Supreme Court of India
ASSOCIATED CEMENT COMPANIES LTD.versusSTATE OF MADHYA PRADESH AND ANR.
- Citation
- 2005 INSC 181
- Decided
- 5 April 2005
- Disposal
- Dismissed
- Bench
- RUMA PAL
Holding
The State Government's circular does not bind the Municipal Council; the power to levy terminal tax is exercised by the Council as delegated legislation and cannot be altered by the State Government without following the procedure prescribed in the Act.
Summary
Associated Cement Companies Ltd. manufactures cement at Kymore and was levied a terminal export tax of 0.50% on cement by the Kymore Municipal Council under a 1991 notification. The State Government later issued a circular on 15 December 1995 prescribing a uniform rate of 0.20% for cement across Madhya Pradesh. The company challenged the municipal demand for the differential tax, and a Single Judge held the council bound by the State Government's circular. The Division Bench reversed, holding that the levy is a legislative function of the municipality and the State Government lacks statutory power to alter the rate without following the procedure in the Madhya Pradesh Municipalities Act. On appeal, the Supreme Court affirmed the Division Bench, stating that the 1995 circular does not bind the Municipal Council because the tax power is exercised as delegated legislation under Sections 127, 129, 130 and 131. Consequently, the appeal was dismissed and the municipal rate of 0.50% remained enforceable.
Issues considered
- Whether the State Government's circular of 15 December 1995 prescribing a uniform terminal tax rate is binding on the Municipal Council under the Madhya Pradesh Municipalities Act, 1961.
- Whether the State Government can unilaterally modify the rate of terminal tax levied by a Municipal Council without a proposal from the Council and compliance with the statutory procedure.
Legislation cited
- Companies Act, 1956
- Constitution of Indias. Article 277
- Madhya Pradesh Municipalities Act, 1961s. 127, s. 129, s. 130, s. 131
Subjects
terminal taxmunicipal councildelegated legislationstate government ordertax rateexport taxlegislative functionstatutory interpretation
Judgment
: ;, . ~,·
·_,, . ·, J _,· J
,:.,; .
A ASSOCIATED CEMENT• COMPANIES LTD.
v.
STATE OF MADHYA PRADESH AND ANR.
APRIL 5, 2005
B [RUMA PAL, ARIJIT PASAYAT AND C.K. THAKKER, JJ.]
Muni<;ipal
. council
_,. :
Madhya Pradesh Municipalities Act, 1961-Sections 127, · 129, 131-
C Terminal Tax (Assessment and Collection) on the Goods exportedfrom Madhya
Pradesh Municipal Limits Rules, 1996-Terminal tax levied by the Municipal
council.on price ofcement-Government passed order reducing the terminal
to
tax-Justification of-Held: The power levy the terminal tax· under Section
117 is exercised by municipality by delegation-Since levy was a legislative
D function of the municipality, the State 'Government did not have a statutory I,
power to interfere with the levy.
. .
Municipal C~u~cH issued Notifkation· dated .2.5~199t levying --~·
a
terminal tax @ 0.50% on price of the Cement. State Government accorded . ·
sanction for imposition of terminal tax in
terms of clause (xvi) ~f 5ub -~· .
E Section (i) of Section 127 of Madhya Pradesh Municipalities Act, 1961. ·
Thereafter, State Govel'nment issued Cfrcular/GovernmentOrder dated
15.U.1995 indicating that there must be uniformity in the rates of terminal
tax all over the State of M.P. and prescribed the rate of 0.20%1 on the price
of cement. Appellant has been engaged in manufacture of cement and
_F paying tax @ 0.20%. Demand was raised@.().50%and the appellantwas . , ,,. ~:..
directed to pay the differential amount.. Agg~ieved appellant preferred . . .. '·
Writ Petition and Single Judge held that Municipal Council was bound
by Government Order and there is no justification on the part of
Municipal Council in making the impugned demands on the basis of rates
fixed by it..Division Bench reversed· the. finding of Single Judge holdin·g
G that levy was a legislative function of the Municipality and the State
Government did not have a statutory power to interfere with the levy.
Hence the present appeal. . --
Dismissing the appeal, the Co~rt
H 258
ASSOCIATEDCEMENTCOMPANIESLTD.v.STATEOF M.P. 259
HELD : 1. The judgment of the Division Bench that the Circular A
dated 15.12.1995 did not bind the Municipal Council does not suffer from
any infirmity. (269-BI
2. There was no proposal by the Municipal Council for reduction of
the rate of tax. In terms of sub-section (1) of Section 127, the power to
impose the tax has to be exercised by the Council which is of course subject B
to any general or special order of the State Government. The Municipal
Council exercises the power as a delegatee and the power exercised under
Section 127 is a delegated legislation. Since the Municipal Council has not
proposed for any variation in the rate of tax the question of the State
- Government passing any general or special order in that regard is not
contemplated. [268-D-El
C
3. So far as Section 129 is concerned, there is no question of any suo
motu fixation of rate by the State Government. In fact while acting on the
proposal by the Municipal Council, the State Government can direct
modification affecting the substance of the proposal. But the same cannot D
be given effect to unless and until the modification has been accepted by
the Council at a special meeting. In the instant case that contingency has
not arisen. Though in terms of Section 131 the State Government can
--- initiate action for reduction in the rate that can only be done if the
enumerated circumstances exist. That situation has also not arisen in the
instant case and admittedly the State Government has not acted in terms ,E
of Section 131 of the Act. Therefore, the Division Bench is right in its view
that tile Circular of the State Government dated 15.12.1995 is really of
no consequence. Further changes under Section 127 can be introduced in
terms of sub-section (2) of Section 127 by framing rules. In the instant
case, the rules were framed in March 1997 and did not have any p
retrospective effect. [268-F-H; 269-A]
CIVIL APPELLA TE JURISDICTION : Civil Appeal No. 24 I 5 of 2000 .
.From the Judgment and Order dated 10.9.99 of the Madhya Pradesh
. •. '"' .
High Court at Jabalpur in LP.A. No. 375 of -1998. G
Rajive Shakdher, U.A. Rana, Ms. K. Sumathi, Madhup Singhal, and S.
Chatterjee for Mis. Gagrat and Co. for the Appellant.
· Prakash Shrivastava, Sakesh Kumar and Satish K. Agnihotri for the
Respondents. H
260 SUPREME COURT REPORTS [2005] 3 S.C.R.
A The Judgment of the Court was delivered by
ARIJIT PASAY AT, J. Appellant calls in question legality of the
judgment rendered by a Division Bench of the Madhya Pradesh High Court
at Jabalpur upsetting judgment of a learned Single Judge who held that the
Municipal Council, Kymore, presently known as Kymore Nagar Panchayat
B (hereinafter referred to as the 'Municipal Council') is bound by the
Government Order dated 15.12.1995 issued by the State Government under
the Madhya Pradesh Municipalities Act, 1961 (in short the 'Act'). Learned
Single Judge was of the view that the power vests with the State Government
who issued the said Government Order and there is no justification on th~
,,. C part of the Municipal Council in making the impugned demands on the basis
of rates fixed by it. It was consequentially declared that the present appellant
was not liable to pay the differential sum and was only required to pay tax
at the rate of 0.20% as fixed by the State Government.
The factual position which is almost undisputed is essentially as follows:
D
The appellant, a company ,registered under the Companies Act, 1956
(in short the 'Companies Act') has its head office at Bombay and is engaged
in manufacture of various kinds of cement. It has one cement manufacturing
plant at Kymore known as Kymore Cement Works. On 2.5.1991 the Municipal
Council in exercise of powers conferred under Section 127(l)(xvi) of the Act -
f
E had resolved to impose export ·tax on cement and other commodities which
, are exported from the limits of the Municipal Council. A Notification was
duly published in the Official Gazette on 12. 7.1991 levying terminal ta~ on
cement .at the rate of 0.50 per cent on the price of the cement. Challenge was
made to the said Notification before the High Court and ultimately before
F this Court but .without any success.
Undisputedly, the Notification dated 2nd May, 1991 was issued in
exercise of power conferred under sub-sections (5) and (7) of Section 129 of
the Act. The State Government accorded sanction to the proposal of the
Municipal Council for imposition of terminal tax within .whole of the
G municipality in terms of clause (xvi) of sub-section (I) of Section 127 of the
Act. Thereafter, the State Government issued a General Circular i.e.
Government Order dated 15.12.1995 indicating that there must be uniformity
in the rates of export tax all over the State of Madhya Pradesh. So far as
cement is concerned, the rate prescribed was 0.20 per cent on the price of the
cement. The appellant received a notice on 6.8.1996 followed by a letter
H dated 23.8.1996 requiring payment of export tax at the rate of 0.50 per cent
ASSOCIATED CEMENT COMPANIES LTD. v. STATE OF M.P. [PASAYAT, J.) 261
on the price of the cement as was prescribed in the Notification dated 2.5.1991. A
Since the appellant was paying tax at the rate of 0.20 per cent it was dire~ed
to pay the differential amount.
A writ petition was filed by the appellant questioning the demand. It
was contended that the Municipality is only entitled to recover the export tax
on cement at the rate prescribed by the State Government and not as claimed B
by the municipality. It cannot impose tax on its own as the imposition is
always subject to the approval of the State Gov;.;mm~nt. Since the State
Government in order to bring uniformity all over the State of Madhya Pradesh
had issued a Government Order dated 15.12.1995 fixing the rate at 0.20 per
cent on the price of cement, the Municipal Council cannot recover the tax at C
the old rate.
The wr\t petition was contested by the Municipal Council and it was
stated that there cannot be any challenge to its competence to recover the
export tax on cetnent at the rate prescribed by the Notification dated 2.5.1991
and the order passed by the State Government cannot override the said D
Notification.
Learned Single Judge came to hold that the Municipal Council cannot
recover the tax at the old rate being of the view that when the State Government
acted in terms of Sections 127 and 129 of the Act, the Municipal Council had
no option but to obey. It is to be noted that there were two writ petitions filed E
by the two different assessee and one of the1!1 was by the present appellant.
Learned Single Judge's order was challenged by filing two Letter Patent
Appeals. By the impugned judgment, the Division Bench held that the levy
was a legislative function of the Municipality and the State Government did
not have a statutory power to interfere with the levy. According to the Division F
Bench, the Notification dated 2.5.1991 held the field and the legislative
enactment could not have been subjugated or superseded by exercise of the
power by the State Government under any statutory provision or executive
instruction. Once the executive function had been exercised by the Municipal
Council and the levy had been imposed, the State Government could have G
only undone the same by another legislative enactment as contemplated under
sub-section (2) of Section 127 of the Act as it stood at the relevant point of
time by framing rules which were subsequently framed under Section 355
read with Section 127(J)(xvi) of the Act. The rules were known as Terminal
Tax (Assessment and Collection) on the Goods exported from Madhya Pradesh
Municipal Limits Rules, 1996 (in short the 'Rules'). The Rules were published H
262 SUPREME COURT REPORTS [2005] 3 S.C.R.
A in the official Gazette on 7.3 .1997.
In support of the appeal, learned counsel for the appellant submitted
that the relevant period to which the dispute relates is from January to June,
1996. He submitted that the view taken by the learned Single Judge is the
correct view. On a pare reading of various provisions the rosition is clear
B that the Division Bench's view that the Municipal Council had the legislative
competence to levy the tax and that the State's role in the whole scheme was .
not in any way intended to override the powers conferred on it is wrong.
In response, learned counsel for the Municipal Council submitted that
C the Division Bench has rightly come to hold that the State Government's role
was really advisory and it cannot be said that the State's Government Order/
Circular which was merely in the nature of instruction had the effect of
overridin.g the Notification dated 2~5.1991.
In order to appreciate the rival submissions it would be necessary to
D take note of the provisions of Sections 127, 129, 130 and 131 as they stood
at the relevant point of time. They so far as relevant read as follows :-
'·
"Section 127- (l) A Council may, from time to time, and subject to
the provisions of this Chapter, and any general or special order which
the State Government may make in this behalf, impose in the whole
E or in any part of the Municipality any of the following taxes, for the
purposes of this Act, namely :-
xxx xxx xxx
(v) an octroi on animals or goods brought within the limits of the
Municipality for sale, consumption or use within such limits;
F
xxx xxx xxx
(xvi) a terminal tax on goods or animals imported into or exported
from the limits of the Municipality :
G Provided that a terminal tax under this clause and an
octroi under clause (v) shall not be in force in any Municipality
at the same time;
xxx xxx xxx
H (xxiii) any other tax, which the State Legislature has power to impose
ASSOCIATED CEMENT COMPANIES LTD. v. STATE OF M.P. [PASAYAT, J.] 263
under the Constitution of India. A
xxx xxx xxx
(2) The State Government may, by rules made under this Act,-
(a) regulate the imposition, assessment and collection of taxes 1 B
under this Act;
(b) prevent the evasion of taxes imposed under this Act; and
(c) prescribe the maximum and minimum limits as to the amount ·
or rate of any tax.
xxx xxx xxx
c
(4) Subject to the provisions of Article 277 of the Constitution of ,
India, any tax which immediately before the commencement of this
Act, wa5 being lawfully levied by the Municipal Committee, Municipal
Council or Municipal Board, as the case may be, notwithstanding that D
such tax is not specified in sub-section ( l ), shall continue to be levied
by the Council.
.
(5) The imposition of any tax under this section shall be subject to
the provisions of any other enactment for the time being in force.
Section 129: Procedure in imposing taxes: (1) A Council may pass
E
a resolution to propose the imposition of any tax under section 127.
The proposal shall define the class of persons or description of property
proposed to be taxed, the amount or rate of the tax to be imposed and
the system of assessment and collection to be adopted.
F
(2) When such a resolution has been passed, the Council shall publish
a notice in the prescribed form and manner along with the resolution.
(3) Any inhabitant of the Municipality objecting to the proposed tax
may, within thirty days from the publication of the notice, submit his
objection, in writing to the Council. G
(4) The Council shall take the proposal and all objections received
thereto into consideration at a special meeting, and may modify the
proposal so as not to affect their substance, and may then forward
them to the State Government, along with all objections received, its
decisions thereon and its reasons therefor. If the Council decides to H
264 SUPREME COURT REPORTS [2005) 3 S.C.R. .,
A modify the proposals so as to affect their substance, it shall punish
them again in the manner prescribed in sub-section (2) along with a
notice indicating that they are in modification of those previously
published for objection.
(5) The State Government may, on receiving such proposal either
B refuse to sanction them or sanction them-
(i) without modification or with such modifications not involving
in increase of the proposed rate as it thinks fit; or
(ii) subject to such condition as to the application within the
c Municipality to any purpose or purposes of this Act as may
be specified, of the whole or any part of the proceeds of
such. tax, as it may deelll fit.
(6) No modification affecting the substance shall be made under sub-
section (5), unless and until the modification has been accepted by
D the Council at a special meeting.
(7) If any proposal for taxation has been sanctioned under sub-section
(5), the State Government may, by notification direct the imposition
of the tax as sanctioned from such date which shall not be earlier than
thirty days from the date of publication of such notification as may
E be specified therein, and thereupon the tax shall come into effect as
from the date so specified:
Provided that where the tax so imposed is payable annually -
(i) the tax shall become payable with effect from the 1st day of
April, 1st day of July, Ist day of October or 1st day of January,
F
as the case may be, next following such imposition;
(ii) and becomes payable on a date other than the 1st day of
April, it shall be payable quarterly till the 1st day of April
next following.
G (8) A notification of the imposition of a tax under this section shall
be conclusive evidence that the tax has been imposed in accordance -,
with the provisions of this Act.
Section 130-Abo/ition or variation in tax : The Council may, with the
prior approval of the State Government, abolish, suspend or reduce
H the rate of any tax.
ASSOCIATED CEMENT COMPANIES LTD. v. STATE OF M.P. [PASAYAT,l) 265
Section 131-Power of State Government in regard to relief in taxes A
: If, on a complaint made to. it or otherwise, it appears to the State
Government that any tax levied by a Council is unfair in its incidence
or that such levy or any part thereof is obnoxious to the interest of
the inhabitants of the Municipality, it may, by an order, require the
Council to remove the objections to any such tax within such time as B
may be specified therein, and on the failure of Council to comply
with the order within the time so specified to the satisfaction of the
State Government, the State Government may, by notification and
subject to such conditions or restrictions as may be specified therein,
abolish, suspend or reduce the amount or rate of any tax.
A bare reading of Section 127 shows that the Municipal Council may
c
from time to time and subject to the provisions of the Chapter (i.e. Chapter
VII relating to "Municipal Taxation") in question and its general or special
order which the State Government may make in that behalf impose in the
whole or in any part of the Municipality any of the taxes for the purposes of
~~ D
TAe present dispute relates to clause (xvi) of sub-section (1) of Section
127 of the Ac( Under the constitutional scheme the power to levy the tax of
the nature levied under Section 127 of the Act is that of the State Government
which is clear from the fact that though the Council may impose any tax for
the purposes of the Act, the same is subject to any general or special order E
which the State Government may make in that behalf. Furthermore, sub-
section (2) of Section 127 authorises the State Government to regulate the
imposition, assessment and collection of tax under the Act and also prescribes
the maximum and minimum limits as to the amount or rate of tax. The
position is also clear from clause (xxiii) which empowers the Municipality to F
levy such tax, which the State Legislature has power to impose under the
Constitution of India. The source of power to levy is the one conferred on
the State Legislature. The Municipality does not have any independent source.
The power under Section 127 is exercised by the Municipality by delegation
and is a case of delegated legislation. Section 129 is the procedural section
dealing with the procedure for imposing taxes. The conditions contemplated G
in Section 129 are: (a) proposal to be passed by the Council for the purpose
of imposition of any tax under Section 127; (b) when a resolution in terms
of sub-section ( 1) is passed the Council is required to publish a Notification
in the prescribed form and manner along with the resolution; (c) under sub-
. section (3) any inhabitant of the Municipality may submit his objection in H
266 SUPREME COURT REPORTS [2005] 3 S.C.R.
A Writing to the Council within the specified period; (d) under sub-section (4)
the proposal and all objections received thereto are to be placed for
consideration at a special meeting. The procedure to be followed when the
Council decides to modify the proposal is also indicated. Sub-section (5) is
very relevant for the present dispute in the sense that on receiving the proposal
B the State Government has two options. It may either sanction the proposal or
refuse to sanction the same. When the State Government sanctions the proposal
with modification or with such modification not involving in increase of the
proposed rates as it thinks fit or subject to such conditions as to the application
within the Municipality to any purpose or purposes of the Act which may be
specified regarding application of the whole or any part of the proceeds of
C · the tax. When any proposal for tax has· been sanctioned under sub-section
(5), the State Government may under sub-section (7) by Notification direct
the imposition of the tax as sanctioned in the manner prescribed. Sub-section
(8) provides that when a Notification of the imposition- of tax under -the
< 'Sectiori is issued the 's~e kconcluslve e-vidence tha:t the tax has'be~n impos~d '
in accordance with the provisions of the Act. Sub-section (6) is of great
D importance in the sense that no modification affecting the substance under
sub-section (5) shall be made unless and until the modification had been
accepted by the Council at a special meeting~ Section 130 deals with abolition
or variation in tax by the Council with prior approval of the State Government.
Section 131 deals with power of the State Government having regard to the
E reliefin taxes. The provision can be set in motion on receipt of any complaint
or suo motu by the State Government. In the latter case, the State Government
can act if it appears'. to it that any tax levied by Council is unfair in its
incidence or that levy or any part thereof is obnoxious to the interest of the
inhabitants of the Municipality. In either of the situations, the State Government
may require the Council to remove objections to any such tax within a specified
F time and )n case the Council fails to comply with the order within the time
so specified to the satisfaction of the State Government, it may by Notification
and subject to such conditions or restrictions as may be specified abolish,
suspend or reduce the amount or rate of any tax.
G At this juncture, it would be relevant to take note of the Government
Order/Circular dated 15.12.1995. The same reads as follows :
"Madhya Pradesh Government
· Government of Local Administration
Marttralaya, VaHabh Bhawan, ~hopal ·
H
ASSOCIATED CEMENT COMPANIES LTD. 1•. STATE OF M.P. (PASAYAT, J.] 267
No.F4/\/I / A3/95 Bhopal Dt.15.12.1995 A
To
Ail Commissioners,
Municipal Council,
Madhya Pradesh
B
All Chief Municipal Officers,
Nagar Palika Parishad/Nagar Panchayat,
Madhya Pradesh
- Subject: Regarding imposition of terminal Tax
c
There is provision for levy of terminal tax under Clause xvi of
sub-section(\) of Section 127 of the Madhya Pradesh Municipalities
Act, 1961 and procedure for levy of terminal tax has been laid down
under Section 129. In exercise of the powers conferred under both D
the sections and cancelling all the earlier instructions on the subject,
the State Government hereby instructs to impose the terminal tax
under the following limits and conditions:
--- (I) No barrier shall l>e put for recovery of the terminal tax neither
contractual procedure will be adopted. Where barrier post has been E
established, that should be immediately removed. For the recovery
of the terminal tax the same procedure should be adopted which is
applicable for the recovery of commercial tax and in the case of
Krishi Upaj Mandi their licence holder should be made responsible
for the recovery of the tax. For this purpose if any amendment in the
bye-law is required, that should be done accordingly. F
(2) In view of the uniformity of the terminal tax in whole of the State,
the rate is proposed in the annexed schedule.
(3) All such goods which are exported out of the country shall be
exempted from the tenninal tax. G
(4) All such other goods which are carried or sent from one place to
another within the State for distribution under the Public Distribution
Scheme by the Food Corporation of India/Civil Supply Corporation/
Other Agencies of the State Government shall also be kept exempted
from the terminal tax. H
268 SUPREME COURT REPORTS (2005) 3 S.C.R. '
A There is no provision for imposition oftenninal tax under the Madhya
Pradesh Municipal Corporation Act, 1956 but the Municipal
Corporation may levy this tax under the approval of the State
Government since many of the Municipal Corporation have desired
to levy terminal tax, the State Government hereby grant general
approval for levy of the terminal tax to all the Municipal Corporations.
B The above mentioned conditions shall be applicable in the case of the
Municipal Corporation also.
Sd/-
(C.S. Chadha)
c
Principal Secretary
Government of Madhya Pradesh
Local Administration Deptt."
-
Though the Government Order refers Sections 127 and 129 of the Act,
it is to be noted that there was no proposal by the Municipal Cou~dl for
reduction of the rate of tax. In terms of sub-section (1) of Section 127, the
D power to impose the tax has to be exercised by the Council which is of
course subject to any general or special order of the State Government. The
Municipal Council exercises the power as a delegatee and the power exercised
under Section 127 as noted above is a delegated legislation. Since the
Municipal Council has not proposed for any· variation in the rate. of tax the
E question of the State Government passing any general or special order In that
regard is not contemplated. It is to be further noted that the Government
Order treats the matter as instruction to all municipalities.
So far as Section 129 is concerned, there is no question of any suo
motu fixation of rate by the State Government. In fact while acting on the
F proposal by the Municipal Cotincil, the State Government can direct
modification affecting the substance of the proposal. But the same cannot be
given effect to unless and until the modification has been accepted by the
Council at a special meeting. In the instant case that contingency has not
arisen. Though in terms of Section 131 the State Government can initiate the
action for reduction in the rate that can only be done if the enumerated
G circumstances exist. That situation has also not arisen in the instant case and
admittedly the State Government has not acted in terms of Section 131 of the
Act. Therefore, the Division Bench is right in its view that the circular of the
State Government dated 15.12.1995 is really of no consequence. Further
changes under Se"Ction 127 can be introduced in terms of sub-section (2) of
H Section 127 by framing rules. In the instant case, the ru,les were framed in
_....-- ASSOCIATED CEMENT COMPANIES LTD. v. STATE OF M.P. [PASAYAT, J.] 269
March 1997 and did not have any retrospective effect. A
We, therefore, find no reason to interfere with the judgment of the
Division Bench though some of the observations and conclusions are not
correct. Ultimate conclusion that the Municipal Council's stand that Circular
dated 15.12.1995 did not bind it to reduce the tax does not suffer from any
infirmity. B
The appeal is accordingly dismissed with no order as to costs.
D.G.
'
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