The Town Municipal Committee, Amravati vs Ramchandra Vasudeo Chimote And Another

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 598 of 1962

Decision Date: 3 March 1964

Coram: N. Rajagopala Ayyangar, K.N. Wanchoo, K.C. Das Gupta, J.C. Shah

In the matter titled The Town Municipal Committee, Amravati versus Ramchandra Vasudeo Chimote and Another, the Supreme Court of India issued its judgment on the 3rd of March, 1964. The judgment was authored by Justice N. Rajagopala Ayyangar, who sat on a bench together with Justices K. N. Wanchoo, K. C. Das Gupta and J. C. Shah. The petition was filed by the Town Municipal Committee of Amravati, while the respondents were Ramchandra Vasudeo Chimote and another individual engaged in the business of gold, silver and precious stones within the municipal limits.

The case involved the imposition of a terminal tax by the Amravati Municipality on certain articles of precious metal and gemstone. Earlier, by a municipal notification dated 10 August 1916, the municipality had levied a terminal tax on goods imported by road or rail, expressly exempting silver, bullion and coins from that tax. When the Government of India Act, 1935 assigned the power to levy terminal taxes on rail‑imported goods exclusively to the Federal Centre, the municipal authority was authorised under section 143 of that Act to continue collecting the terminal taxes that were already in force before the Act’s operation. After the Constitution of India came into force, article 277 was interpreted to permit the continuation of such pre‑existing terminal taxes even though the legislative competence for new taxes had transferred to the Union.

In 1960 the Amravati Municipality issued a new notification imposing terminal taxes on three additional categories: silver and silver jewellery, gold and gold jewellery, and precious stones. The respondents, who carried on a trade in these items within the municipal jurisdiction, challenged the validity of the new taxes by filing a writ petition under article 226 of the Constitution. The High Court granted the writ and struck down the municipal taxes as beyond the municipality’s legislative authority. The municipal committee appealed the decision to the Supreme Court, obtaining a certificate of fitness from the High Court as required for appeal in a constitutional matter.

The Supreme Court examined whether the newly imposed taxes could be regarded as “being lawfully levied” and “applied to the same purposes” before the Constitution’s commencement, as required by article 277. The Court observed that the three items—silver and silver jewellery, gold and gold jewellery, and precious stones—had never been subject to a municipal terminal tax prior to the Constitution. Consequently, the taxes on these items could not be described as having been lawfully levied before the Constitution, nor could they be said to be applied to the same purposes as the earlier taxes. The Court further held that article 277 was not intended to grant municipalities an unrestricted power to create new taxes merely because they resembled earlier taxes in type or nature. Accordingly, the appeal was dismissed, and the municipal taxes on the newly specified items were declared invalid.

In this judgment the Court noted that the decisions in Rama Krishna Ramanath v. The Janpad Sabha, Gondia, reported in [1962] Supplement 3 S.C.R. 70, and in Chuttilal v. Bagmal and Balwantrai, reported in I.L.R. [1956] M.B. 339, had been referred to. The matter before the Court was a civil appellate jurisdiction comprising Civil Appeal No. 598 of 1962, which was an appeal from the judgment and order dated 18 March 1961 of the Maharashtra High Court (Nagpur Bench) in Special Civil Application No. 30 of 1960. The appeal was joined by Civil Appeals Nos. 695 and 700 of 1962, which were appeals from judgments and orders dated 12 October 1961 and 18 March 1961 of the Madhya Pradesh High Court in Miscellaneous Petitions Nos. 122 of 1961 and 319 of 1960 respectively. Counsel for the appellant in Civil Appeal 598 of 1962 was provided by counsel for the appellant. Counsel for the respondent in the same appeal was provided by counsel for the respondent. In Civil Appeal 695 of 1962, counsel for the appellant was supplied by counsel for the appellant, while counsel for respondent No. 1 and counsel for respondent No. 2 were respectively represented by counsel for respondent No. 1 and counsel for respondent No. 2. In Civil Appeal 700 of 1962, counsel for the appellant was again counsel for the appellant; counsel for respondents numbered 1 to 4 and 6 to 9 was supplied by counsel for those respondents, and counsel for respondent No. 10 was provided by counsel for respondent No. 10. The judgment was delivered on 3 March 1964 by Justice Ayyangar. The Court explained that these three appeals, each based on a certificate of fitness issued by the respective High Courts— the first by the High Court of Bombay at Nagpur and the other two by the High Court of Madhya Pradesh— presented a common question concerning the interpretation of Article 277 of the Constitution and the validity of certain terminal taxes imposed by the municipal authorities that were the appellants. Those taxes had been levied under notifications issued pursuant to Chapter IX of the Central Provinces and Berar Municipalities Act, 1922, after the Constitution had come into force, and therefore the three appeals were heard together. Civil Appeal 598 of 1962 specifically involved an appeal by the Municipal Committee of Amravati against a decision of the High Court that had allowed the first respondent’s petition under Articles 226 and 227 of the Constitution. The Municipal Committee of Amravati had been created under the Central Provinces and Berar Municipalities Act, 1922 (referred to as the Act). Chapter IX of the Act deals with the power to impose, assess and collect taxes that the municipal committee may enact. Section 66 of that chapter enumerates the various taxes that the committee may impose from time to time, listing fifteen different classes. Clause (o) of the first sub‑section of Section 66 provides that “the terminal tax on goods or animals imported into or exported from the limits of the municipality” may be imposed, subject to the condition that a terminal tax under this clause and an octroi under clause (e) shall not operate simultaneously in any municipality.

In this case, the Court explained that the provisions most pertinent to the appeal were sub‑clauses (2), (3) and (4) of Section 66 of the Municipalities Act. Sub‑clause (2) provided that the State Government could, by means of rules made under the Act, regulate the imposition of taxes covered by Section 66 and could also set maximum rates for any such tax. Sub‑clause (3) required that the first imposition of any tax listed in subsection (1) could be made only after obtaining prior sanction from the State Government. Sub‑clause (4) permitted, subject to State Government control, the municipal committee to abolish any tax already imposed under the clauses (a) to (i) of subsection (1), or to vary the amount or rate of such a tax within the limits prescribed by subsection (2); however, the Court noted a condition that if the municipality was indebted to the Government, any abolition or reduction in the amount or rate of a tax also required prior State Government sanction.

The Court then turned to Section 67, which set out the procedure for imposing taxes. Under subsection (1) of Section 67, a municipal committee could, at a specially convened meeting, pass a resolution proposing the imposition of any tax authorized by Section 66. When such a resolution was passed, subsection (2) required the committee to publish, in accordance with rules made under the Act, a notice containing a description of the class of persons or property to be taxed, the amount or rate of the tax, and the assessment system to be used. Subsection (5) authorised the State Government, upon receiving the proposal, to either sanction it, refuse sanction, sanction it with modifications it deemed appropriate, or return it to the committee for further consideration. Sub‑section (6) stipulated that any substantive modification could not be effected unless the committee accepted it at a special meeting. Finally, subsection (8) declared that a notification of tax imposition issued under this section served as conclusive evidence that the tax had been imposed in compliance with the Act.

Regarding the variation of taxes, the Court cited Section 68. Sub‑section (1) allowed a municipal committee, at a special meeting, to pass a resolution either to abolish an already imposed tax or to vary its amount or rate. Sub‑section (3) required that, when the proposal sought to increase the amount or rate, the committee must publish a notice, as prescribed by the rules, detailing the effects of the proposed increase. Sub‑section (4) gave any inhabitant of the municipality the right to submit a written objection to the committee within thirty days of the notice’s publication. Sub‑section (5) mandated that the committee consider both the proposal and all objections received at a special meeting, may modify the proposals as it deemed fit, and then pass a final resolution on the matter. Sub‑section (6) reinforced the procedural requirements for such variations.

In the statutory scheme governing the municipal committee, any proposal that requires prior approval from the State Government under section 66, sub‑section (4) or sub‑section (5), must be transmitted by the committee to the State Government. The State Government then processes the proposal according to the procedure set out in section 67, sub‑sections (4), (5) and (6). Moreover, the Act provides that once an abolition or variation of any tax is published in the manner prescribed, that publication constitutes conclusive evidence that the abolition or variation has been effected in strict compliance with the provisions of the Act.

Even before the municipality was constituted under the Act, and while the municipal committee was still operating under the Berar Municipal Law of 1886—whose taxation provisions were carried forward by the Act of 1922—the municipality had imposed a terminal tax on goods brought in by road or rail. This tax was introduced by a notification dated 10 August 1916 and applied to several specified categories of goods, expressly exempting silver, bullion and coin. The 1916 notification was later superseded by a new notification dated 2 June 1921, which revised the Schedules and limited the terminal tax to goods imported into or exported out of the municipal area by rail. Subsequent amendments to the June 1921 notification added items and raised rates, but no further alterations to the tax structure were made after 1936. Under the distribution of taxing powers set out in the Government of India Act 1935, rail‑carried terminal taxes were allocated exclusively to the Federal Centre under item 58 of List I to Schedule VII. Nevertheless, the levy and collection of the pre‑April 1937 terminal tax continued by virtue of section 143 of the 1935 Act, allowing the tax to be levied after 1 April 1937. After the Constitution came into force on 26 January 1950, the same scheme of taxation distribution persisted, now sustained by Article 277, which mirrored the effect of section 143. Consequently, the taxes imposed by the pre‑Constitution notification remained legally enforceable after the Constitution’s commencement. Finally, on 1 December 1959, a further notification expanded the list of goods subject to the terminal tax—now applicable to imports and exports by both rail and road—to include three additional categories: silver and silver jewellery, gold and gold jewellery, and precious stones.

In the matter before the Court, the three newly added items – silver and silver jewellery, gold and gold jewellery, and precious stones – were placed under the terminal tax at the same rates that had previously been applied to other articles by the notifications that had been in force before the Constitution came into existence. Prior to issuing the new notification, the procedure prescribed by section sixty‑seven was duly followed, and the Government gave its approval to the rules that the Municipal Committee had formulated for imposing the tax on those newly added articles. The first respondent, who conducted a business dealing in gold, silver and precious stones within the Amravati municipality, challenged the validity of the tax imposed by this notification. The respondent argued that the tax was beyond the legislative competence of the municipality and that its continuance was not protected by Article 277 of the Constitution; the challenge was presented in a petition filed under Article 226. By a majority decision, the learned judges of the High Court accepted the respondent’s contention, set aside the tax and allowed the petition, while also granting a certificate of fitness that gave rise to the present appeal. The factual matrix of the two remaining appeals is substantially similar, and the Court will refer to them only after addressing the common legal question raised in all three appeals. It is uncontested that the authority to levy a terminal tax now resides with the Union Parliament under Entry 89 of the Union List, which provides for “terminal taxes on goods or passengers carried by railway, sea or air; taxes on railway fares and freights.” Consequently, if the appellant’s imposition of the terminal tax on the newly added items – and, by analogy, any increase in the rate of that duty – were predicated on the State’s independent taxing power, such imposition would have to be invalidated for lack of legislative competence. Additionally, it must be noted that under the notifications effective before 1 April 1937, when Part III of the Government of India Act was enacted, articles imported into or exported from the municipal area by road were excluded from the tax, and this exclusion persisted for a considerable period after the Constitution came into force. However, the impugned December 1959 notification extended the terminal tax to goods imported or exported by road, a levy that the State was not authorised to impose even under the umbrella of Article 277. Setting aside that particular feature of the notification, the inclusion of road‑carried goods within the ambit of the terminal tax cannot be justified if it amounts to a fresh imposition. Nevertheless, the appellant contends that the tax is saved by Article 277, which provides that any taxes, duties, cesses or fees that were lawfully levied by a State or a municipal or other local authority immediately before the commencement of the Constitution may continue to be levied for the same purposes, notwithstanding their mention in the Union List, until Parliament legislates otherwise.

Article 277 of the Constitution provided that any tax, duty, cess or fee that was being lawfully levied by a State government, municipality or other local authority before the Constitution came into force could continue to be imposed and applied to the same purposes until Parliament made a contrary provision. The counsel for the appellant argued that the tax challenged in the present case was exactly the tax that had been lawfully levied by the municipal authority prior to the commencement of the Constitution. According to that submission, if the tax satisfied the condition in Article 277, the fact that the power to tax terminal goods fell under a Union‑list entry would not affect the validity of its continuance. The central issue, therefore, was whether the municipal tax in question had been in existence before the Constitution and whether Article 277 could therefore preserve it. The first argument, advanced by Mr. Setalvad on behalf of the appellants, stated that this condition was met whenever a terminal tax, irrespective of the legislative article on which it was based or its rate, had been lawfully levied by the municipality before the Constitution. Since the record showed that a terminal tax had indeed been imposed on certain articles, Mr. Setalvad said the condition was fulfilled. He further contended that the words “tax or duty” in the opening clause of Article 277 should be interpreted as referring to a tax or duty that falls under a specific legislative entry. If such a tax had been levied before the Constitution, then other duties of the same type or falling within the same category could be imposed after the Constitution, even though those duties were listed in the Union List, because the provision says they “shall continue to be levied.” In addition, he argued that the term “levy” did not merely mean the assessment and collection of a tax, but also included the act of imposing or charging it. Interpreted in that broad sense, he said, the provision could cover a situation where items other than those originally specified were later brought within the scope of the tax.

The Attorney‑General, appearing for the State, supported Mr. Setalvad’s position but went further by asserting that it was not necessary for a terminal tax to have actually been imposed and collected before the Constitution. He maintained that it would be sufficient if a State enactment had granted the municipality the power to levy such a tax. The Court rejected the Attorney‑General’s submission as lacking any substantive basis. It held that no reasonable construction—whether wide or narrow—of the phrase “continue to be levied” could accommodate a scenario in which a tax had never been imposed but only the authority to impose it existed. The Court emphasized that merely having a statutory power to levy a tax did not mean that the tax had been “being lawfully levied” by the municipality before the Constitution, nor did it demonstrate that any tax collected had been “applied to the same purposes” prior to the Constitution’s commencement. Consequently, the argument that the municipal authority’s power alone satisfied Article 277’s condition was dismissed.

The Court observed that the argument relying on the concluding portion of the Article of the Constitution could not be accepted. Turning to the narrower contentions raised by the learned counsel for the petitioner, the Court found them untenable as well. The first contention was that the words “taxes, duties, cesses” which commence Article 277 must be read in the context of Part XII, and that they should be understood to refer only to those classes of taxes that had been levied and collected by the State, a municipality or other local authority before the Constitution came into force. In other words, the reference was said to be to the entries in the legislative lists that permitted such taxes to be levied, and, when read together with the purpose of the Article – namely to prevent the dislocation of the finances of the State or other local authorities – the Court held that the terms of the Article would be satisfied and the power to continue levying a tax would be conferred “notwithstanding that the tax, etc., are mentioned in the Union List”. The Court rejected this line of argument, holding that it ignored the clear language of Article 277. Even assuming that the sole object of the provision on “continuance” was to avoid the disruption of State and local‑authority finances by depriving them of the revenues they were receiving at the commencement of the Constitution, the intent was only to allow the existing range of taxes to continue. The provision did not grant authority to expand the range of taxation by introducing new items of tax or by increasing rates of duty. Moreover, the Court said that the words “notwithstanding that the taxes etc. are mentioned in the Union List” could not be read as conferring an unlimited legislative power to impose new taxes, even if they were of the same type as those existing before the Constitution. The Court then referred to the earlier decision of this Court in Rama Krishna Ramanath v. The Janpad Sabha, Gondia, where the proper construction of section 143(2) of the Government of India Act 1935 – a provision that is functionally identical to Article 277 – was examined. In that case, the respondent‑local authority submitted that, by virtue of section 143(2), the Provincial Legislature possessed plenary power to legislate on every tax lawfully levied by local authorities prior to the commencement of the Act. This Court rejected that submission and observed that section 143(2) is a saving clause designed to prevent a dislocation of the finances of local governments and local authorities when the new provisions of the Government of India Act came into force, and therefore could not be construed as granting a broad power to legislate beyond the limited purpose of continuity.

The Court explained that the provision could not be construed as granting the Provincial Legislature a plenary power to legislate on those matters until the Central Legislature intervened. Such a construction would inevitably involve a power in the Province to increase tax rates—a result that the Court observed Mr. Sanyal did not avoid, but because the language of section (1) provides merely for continuity and because its manifest purpose is clear, the Court rejected that broad construction. The Court further noted that, although the words “continue to be levied and to be applied to the same purposes” might suggest a limited legislative power in the State, the scope of that limited power was examined in the earlier case. The Court held that the relevant words of the subsection could only mean that the tax “may continue to be levied if so desired by the Provincial Legislature,” as indicated by the word “may” in the clause “may be continued until provision to the contrary is made by the Federal Legislature.” Consequently, the Province possessed a limited legislative power to express a desire either to maintain or to discontinue the levy. If the Province exercised this limited power by repealing the pertinent statute, such repeal would be effective. In the absence of legislation showing a desire to discontinue, the constitutional provision simply enabled the continuation of the power to levy the tax, but this does not change the fact that the provision, by implication, confers a limited legislative power to desire or not to desire the continuance of the levy, subject to the overriding power of the Central Legislature to put an end to its continuance. On the basis of this limited legislative power, the right of the Provincial Legislature to repeal the taxation provision under the Act of 1920 could be founded. For instance, if a Provincial Legislature wished the tax to continue but considered the rate excessive and passed an enactment to reduce the rate, the legislation would not be incompetent; the State Government would not be required to permit the local authority to levy tax at the same rate as on 1 April 1937 merely because the tax continued. Any legislation enacted to lower the duty would derive its competence from the phrase “may continue to be levied” in s. 143(2) of the Government of India Act, as illustrated by the citation [1962] Supp. 3 S.C.R. 70. Dealing next with the import of the words “may continue to be levied,” the same was summarised in these terms: (1) The tax must be one which was lawfully levied by a

The Court explained that for a tax to be regarded as the same tax after a constitutional change, three conditions must be satisfied. First, the tax must have been imposed by a local authority for the benefit of a specific local area. Second, the body that collects the tax, the geographic area for which the tax revenue is intended, and the purposes for which the revenue is to be used must remain unchanged. Third, the rate of the tax must not be increased nor its incidence altered in any way, so that the tax continues to be identical in all essential respects. Applying these tests to the present case, the Court found that the appellant’s argument could not be accepted. Moreover, even setting aside any authority decision, the Court could not adopt the interpretation advanced by Mr. Setalvad. The Court noted that the decisive question was the meaning of the word “levied” within the phrase “continue to be levied,” because that word alone confers the power in question.

Mr. Setalvad submitted that the term “levied” has a broad and variable meaning, encompassing not only the physical collection of tax but also the statutory imposition of the charge and the assessment of the amount due from each taxpayer. The Court agreed that before a tax can be collected, its quantum must be ascertained and assessed, and that such assessment requires legislative authority – in other words, an imposition of the charge authorized by statute. However, the Court held that accepting this broad construction did not produce the result sought. The phrase “continue to be levied” refers to a tax that “was being lawfully levied” before the Constitution came into force, using the same meaning of “levied” that applied prior to the constitutional amendment. In the present situation, the earlier Act did not actually impose the tax by its section 66; it merely gave the Municipal Committee the power to impose the tax after following the prescribed procedure. Since the Committee never passed the necessary resolution to impose the tax, no charge existed on the commodity, and consequently the tax could not be said to have been “lawfully levied” before the Constitution. The expression “was being lawfully levied” therefore denotes that the tax was actually levied, not merely that the authority possessed the power to levy it but failed to exercise it. Additionally, the Court observed that the final part of Article 277 pairs the words “continue to be levied” with “to be applied to the same purposes,” linking the concept of levy with the application of the tax proceeds, a connection that further informs the proper interpretation of the provision.

In this case the Court observed that the drafters of the Constitution must have meant the term “levy” to include not only the imposition of a tax but also its actual collection, because only when a tax is collected can any question arise as to how the proceeds are to be applied to a specific purpose. The Court held that if the word “levied” were interpreted in the narrow sense suggested by counsel for the petitioner, then there could be no “application” of the tax proceeds to the same purposes that existed at the commencement of the Constitution, since at that time there were no proceeds to be applied. Counsel for the respondent referred the Court to the decision in Chuttilal v. Bagmal and Balwantrai (I.L.R. [1956] Madhya Bharat 339), where the relationship between the levy of a tax and the application of its proceeds was discussed as a guide to construing the phrase “continue to be levied” in Article 277. The Court agreed with the reasoning in that decision and therefore concluded that the High Court’s judgment was correct and that the appeal must fail. The Court then considered Civil Appeal No. 695 of 1962, in which a notification dated 9 December 1960, issued under sub‑sections (5) and (7) of section 67 of the C.P. & Berar Municipalities Act, 1922, imposed a terminal tax on gun‑powder imported into or exported from the municipal area by rail. It was admitted that before the Constitution no tax on gun‑powder had been levied, making the situation identical to that in Civil Appeal No. 598 of 1962, which had already been dismissed; consequently this appeal was also ordered dismissed. The Court further examined Civil Appeal No. 700 of 1962, where the original notification imposing terminal taxes on goods moving by rail was dated 17 March 1926 and became effective on 1 April 1926. That notification was later amended by a notice dated 23 September 1960, issued under section 67(5) of the same Act, which added new articles to the list of taxable items and increased the tax rate on existing items. The respondent challenged both the inclusion of new articles and the rate increase in a writ petition before the High Court. Applying the same reasoning that had led to the dismissal of Civil Appeal No. 598 of 1962, the Court found no material distinction between adding new items and raising the duty rate, because an increase does not constitute a mere continuance of a duty that was lawfully levied, which is the sole purpose and function of Article 277. Accordingly, this appeal was also dismissed.

The Court affirmed that the earlier decision of the High Court, which had granted the relief sought by the respondent by allowing the writ petition, was correct and required no alteration. On that basis, the Court concluded that each of the three separate appeals that had been filed against that High Court judgment was without merit and therefore had to fail. The Court ordered that the three appeals be dismissed in their entirety and further directed that the expenses of the proceedings be imposed upon the parties who had contested the High Court order in each of the appeals. In other words, the costs were to be borne by the respondents who had opposed the High Court’s grant of relief. The dismissal of the appeals was entered as a final order, and the cost award was made against the contesting respondents in each case. As a result, the final disposition was that all three appeals were rejected, each appeal was formally dismissed, and the costs of the litigation were assessed against the respondents who had challenged the High Court’s judgment. The Court’s order thus left the High Court’s original decision untouched, confirmed its correctness, and required the unsuccessful appellants to pay the costs associated with the appeals.