Bangalore Woollen, Cotton and Silk Mills Co. Ltd. vs The 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: 3 February 1961

Coram: J.L. Kapur, M. Hidayatullah, J.C. Shah

In this case the matter was styled Bangalore Woollen, Cotton and Silk Mills Co. Ltd. versus the Corporation of the City of Bangalore. The judgment was delivered on 3 February 1961 by the Supreme Court of India. The bench was composed of Justices J.L. Kapur, M. Hidayatullah and J.C. Shah. The petitioner was Bangalore Woollen, Cotton and Silk Mills Co. Ltd., and the respondent was the Corporation of the City of Bangalore. The decision is reported in the All India Reporter at 1962 AIR 1263 and in the Supreme Court Reporter at 1961 SCR (3) 698. It has subsequently been cited in later reports identified as D 1966 SC 1686, R 1980 SC 882 and other authorities. The dispute arose under the City of Bangalore Municipal Corporation Act, 1949 (Act LXIX of 1949), specifically concerning the municipal power to levy an octroi on cotton and wool. The statutory provisions engaged were sections 38(1), 97(e), 98(1) and 98(2) of that Act. The headnote of the judgment records that the municipal corporation resolved to levy octroi on cotton and wool and that the resolution was published in the Official Gazette as required by section 98(1). After publishing the resolution, the corporation invited objections; the appellants filed objections to the tax. A final resolution was thereafter passed under section 98(2); this final resolution was published in local newspapers but not in the Official Gazette. Notices were also sent to the appellants informing them that, after considering the objections, the municipality had decided to levy octroi on the goods at the rate already notified. The appellants then filed writ applications under Article 226 of the Constitution in the High Court challenging the legality of the octroi levy. The High Court dismissed the applications. The present appeal was taken to the Supreme Court with a certificate of the High Court, raising issues such as whether publication in a newspaper sufficed, whether the notice was technically defective, whether the delegation of power to specify goods was excessive, and whether raw cotton or wool remained “raw material” for the purposes of the Act.

The Supreme Court held that the publication of the resolution in the Official Gazette together with the invitation of objections and the filing of those objections under section 98(1) satisfied the statutory requirements of the Act. The Court observed that a notice which stated that the tax had been resolved to be levied, rather than stating that it was intended to be levied, was at most a technical defect. Such a defect could be cured by section 38 of the Act, which validates procedural irregularities. The Court further held that it was not necessary to first pass a resolution specifying the goods and then pass a separate resolution expressing the intention to impose the tax. In the present case the goods and the rate of tax were specified in the resolution that had been passed after complying with the procedure laid down in section 98(1). This constituted substantial compliance with the provisions of the Act. The legislature had empowered the municipality to tax various goods and had enumerated certain categories of goods. Class VIII in Part V of Schedule III, read with section 97(e), authorized the municipality to impose tax on other articles and goods. In the present case a resolution sought to include the disputed goods in the Schedule for the purpose of imposing the tax, and the Court concluded that the municipality’s actions were within the powers granted by the Act.

In this matter, the Court noted that the decision in Bijay Colton Mills Ltd. v. Their Workmen [1960] 2 S.C.R. 982 was distinguished. The Court explained that the authority given to the Municipality to specify goods under Class VIII operates as a conditional delegation of power and therefore does not represent an excessive delegation of authority. The Court followed the principle set out in Baxter v. Ah Way (1909) 8 C.L.R. 626. It also observed that the ruling in Hamdard Dawakhana v. Union of India [1960] 2 S.C.R. 671 was not applicable to the present circumstances. The High Court was correctly decided, the Court held, that cotton and wool remain classified as raw materials for the purposes of the Act even though they may be ginned and pressed into bales. The resolution examined in this case was intended to cover the articles that the appellants had imported into the jurisdiction of the Corporation of Bangalore.

The judgment concerned civil appeals numbered 448 and 449 of 1957, which arose from the order dated 27 September 1956 of the Mysore High Court in writ petitions 44 and 45 of 1955. Counsel for the appellant in appeal 448 of 1957 were named, as were counsel for the appellant in appeal 449 of 1957. Counsel for the respondent included the Advocate‑General of Mysore and additional legal representatives. The appeal was heard on 3 February 1961, and the judgment was delivered by Justice Kapur. The Court explained that the two appeals challenged the legality of an octroi imposed on wool and cotton under section 98 of the City of Bangalore Municipal Corporation Act (Act LXIX of 1949), hereinafter referred to as “the Act”. On 31 March 1954, a resolution purported to be made under section 98(1) of the Act resolved to levy an octroi on cotton and wool, specifying a duty of one rupee nine paisa per hundred rupees ad valorem on raw cotton and wool, whether loose or compressed, and whether of Indian or foreign origin. This resolution was notified in the Mysore Gazette on 3 April 1954 and was published as required by section 98(1). Both appellants were invited to object and each filed objections. A final resolution under section 98(2) was passed on 21 December 1954, and the octroi came into force on 1 January 1955. Although the final resolution was not placed in the Official Gazette, it was published in local newspapers and a notice dated 23 December 1954 was sent to the appellants, indicating that after considering their objections the Municipality had decided to levy the octroi at the previously notified rate. The appellant in appeal 448 of 1957 subsequently filed a petition in the High Court.

In a petition presented to the High Court on 15 March 1955, invoking Article 226, the appellant challenged the validity of the octroi imposed by the municipality. The challenge was based on three specific grounds: first, that the tax violated section 98(2) of the Municipal Act because the required notice had not been published in the Official Gazette; second, that the tax was contrary to section 130 of the same Act; and third, that the imposition involved excessive delegation of authority. Subsequently, a second petition was filed in case C.A. 449/57 on 17 March 1955. In addition to reiterating the earlier objections, the second petition raised further constitutional challenges, contending that the octroi was invalid for the following reasons: (i) it breached Article 276(2) of the Constitution, which forbids a tax on trade that exceeds Rs 250 per annum; (ii) it contravened Article 301, which guarantees freedom of inter‑State trade and commerce; and (iii) it was inconsistent with Article 19(1)(g), which protects the right to practice any lawful trade, occupation, or business. The High Court dismissed all of the appellant’s objections. Dissatisfied with that decision, the appellant sought to bring the matter before this Court by obtaining a certificate under Article 133(1) of the Constitution. To resolve the core issue of whether the octroi was lawfully imposed, it was necessary to examine the relevant statutory provisions. Section 97 of the Municipal Act lists the various taxes and duties that the Corporation may levy; subsection (e) expressly authorises the Corporation to levy an octroi on animals, goods, or both when such items are brought within the octroi limits for consumption or use therein. Section 98 governs the procedural requirements for imposing municipal taxes. Sub‑section (1) mandates that before the Corporation adopts any resolution imposing a tax or duty for the first time, it must direct the Commissioner to publish a notice of intention in the Official Gazette as well as in local newspapers, and must allow a reasonable period of at least one month from the Gazette publication for the submission of objections. After considering any objections received within that period, the Corporation may pass a resolution specifying the rate, the date from which the tax will be levied, and the duration of the levy. Sub‑section (2) further requires that once the Corporation has decided to levy a tax or duty for the first time or to alter its rate, the Commissioner must promptly publish a notice, in the manner prescribed by sub‑section (1), stating the effective date, the rate, and the period of levy, if any. The appellant contended that, instead of first publishing its resolution to impose the octroi duty, the Corporation should have issued a notice of intention, and that the failure to follow this sequence rendered the imposition invalid.

In this case the municipality was not permitted to adopt a resolution that immediately imposed the tax; instead it first placed the resolution in the Official Gazette and, pursuant to the requirements of section ninety‑eight one, invited objections which were subsequently filed. The only shortcoming, if it may be called a shortcoming at all, was that the notice used the phrasing that the tax “had been resolved to be levied” rather than stating that the municipality “intended” to impose a tax; this distinction was deemed a mere technicality without substantive effect. A further objection argued that after the corporation considered all objections and adopted the resolution, the subsequent notice appeared only in local newspapers and not in the Government Gazette, and that this omission constituted a serious defect rendering the tax illegal and ultra vires. Counsel for the appellants supported this contention by citing several decisions, namely Krishna Jute & Cotton Mills v. The Municipal Council, Vizianagram; Municipal Council, Rajamundry v. Nidamarti Jaladurga Prasadarayudu; The Municipal Council, Anantapur v. Sangali Vasudeva Rao; Manak Chand v. Municipal Council; and State of Kerala v. P. J. Joseph, in which publication in the Official Gazette was held to be a condition precedent for the legality of a tax imposition. The Court indicated that this issue would not be decided in the present proceedings because the matter was being referred to a larger Bench for consideration of broader constitutional questions, and that the objection would be addressed in a subsequent sequel. The second objection raised concerned alleged non‑compliance with section one‑thirty of the Act. Section one‑thirty reads: “If the corporation by a resolution determines that an octroi should be levied on animals or goods brought within the octroi limits of the city, such octroi shall be levied on such articles or goods specified in Part V Schedule III at rates not exceeding those laid down in the said Part in such manner as may be determined by the corporation.” The Court explained that this provision does not create a new charge but limits the municipal authority to impose a rate exceeding the maximum prescribed. Additionally, the appellants argued that before a resolution under section ninety‑eight one could be passed, the goods to be taxed needed to be specified under section one‑thirty read with Schedule one‑eleven Part V of the Act. Clause eighteen of that schedule enumerates the maximum rates for octroi on animals and goods, dividing them into Classes I to VII, which list specific articles with their maximum rates, and Class VIII, which permits a maximum rate of two percent on other articles not specifically listed.

The Court explained that the phrase “approved by the Corporation ad valorem” by an order in this behalf creates a class that authorises the Municipal Council to levy octroi duty on articles not listed in the Schedule, provided that such articles are approved by the Corporation. In effect, the Corporation may select additional goods on which to impose tax. The respondent Corporation, in the present case, exercised this power by resolving to levy octroi on raw cotton and wool and by fixing the rate at one rupee nine annas per cent ad valorem. The appellants contended that, because of section 130, a resolution first had to identify raw cotton and wool as taxable goods and subsequently the procedures of section 98(1) and (2) had to be followed. The Court held that this contention lacked substance. The Corporation had, in fact, passed a single resolution that both identified the goods for octroi liability and stipulated the rate at which they would be taxed. Even if the appellants’ argument were interpreted most strictly, there was no breach of section 130 because the goods were specified, the rate was specified, the resolution reflected both specifications, and the procedural requirements of section 98(1) were thereafter observed. The Court further observed that it was not necessary to pass a first resolution naming the goods and a second resolution expressing the Municipality’s intention to tax those goods; the combined resolution satisfied the statutory scheme.

The Court then addressed the argument concerning the wording of Class VIII in Part V of Schedule III, which refers to “other articles which are not specified above” that may be approved by the Corporation by order in this behalf. The appellants argued that this language required the goods to be precisely named and added to the Schedule, relying on the Court’s interpretation of the phrase “in this behalf” in Bijay Cotton Mills Ltd. v. Their Workmen (1). The Court dismissed that reliance, noting that the cited case involved a different factual context and merely held that a notification must be issued designating the Central Government as the appropriate authority. In the present matter, the resolution itself was intended to bring the disputed goods within the Schedule for the purpose of imposing the tax. Consequently, the Court found that the Corporation’s action was consistent with the statutory provisions and that the claim of excessive delegation under Class VIII did not arise from the facts of this case.

In this case the Court observed that the contention that the Municipal Corporation’s authority to list goods under Class VIII represented an excessive delegation of power was not a matter that had been raised before the High Court, and the submission lacked any substantive basis. The argument asserted that such power was both uncanonised and uncontrolled, and relied upon the decision of this Court in Hamdard Dawakhana v. Union of India. The Court, however, found that the Hamdard judgment was inapplicable to the present facts. It noted that the legislature had expressly delineated the Municipality’s capacity to levy taxes on various goods, enumerating specific articles and animals, and that Class VIII, read with section 97(e) of the relevant Act, authorised the Municipality to impose tax on additional articles and goods. The Court characterised this authority as a form of conditional delegation, citing the principle established in Baxter v. Ah Way, where the power conferred by section 52(g) of the Australian Customs Act of 1901 was held to be conditional legislation rather than a delegation of legislative power, because it allowed the Governor‑General in Council to determine the class of goods and the conditions for prohibition beyond those listed in the statute. In the present matter, the legislature merely identified certain articles on which octroi duty could be imposed and then granted the Municipal Corporation discretion to decide, under what conditions, other goods might also be subject to the tax. Accordingly, the Court concluded that this situation did not fall within the rule articulated in Hamdard Dawakhana. Regarding C.A. 449/57, the appellant argued that a duty imposed on raw cotton could not extend to processed cotton that had been ginned, combed or pressed. The High Court had held that cotton, once ginned or pressed into bales, remained “raw cotton” for the purposes of the Act, and the same reasoning was applicable to wool. The notification imposing the tax expressly specified that raw cotton and wool comprised both loose and compressed forms, irrespective of whether they were of Indian or foreign origin. The Court rejected any interpretation that would limit the notification to cotton harvested directly from the fields and not subjected to ginning or pressing. It thus agreed with the High Court that the resolution covered the articles which the appellants had been importing into the limits of the Corporation.

The Advocate‑General who appeared for the respondent referred to section 38 of the Act. Section 38(1) reads: “No act done, or proceeding taken under this Act shall be questioned merely on the ground… of any defect or irregularity in such act or proceeding, not affecting the merit of the case.” The effect of this provision is to validate any defect or irregularity in an act or proceeding where such defect does not affect the merits of the case. Counsel submitted that section 38 belongs to a different chapter of the statute, namely chapter 2, which contains provisions common to the Corporation and the Standing Committees. The Court acknowledged that although the section is situated in another chapter, its language is broad enough to cover all defects or irregularities in any act or proceeding so long as those defects do not influence the merits of the case.

The Court indicated that two substantive questions should be placed before a Constitution Bench for consideration. The first question is whether the tax imposed in the present matter contravenes Article 276 or Article 301 of the Constitution. The second question is whether the failure to publish the final resolution imposing the tax in the Government Gazette defeats the validity of the tax. The Court explained that if either of these questions is answered affirmatively, the appeal must be allowed. Conversely, if both questions are answered negatively, the appeal will fail because all other issues have already been decided against the appellants. The Court further ordered that costs will follow the event unless the Constitution Bench, when hearing the reference, decides otherwise. Accordingly, the matter was referred to the Constitution Bench for final disposal.