission was a fatal defect affecting the legality of the tax, relying on earlier decisions of this Court, namely Harla v. State of Rajasthan and State of Kerala v. P. J. Joseph.

After the corporation had received objections within the time prescribed, it could, by passing a resolution, decide to levy the tax or duty that had been proposed. Once such a resolution was adopted, the commissioner was obligated to issue a notification without delay in both the Official Gazette and the newspapers, as required by sub‑section (1) of section 98 of the Act. That notification had to state the date from which the tax would become payable, the rate at which it would be charged, and the period for which, if any, the levy would apply. The order of the Divisional Bench recorded that every requirement of section 98 had been satisfied except that the notification in the Government Gazette, which is mandated by sub‑section (2), had not been published. The appellants submitted that this omission constituted a defect that was fatal to the legal validity of the tax imposition. To back up this argument, they relied on two earlier judgments of this Court: Harla v. State of Rajasthan ( 1) and State of Kerala v. P. J. Joseph ( 2). In the Harla case, the Jaipur Opium Act had been enacted by a resolution of the Council of Ministers appointed by the then Crown Representative, but the law was neither promulgated nor published in the Gazette and was not made known to the public; the Court held that the mere passage of the resolution by the Council of Ministers without any form of publication was insufficient to render the law operative. At page 114 the Court observed that some reasonable form of publication was necessary and that natural justice required a law to be promulgated or published in a recognizable manner before it could take effect. In the Kerala case, the Court found that no Gazette publication of the Government Order issued under the statutory power had occurred, nor was there any communication of that order to the person affected, and consequently held that the order, lacking Gazette publication, was not valid and could not possess the force of law. The respondent, however, pointed to section 38(1)(b) of the Act, which is intended to cure defects or irregularities that do not affect the merits of the case. That provision states: “No act done, or proceeding taken under this Act shall be questioned merely on the ground … (b) of any defect or irregularity in such act or proceeding, not affecting the merits of the case.” Under this provision, any defect or irregularity that does not influence the merits of the case saves the act or proceeding from being questioned on that basis. The appellants argued that section 38(1)(b) could not be applied to defects concerning the procedural requirements of section 98 because, when read as a whole, section 38 refers to a different situation, and internal evidence within the section itself demonstrated that it had no relevance to the objections raised by the appellants. The appellants contended that the section has no application to defects in regard to procedure

The Court observed that the argument advanced by the appellants regarding the lack of relevance of section 38(1)(b) to their objection was not convincing. The appellants contended that the provision was situated in Chapter 11, which deals with Municipal Authorities, and that the specific clause lay in the part of that chapter that contains provisions common to the Corporation and its Standing Committees. They pointed to the marginal note, asserting that it demonstrated the legislative purpose of the provision was to validate the proceedings of the Corporation and its Standing Committees, and therefore the entire section should be interpreted in that context.

According to the appellants, the section should be read as a saving provision intended to preserve the validity of proceedings of Municipal Authorities. They relied on clause (a) of subsection (1), which addresses defects arising from vacancies or constitutional irregularities in the Corporation or any Standing Committee, and on subsection (2), which refers to the meetings of the Corporation. From this, the appellants argued that the defect or irregularity mentioned in clause (b) of subsection (1) must also relate to the same type of constitutional defect mentioned elsewhere in the provision.

The appellants further submitted that the words “not affecting the merits of the case” indicated that the reference was not to any procedural defect concerning the imposition of taxes, but rather to defects that might arise in the Corporation’s proceedings and that were linked to a defect in the Corporation’s or its Standing Committees’ constitution. They also relied on the marginal note to support this interpretation.

The Court held that it was unnecessary to examine the relevance of marginal notes in construing section 38(1)(b) because, in the Court’s view, the language of the provision was clear and unambiguous. The provision, the Court said, validates any defect in any act done or proceeding taken under the Act and shields it from being questioned on the ground of any defect or irregularity that does not affect the merits of the case. The Court emphasized that the fact that the provision appears in a chapter dealing with Municipal Authorities, or that other parts of the section address different subjects, does not limit its operation to the specific defects alleged by the appellants.

The Court noted that the resolution imposing the tax had been published in newspapers and communicated to those affected, making it widely known. The failure to publish the resolution in the Government Gazette, the Court observed, did not affect the merits of its imposition. Consequently, the Court answered the second referred question by holding that the mere failure to notify the final resolution of the tax in the Gazette was not fatal to the legality of the imposition.

The Court then turned to the remaining referred question, namely whether the imposition of the tax violated Articles 276 or 301 of the Constitution. The Court began its analysis by quoting the relevant portion of Article 276(1), which states that notwithstanding anything in Article 246, no law of a State Legislature relating to taxes for the benefit of the State or a municipality, district board, local board or other local authority in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income.

Article 276 of the Constitution provides that taxes imposed by a State or a local authority for the benefit of that State or municipality, district, board, local board or other local authority, when levied on professions, trades, callings or employments, shall be invalid if such tax is in reality a tax on income. The provision further states that the total amount payable by any one person to the State or to any one municipality, district board, local board or other local authority in the State, in respect of taxes on professions, trades, callings and employment, shall not exceed two hundred and fifty rupees per annum. The respondents argued that the tax challenged in this case breached Article 276(2) because it required a payment of more than Rs 250 and therefore was unconstitutional. The Court found this argument to be without merit. The Court noted that a similar limitation existed in the Government of India Act, 1935, namely section 142‑A, which capped the amount at Rs 50 per annum and applied only after 31 March 1939. A review of the legislative lists shows that neither Article 276 nor section 142‑A of the 1935 Act relates to the tax that is being contested. The Court then examined the Devolution Rules under the Government of India Act, 1915, which listed the taxes that local bodies could levy as follows: item 7, an octroi; item 8, a terminal tax on goods imported into or exported from a local area, except where such a tax was first imposed in a local area that had not previously imposed an octroi before 6 July 1917; and item 9, a tax on trades, professions and callings. Under the Government of India Act, 1935, the relevant entries in List II were numbered 46 and 49. Entry 46 dealt with “Taxes on professions, trades, callings and employments, subject, however, to the provisions of section one hundred and forty‑two A of this Act,” while entry 49 concerned “Cesses on entry of goods into a local area for consumption, use or sale therein.” The Court observed that the terminal tax was placed in List I, the Central List, and is now entry 89 in the Union List. The corresponding entries in the Constitution’s List II are numbers 52 and 60, where entry 52 reads “Taxes on the entry of goods into a local area for consumption, use or sale therein” and entry 60 reads “Taxes on professions, trades, callings and employments.” The historical development therefore shows that, under the 1915 Devolution Rules, octroi, terminal tax and taxes on professions and callings were three separate heads of taxation. Likewise, the 1935 Act and the Constitution keep the two entries distinct. Consequently, when section 142‑A was introduced in the 1935 Act, its operation was confined to entry 46 of List II and did not affect entry 49, which deals with cesses on entry of goods. The Court concluded that, for the same reasons, Article 276 does not affect the entry dealing with cesses on entry of goods. Hence, the contention that the tax in question violates Article 276 is unsupported and must be rejected.

In the earlier discussion the Court observed that the provision in question related only to entry 46 of List II and made no reference to entry 49, which concerns cesses on the entry of goods. The Court further noted that the constitutional position mirrored this situation, so that neither section 142‑A of the Government of India Act, 1935 nor Article 276 of the Constitution could affect entry 49 of the 1935 Act or entry 52 of the Constitution. The Attorney‑General, arguing that the tax under challenge was a tax on trade, cited three decisions: The Municipality of Chopda v. Motilal Manekchand (I.L.R. [1958] Bom. 483); Gajadhar Hiralal Ginning & Pressing Factory v. the Municipal Committee, Washim (I.L.R. [1958] Bom. 625); and Secretary, Municipal Committee, Karanja v. the New East India Press Co. Ltd., Bombay (A.I.R. 1949 Nag. 215). The Court held that none of those cases applied because the facts differed and the nature of the imposition was distinct. Consequently the challenge to the tax’s constitutionality on the ground of violating Article 276 was deemed untenable and was rejected. The second ground of attack was based on an alleged breach of Article 301, which provides that, subject to other provisions of the Part, trade, commerce and intercourse throughout the territory of India shall be free. It was argued that the tax directly affected the movement of goods and thus contravened the guarantee of free trade. The Court referred to the judgment in Atiabari Tea Co. Ltd. v. State of Assam (I.L.R. [1961] S.C.R. 809), where Justice Gajendragadkar, speaking for the majority, explained that the freedom guaranteed by Article 301 is broader than the freedom contemplated by section 297 of the 1935 Act and certainly embraces the movement of trade, which is the essence of all trade. He observed that taxing the transport or movement of goods solely because the goods are being carried directly impinges upon the freedom of trade under Article 301, and that allowing such taxation without meeting the requirements of Part XIII would render the freedom of trade illusory. Justice Shah added that the content of the freedom is even wider, while the Chief Justice, on page 241 of the report, gave it a more restricted meaning. Relying on these observations, the petitioners contended that a tax affecting the movement of trade from one point to another falls within the prohibition of Article 301. The respondents, however, relied on Article 305 as it existed at the relevant time, which states that nothing in Articles 301 and 303 shall…

Article 305 stated that the provisions of Article 301 would not affect any existing law unless the President issued a direction to the contrary. The Court observed that, under this provision, the freedom of trade guaranteed by Article 301 could not interfere with pre‑existing statutes unless a presidential order specifically altered that effect. No such presidential direction had been issued. For the purpose of interpreting “existing law,” the Court referred to the definition contained in Article 366, clause (10), which described an existing law as any law, ordinance, order, bye‑law, rule or regulation that had been enacted or made before the commencement of the Constitution by a competent legislature, authority or person authorized to make such a rule. Further, Article 372 provided that all laws in force throughout India immediately prior to the Constitution’s commencement would remain operative until they were suitably altered, repealed or amended by a competent legislative body. These constitutional provisions were therefore relied upon to answer the question of whether Article 301 applied to the tax in dispute.

The Attorney‑General contended that the municipal levy at issue had been imposed after the Constitution had come into force, specifically from January 1955, and that it therefore constituted subordinate legislation rather than an “existing law.” Accordingly, he argued that the tax could not be saved by Article 305. Instead, the Attorney‑General maintained that the levy could be validly imposed only under the authority of Article 304(b), which permits a State legislature to enact reasonable restrictions on the freedom of trade, commerce or intercourse within the State when such restrictions are required in the public interest, provided that any such Bill or amendment receives prior sanction from the President. The argument was that, although the principal Act might qualify as “existing law” and thus be protected by Article 305, this protection extended only to taxes enumerated in Schedule III of Part V, item 18—namely, the octroi on animals and goods listed in Classes I to VII. The octroi on other articles placed in Class VIII, which had been introduced after the Constitution, represented a new bye‑law, rule or order and therefore did not fall within the meaning of “existing law.” The impugned tax was indeed levied under Class VIII of Part V, which allowed the corporation to approve, by a resolution, an octroi of up to two per cent ad valorem on other articles not specified in the earlier classes. Section 130 of the governing Act provided that, when the corporation resolved that octroi should be levied on animals or goods brought within the octroi limits of the city, such octroi must be imposed at rates not exceeding those specified in the schedule and in the manner determined by the corporation. The Attorney‑General thus submitted that this resolution, being a post‑constitutional regulation, could not be saved by Article 305 and required validation under Article 304(b).

The provision provided that if the municipal corporation resolved to impose octroi on animals or goods brought within the limits of the city, such duty had to be levied on the articles or goods listed in Part V of Schedule III and at rates that did not exceed those prescribed in that part. The method of levy could be fixed by the corporation. Consequently, whenever the corporation chose to impose octroi on the specified animals or goods, the rates applicable were limited to the maximum rates laid down in the relevant schedule. The petitioners contended that this rule constituted subordinate legislation and therefore was not protected by Article 305 of the Constitution, because “existing law” under that article is defined to include any law, ordinance, order, by‑law, rule or regulation that was enacted before the Constitution came into force. Since the contested octroi charge stemmed from a regulation enacted after the Constitution, the petitioners argued that it fell outside the protection of Article 305. To support this position, they relied on observations made by this Court in Hamdard Dawakhana (Wakf) v. Union of India. However, the Divisional Bench observed that the earlier decision was not applicable to the facts of the present case.

The respondent argued that the items of goods and animals were already specified in the Act, so no new regulation had been created, and that the situation involved conditional legislation rather than delegated legislation. It was submitted that the Act itself sufficiently identified the articles on which octroi could be imposed. Section 97 of the Act confers the power to levy octroi on any animals or goods brought within the octroi limits without any exception. Sections 98 and 130 prescribe the procedure for levying taxes and impose a ceiling on the amount of tax that may be charged. Classes I to VII of Schedule III list certain articles as taxable, while Class VIII authorises the corporation to tax other articles and goods if they receive corporate approval. This interpretative approach received support from the decision of this Court in Anwarkhan Mahboob Co. v. State of Bombay, where the issue was whether a provision that read “all goods other than those specified from time to time in Schedule A” amounted to a specification of taxable goods. The Court held that such wording did indeed constitute a sufficient specification. The respondent attempted to distinguish that case by pointing to the different wording, but the present statute’s combined effect of sections 97 and 130 and Part V of Schedule III, including Class VIII, is to create a very general class that effectively covers all articles as if they were expressly listed.

The Court observed that the argument relying on the difference in wording could not be accepted. Although the present statute employs words distinct from those in the earlier case, the Court noted that sections ninety‑seven and one‑thirty together with Part V of Schedule III, including Class VIII, produce a combined effect whereby the language is of a very general character. The Court explained that this generality results in the same practical outcome as if every article were expressly intended to be covered and consequently included. Because this conclusion rendered the distinction ineffective, the Court found it unnecessary to examine the respondent’s second contention. Accordingly, the Court answered the first question referred to it by holding that the octroi duty under challenge does not violate Articles 276 and 301 of the Constitution. In light of the rulings on both questions, the Court concluded that the appeals were unsuccessful and ordered their dismissal with costs and a hearing fee. As a further consequence, Writ Petitions numbered ninety‑seven and one‑zero‑seven were also dismissed, and no separate order as to costs was made in those petitions. The Court recorded the citation of the earlier decision, reference number one, [1961] 1 S.C.R. 709. Finally, the Court affirmed that the appeals and the petitions were dismissed.