Holding

The retrospective amendment inserting "notification" into Section 5(4) and the validation clause cure the defect identified by the Supreme Court, rendering the octroi levy valid.

Summary

Hindustan Gum & Chemicals Ltd. challenged the levy of octroi by the Bhiwani Municipal Committee after its factory was brought within municipal limits by a 1965 notification under the Punjab Municipal Act, 1911. The High Court dismissed the writ petition, relying on Section 5(4) of the Act, but the Supreme Court in Atlas Cycle Industries Ltd. held that octroi could not be imposed without a specific tax notification, as Section 5(4) did not include notifications. The Haryana Legislature subsequently enacted the Punjab Municipal (Haryana Amendment and Validation) Act, 1971, inserting the word "notification" into Section 5(4) retrospectively and validating all octroi levied earlier. The Court examined whether such retrospective amendment and validation were constitutionally permissible and whether they removed the basis of the earlier Supreme Court decision. Finding that the amendment cured the defect and satisfied the criteria for a validating law, the Court held that the octroi levy remained valid and dismissed the appeal, affirming the High Court's order on different grounds.

Issues considered

Whether a legislature can retrospectively amend a statute to insert a missing provision and thereby validate a tax previously held invalid by the Supreme Court.
Whether the insertion of the word "notification" into Section 5(4) of the Punjab Municipal Act, 1911, removes the basis of the decision in Atlas Cycle Industries Ltd. v. State of Haryana.
Whether the validation provision in the Punjab Municipal (Haryana Amendment and Validation) Act, 1971, is constitutionally permissible.

Legislation cited

General Clauses Act, 1897s. 21
Punjab Municipal Act, 1911s. 5(3), s. 5(4), s. 62(10)
Punjab Municipal (Haryana Amendment and Validation) Act, 1971s. 2, s. 4

Subjects

octroimunicipal levyretrospective legislationvalidation of taxlegislative amendmentmunicipal corporationtaxationconstitutional lawArticle 226Section 5(4)Section 62

Judgment

630

A
M/S. HINDUSTAN GUM & CHEMICALS LTD.
v.
STATE OF HARYANA & ORS.

AUGUST 19, 1985
B
[E.S. VENKATARAMIAll AND R.B. MISRA, JJ. J

Punjab Municipal Act 1911, Section 5 and Punjab Municipal
(Haryana Amendment and Validation) Act 1971, Sections 2 and 4 -
Octroi - Levy of octroi in the extended area of a municipality
c declared invalid by the Supreme Court - Statute amended retros-
pectively removing the defect found by the Court and validating
the levy and collection of octroi - Legislature, Whether compe-
tent to amend the statute effect of.

Section 5(4) of the Punjab Municipal Act 1911 as it stood
prior to the amendment prescribed: "When any local area has been
D included in a municipality under sub-section (3) of Section 5,
this Act, and, except as the State Government msy otherwise by
notification direct, all rules, bye-laws, orders, directions and
powers made, issued or conferred under this Act and in force
throughout the whole municipality at the time, shall apply to
such area~
E By a' notification dated August 10, 1965 issued under Section
5(3) of the Act, the area within which. the factory of .the appel-
lant was situated was included within the municipality of .
Bhiwani. Thereafter, the Municipal Coalllittee coaaenced to impose
and collect octroi from the appellant in respect of the ~
imported by the appellant into its factory within the extended
F municipal limits of Bhiwani from outside. The appellant filed a
Writ Petition in the High Court for restraining the municipality
from levying and collecting the octroi on the ground that when an
area of any municipality was extended, there could be no
automatic imposition of octroi which was in force within the
limits of municipal area before such extension in that extended
G . area unless the procedure prescribed by Section 62 of the Act was
complied· with. In another writ petition, the Atlas Cycle
Industries Ltd. also raised a similar contention before the High
Court. The High Court dismis.sed both the Writ Petitions by a
COlllllOn judgment on 18th May, 1970 holding that by virtue of
section 5 (4) of the Act all tues, octroi etc. which were being
H levied within the municipal limits before the extension of the
HINDUSTAN CilEMICALS v. STATE 631

municipal limits came ..to be applicable automatically to the A
extended area of the municipality •. The Supreme Court in an appeal
filed by the Atlas Cycle Indus tries Ltd. , reversed the judgment
of the High Court on August 11, 1971 holding that the notifica-
tions under the Act are . the only authority and mandate for
imposition and charge of tax, and since notifications are not
made applicable to included areas under section 5( 4) of the Act, B
the High Court was wrong in holding that the municipality was
competent to levy and collect octroi from the appellant by virtue
of the provisions contained in Section 5(4) of the Act.

After the llforeaaid decision in Atlas Cycle Industries Ltd.,
the State Legislature passed Punjab Municipal (Haryana Amendment c
& Validation) Act 1971. Section 2 of the Amending Act substituted
the word "rules" in sub Section (4) of Section 5 of the Act by
the words and sign "rules, notification" and further provided
that those words and sign should be deemed always to have been
substituted. By sectio~ 4 of the Amending Act the levy of octroi
against and collection from the appellant and others within the D
extended limits of all the municipalities in Haryana were
validated.

Dismissing the Appeal;

HEW: 1. It is permissible for a legislature to overcome
the effect of a decision of a Court setting aside the imposition E
of the tax . by passing a suitable legislation amending the
relevant provisions of the statute concerned with restrospective
effect and by validating assessments made earlier. (638 D-E) ·

In . the instant case, since the word . 'notification has now
been inserted in Section 5(4) of the Act with retrospective F
effect, the basis on which the decision in ~ Cycle 1Dduat-
rie8 Ltd. was rendered has been removed becsuse the deficiency in
Section 5( 4) noticed by the Supreme Court has been made good and
the lev)' and collection of octroi have alao been validated. The
AiMudlng Act satisfies the teats laid down by Supreme Court in
Sh. Pritbvi Cotton ll1lls case. The Amenc!in8 Act, thus, neutral!- G
ses the effect ·of the decision in Atlas Cycle Industries Ltd.
which can no longer be relied upon after the 8!¥0clment of the
Act. The levy and collection of octroi in . the area which was
included within the municipal.limits of Bhiwani with retrospec-
tive effect from August 10, 1985 in accordance with the ootifica-
tion issued earlier are, therefore ·no longer open to question. H
[640 C-E]
632 SUPREME COURT REPORTS [19a5j SUPP.~ s.c.R.

A Ba&alkot City ..micfpaUty y. Baplkot Caent Co., (1963]
Suppl. 1 s.c.a. 710, referred to.

Sbri Prithrl Cotton Hilla Ltd. & Aur. v. Broach Borough
Jtmiclpality & Ors. [1970] l s. c. R. 388, relied upon.

B CIVIL APPELLATE JURISDICTIO~ : Civil Appeal No. 598(N) of
1972.

From the Judgment and Ord~r dated 18.5.1970 of the Punjab
; and llaryana High Court in Civil Writ No. 2743 of 1968.

v.c. Mahajan and Mrs. Urmila Sirur for the Appellant.
c
llarbans Lal, R.N.Poddar (not present) and Serv Mitter for
the Respondents.

Tne Judgmeat of the Court was delivered by

VENKA'.rAl!AMIA, J • The .~ppellant in this appeal by certi-
D ficate is a limited company ha·,ing its regiatered offi~e at
:;aicutta. It is carrying on the business of processing guar at
its factory •ituated Bhiwani, formerly within the State of Punjab
and now in the State of Haryana, and exporting the outer sh~ll to
the United States of Amul.ca. Y.1e inner part of guar is used as
fodder for cattle in India. For the purpose of processing, the
E appellant, has to bring into its factory premises guar from
outside mandis.

Prior to August 10, 1965, the appellant's factory was situa-
ted outside the local limits of the Municipal Committee of
·Bhiwani, but -.ith effect from that date by reason of the exten-
F sion of the local limits of the said Municipal Committee by the
Notification. No. MCII (XIII)-II 61/31330 dated August 10, 1965
issued under section 5(3) of the Pua.Jab Municipal Act, 1911
(Punjab Act No. III of 1911) (hereinafter referred to as 'the
Act') by the then Punjab Government, the factory premises -~e
within the mur.icipal limits of Bhiwani. The said Notification was
G published in the Punjab Government Gazette dated August l.3, 196~
and with effect from that date the Municipal Coamittee of Bhiwani
comnenced to impose and collect octroi from the appellant in
respect of the ~ imp.orted by the appellant into its factory
within the extended municipal limits of Bhiwani from outside. The
appellant resisted the levy of octroi. When its attempts to get
H exemption from payment of octroi failed, it filed a wri~
HINDUSTAN CHEMICALS v. STATE [VENKATARAMIAH, J ·] 633

A
petition under Article 226 of the Constitution before the High
Court of Punjab and Haryana in Civil Writ No. 2743 of 1968
questioning the imposition of octroi on several grounds one of
them being that without complying with the legal formalities
necessary for th~ imposition of octroi in the extended area of
the municipality, it was not open to the Municipal COllDilittee to
B
levy octroi on guar brought by the appellant into its factory
from outside. The petitioa was contested by the State Government
and the Municipal Committee of lihiwani. That petition was dismis-
sed by the High Court of Punjab and Haryana by its judgment dated
May 18, 1979. Aggrieved by the judgment of the High c;,urt, the
appellant has filed the above appeal after obtaining the necess-
C'
ary certificate under Article 133 (l)(a) of the Constitution from
the high court.

Section 5 of the Act, as it stood at the relevant time, read
as follows:-
D
".5. ( 1) The State Government may, by notification
published in the Official Gazette and in such other
manner as it may determine, declare its intention to
include within a municipality any 16cal area in the
vicinity of the same and defined in the notification
whether such local area is a municipality or a noti-
fied area under this Act or not.
E
(2) Any inhabitant of a arunicipality or local area in
respect of which a notification has been published
under sub-section {l), may, should he object to the
alteration proposed, submit his objection Ntiting
through the Deputy Coilllllissioner to the Sta' c Govern-
F
ment within six weeks from Lhe publication of the
notification in the Official Gazette; and the State
Government shall take such objection into consi-
deration.

(3) When six weeks from· the publication of the noti-
G
fication have expired, and the State Government has
. conSiciered the objections if any which have beeu
submitted under sub-section (2), the State Government
may, by notification, include the local arec in the
municipality.
H
( 4) When any local area has been included in a munici-
pality under sub-section (3) of this section, this
634 SUPREME COURT REPORTS [l985J SUPP.2 s.c.R.

A Act, and, except as the State Govenunent may otherwise
by notification direct, all rules, bye laws, orders,
directions and powers made, issued, or conferred.under
this Act and in force throughout the whole 1111.1nicipal-
ity at the time, shall apply to such area."

B Before the High Court the appellant relied upon the decision
of this Court in Bagalkot City Municipality v. llagallmt CeEnt
Co. [1963] Suppl. 1 s.C.R. 710, in support of its contention that
when an area of any municipality was extended there could be no
automatic• imposition of octroi which was in force within the
limits of municipal area before such extension in the extended
area unless the procedure prescribed by section 62 of the Act was
c complied with. The High Court distinguished the above decision
from the present case by relying upon sub-section (4) of section
5 of the , .Act which prescribed that when any local area was
included in a municipality under sub-section (3) of section 5 of
the Af!t, and, expect as the State Gov~nunent may otheNise by
notifi~tion direct all rules, bye laws, orders, directions and
D powers made, or conferred under the Act and in force throughout
the whole municipality at the time, would apply to such area. The
High Court noticed that in the Bombay District Municipal Act,
1901 which governed the Bagal'kot City Municipality's case (supra)
there was no provision corresponding to sub Section (4) of
section 5 'of the Act and it took the view that by virtue of
section 5(4) of the Act all taxes, octroi etc. which were being
E levied within the municipal limits of Bhiwani before the exten-
sion of the municipal limits came to be applicable automatically
to.the extended area of the municipality. On the above basis the
Writ Petition was dismissed on May 18, 1970. Along with the said
writ petition the High Court also dismissed some other writ
petitions which had been filed by some other petitioners carrying
F on business at Sonepat town against the State of llaryana and the
municipal committee of Sonepat in which a similar contention had
been raised. One of those writ petitions was Civil Writ No. 2014
of 1967 on the file of the High Court of Punjab and Haryana filed
by the Atlas Cycle Industries Limited, Sonepat. The Atlas Cycle
Industries· 'Limited preferred an appeal against the said common
G judgment but that appeal .came to be disposed of by the decision
of this Court on August.-11, 1971 in Atlas Cycle Industries Ltd.
v. State of llaeyana & Anr· [197.2] 1 s.c.R. 127. By that decision
this Court reversed the judgment of the High Court and allowed
the appeal holding that the High Court was wrong in holding that
the municipality in that case was competent to levy and collect
H octroi from the appellant therein by virtue ·of the provisions
HINDUSTAN CHEMICALS v. STATE [VENKATARAMIAH, J.] 635

contained in section 5(4) of the Act. A writ in the nature of A
·ma0 dmg1s was issued to the Sonepat munitipality, the respondent
in that.case, restraining it from levying against and collecting
from the appellant therein any octroi in· respect of raw
materials, components and parts imported by it into its factory
under the notification levying octroi which was in force in the
said local area before its· limits were extended. In reaching the E
above conclusion, this Court observed at pages 133-135 thus:

"Section 62 (10) of the Act· indicates that there is
· in:unposition of tax only when the state Government
shall notify the imposition of the tax and shall in
the not~f ication specify a date on which the tax shall C
come into force. In the absence of imposition of tax
. by a notification under section 62 (10) of the Act the
municipality is not ·competent to impose levy or
collect tax. Section 62(10) of the Act enacts that a
notification of the imposition of taX shall be con-'
clusive evidence that the tax has been imposed in D
accordance with the provisions of the Act. It is ·the
notification under the s~atute which is conclusive
evidence of the imposition of tax.

The· controversy in the present appeals is solved by
finding out as to whether the notification dated 3rd E
November, 1942 imposing octroi within the limits of
the Sonepat Municipality became applicable by reason
of the provisions contained in section 5( 4) of the
Act. It is noticeable at the outset that section 5(4)
of the Act speak ot" rules, bYe laws, orders, direc-
tions and powers and does not significantly mention
·'notification·'. It is apposite to consider section 6, F
7 and 8 of' the Act which deal with. the effect of
exclusion of local area from the municipality. In the
case of exclusion of an area from the Municipality it
is provided in Section 8(1) (a) .of the Act that "This
Act and all- notifications, rules, bye -laws, orders,
directions and .powers issued, made or conferred under G
the Act, shall cease to apply thereto." When the Act
provided for notifications ceasing to apply in the
case of exclusion of local areas, and in the iL 'lll.e-
diately preceding section 5 refrained from using the
word _'notifications'· _becoming applicable in the case
of inclusion of· areas the legislativ~ intent· is
unambiguous -and crystal clear that notifications could H
not become applicable · to an included area on the
strength of section 5(4) of the Act.
636 [1985] SUPP.2 S.C.R•

A The word 'notification' cannot be said to be synonr
mous with rules, bye-laws, orders, directions and
powers for two reasons. First, the Act in the present
case speaks of notifications for imposition of tax and
uses the word 'notification' separately from the other
words "rules, bye laws, orders, directions and
B powers". In the caae of exclusions of area, the Act
speaks of notification ceasing to apply to excluded
areas whereas in the case of inclusion of areas the
Act significantly omits any notification being appli-
cable to such area. Secondly, the General Clauses Act
in section 21 speaks of power to issue notifications,
orders, rules or bye-laws refers to power under the
c statute. Section 62(10) of the Act speaks of notifi-
cation of the imposition of tax· Such a notification
is the statutory basis of imposition and levy of tax.

Bye-laws are entirely ,different from notifications
imposing tax as will be manifest from section 188 of
the Act. Under that section the conmittee may by
D bye-laws as .mentioned in clause (g) thereof fix l.imits
for the purpose of collecting octroi where collection
of octroi has been sanctioned and may prescribe routes
by which articles which are subject to octroi may be
imported into municipality, Bye-laws fixing the limits
and prescribing the routes by which articles which are
subject to octroi may be imported obviously cannot be
equated with notification of imposition of octroi .

......................... ............................
In the first place, a taxing provision always receives
F a strict interpretation for the obvious reason that
there DJ.1st be clear and express language imposing a
tax and the date from which such tax shall come into
effect. Notifications under the Act are the only
authority and mandate for imposition and charge of
tax. Notifications under the Act are the only autho-
G rity and mandate for imposition and charge of tax.
Notifications are not made applicable to included
areas under section 5(4) of the Act."

Following the above decision of this Court which was
delivered on August 11, 1971 we sho.uld have allowed this appeal
Ii and issued directions similar to those issued in the above dect-
sion to the respondents in this case also. But after the alx>ve
HINDUSTAN CHEMICALS v. STATE [VENKATARAMIAH, J.] 637

decision of this Court, the State Legislature of Haryana procee- A
ded to amend the Act by passing the Punjab Municipal (Haryana
Amendment and Validation) Act, 1971 (hereinafter referred to as
'the Amending Act'). The Amending Act was published in the
Haryana Government Gazette on November 16, 1971. Section 2 and
section 4 of the Amending Act are material for purposes of this
appeal. By seection 2 of the Amending Act the Legislature substi- E
tuted the word "rules" in sub-section (4) of section 5 of the Act
by the words and sign "rules, notification" and further providing
that those words and sign should be deemed always to have been
substituted. By reason of this amendment the expression 'uotifi-
cation' should be deemed always to have been present in section
5(4) of the Act including the date on which the 1Dllllicipal limits c
of Bhiwani were extended. bringing within them the factory of the
appellant also. By section 4 of the Amending Act, the levy of
octroi against and collection from the "ppellant and others
within the extended limits of "11 the muru.cipalities in Haryana
were validated. Section 4 of the Amending Act read thus:-
D
"4. Validation: (1) Notwithstanding any judgment,
decree or order of any court or other "uthority to the
contrary•.• •.••.••••••••••.••.•••••. ~.-............. any
octroi levied, charged or collected or purporting to
have been levied, charged or collected before the
commencement of this Act "nd any action taken or thing E
done before the coumencement in ·relation to such
assessment, reassesSment, levy or collection under the
provisions of the principal act and the rules made
thereunder shall be deemed to be as vdid "nd effect-
ive as if such assessment, re-assessment, levy or
collection or action or thing had been made, taken or
done under the principal Act as amended bY this Act F
and the rules and bye-1"ws made thereunder and
accordingly -

(") All acts, proceedings or things done or taken bY
the Coumittees or by the officers of the Coumittees or
by "ny other authotrity in connection with the assess- G
ment, re-assessment, levy or collection of such tax·or
octroi shall, for all purposes, be deemed to be and to
have always been done or taken in accordance with the
law;

(b) no suit or other proceedings shall be maintained
or continued in any court or before any authority for H
the refund of any such tax or octroi; and
638 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.

A
(c) no court shall enforce any decree or order direct-
ing the refund of any such tax or octroi.

(2) For the removal of doubts, it is hereby declared
that nothing in sub Section (1) shall be construed as
preventing any person-
B

(a) from que.stioning in accordance with the provisions
of the principal Act, as amended by this Act, any
assessment, re-assessment, levy or collection of tax
or octroi referred to in sub-section (1) ;. or

(b) from claiming refund of any tax or octroi paid by
c him in excess· of the amount due from him by way of tax
or octroi under the principal Act, ss amended by this
Act ...

Reliance is now placed by the respondents on the amendment
of section 5(4) of the Act made with retrospective effect and the
D
validating provisions contained in the Amending Act in support of
their case. It is 'now well settled that it is permissible for a
competent Legislature to overcome the effect of a decision of a
Cou•t setting aside legislation amending the relevant provisions
of the statute concerned with retrospective effect, thus taking
away the basis on which the decision of the Court had been
rendered and by enacting an appropirate provision validating the
E
levy and collection of tax made before the decision in question
was rendered. In Shri Pritlrrl Cotton Hills Lt:d. & Anr. v. Broach
Borough llunicipalit:y & Ors· [1970] l s.c.R. 388, a Constitution
Bench of this Court has laid down the requirements which a
validating law should satisfy, in order to validate the levy and
collection of a tax which had been declared earlier by a Court as
F illegal.· Hidayatullah, c.J. speaking for this Court observed in
the above decision at pages 392-393 thus:-

''When a legislature sets out to validate a tax declar-
ed by a court · to be illegally collected under an
ineffective or an invalid law, the cause for ineffec-
G
tiveness or invalidity must be removed before valida-
tion can be said to take place effectively. The most
important condition, of course, is that the legis-
lature must possess the power to impose the tax, for,
if it does not, the action must ever remain ineffec-
tive alld illegal. Granted legislaUve competence, it
H is not sufficient to declare merely that the decision
I
HINDUSTAN CHEMICALS v. STATE l VENKATARAMIAH, J. j 639

of the Court shall not bind for that is tantamount to A
reversing the decision in . exercise ·of judicial power
which the legislature does· not possess or exercise. A
court 1 s decision must always bind unless the condi-
tions on which·- it is based· are so fundamentally
alte~ed that- the dP.cision could not ·have been:-give11-.in
the altered circumstances·. Ordinarily·,. a court holds a B
tax to be invalidly imposed because the power · to . tax
is wanting - or the statute ot: the rul~s Ol'. 'both·- are
invalid or do not sufficiently create the jurisdic-
tion. ·Validation of ·a tax so declared illegal may be
done ·only .if the gr0unds of illegality' or invalidity
are ·capable of ·being removed arid a:re .i.n · fact ·removed c
and the tax thus made legal. Sometimes this is done by
providing for jurisdiction where jurisdiction had not
·been p·roj>erly· ii1veSted befOre. ·Sometimes. 'this is dOne
'by re-enacting' retrospectively a valid· and legal
taxing provision and then by fiction making the i:ax
already· collected to. stand under 'the ore-enacted law. D
Some time the legislature gives its own meaning and
interpretation of the law under which the tax was
collected and by legislative fiat makes the new mean-
ing binding upon courts. The legislature may follow
any one method or all of them and while it doescso it
may neutralise the effect of the ·eariier decision ·of
the court which becomes ineffective after the cha'ri.ge . E
. of the law. Whichever method is adopted it must be
within the competence of the legislature arid legal and
adequate to attain the object of validation. tf the
·legislature· has the power over the ·~uJ>ject matter and
competence to make a Valid law, ft can at anY time
make such a valid law and make it retrospectively so F
as to bind even past transactions. The validity of a
Validating law, therefore, depends upon whether the
.legislat1 1 re possesses the competence which it claims
over ' the subject-matter and whether in making the
validation it removes the defects which the courts had
found in the existiilg law and makes adequate. provi- G
sions in the validating law for a valid imposition of
the tax."

In the instant case the only ground on which this Court had
found. the levy of octroi in the extended area of a municipality
to be invalid was that the provisions of section 5(4) of the. Act H
were inadequate in the absen~e of a reference to the notifica-
tions issued under the .Act also in that sub-section. By the
640 SUPREME COURT REPORTS [1985] SUPP.2 s.c.R.
A
Amending Act the word 'notification' r.ad been inserted in sub-
section (4) of section 5 of the Act With retrospective effect. If
the expression 'notification' had been there in that sub-section
on the date on which the municipal limits were extended, this
Court .would have upheld the levy and collection of control in
B its judgment in Atl&ll Cycle ludustd.ea Ltd. case (supra). This
Court found that sub-section ( 4) of section 5 which did not
contain the word 'notification' was inadequate for the purpose of
upholding the levy and collection of octroi in the extended local
area. Since the word 'notification' has now been inserted in
c section 5(4) of the Act With retrospective effect, the basis on
which the said decision was rendered has been removed because the
deficiency in section 5(4) noticed by this Court has been made
good and the levy and collection of octroi have also been valida-
ted. The Amending Act satisfies the tests laid down by this Court
in the decision in Shri PrithVi Cotton Hill 'a case ·(supra) for
D overcoming an earlier decision of a court in such circumstances.
The Amending Act thus neutralises the effect of the decision in
the case. of Atlas Cycle ludustd.es Ltd. case (supra) which can no
longer be relied upon by the appellant after the amendment of the
Act as stated above. There is no other contention urged by the
appellant in support of its appeal. The levy and collection of
E octroi in the area which was.included Within the municipal limits
of Bhiwani With retrospective effect from August 10,19.65 in
accordallC"e With the notification issued earlier are, therefore,
no longer open to question.

In the result this appeal fails and the order of dismissal
F of the writ petition peased by the High Coutt is affirmed but on
a ground different from the ground on which the High Court had
dismissed it. There ahall, however, be no order as to costs.

I
Appeal dismissed.