Poona City Municipal Corporation vs Dattatraya Nagesh Deodher
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 582 of 1961
Decision Date: 5 May 1964
Coram: K.C. Das Gupta, M. Hidayatullah, J.C. Shah, Raghubar Dayal
In this matter the Supreme Court of India delivered its judgment on 5 May 1964. The case was titled Poona City Municipal Corporation versus Dattatraya Nagesh Deodher. The bench that heard the appeal consisted of Justice K. C. Das Gupta together with Justices M. Hidayatullah, J. C. Shah and Raghubar Dayal. The petitioner was the Poona City Municipal Corporation and the respondent was Dattatraya Nagesh Deodher. The judgment is reported in the 1965 volume of the All India Reporter at page 555 and also in the 1964 Supplement to the Supreme Court Reports at page 178. Various citation references to later cases and the relevant statutory provisions are listed, including references to the Bombay Provincial Municipal Corporation Act of 1949, sections 127 and 487, and the octroi rules.
The factual background revealed that the respondent had been engaged in obtaining refunds of octroi duty on behalf of individuals and firms who had paid the duty and were legally entitled to a refund. He claimed reimbursement of the octroi amounts that his principals had paid for the period beginning on 15 February 1950, which was the date on which the appellant became a municipal corporation under the Provincial Municipal Corporation Act, 1949. Under rule 18(3) of the Octroi Rules framed by the municipal authorities, the corporation deducted ten percent from the amount claimed and paid the remaining balance to the respondent. The respondent asserted that, from the date the corporation came into existence, the ten‑percent deduction was no longer lawful. The corporation rejected this contention, and the respondent consequently instituted a suit seeking recovery of the deducted amount together with interest.
The corporation’s defence rested on three points. First, it argued that the deduction was lawful. Second, it contended that the respondent, not being the person who had originally paid the octroi duty, lacked standing to bring the suit. Third, it submitted that the suit was barred by the limitation period. The trial court held that the respondent did have standing to sue and that the limitation period did not apply, but it also concluded that the deduction was valid and therefore dismissed the suit. On appeal, the District Court disagreed with the trial court on the validity of the deduction, holding that the deduction was invalid, but it affirmed that the respondent could not maintain the suit and that the suit was time‑barred, and it dismissed the appeal. The matter was then taken to the High Court, which found in favour of the respondent on all three issues and allowed the appeal.
The Supreme Court set out its holdings as follows. First, it ruled that a tax imposed on the refund of octroi duty is not among the taxes that the Bombay Municipal Corporation is authorised to levy. The court observed that section 127 of the Bombay Act of 1949 expressly denies the corporation the power to impose such a tax, and that subsection (4) of the same section contains an explicit prohibition against any such imposition. Second, the court noted that even assuming, without deciding, that the levy could be characterised as a fee under section 466, the corporation had failed to make a standing order in accordance with that provision, and therefore the deduction could not be justified as a fee. These conclusions addressed the core issues of tax authority, the nature of the deduction, and the respondent’s right to sue.
It was observed that because no fee had been prescribed, the deductions could not be justified as a levy of a fee. The Court noted that the tax did not become a fee merely because the new legislation, Bombay Act 59 of 1949, prohibited the imposition of such a tax. Moreover, clause 5(a) of Appendix IV offered no justification for the percent deduction that was made after 15 February 1950, when Act 59 of 1949, with its explicit prohibition in section 127(4) against the corporation imposing a tax which the State Legislature lacked authority to impose under the Constitution, became applicable. The Court further held that the respondent, having made the claim in accordance with the applicable rules, was the person entitled to receive the amount that was legally refundable, and consequently he was also entitled to bring the suit. The Court also found that the suit was not barred by limitation. It was added that the benefit of section 487 of Act 59 of 1949 would be available to the corporation only if it were held that the deduction was “an act done or purported to be done in pursuance or execution or intended execution of the Act.”
The judgment was delivered in the civil appellate jurisdiction in Civil Appeal No. 582 of 1961, which was an appeal from the judgment and decree dated 25 August 1959 of the Bombay High Court in Appeal No. 774 of 1956. The appeal was presented by counsel for the appellant, and counsel for the intervener also appeared. The judgment was handed down on 5 May 1964 by Justice Das Gupta. The appeal was filed by the defendant, the Municipal Corporation for the City of Poona, in a suit for recovery of money. Historically, the Poona Municipality had been governed first by the Bombay District Municipal Act of 1901 (Act 3 of 1901). In 1925 it became a Municipal Borough under the Bombay Municipal Boroughs Act of 1925 (Act XVIII of 1925). Subsequently, under the Bombay Provincial Municipal Corporation Act of 1949, the Municipal Authority for the City of Poona became a corporation known as the Municipal Corporation for the City of Poona. From the time the city functioned as a municipality under Act 3 of 1901, an octroi duty was levied on goods imported within the municipal limits, and refunds were granted when such goods were exported out of the limits within prescribed periods. The respondent had, for many years, been engaged in securing octroi refunds on behalf of persons who had paid the duty and were legally entitled to a refund. For the period from 15 February 1950 to 14 September 1950, the respondent made a claim on behalf of his principals for a refund of Rs 73,650, which he asserted they were entitled to receive. The municipality, however, paid only ninety percent of this amount to the respondent, retaining the remaining ten percent in accordance with Rule 18(3) of the Octroi Rules that had been framed by the municipal authorities.
In this matter, the respondent informed the Municipal Corporation that, effective from 15 February 1950—the date on which the corporation was created under the Provincial Municipal Corporation Act, 1949—the deduction of ten percent authorized by Rule 18(3) of the octroi regulations had become unlawful. He asserted that the corporation should therefore pay the withheld amount to him. The corporation rejected this contention and declined to release the ten percent. Consequently, the respondent instituted a suit seeking recovery of Rs 7,364‑15, which represented the ten percent of Rs 73,650 allegedly retained improperly, together with interest. The corporation advanced three principal defenses. First, it maintained that the ten‑percent deduction remained legally valid. Second, it argued that the plaintiff, not being the actual payer of the octroi duty, lacked standing to sue. Third, it contended that the action was barred by the limitation period. The trial court held that the plaintiff possessed locus standi and that the suit was not time‑barred; however, the court concluded that the deduction of ten percent was lawful and consequently dismissed the suit. On appeal, the District Court of Poona reversed the trial court’s finding on the legality of the deduction, holding that the ten‑percent cut was not supported by law. Nevertheless, the district court affirmed that the plaintiff was not entitled to maintain the suit and that the claim was barred by limitation, and therefore dismissed the appeal. The plaintiff then proceeded to the High Court of Judicature at Bombay. The High Court ruled in favour of the plaintiff on all three issues, declaring the deduction invalid, affirming the plaintiff’s standing, and holding that the suit was not barred by limitation. The court awarded a decree for Rs 7,364‑15 with interest at four percent from the filing date and the same rate from the judgment date, and ordered costs throughout. The Municipal Corporation, now the appellant, challenged the High Court’s decision on each of these points.
The central issue for determination on appeal was whether the ten‑percent deduction prescribed in Rule 18(3) became invalid at least from 15 February 1950. Rule 18(3) read: “A deduction of ten per cent shall in all cases be made before refunding the amount of octroi duty on exportation of goods either in transit as per rule 13 or otherwise under rule II (2).” It was necessary to note that the legality of the deduction before 15 February 1950 was not contested before this Court. Accordingly, the Court proceeded on the basis that the provision contained in Rule 18(3) was valid in law prior to that date, and the inquiry focused on whether it ceased to be valid thereafter.
In this case, the Court examined whether a deduction that had been lawful before 15 February 1950 had lost its validity after that date. To answer that issue, the Court first needed to clarify the legal foundation on which the deduction was made before 15 February 1950. The record shows, through Exhibit D‑72 which reproduces a Government resolution dated 6 March 1922, that the Poona Municipality began to levy a ten‑percent deduction on octroi refunds starting in February 1921. The legality of that practice was questioned early on. The Legal Remembrancer of the Government of Bombay gave his opinion, stating: “The special powers conferred in the last sentence of clause (f) of section 48(1) of the Bombay District Municipal Act seems to negative the power of the Municipality (of Shirpur) to make any deduction from the refunds by means of rules regulating the system, for making refunds referred to in the earlier part of the clause. The charge on refunds appears, however, to be a kind of tax which may be imposed under s. 59(b)(xi) of the Act.” Following that opinion, the municipal councillors passed a resolution ordering that a ten‑percent tax be imposed on all octroi refunds in accordance with section 59(b)(xi). The proposal was sent to the Government of Bombay for approval, and the Government gave its sanction. Section 59(b)(xi) of Act 3 of 1901, which governs the powers of municipalities to levy taxes, enumerates taxes in clauses (i) to (x) and then includes in clause (xi) the phrase “any other tax.” The Government accepted the Legal Remembrancer’s view that the ten‑percent deduction from the amount to be refunded should be treated as a tax on octroi refunds, falling within the “any other tax” category of s. 59(b)(xi). After receiving the Government’s sanction, the Municipality was legally empowered, under the earlier Act, to levy that tax. It is not disputed that the deductions continued to be made under Rule 18(3) on the basis of that authority, namely as a tax imposed pursuant to s. 59(b)(xi) of the Bombay District Municipal Act, 1901. The tax levy persisted even after Act 3 of 1901 ceased to apply to Poona when the town became a Municipal Borough under the Bombay Municipal Boroughs Act, 1925, and no challenge to the continuation of the tax appears to have been raised. When the Bombay Provincial Municipal Corporation Act, 1949, came into force for Poona on 15 February 1950, the municipal taxation powers thereafter fell under section 127 of that Act, which initially authorises a corporation to impose certain specified taxes.
The Court observed that, under section 127 of the Bombay Provincial Municipal Corporation Act, a corporation may levy (a) property taxes and (b) a tax on vehicles, boats and animals. The provision further listed, in sub‑section two, other taxes that the corporation could impose, namely: (a) octroi, (b) a profession tax, (c) a tax on dogs, (d) a theatre tax, (e) a toll on animals and vehicles, and (f) any other tax which the State Legislature is empowered by the Constitution to impose within the State. Sub‑section four of the same section provides that nothing in the section shall authorize the corporation to impose any tax that the State Legislature lacks constitutional authority to impose. The Court therefore concluded that a tax on the refund of octroi does not fall within any of the taxes enumerated in the provision, nor is it a tax that the State Legislature may impose under the Constitution. Consequently, the corporation lacked the power to levy such a tax, and the categorical prohibition in sub‑section four barred the corporation from imposing it. Counsel for the respondent then attempted to persuade the Court that, even if the levy could not be made as a tax under the new Act, it might be sustained as a fee. In support of that argument, counsel referred to sections 147 and 466 of the Act. Section 466(1) authorises the Commissioner of the corporation to make standing orders consistent with the Act, the rules and bye‑laws, concerning matters specified therein, including the determination of supervision, routes, time and fees payable by persons conveying goods intended for immediate export out of the City. Section 147 deals with the presumption that imported goods are for consumption, use or sale unless it is proved otherwise, and mandates that goods be conveyed from the place of import to the place of export along routes, within time, under supervision and upon payment of fees as determined by the standing orders. The Court noted that the reference to fees in section 147 necessarily relates to fees prescribed by standing orders made under section 466(1)(f). The Court further stated that it was unnecessary to decide in the present appeal whether the provision in section 466 allowing the determination of fees for persons conveying imported goods is valid under law. Assuming, without deciding, that such a levy could be validly made as a fee under section 466, the Court then turned to the factual situation.
The Court observed that, contrary to the expectation that a fee might have been prescribed under section 466, there was in fact no standing order that prescribed any fee. The Court noted that subsection 2 of section 466 expressly provides that any order made by the Commissioner under clause A of subsection (1) would be invalid unless it had first been approved by the Standing Committee and subsequently confirmed by the State Government. The appellant Corporation could not point to any standing order made under section 466 that set out a fee, and therefore the deductions that were made in the present matter could not be justified as the levy of a fee.
The appellant then turned to clause 5(a) of Appendix IV to the Act, read in conjunction with section 493. Section 493 provides that the provisions of Appendix IV apply to the constitution of the Corporation and to other matters specified therein. Appendix IV is titled “Transitory Provisions” and is intended to address the situation that arose from the repeal of the old Act, as indicated in section 490. The relevant portion of clause 5(a) reads: “Save as expressly provided by the provisions of this Appendix or by a notification issued under paragraph 22 or order made under paragraph 23, (a) any appointment, notification, notice, tax, order, scheme, licence, permission, rule, bye‑law, or form made, issued, imposed or granted under the Bombay District Municipal Act, 1901 or the Bombay Municipal Boroughs Act, 1925 or any other law in force in any local area constituted to be a City immediately before the appointed day shall, in so far as it is not inconsistent with the provisions of this Act, continue in force until it is superseded by any appointment, notification, notice, tax, order, scheme, licence, permission, rule, bye‑law, or form made, issued, imposed or granted under this Act or any other law as aforesaid as the case may be.” Mr Patwardhan readily conceded that the ten‑percent deduction, being a tax on the octroi refund, could not be saved by clause 5(a) because such taxation plainly conflicted with section 127(4) of the Act. He nevertheless urged the Court to treat the levy as a fee, contending that, if regarded as a fee, it could continue under clause 5(a) of Appendix IV because the levy of a fee would be consistent with section 466. The Court observed that even if a fee had been collected under the old Act, such a levy could only continue until superseded by an order under the new Act issued pursuant to the District Municipal Act, 1901 or the Bombay Municipal Boroughs Act, 1925. However, the deduction in question was not a fee; it was a tax, and the tax did not become a fee merely because the new Act (Act LIX of 1949) came into force.
In this case, the Court held that clause five (a) of Appendix IV did not authorize the ten‑per‑cent deduction after 15 February 1950 because the Act LIX of 1949, which contains an explicit prohibition in section 127(4), had become applicable. The Court therefore concluded that the statutory provision prohibited the Corporation from imposing a tax that the State legislature lacked constitutional authority to levy. Consequently, the argument that the ten‑per‑cent deduction from the octroi amount was legally valid was correctly rejected by the High Court. The Court also concurred with the High Court’s finding that the plaintiff had the right to institute the present suit.
The Court examined the definition of “claimant” in the Poona City Municipality’s Octroi Rules and Bye‑laws, which describes a claimant as a person who produces the duly receipted import bill together with the corresponding export certificates, as set out in Rule 2, clause (g). It was not contested that, for each of the cases in which the Corporation had made a ten‑per‑cent deduction, the plaintiff produced the required import bill and export certificate. On that basis, the Corporation refunded ninety per cent of the amount paid by various exporters to the claimant. The Court found it difficult to understand why the plaintiff, who was entitled to receive the ninety per cent refund, could not also claim the remaining ten per cent. Since the plaintiff had already delivered the receipted import bill and export certificates to the Corporation, other merchants who had imported and exported the goods could not make a fresh claim, because no claim would be accepted without the requisite documents. Mr Patwardhan’s suggestion that the definition of claimant applied only to the ninety‑per‑cent refund lacked substance. Rule 11 governs the procedure for refund claims and requires the claimant to produce a duly receipted import bill and an export certificate, as stated in Rule II (2) (iv). These procedural requirements operate independently of Rule 18 (3), which provides that a ten‑per‑cent deduction must be made before refunding octroi duty in certain situations. Accordingly, the Court concluded that the plaintiff, having complied with the rules, was the person entitled to receive the amount that was legally refundable. Because the ten‑per‑cent deduction was held to be unlawful, the entire amount paid was refundable, and it follows that the plaintiff was
The Court held that the plaintiff, having complied with the applicable rules, was the person entitled to obtain the refund and therefore also entitled to institute the suit. The Court then examined the appellant’s contention that the suit was barred by limitation. For that contention the appellant relied upon section 487 of the Act LIX of 1949. The Court reproduced the essential part of that provision, which states that no suit shall be instituted against the corporation, the commissioner, the transport manager or any municipal officer or servant in respect of any act done or purported to be done in pursuance of, or in execution of, or intended to be executed under the Act, or in respect of any alleged neglect or default in the execution of the Act, unless either (a) a written notice stating with reasonable particularity the cause of action, the name and residence of the plaintiff and of his attorney, pleader or agent is left at the chief municipal office in the case of the corporation or delivered to the commissioner, the transport manager or the municipal officer at his office or place of abode, and one month has elapsed after such notice; or (b) the suit is commenced within six months after the cause of action accrues. The Court observed that the benefit of this section would be available to the corporation only if the deduction of ten per cent were characterised as an act done or purported to be done in pursuance of, or in execution of, or intended to be executed under the Act. The Court had already held that the levy of ten per cent was not made in pursuance of the Act. Moreover, in view of the provisions of section 127(4), the Court noted that a levy plainly prohibited by the Act could not be described as purported to be done in pursuance of or intended execution of the Act. Accordingly, the Court concluded that the High Court was correct in holding that the suit was not barred by the limitation provision. All the points raised in the appeal failed, and the appeal was dismissed. Finally dismissed.