Bagalkot City Municipality vs Bagalkot Cement Co

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

Court: supreme-court

Case Number: Civil Appeal No. 327 of 1962

Decision Date: 23 October 1962

Coram: A.K. Sarkar, S.K. Das, J.L. Kapur, M. Hidayatullah, Raghubar Dayal

In the matter titled Bagalkot City Municipality versus Bagalkot Cement Co., the Supreme Court delivered its judgment on 23 October 1962. The opinion was authored by Justice A.K. Sarkar and the bench comprised Justices A.K. Sarkar, S.K. Das, J.L. Kapur, M. Hidayatullah, and Raghubar Dayal. The petitioner was the Bagalkot City Municipality and the respondent was the Bagalkot Cement Company. The case was reported in 1963 AIR 771 and in the Supplement to the Supreme Court Reports 1963 (1) 710, with subsequent citations including RF 1972 SC 121, D 1984 SC 583, and RF 1985 SC 1683.

The dispute centered on the liability of the respondent to pay octroi duty on goods brought into its premises after the municipal district was extended. The municipality had originally fixed the octroi limits by by‑law to be identical with the municipal district as defined under the Bombay District Municipal Act 1901, sections 3(5), 4, 48, and 59. At the time the octroi duty was first imposed, the cement factory lay outside the municipal district and therefore was exempt from the duty. Subsequently, the Government used its power under section 4 of the same Act to enlarge the municipal district, thereby bringing the factory within the newly defined boundaries. The municipality argued that the octroi limits, being equated with the municipal district, should automatically expand to include the factory, making the respondent liable for octroi on all goods entering its premises.

The majority of the Court, represented by Justices Das, Kapur, and Sarkar, held that octroi duty could not be levied on the respondent. Their reasoning emphasized that the phrase “municipal district” in the by‑law referred specifically to the district as it existed when the by‑law was framed. They further explained that the contextual interpretation of the Act prevented the application of the definition “municipal district as from time to time existing” found in section 20 of the Bombay General Clauses Act 1904 to the by‑law. Moreover, the by‑law had not been published to the respondent; interpreting it as referring to the ever‑changing district would have violated section 48 of the Municipal Act, rendering the by‑law invalid for non‑compliance with statutory publishing requirements.

Justices Hidayatullah and Dayal dissented, contending that the octroi limits fixed by the by‑law should indeed encompass the area newly added to the municipal district, thereby rendering the respondent liable for octroi on goods entering its premises. They relied on section 20 of the Bombay General Clauses Act, asserting that the term “municipal district” in the by‑law must carry the same meaning as it does in the Act, and that no inconsistency in subject or context precluded this definition. They further noted that when the municipal district was extended, notice of the extension was published to the respondent, providing an opportunity to object to the inclusion of the area under the octroi‑imposing by‑law.

The Court observed that the respondent could have objected to the inclusion of the newly added area on the ground that the bye‑law imposing octroi duty would adversely affect it. However, the Act contains no explicit provision stating that a rule or bye‑law is inapplicable to a newly added area until a fresh enactment takes place, a principle that had been referred to in Rajnarain Singh v. The Chairman, Patna Administration Committee, Patna, [1956] 1 S.C.R. 290. The judgment then turned to the civil appellate jurisdiction, noting that the appeal was Civil Appeal No. 327 of 1962, filed against orders dated 5 July 1961 of the Mysore High Court in Bangalore, emanating from Writ Petition No. 556 of 1960. The appellant was represented by counsel for the Attorney General of India and counsel for the appellant, while the respondent was represented by counsel for the Solicitor General of India together with additional counsel for the respondent. The judgment, dated 23 October 1962, recorded that the opinions of Justices Das, Kapur and Sarkar were delivered by Justice Sarkar, and the opinions of Justices Hidayatullah and Dayal were delivered by Justice Dayal. The appeal challenged the decision of the High Court of Mysore, which had held that the respondent was not liable to pay any octroi duty to the appellant municipality for dutiable goods brought into its factory. The High Court’s view rested on an interpretation of the appellant’s bye‑law fixing octroi limits, under which the respondent’s factory was deemed to lie outside those limits.

The central issue in the appeal concerned the interpretation of that bye‑law. The appellant municipality had been constituted under the Bombay District Municipal Act, 1901, which, in Section 4, authorises the Government to declare any local area as a municipal district and to extend, contract or otherwise alter the limits of any municipal district. Section 9 of the Act provides that every municipal district shall have a municipality. Section 59, inter alia, empowers a municipality, subject to certain conditions, to impose “an octroi on animals or goods, or both, brought within the octroi limits for consumption, use or sale therein.” Acting under this provision, the appellant municipality imposed an octroi duty on certain goods. Section 48 of the Act further empowers a municipality to frame bye‑laws for various purposes, including the “fixing of octroi limits.” Accordingly, the appellant framed a bye‑law stating: “The Octroi limits of the Municipal District shall be the same as the Municipal District.” The dispute therefore turned on the meaning of the words “Municipal District” within that bye‑law. The respondent, a company owning a factory, had, prior to 3 September 1959, been located outside the municipal district as then constituted. There was no dispute that the respondent had continuously brought into its factory goods specified in the rule imposing octroi duty for consumption and use, but that no duty was payable while the factory lay outside the municipal district and consequently outside the octroi limits defined by the bye‑law. By a notification issued on 25 August 1959, the Government of Mysore extended the municipal district of the appellant municipality with effect from 3 September 1959, thereby bringing the respondent’s factory within the district. The appellant municipality thereafter demanded octroi duty on goods brought into the respondent’s factory, contending that the factory now fell within its octroi limits as defined by the bye‑law. The respondent contested this claim and sought a writ of mandamus under Article 226 of the Constitution, directing the appellant municipality to refrain from collecting the duty. The High Court rejected the appellant’s contention and issued the writ. The pivotal question before this Court was whether, upon the extension of the municipal district, the factory came within the octroi limits as defined by the bye‑law. The appellant argued that it did, supporting its position by noting that the expression “municipal district” had not been defined in the bye‑law and therefore the definition provided in Section 3(5) of the Act should apply by virtue of the statutory scheme.

On 25 August 1959 the Government of Mysore issued a notification extending the municipal district of the appellant municipality, with effect from 3 September 1959, so that the respondent’s factory fell within the expanded district. Following this extension the appellant municipality demanded that the respondent pay octroi duty on goods brought into its factory, contending that the factory now lay within the octroi limits defined by the municipal by‑law. The respondent challenged this claim by filing a petition under Article 226 of the Constitution in the High Court of Mysore, seeking a writ of mandamus that would restrain the municipality from collecting the duty. The High Court rejected the municipality’s argument and granted the writ, directing the municipality to refrain from levying the octroi. The pivotal question before the Court was whether the extension of the municipal district automatically brought the factory within the octroi limits prescribed by the by‑law. The municipality argued that the phrase “municipal district” was not defined in the by‑law and therefore the definition contained in section 3(5) of the Municipal Acts, as applied through section 20 of the Bombay General Clauses Act, 1904, should control. Section 3(5) defines a municipal district as the municipal district of a municipality “for the time being,” leading the municipality to assert that the octroi limits should follow the current configuration of the district, and consequently the factory fell within those limits after the extension. The Court was unable to accept this position. It explained that section 20 of the General Clauses Act provides that expressions used in by‑laws assume the same meaning as in the principal Act unless the context makes the definition repugnant. The Court found a repugnancy in this case. A by‑law under section 48 of the Municipal Acts must be made with the Government’s sanction and, as required by subsection 2, must be preceded by the publication of a draft for the information of persons likely to be affected, allowing them to make objections or suggestions before the municipality finalises the by‑law and the Government sanctions it. Consequently, a by‑law enacted without such prior publication would be invalid. “Persons likely to be affected” refers to those who would be directly impacted by the terms of the by‑law, not to the entire public. Publishing the by‑law to the whole world would be impracticable and was never intended; publication to persons residing outside the municipal district at the time of enactment or who were not rate‑payers was not contemplated. Therefore the by‑law setting the octroi limits had, in effect, been made without notifying the respondent, and the municipality’s contention that the factory now fell within the octroi limits could not be sustained.

In this case, the Court explained that the persons to be considered “likely to be affected” by a by‑law are those whom the by‑law, once enacted, is expected to impact according to its own terms. Because any individual may ship goods to locations that fall within the octroi limits, it could be argued that virtually everyone in the world might be affected by a by‑law that fixes those limits. If section 48(2) were interpreted to require publication of such a by‑law to every person who could possibly be affected, then a by‑law establishing octroi limits would have to be published to the entire world, an outcome that would be impossible to achieve and was clearly not intended by the legislature. It is evident that the requirement of publication was not meant to extend to persons residing outside the municipal district as it existed when the by‑law was made, nor to individuals who were not rate‑payers of the municipality. Consequently, the present by‑law must have been promulgated without publishing it to those outside persons, and there is no suggestion that the respondent was not among the persons omitted from publication.

The Court then considered the argument advanced by the appellant municipality. If that argument were accepted, the by‑law would bring the respondent’s factory and other premises within the octroi limits of the appellant municipality even though the by‑law had never been published to the respondent or to the owners of the premises. In such a scenario, the respondent and all similarly situated persons would be affected by a by‑law that had not been published to them before it was enacted. The Court held that a by‑law of that character would be invalid under the Act, being invalid from its inception and not merely upon the later extension of the municipal district, because it would have been made in violation of the provisions of section 48 and therefore would not constitute a validly made by‑law.

The Court rejected the counter‑argument that the by‑law could be valid because, at the time of its making, it did not affect anyone to whom it had not been published. The Court observed that this reasoning was based on a misconception. The by‑law would remain invalid because it contingently affected persons who were never published to—specifically, those residing outside the municipal district as it stood when the by‑law was enacted. The contingency arose from the possibility of extending the municipal district, and the by‑law itself provided that the limits it fixed could, under certain conditions, be extended. Accordingly, the phrase “municipal district” in the by‑law must be interpreted as referring to the municipal district existing at the time the by‑law was framed. The surrounding context prevents the definition supplied in the Act from being applied to interpret the by‑law, and the by‑law cannot be read as referring to a municipal district that changes over time.

Finally, the Court noted that it was not in dispute that, when the expression “municipal district” is understood in the manner described, the respondent’s factory has always been situated outside the octroi limits fixed by the by‑law. Consequently, the respondent cannot be held liable for paying octroi duty, and the fact that its factory now lies within the expanded municipal district does not alter that conclusion.

In this case, the Court observed that the respondent’s factory remained outside the octroi limits of the appellant municipality even after the municipal district was extended. It was argued that if the Court’s interpretation were correct, then a by‑law could never affect persons to whom it had not been published before its enactment; consequently, whenever a municipal district was extended, all existing by‑laws would have to be re‑promulgated for the newly added area because, hypothetically, those by‑laws would not have been published to the residents of the added territory at the time of their making. The appellant contended that such a result could not have been intended by the Act and therefore the Court’s view was erroneous. The Court first noted that no material had been placed before it indicating that the legislature did not intend that, on the extension of a municipal district, existing by‑laws could continue to operate without being re‑enacted. If that were truly not the legislative intention, the foundation of the appellant’s argument would collapse and no further discussion would be required. Nonetheless, the Court assumed for the sake of argument that the legislature intended existing by‑laws to apply to the added area without fresh re‑enactment. In that hypothetical scenario, such an intention would have to be grounded in some specific provision of the Act; it would be that provision which allowed the by‑law to affect persons who had not been previously notified, not the by‑law’s own terms or force. The Court clarified that this does not mean a by‑law cannot, under some provision other than section 48, affect persons who had not been published to before the by‑law’s creation. What the Court has held is that a by‑law cannot be made under section 48 in a manner that binds persons by its own terms unless those persons had been previously published to. The Court’s focus was solely on the original validity of a by‑law for the purpose of interpreting the meaning of its language. The appellant’s argument envisioned a situation where an already valid by‑law, by virtue of an independent statutory provision, would affect persons who had not been published to before its making. The Court did not accept this premise. It could not agree that the existence of any provision in the Act which extends a valid by‑law to newly added municipal areas and to residents there—although those residents may not have been previously published to—implies that a by‑law could be validly enacted without prior publication to the persons likely to be affected. The Court reiterated that if a by‑law cannot be so enacted, the present by‑law cannot be interpreted as bringing the extended municipal district within the octroi limits. To read it otherwise would contravene the context of the provision, and the General Clauses Act does not support such a construction.

The Court observed that extending the municipal district “from time to time” could not be interpreted to give the by‑law a meaning contrary to its context. The General Clauses Act did not support such an interpretation. Counsel for the appellant argued that the respondent had been given a chance to object when the municipal district was enlarged. Therefore, the respondent could not now claim a lack of opportunity to object to the rule imposing the octroi duty. The Court found this line of argument ineffective because the respondent’s objection was not based on the alleged lack of opportunity to object to the rule or the by‑law. The respondent simply maintained that it was not liable for octroi because its factory was situated outside the limits fixed by the by‑law. This contention raised a question of how the by‑law defining the octroi limits should be interpreted. The Court held that the respondent’s earlier opportunity to object to the municipal extension was irrelevant to the task of interpreting the by‑law, and that the present dispute required only that interpretation. The Court added that if a by‑law is invalid because it was not published to persons likely to be affected, the by‑law would not become valid. Such validity could not arise merely because the municipal district was later extended with notice to all entitled to object. The argument that the by‑law could not be amended and could only remain in its present terms, because it intended to place the whole municipal district within the octroi limits, was rejected. The Court explained that even if the new by‑law used identical wording, its substantive content differed markedly from the earlier enactment. This was because the municipal district contemplated by the new by‑law was not the same as the one contemplated by the earlier by‑law. Consequently, the Court held that in substance the by‑law was a changed instrument despite having the same form, and therefore its effect was different. The Court considered it unnecessary to rule on the respondent’s claim that the definition in section 3(5) of the Act did not envisage a municipal district that could be constituted from time to time. The Court consequently dismissed the appeal and ordered the appellant to pay costs. The judgment was signed by Justice Raghubar Dayal, who recorded the dismissal of the appeal and the order that costs be paid by the appellant.

Another judge expressed the contrary view, stating plainly that the appeal ought to be allowed because the legal issues had not been properly resolved by the previous decision. That judge relied on Section 59(1)(b)(iv) of the Bombay District Municipal Act, 1901, which empowers any municipality to levy octroi on animals or goods brought within the octroi limits for consumption, use or sale. The judge noted that the Bagalkot Municipality had imposed the tax and, under by‑law No 3, enacted that “the octroi limits of the Municipal District shall be the same as the Municipal District.” The judge observed that this by‑law had been framed before the municipal district’s limits were extended.

The area over which the Bagalkot Municipality exercised authority was extended by a declaration made by the State Government under section 4 of the Act on 25 August 1959. After this declaration, the limits of the Municipal District were enlarged, and consequently the manufacturing plant operated by the respondent company fell within the Municipal District that the Bagalkot Municipality controls. Although the municipal limits had been altered, the Municipality did not enact a fresh by‑law to reset the octroi limits of the Municipal District. Nevertheless, the Municipality demanded that the respondent company pay octroi on the goods that were brought into the factory. The respondent company contested this demand, arguing that the factory lay outside the octroi limits that were defined in the existing by‑law and that the goods in question had not been brought within those limits. The company further asserted that, without a new by‑law expressly extending the octroi limits to include the factory, the Municipality had no authority to levy octroi on goods entering the plant. The High Court accepted this argument and issued a mandamus directing the Municipality to refrain from collecting any octroi on goods that were delivered by the railway to the factory premises. In addition, the Court ordered the company to pay octroi on goods that arrived by road at the point of entry and to obtain a refund of any octroi paid at the point where the goods exited the octroi limits. The Court also directed the Municipality to issue such refunds. The Municipality appealed against the High Court’s order. In its appeal, the Municipality maintained that the octroi limits set by the by‑law it had framed automatically extended to the new limits of the Municipal District as declared by the Government on 25 August 1959, and therefore there was no need to pass a new by‑law establishing fresh octroi limits. The Court therefore needed to ascertain the scope of the octroi limits under by‑law No. 3(1), which states, “The octroi limits of the Municipal District shall be the same as the Municipal District.” This provision makes the octroi limits coterminous with the Municipal District’s boundaries, regardless of any future changes. Thus, if the Municipal District’s limits are extended, the octroi limits likewise extend to the new boundaries; if the limits are contracted, the octroi limits contract accordingly. Section 3(5) defines “municipal district” as any area that is presently a municipal district and any area that may become a municipal district under section 4, provided the district has not been dissolved under that section. Section 4 empowers the State Government, subject to sections 6, 7 and 8, to extend, contract or otherwise alter the limits of any municipal district.

In the present matter, the Court observed that the term “municipal district” referred to in the statute could be altered from time to time by extending, contracting or otherwise changing its limits, and that such alteration did not create a new municipal district but merely modified the existing one. The Court noted that the earlier municipal district continued to exist, with its area either enlarged or reduced according to the alteration. Sub‑sections (2) and (3) of the relevant provision were cited as providing, among other things, a clear method for specifying which local limits were to be included in or excluded from an existing municipal district by means of a notification, and for the erection and maintenance of boundary marks that would define the altered limits of the district. Consequently, the Court explained that the municipal district, as defined in section 3(5) of the Act, meant the local area that lay within whatever limits were fixed at a particular point in time. Turning to section 20 of the Bombay General Clauses Act, the Court held that the expression “municipal district” in the octroi by‑law would bear the same meaning as that expression in the Act, unless there was something repugnant in the subject or context. The Court found no such repugnancy in the context of the by‑law, and therefore concluded that the statutory definition applied equally to the by‑law’s use of the term. The Court then described the nature of octroi duty as a tax that was realised on goods entering the limits over which the municipality exercising the octroi had control. It emphasized that there was no reason why octroi duty, which was levied solely for revenue purposes and not to protect trade in any particular area, could not be charged on the same goods that entered any part of the municipality. In other words, the limits within which goods arriving from outside should pay octroi duty should not be different from the limits of the municipal district that the municipality controlled. The Court addressed the question of why clause (iv) of sub‑section (1)(b) of section 59 used the expression “octroi limits” instead of the term “municipal district,” a term that was used with reference to other taxes that a municipality could impose. The answer, the Court said, lay in sections 39 and 81 of the Act. Clause (b) of section 39 empowered a municipality to enter into an agreement with another municipality, cantonment authority, local board, panchayat or any committee appointed under Chapter XIV concerning the levy of octroi duty, whereby the octroi duties that were respectively leviable by the contracting bodies could be collected together rather than separately within the limits of the area, subject to the control of the parties involved. Section 81 authorised any one of the contracting bodies to establish such octroi limits and octroi stations deemed necessary for the entire area in which octroi was to be collected. The Court observed that the limits of any such two contracting parties would not be common throughout the whole area and would not be identical with the limits of either municipal district. Therefore, it would be necessary for the municipality that was to collect octroi duties under the agreement to fix the octroi limits for the entire area for the purpose of collecting octroi duties.

In this case the Court observed that the municipality which is tasked with collecting octroi duties under an agreement must determine the octroi limits for the whole area in order to collect those duties. Section 77(2) of the Act provides a penalty for evasion of octroi when goods that are liable to octroi are taken into a municipal district without payment of the duty, and the provision expressly refers to “municipal district” rather than to “octroi limits”. Consequently, the Court held that the appearance of the term “octroi limits” in clause (iv) of section 59(1)(b) does not permit a municipality to pick and choose parts of its area and exempt any portion from the levy. The ordinary rule, according to the Court, is that octroi duty must be imposed on every good that enters the limits of the municipal district that is under the municipality’s control. By‑law No 3, framed by the appellant municipality, embodies this principle. The respondent argued that the municipality could not issue a by‑law fixing octroi limits that might change from time to time. The Court found no basis for that argument. By‑law No 3(1) identified the limits of the municipal district as the octroi limits, and those limits are fixed until the Government alters the municipal district’s boundaries. Any change in the municipal district’s limits, whether by contraction or extension, automatically influences the definition of “octroi limits” because the definition of “municipal district” is read into “octroi limits” under the General Clauses Act. The Court therefore concluded that the municipality does not exceed its jurisdiction when it frames a by‑law allowing the octroi limits to vary in line with the municipal district’s boundaries. No jurisdictional issue arises when the district’s limits are contracted, and none arises when they are extended, because at the moment the by‑law becomes applicable to the newly added area the municipality already possesses authority over that area. If the municipality enacts a by‑law that takes immediate effect in the newly added portion, it does not exceed its powers. The Act itself contemplates the extension of municipal district limits and the application of its provisions to such extensions, and consequently the by‑laws that operate within the district will also operate in the extended area as soon as a fresh area is added. The Court found no provision in the Act or its rules that prevents the municipality from fixing octroi limits in this manner, nor any requirement that the municipality must revise the octroi limits each time the district’s area changes.

By a notification issued by the Government under section 4, the municipal district was extended. The Act did not provide that municipal by‑laws, which had been duly framed, would become null, void, or ineffective merely because the limits of the district for which they were originally framed were expanded. The respondent did not argue that the by‑laws ceased to operate within the former limits of the municipal district. Rather, the respondent asserted that the by‑laws could not be applied to the newly added area until the procedure prescribed in sub‑sections (2) and (3) of section 48 was complied with. The respondent’s reasoning was that, without following that procedure, the persons residing in the newly incorporated area would have no opportunity to object to the by‑laws that were intended to be made applicable to them. Sub‑section (2) required every municipality, before making any by‑law under the section, to publish a draft of the proposed by‑law in a manner it considered sufficient for informing the persons likely to be affected, to fix a date on or after which the draft would be taken into consideration, and to receive and consider any written objection or suggestion made before that specified date. Sub‑section (3) mandated that when a by‑law was submitted to the Central Government, State Government, or Commissioner for sanction, a copy of the notice published under sub‑section (2) and every objection or suggestion received had to be forwarded to the appropriate authority for its information. The appellant, on the other hand, relied upon section 8 of the Act, which afforded persons the opportunity to file objections, with reasons, within a prescribed period to any proposal for including a proposed area in an existing municipal district. The respondent contended that no objection concerning a particular by‑law or rule could be made at the time the Government invited objections to the proposal of extending the municipal limits, yet there was nothing in the legislation that barred such an objection. An objector could argue that inclusion of the area within the municipality would subject him and others to certain taxes, which under the prevailing circumstances would be unsuitable and prejudicial to the residents of that area. This perspective was endorsed by the Court in Rajnarain Singh v. The Chairman, Patna Administration Committee, Patna (1). In that case, a local area was incorporated within Patna City by a notification issued by the local Government under section 6 of the Patna Administration Act, 1915 (Bihar & Orissa Act 1 of 1915). The Act contained no provision for the local Government to solicit objections from the residents of the area proposed for inclusion, and the validity of the notification was not contested.

The Court observed that the Act under which the local Government operated contained no provision allowing it to publish objections from residents of an area that was to be incorporated into Patna. In the earlier case, the validity of the notification that created the inclusion was not challenged. However, shortly after the area had been added to Patna, the local Government issued a further notification on 23 April 1951 under section 3(1)(f). That notification extended to Patna the provisions of section 104 of the Bihar & Orissa Municipal Act, 1922, with certain modifications, and consequently subjected the inhabitants of the newly added area to municipal taxes. The Court held that the 23 April 1951 notification was defective because the local Government had altered the policy through the modification. The Court quoted the prevailing view that “an executive authority can be authorised to modify either existing or future laws but not in any essential feature. Exactly what constitutes an essential feature cannot be enunciated in general … it cannot include a change of policy.” The Court noted that there were divergent opinions in the earlier case, but it was clear from the cited opinions that a change of policy was beyond the authority conferred by section 3(1)(f). The Court further stated that the Governor’s action of subjecting the residents of the Patna Village area to municipal taxation without observing the formalities prescribed by sections 4, 5 and 6 of the Bihar & Orissa Municipal Act, 1922, infringed an essential feature of the Act and was therefore invalid. The Court added that the 23 April 1951 notification “does in our opinion, effect a radical change in the policy of the Act. Therefore it travels beyond the authority which, in our judgment, section 3(1)(f) confers and consequently it is ultra vires.” The change in policy was understood to be that the scheme of the 1922 Act required that people should not be liable to municipal taxation without first being given an opportunity to object to such a proposal. Sections 4, 5 and 6 of that Act guaranteed this right. Section 4 empowered the State Government to declare its intention to constitute or alter municipal limits. Section 5 required that objections submitted within a specified period after such a declaration be taken into consideration. Section 6 authorized the State Government, by notification, to constitute the municipality, to extend any or all provisions of the Act to the area, or to govern any local area within the municipality. Consequently, under the present Act, persons living in an area proposed for inclusion in the municipal district were permitted to file objections to the proposed inclusion.

In this case the Court observed that objections to the inclusion of an area in a municipal district could be raised on the ground that certain by‑laws imposing taxes would affect the objectors adversely. The Court noted that sub‑section (2) of section 48 of the Act requires that a proposed by‑law be published so that persons likely to be affected are informed of its contents. The Court explained that the persons who would be affected by a by‑law fixing octroi limits are not limited to the residents of the municipality; they also include traders and others who bring goods into the municipality for consumption, use or sale. According to the Court, these traders are in fact the first persons to bear the burden of the octroi duty because they must pay the duty at the point of entry and may later pass the cost on to purchasers. Consequently, the Court presumed that when the by‑law fixing the octroi limits is made, the required publication must give notice not only to the municipal residents but also to those external traders, and that such persons are entitled to file objections to the proposed by‑law.

The Court then reasoned that residents of an area that is later added to a municipality – an area that is necessarily adjacent to the original municipal territory – cannot successfully claim that they were denied an opportunity to object to the making of the by‑law. The Court further held that the provisions of the cited sub‑sections relate exclusively to the occasion when by‑laws are framed or amended, and therefore they do not affect the question of whether the by‑laws apply to the newly added portion of the municipal district. In the absence of any express provision in the Act stating that a rule or by‑law will not apply to the newly added area until it is re‑enacted following the regular procedure, the Court declined to accept the contention to the contrary. The Court warned that accepting such a contention would render the municipality unable to discharge its statutory functions in the new area because it would be deprived of the powers necessary to perform those functions until all existing by‑laws were re‑enacted.

The Court further referred to section 59 of the Act, which deals with the imposition of taxes for the purpose of raising revenue to meet the municipality’s obligations within its district. The Court concluded that residents of any part of the municipal district cannot escape liability for a tax merely because, at the time the tax was imposed, the area of their residence was not yet part of the municipal district. The Court observed that the legislature could not have intended to exempt such persons from tax liability when it authorised the extension of the municipal limits, unless it had expressly provided that the existing rules and by‑laws would not apply to the newly added area or that the residents of the newly added area would be exempt from the taxes then in force. Accordingly, the Court held that the by‑laws and taxes in force at the time of the extension continue to apply to the newly added area and to its residents.

The Court explained that when the limits of a municipal district are extended, the newly added area does not merely become subject to the municipality’s control but also falls under the same laws, rules and by‑laws that are already in force within the district. The Court further referred to section 191B of Chapter XIV‑A, which provides that if any local area is added to a municipal district, the State Government may, notwithstanding any other law, issue an order in the official gazette to extend and commence all or any taxes, rules, by‑laws or forms that were made, issued, imposed or granted under the Act by the existing municipality and that were in force immediately before the day on which the local area was incorporated. Such an order would apply these taxes, rules or by‑laws to the successor district municipality and would supersede any corresponding provisions that were previously in force in the other areas of the district until they are themselves superseded or modified under the Act. The Court observed that no order under this provision appears to have been issued by the State Government. Nonetheless, the provision indicates that compliance with the procedural requirements of subsection (2) of section 48 of the Act is not a necessary condition for the existing by‑laws of a municipality to apply to areas later added to it. If the Government were to issue an order, it would clarify the position, but the absence of such an order does not automatically render the matters mentioned in clause (x) of subsection (1) of section 19B ineffective in the area that has been included in the municipal district under a notification issued under section 4 of the Act.

The Court noted that the octroi limits fixed under By‑law No. 3 expressly include the area that was added to the municipal district by the notification dated 25 August 1959. Consequently, the respondent company was held liable to pay octroi duty on goods entering its premises. The Court therefore allowed the appeal with costs, set aside the order of the lower Court, and dismissed the respondent’s writ petition. In accordance with the view expressed by the majority, the appeal was dismissed with costs.