Holding

Rule 27(b) of the Octroi Rules refunds octroi on imported raw materials used in manufacturing exported goods, and the proviso does not apply to such cases; therefore the respondents are entitled to the refund.

Summary

The respondents, manufacturers of bidis, imported tobacco and other raw materials into Damoh municipality, paid octroi duty, used the materials to manufacture bidis and exported the finished products. They claimed a refund of the octroi under Rule 27(b) of the Octroi Rules, which provides a refund when imported raw materials are used in manufacturing goods that are exported. The municipal council denied the refund, arguing that the exported bidis were not the same as the imported raw material and that the proviso to Rule 27(b) required proof that the same goods were exported. The Sub‑Divisional Officer and the High Court allowed the refund, but the council appealed to the Supreme Court. The Court held that Rule 27(b) indeed allows a refund of octroi on raw materials used in manufacturing exported goods, that the proviso applies only when the imported goods themselves are exported without processing, and that the council’s limitation plea was barred because it was not raised earlier. Consequently, the appeals were dismissed and the respondents were entitled to the refund.

Issues considered

Whether Rule 27(b) of the Octroi Rules provides a refund of octroi duty on imported raw materials used in the manufacture of goods that are exported, despite the exported goods being different from the raw material.
Whether the proviso to Rule 27(b) requiring proof that the same or identical goods are exported applies to cases where the raw material is processed into a different product.
Whether the limitation provision under Section 319(2) of the Madhya Pradesh Municipalities Act, 1961 bars the respondents' claim for refund.

Legislation cited

Central Provinces & Berar Municipalities Act, 1922s. 71, s. 76, s. 83, s. 84, s. 85
Madhya Pradesh Municipalities Act, 1961s. 319(2)

Subjects

octroirefundRule 27(b)manufacturemanufacturing processexportraw materiallimitationmunicipal lawbidis

Judgment

301

MUNICIPAL COUNCIL DAMOH A
v.

VRAJ LAL MANILAL & CO. & OTHERS.
B
February 23, 1982

[V.D. TULZAPURKAR AND AMARENDRA NATH SEN, JJ.]

Central Provinces & Berar Municipalities Act, 1922-Ru/es made under the
Act-Rute·27(b) of the Octroi Ru/1s-Octroi duty paid on raw material imported
c
into the municipality for manufacture of bidis;_Manufactured bidis exported out~
side ihe municipal limits-Refund, 11 allowable uncf.er rule 27(b).

Words & phrases: "manufacture" and "manufacturing process''-Meaning
of.
D
The res"pondents manufacture and selJ bidis in the state. At the time of
import of tobacco and other raw materials into the municipal Jimits for the
manufacture of bidis they paid oc:troi duty payable under the rules. Their claim
for refund of octroi duty on the raw materials utilised for the bidis which they
manufactured and exported outside the municipa1 limits was rejected by the muni·
cipal counCil.
E
Rejecting the appellant-council's contention that the benefit of rule 27(b) of
the Rules was not available to the respondents fo! the reason that the exported
goods (bidis) were not the same or identical as the imported raw materi8l'J the
r Sub-Divisional Officer allowed the respondent's appeal.

Io revision the High Court upheld the order of the Sub-Divisional F
Officer.

In appeal to this Court it was contended tlrat refund is available under
rule 27(b) only where even after undergoing the manufacturing process the impor·
ted article retained its essential character as s~ch ar!icle and the same was expor-
ted outside the municipal limits. (2) The respondents we~ not entitled to refund
as they failed to satisfy the committee that the san1e or identical goods had been
exported. G
Dismissing the appeal,

HELD : I (a) Rule 27(b) of the Octroi Rules in terms provides for refund
of octroi paid on imported. ·raw materials when such raw material is actualJy H
used within the municipal limits for manufacturing the exported articles. Clause
(b) of this rule itself speaks of the raw materials being "used in the manufacture"
SUPREME CC)URt REPOR'rS [19821 ~ s.c.a.

A so that use. or consumption which a manufacturing process entails was present
r-
to the mind of the framers of the rule when they provided for the refund on the
export of finished goods manufactured within municipal limits. [313 F-H)

(b) The well settled connotation of ''manufacture" and "manufacturing
process" is that as a result of undergoing the process, a distinct commercial
commodity .different from the raw materials, comes into existence. Therefore
B the expression 'manufacture' occurrine in rule 27(b) cannot be given a limited
meaning as suggested by the appellant. [313 H, 314 A-BJ

2. The proviso to the rule is not attracted to a case of manufactured goods
f.alling under clause (b). The proviso is applicable to cases where there is an
export of the importc~ goods themselves without subjecting them to any manu·
factoring process. It is in such cases that in order to claim refund the exporter
c has to satisfy the committee that the Same goods on which import duty had been
paid were bein_g exported. The proviso is not a proviso to clause (b) at all but
will be applicable to the other parts Of the rule. [314 C, D, El

3. It is not just to permit the appellant to raise the plea of limitation in
the case becallse at one stage it acquiesced in the trial court's finding and did not
raise the question in appeal before the High Court. While asking for a certifi-
D cate for appeal the appellant did not raise the question of limitation before the
High Co)lrt nor did it include the point of Jimitatioo in the memo of appeal
filed in this Court. The point raised needs investigation into facts. [316 .F-G]

CIVIL APPELLATB JURISDICTION : Civil Appeals Nos. !048 of
1970 & 845 of 1971.
E Appeals by certificate from the judgment and decree dated
the 11th March & 15th November 1969 of the Madhya Pradesh High
Court (Jabalpur) in Misc Petition No. 96 of 1959 and in First
Appeal No. 44 of 1966 respectively.

F
AND

Civil Appeals Nos. !047, 1048 & 1049 of 197!.
1
Appeals by special leave from the judgment and decree dated
G the 17th April, 197 l of the Madhya Pradesh High Court at iabalpur
in Second Appeal Nos. 415, 416 & 417 of 1966 respectively.

D.V. Patel, S.S. Kh,induja and C.L. Sahu for the Appellants in
all the Appeals.
H
Dr.Y. S. Chitale)nd Rameshwar Nath for Respondent No. J
in Civil Appeals Nos. 1048/70 & 845 of 1971.
MtJNtCIPAt COtJNClt v. vllAl LAL (Tulzapurkar, 1.) 309
A
Rameshwar Nath for Respondent No. I in Civil Appeals Nos.
1047-1049 of I 971.

Gopal Subramanium and S.A. Shroff for Respondents Nos. 2 & ·
3 in all the appeals.
B
The Judgment of the Court was delivered by

TULZAPURKAR, J. The aforesaid five appeals, the first two on
a certificate granted by the Madhya Pradesh High Court and the
last three by special leave granted by this Court, raise a common
question in regard to refund of octori duty collected by the appel-
c
lant-Council from the respondent firms and are, therefore,' disposed
of by common judgment. The principal question raised in these
appeals relates to the proper construction of Rule 27 of the Octroi
Rules of Damoh Municipal Council (the appellant) framed in exer-
cise. of powers conferred by ss. 7 I, 76 and 85 of the Central Provinces D
& Berar Municipalities Act, 1922-which Rules were continued in
operation even after the coming into force of the new Act, the
Madhya Pradesh Municipalities Act, 1961 and the question arises in
these circumstances :

E
The two respondent firms in the two sets of appeals (M/s. Vraj
Lal Manila! & Co. and M/s. Prabhudas Kishoredas) carry on busi-
ness of manufacturing and selling bidis in Damoh and other cities
in Madhya :Pradesh and for that purpose they import tobacco and
other raw material into the Municipal limits of Damoh city and
after manufacturing bidis out of such imported raw mater.ial they
F
export their finished product (bidis) outside Damoh Municipal
limits. The respondents' case was that at the time of import of
tobacco and other raw material into the municipal limits of Damoh
they paid octroi duty as per Octroi Rules of the appellant Council
and after utilising the said raw material for preparing bidis when
they exported the manufactured bidis outside the limits of the appel-
G
lant Council, they were entitled to a refund of the octroi duty paid
by them on the raw material so utilized under Rule 27 of the
Octroi Rules but inspite' of refund vouchers having been issued by
the concerned official ofthe appellant council and inspite of having H
complied with the Rules and procedure prescribed in that behalf,
the appellant Council refused to pay the amounts of the refund
310 .SUPREME COURT REPORTS (1982) 3 S.C.R •
A
vouchers to them. In Civil Appeal No. 1048 of 1970 since·the
claim for refund to the sum of Rs. 33,409.52 based on 1866 refund
vouchers relating to the period from 4.12.1952 to 12.12.1959 arose
under the old Act, namely, Central Provinces and Berar Mu,icipali-
ties Act 1922, the respondent firm M/s Vraj Lal Mani Lal & Co. filed
an appeal before the Sob Divisional Officer Damoh under s. 83 (1-A)
B
of the Act against the refusal of the appellant-Council to make the
refund. Apart from raising technical pleas such as .non-maintaina-
bility of the appeal, bar of limitation etc. the appellant Council
resisted the claim on merits on the two grounds : (a) that since the
raw material had been used or consumed in the manufacture of
c bidis and since the exported goods (finished products) were not the
same or identical as the imported raw material on which the octroi
duty had been paid no refund under Rule 27 (bl was available to
the respondent firm and (b) . that the respondent firm had failed to
prove to the satisfaction of the Municipal Council as required by
the proviso to Rule 27 (b) that the same or identical goods were
D being exported on which import octroi had been paid by them. The
Sub Divisional Officer by bis order dated 30th June, 1961 negatived
the technical pleas of the appellant council, which order was finally
confirmed by the High Court on 25th February, 1963. The Sub
Divisional Officer al.so over-ruled the defences raised by the appel-
lant Council on merits and by his final order dated 4th April, 1964
E directed that the amount of 1865 refund vouchers aggregating to
R~. 33409.52 minus the amount recovered under 19 vouchers should
be refunded to the respondent firm. The appellant Council wi;nt in
revision to the State Government ·but the same was .dismissed on
28th September, 1968. The Sub Divisional Officer's decision as l
well as the State Government's order in revision were challenged by
F the appellant Council before the High Court by a Writ Petition
(Miscellaneous Petition No. 96 of 1969) but the writ petition was
dismissed by the High Court summarily and in doing so the High
Court followed its earlier judgment in the case of Municipal
Committee, Burhanp11r v. Allauddin Ao/ia Saheb and Co.(') where
in regard to a similar refund rule obtaining in Burhanpur Municipal
G Committee the Court bad taken the view that "Octori duty paid on
imported tendu leaves and tobacco is refundable under the provi-
sions of Rule 25 (b) of the ·Rules framed under s. 85 of the Act
when bidis manufactured within the limits of the Municipal

H
(1) 1957 MPL1 278.
MUNICIPAL COUNCIL v. VRAJ LAL (Tulzapurkar, J.) . 311
A
Committee are exported." In the remaining four matters, being
Civil Appeals 845, 1047, 1048 and 1049 of 1971 the claims for
refund made by the respondents in similar drcumstances were
required to be prosecuted by filing civil suits against the appellant
Council, inasmuch as when action was contemplated by the respon·
dents, the new Act, namely, Madhya Pradesh Municipalities Act
B
1961 had come into force and no remedy by way of any appeal to
Sub Divisional Officer was available. In each of these suits the
appellant Council resisted the claims for refund on merits on the
....,.-- .. same grounds mentioned above The respondents failed in their
suits in the two lower courts but succeeded in second Appeals in the
High Court.
c
ln these appeals the self-same two contentions were urged before
us on behalf of the appellant-council. First, since Octroi duty is a
levy on imported goods meant for use, consumption and sale there-
of within the municipal limits and since the raw material (tobacco)
was used or consumed in the manufacture of bidis the same or
D
identical· goods were not exported by the respondent firms and so no
refund under Rule 27 (b) was available to the respondent firms.
Secondly no attempt was made by the respondent firms to satisfy
the Municipal Ccmmittee that the same or identical goods had been
exported as required by the proviso to Rule 27 (b). For both these E
reasons it was urged that the respondent firms' claim to •efund of
octr.oi should have been rejected. Counsel urged that these points did
not arise and were not determined in Allaudin Saheb' s case

. (supra),

The admitted facts in· these appeals are that the respondent
F
firms, who carry on the business of manufacturing and selling bidis
imported or brought into the municipal limits of Damoh during the
relevant period tobacco and other raw material, that they paid
the requisite octroi duty on such raw material on its import
at the prescribed rates, that they utilised the said raw material
for manufacturing bidis and they exported the finished product
G
(bidis) outside the municipal limits of Damoh. and it was at that
stage of export of bidis that they claimed under Rule 27 (b) a
refund of octori duty ·paid by them on tbe raw material from the
appellant Council. The question raised is whether under the said
provision they are entitled to the refund of octroi as claimed by
H
them. Rule 27 whi~b deals with r~fu!J~ of o~troi runs thus ;
312 SUPREME COURT REPORTS [1982) 3 s.c.a.
A
"27. Refund of octroi. On the exportation of dutiable
goods out~ide municipal limits the exporter shall be entitled
to a refund of duty paid on them at the time of their
import, provided that,

B (a) no refund shall be given, if the amount to be
refunded be less than Re. l or if the claim be
made after the expiry of two months from the date
of export, unless the exporter is able to explain
satisfactorily the reason for the delay.

c (b) the refund on the exported goods which have been
manufactured within the municipal committee
from imported raw materials liable to octroi, shall
not exceed the octroi on the raw materials used in
the manufacture, and

D
Provided that the exporter shall not be entitled to a
refund of octroi duty unless he proves to the satisfaction of
the committee that the goods brought for export belong
to him and .are the same on which duty was paid by the
importer in whose favour the octroi receipt is produced in
E · support of the claim for refund of duty."

In support of their claim for refund the respondents obviously
rely upon cl. (b) of Rule 27 under which refund is available on
exported goods provided those have been manufactured within the
municipal limits from out of the imported raw materials on which
F
octroi has been paid and the clause indicates that quantum .of. refund
shall not exceed the octroi duty actually paid on such raw materials
at the time of their import. Counsel for the appellant, however,
conterided that in its very nature octroi is a duty levied on import of
goods which are meant for use, consumption or sale within the muni-
cipal limits and counsel urged that it cannot be disputed that when
G
.raw material like tobacco is utilized in the manufacture of bidis
such raw material is used or consumed in the process of manufacture
and it is such finished product (bidis), a disputed commercial commo-
dity that is being exported by the respondent-firms and, therefore,
H no refund under cl. (b) or Rule 27 would be available to them.
Counsel urged that the word 'manufacture' occurring in the
9lause must be given a limited meaning, that is to say, only such
MUNICIPAL COUNCIL v. YRAI LAL (Tulzapurkar, J.) 313

A
manufacturing process is contemplated by that clause which does
not alter. or change the identity of the imported commodity and only
in respect of the 'eipott of such manufactured goods the refund
Would be available and not where the imported commodity gets
converted into an altogether different commercial article. Counsel
also invited our attention to the proviso following cl. (b) which 8
states that the exporter shall not be entitle~ to refund of octroi
duty unless he proves to the satisfaction of the committee that .the
goods brought for export are the same on which duty had been paid
by the importer and according IQ Counsel the 'bidis' cannot be said
to be the same goods on which the respondent-firms could be said
to have paid the duty. In other words refund is available under cl. c
(b) in cases where even after undergoing the manufacturing process
l the imported article or commodity retains its essential character as
such article or commodity and the same is exported outside the
municipal limits. It is not possible to accept the aforesaid construc-
tion sought to be placed on cl. (b) of Rule 27 of the Octroi Rules
by the appellant's counsel for reasons which we shall presently indi- D
cate. In the first place, though it is true that octroi by its nature
is a lev) on import within the municipal limits of articles or goods
meant for use, consumption or sale therein that does not prevent a
Municipal Coullcil from framing a rule either granting exemption
from that duty or refund of such duty after its collection in cases of
certain type of use or consumption of the imported articles or goods E
for certain purposes. Secondly, a Municipal Council may do so for
achieving certain objectives like increasing industrialisation by
encouraging manufacturing activities within its limits. Clearly the
avowed object of Rule 27 (b) appears to be of this nhture for in
terms it provides for refund of octroi paid on imported raw materials
when such raw-material is actually used within the municipal limits F
for manufacturing the exported article and it is in light of this
objective that the said rule will have to be interpreted. Looked at
from this angle it will be difficult to accept the narrow or limited
construction of the word 'manufacture' appearing in cl. (b) as is
suggested by Counsel for the appellant and the same could not have
been intended by the framers of the rule. Further clause (b) itself G
speaks of the rav; materials being "used in the manufacture" so that
use or consumption which a manufacturing process entails was
present to the mind of the framers of the Rule when they provided
for the refund on the export of finished goods manufactured within
the municipal limits. Moreover, tqe well-settled connot!ltion of the
H
314 SUPRJ!ME COURT REPORTS (J982J 3 s.c.R.

A
concept of 'manufacture' and 'manufacturing process' is that as a
result of undergoing the process a distinct commercial commodity
different from !he raw materials comes into existence ; it is ·difficult
to visualise degrees of manufacture as suggested by counsel for the
appellant and in any case none could be attributed to the framers
8 of the Rule. It is, th~refore, not possible to accept the contention
that the expression "manufacture" occurring in cl. (b) of Rule 27
should be. given a limited meaning as is suggested. Turning to the
proviso on which strong reliance was placed by the counsel for the
appellant, it seems . to us that the proviso by its very terms is not
attracted to a case of manufactured goods falling under cl. (b). If
c cl. (b) confers the benefit of refund of octroi duty on the export of
goods manufactured out of raw material then it is difficult to appre-
ciate how the exporter will be able to satisfy the Municipal Committee
that the exported goods are the same or identical on which duty bas
been paid, for admittedly the exported goods are the finished
product and no import duty is paicl thereon by the exporter. The
D proviso in our view is applicable to cases where there is an export of
the imported goods themselves without . subjecting them to any
man~facturing process and it is in such cases that the exporter bas
to satisfy the Committee that the same goods on which import
duty has been paid are being exported which would entitle the ex-
porter to claim a refund; in other words it is not a proviso to cl.
E (b) at all but will be applicable to the other parts of the Rule. It is
thus clear to us that when raw materials like tobacco etc. were
imported by the respondent-firms within the limits of Damoh, on
which they paid octroi-duty and when they manufactured bidis out
of such raw.materials and exported the same they were entitled
to get refund to the extent of quantum mentioned in cl. {b) of
F Rule 27.

In view of our aforesaid conclusion that the proviso is not
applicable to cases of manufactured goods falling under cl. (b) of
the rule the second contention urged by the Counsel for the nppel-
G 1 lant that the respondent· firms were not entitled" to refund as they

failed to satisfy the Municipal Committee that the same or identical
goods had been exported does not .survive. That apart, the High
Court has on a conspectus of the Octroi Rules came to the conclu-
sion and in our view rightly, that . the Octroi, Superintendent is r~s·
H
ponsible for the proper ad!llinistratioQ of thy O~troi Depart!lleQt iQ
MUNICIPAL COUNCIL v. VRAJ LAL (Tulzapurkar, J.) 315

all its branches which necessarily includes that it is he who should be A
satisfied as to the identity of the goods that are to be exported or
that are utilized in the manufacture of goods which are to be
exported.

The last contention sought to be urged on behalf of the appel· 8
!ant-council before us related to the bar of limitation to the responc
dents' claim arising under section 319 (2) of the Madhya Pradesh
Municipalities Act, 1961 and counsel fairly stated that this arises
only in Civil Appeal No. 845 of 1971. The facts in this behalf are
these: Civil Suit No. 1-B of 1964, out of which the aforesaid appeal
arises, was filed by the respondent-firm M/s Vraj Lal Manila! &
Co. on 7.5.1964 claiming refund in respect of goods exported during
c
the years 1959-1964; in other words, part of the claim from 1959 to
31st January, 1962 arose under 1922 Act while the claim pertaining
to the period from 1.2.1962 to April 1964 arose under the 1961 Act,
which came into force from 1.2.1962. The trial Court as well as
the High Court took the view that non-payment of refund under the D
1922 Act could be agitated only by way of an appeal under section
83 and other remedies were barred under s. 84 of the Act and,
therefore, tliat part of the respondent's claim was dismissed as being
not tenable ·but both the Courts held that non-payment of refund
after 1.2.1962 could be agitated by a suit and the same was tenable
On the question of limitation the trial Court held that that part of E
the claim was not barred but since it had negatived the respondent's
claim for refund on merits it dismissed the respondent's suit entirely
but the High court, which reversed the trial Court's view on merits
allowed the respondent's claim in respect of refund vouchers which
had• been certified and presented after 1.2.1962. Since, however, it
was not possible for it to sort out the refund vouchers which had F
been certified the High Court by its judgment and decree dated
15.12.1969 remanded the matter to the trial Court for determining
the amount payable to the respondent-firm. Upon remand the Ilia!
Court on the basis of statements made by the parties passed a
decree in respondent's favour for Rs. 21,023.53 with interest thereon
@ 4% and this decree was drawn up on 23.4.1970. G

Section 319 (2) of the 1961 Act runs thus;

"Every such suit shall be dismissed unless it is institu- H
ted within 8 months from tqe <ll\te of the awrual of thq
alleged cause of action."
- .- '
' SJ.IPREMB COURT REPORTS ' . (1982) 3 S.C.R.
·-··~---•-C --·-- -

Relying upon this provision counsel for the appellant urged that
since the suit had been filed on 7.5.1964 _the respondent's claim for
refund during 8 months prior to 7.5.1964 would be within limita-
tion but the rest of the. claim from-1.2.1962 to 7.9.1963 would be
·-barred by limitation and to that extent the decree in· favour of the
n respondent-firm deserves to be modified

·. We are not inclined. to entertain' this cont.intion so~ght to
...
be urged by counsel for the appellant before" us for.mi)re than one
reason. It is true that . this bar ofJimitation under:.s. 319 (2) was
c pleaded by -the appellant council in. its written statement and an.
·issue thereon was also raised . ~t the trial but the trial , Court held
that the claim arising" under_ the 'new .Act. after 1.2.1962 was not
barred by limitation. because cause .of action arose, on. 24.9.1963
when"there_-was. refusal. io pay or accede to the notice of demand
but when-th~ matter was carried in appeaf to the High. Court by !lie
,_D respondent firm against the dismissal of their claim 0 n merits and the
. High Court reversed the trial Court's view on merits and held that
the plaintiffs' claim for the period subsequent to 1.2.1962 was liable
to be decreed, this point of limitation arising under s. 319 (2) was
neither raised nor. pressed before ,the High Court. No contention
was" raised that the refusal to pay on 24.9.1963 did not give rise to
E the cause_ of action but th.at it arose. on" dates when goods were
exported and refund vouchers ·.were presented or certified. Had it
·. been . pres;ed the High ·Court would have, ·while ~emanding the
matter given appropriate directions to .the trial Court in that behalf.
·This shows that the appellant council acquiesced in the trial Court's
finding on the question _of limitation, namely,. the cause of action
F : -arose on 24.9.1963. Secondly, while applying for a certificate from
· the High Court for appeal to this Court the appellant-Council sought
· _the certificate on points touching the merits of the claim and not on
the question of limitation. Further . in the Memo of Appeal filed in
. this Court the grounds do not include the point of limitation. Lastly
the point raised cannot be said to .be a pure q11estion oflaw as it ·
G -will require investigation into . facts to ascertain tlie exact date or
· dates of accrual of the cause of action. When on the point of limi·
tation the appellant-Council had at one stage acquiesced in the trial
Court's finding and did not raise the_ question in appeal before the
H · High Court we do. not think it would be fair or just to permit the
I
appellant-Council · to raise . tl)e plea of limitation in thi_s Court,
' ' ' ~. • .• - . . • • • . • • • .
MUNICIPAL COUNCIL v. VRAJ LAL (Tu/zapurkar, J.) 317

. ..\-
\
especially when the result of allowing such plea might be to defeat
the just claim of the respondent-firm.
A

In the result the appeals are dismissed and each party will
bear its own costs.

P.B.R. Appeals dismissed. B

-'f·

•
-'y