Gujarat High Court
Mafatlal Industries Ltd. vs Nadiad Nagarpalika And Anr. on 12 April, 1991
Equivalent citations: (1993)2GLR1127
JUDGMENT A.P. Ravani, J.
1. What do the words 'consumption' and 'use' mean occurring in the provisions of the definition of the term 'octroi' in Section 2(16), in Section 99(i)(iv) of the Gujarat Municipalities Act, 1963? (hereinafter referred to as 'the Act'). This is the principal question which is arising for consideration in this petition.
2. The Facts: The petitioner-Company is manufacturing textile goods and for the purposes of carrying on manufacturing activity it brings into the octroi limits of Nadiad Town cotton, man-made fibre, machinery, machinery parts, colours, chemicals and such other articles. On the articles brought within the octroi limit, the petitioner pays octroi duty as per the rates prescribed in the Schedule to the rules and the bye-laws framed by Nadiad Municipality under the relevant provisions of the Act. Out of the articles so manufactured the petitioner-Company takes out some articles outside the octroi limits for the purposes of processing the some. Processing work is done in some other units of the petitioner-Company situated in different towns. Mainly grey cloth pieces of the length of 100 metres are taken out for such processing work. After the processing is over the goods are brought back to Nadiad town in the same length, i.e., about 100 metres.
3. After the goods are brought back, the cloth pieces of 100 metres are cut into different sizes of suitable length of 20, 30 or 40 metres so as to meet with the requirement of the excise rules and the demand in the market. While cutting the cloth to particular size, the requirements of the consumers are also kept in view. After the process of cutting the cloth in different sizes is over, the sale takes place. According to the petitioner negotiations for sale takes place at Bombay. Arrangement for sale is also finalised at Bombay. The Bombay office of the petitioner-Company remains in direct touch with Nadiad units. As per the instructions of the Bombay office the goods are despatched to different destinations in the country and even outside the country. Only some goods are sold in Nadiad town itself. But the quantity of goods sold in Nadiad is insignificant.
4. Supreme Court decisions on the word 'sale': It is contended by the petitioner-Company that when the goods are brought back into the octroi limits after undergoing some process, the goods cannot be said to have been imported for the purpose of sale therein. The goods are brought back within the octroi limits for the purposes of export. 'Export' means taking out the goods outside octroi limits. It is further submitted that whether the sale takes place within octroi limit or outside the octroi limits is immaterial. Even if the sale takes place as understood in the context of the provisions of the Transfer of Property Act, 1882 and the Sale of Goods Act, 1930, within the octroi limits, the goods will not attract liability for payment of octroi duty. In short it is contended that the goods which may be brought within the octroi limits for its onward journey for export or for sale, the goods cannot be subjected to payment of octroi duty. On the other hand it was sought to be argued that if the sale takes place within the Municipal limits and the goods are brought within the Municipal limits with the intention to sell the same, then octroi duty would be attracted.
5. The contention raised by the petitioner is covered in favour of the petitioner by the decisions of the Supreme Court in the following cases:
(1) Burmah Shell Co. v. Belgaum Municipality .
(2) Hiralal Thakorlal v. Broach Municipality .
(3) Municipal Council, Jodhpur v. Parekh Automobiles Ltd. .
(4) H.M.M. Ltd. v. Administrator Bangalore City Corporation .
In the aforesaid decisions, the provisions of different Municipal Acts came up for consideration. However, the provisions considered by the Supreme Court are in pari materia with the provisions of the Act. Subject to any general or special orders made by Government and subject to the provisions of Sections 101 and 102 of the Act the Municipality is empowered to impose taxes enumerated in Section 99 of the Act, Section 99(l)(iv) of the Act empowers the Municipality to impose octroi on animals or goods or both, brought within the octroi limits for consumption, use or sale therein. The term 'octroi' is defined in Section 2(16) of the Act to mean a tax on die entry of goods into the limits of a Municipal borough for consumption, use or sale therein. Similar provisions of law are considered by Supreme Court in the aforesaid decisions. As held by the Supreme Court, the sale, in order to attract levy of octroi, should be for the purposes of use or consumption of the ultimate consumer in the area. Even if the sale is effected within the octroi limits, no duty of octroi would be leviable if the goods were sold only fur their onward transmission fur use and consumption outside the octroi limits. In view of the settled legal position, it cannot be said that the goods will attract the octroi duty simply because they arc hold within octroi limits. The sale should be for the consumption or use by the ultimate consumer in the octroi limit. Therefore in order to attract the duty liability it should be shown that goods are brought within octroi limits for consumption or use in the octroi limits.
6. Would cutting of cloth amount to 'consumption' or 'use'? Learned Counsel appearing for the respondent-Municipality submits that when die goods are brought back within the octroi limits, they are not brought back simply fur their onward journey. Before making the same ready for sale the process of cutting is undertaken by the petitioner-Company. Admittedly the petitioner-Company cuts the cloth into different sizes at least for three purposes, namely, (1) to meet with the requirement of relevant Excise Rules; (2) to make the commodity suitable as per the demands of the customer, and (3) to suit the requirements of the market. When the process of cutting the cloth is undertaken by the petitioner-Company it amounts to "consumption" or "use" of the commodity. Therefore it is submitted that even if the goods are not brought within the octroi limits for sale therein, the goods are admittedly brought within the octroi limits for the purposes of "consumption" or "use". Learned Counsel for the petitioner contends that mere cutting of the cloth into different sizes would not amount to "consumption" or "use" and therefore the goods would not be liable to octroi duty.
7. The words 'consumption' and 'use' occurring in the definition clause of 'octroi' and in Section 99(1)(iv) of the Act are of wide import. In the case of Anwarkhan Mahboob Co. v. State of Bombay , the word 'consumption' came up for consideration before the Supreme Court. In that case tobacco was purchased and in the State of Bombay the stem and dust of the tobacco was removed. It was contended that removal of stem and dust of the tobacco did not amount to consumption of tobacco or there was no effect of converting tobacco into an article commercially different. The Supreme Court held that tobacco was delivered in the State of Bombay for the purposes of changing it into a commercially different article, namely, bidi patti and therefore it was for the purpose of consumption. In para 9 of the report the Supreme Court has referred to the ordinary meaning of the word 'consumption' with which the people are familier, namely, when the people eat or drink or smoke certain articles. However, thereafter the Supreme Court further observed as follows:
The production of wealth, as economists put it, consists in the creation of "utilities". Consumption consists in the act of taking such advantage of the commodities and services produced as constitutes the "utilization" thereof. For each commodity, there is ordinarily what is generally considered to be the final act of consumption. For some commodities, there may be even more than one kind of final consumption.
The Supreme Court has further explained the meaning of the word 'consumption' by giving illustrations and has stated as follows:
But the fact that there is for each commodity what may be considered ordinarily to be the final act of consumption, should not make us forget that in reaching the stage at which this final act of comsumption takes places the commodity may pass through different stages of production and for such different stages, there would exist one or more intermediate acts of consumption. Thus, the final act of consumption of cotton may be considered to be the use as wearing apparel of the cloth produced from it But before cotton has become a wearing apparel, it passes through the hands of different producers, each of whom adds some utility to the commodity received by him. There is first the act of ginning; ginned cotton is spun into yarn by the spinner; the spun yarn is woven into cloth by the weaver; the woven cloth is made into wearing apparel by the tailor. At each of these stages distinct utilities are produced and what is produced is at the next stage consumed. It is usual, and correct to speak of raw cotton being consumed in ginning; of ginned cotton being consumed in spinning; of spun yarn being consumed in weaving: of woven cloth being consumed in the making of wearing apparel. The final product the wearing apparel-is ultimately consumed by men, women and children in using it as dress.
In view of the aforesaid meaning of the term 'consumption' it becomes evident that whenever on an article some activity is done or some process is carried on, which adds to its utility, the process of user and consumption takes place. This position is made clear by Supreme Court itself, in its subsequent decision.
8. Kqfhiawar Industries Ltd. v. Jaffrabad Municipality : In this case the appellant-Company was bringing within the octroi limits uncrushed salt for the purpose of crushing it. The salt, even after crushing remained salt. It was an admitted position that the salt was manufactured by the Company outside the octroi limits. It was brought within the octroi limits for the purposes of crushing into powder, and then it was exported outside. The question arose - whether such import of salt within the octroi limit can be said to be 'import' for the purposes of "consumption" or "use" in the octroi limits? The Supreme Court followed the meaning of the word 'consumption' elucidated by it in the case of Anwavkhan Mahboob Co. (supra). The Supreme Court also referred to the aforesaid illustration of cotton and the consumption thereof before it becomes wearing apparel. In para 8 of the judgment it is observed:
... when uncrushed salt is crushed in the factory it is commercially a different article and the uncrushed salt must be held to have been consumed. The word "use" is of wider import than "consumption". It cannot be denied that the uncrushed salt has been used and by the user a new product, crushed salt has come into existence.
The Supreme Court further held that octroi would be leviable on die uncrushed salt which was brought to the octroi area and crushed as the activity would amount to both consumption and use of the uncrushed salt.
9. The test applied to the facts of the case: Applying the aforesaid tests to the facts of this case it becomes clear that when grey cloth, after being processed outside the octroi limits, is brought back and is subjected to die process of cutting, it adds to the utility of the article. This advantage of utility itself makes the article commercially different. Even according to the case of the petitioner-Company, the cloth is not cut into different sizes or pieces for the sake of fancy or without purpose. It is cut for business purposes. It is cut to meet with the requirements of Excise Rules. It is cut so as to cater to the demands of die consumers. It is also cut so as to suit the marketability of the commodity. The very activity of cutting of the cloth involves user and consumption of the commodity. At one stage when the commodity is cut, to some extent the commodity is consumed, and when utility is added to it, it is used to some extent. In economics, what else does the term 'production' means? Production would mean conversion/transformation of a matter into things useful. By cutting the cloth of the length of 100 metres into different sizes, the petitioner-Company is converting the cloth of huge length to some different use. Therefore the contention that in the process of cutting no activity of 'user' or 'consumption' is involved cannot be accepted.
10. H.M.M. Ltd. v. The Administrator, Bangalore City Corporation : On this decision reliance is placed by the Learned Counsel for the petitioner. Therein milkfood powder (Horlicks) was imported in bulk in drums into octroi limits in the city of Bangalore and octroi was paid at the time of its import. The milkfood powder was repacked in small packets and bottles of various sizes. Therefore it was sent to various places outside Bangalore, except a small quantity which was sold in Bangalore City proper. On the quantity of milk-food powder sent to various places outside Bangalore after repacking or rebottling, the manufacturer claimed refund of octroi duty. In this context it was held that putting powder from the drums into bottles for the purpose of export or taking the same out of the city would not amount to 'use' or 'consumption' of Horlicks powder and therefore it would not attract the levy of octroi. The decision is of no help to the petitioner. Be it noted that the commodity which was liable to octroi duty was milk-food powder. On that commodity itself no process or activity was undertaken. That commodity remained untouched and it remained the same. Only packing thereof was made in different packets and bottles of various sizes. In the instant case the commodity itself, i.e., the cloth undergoes the operation of cutting. This cutting in its sweep 'uses' as well as 'consumes' the commodity. When ' the cutting of the cloth takes place it adds to the utility of the cloth itself. When such addition of utility takes place, "user" and/or "consumption" of the commodity takes place. Of course, this "consumption" and "user" is to be understood in the sense explained by the Supreme Court. While in the case of milk food powder when it is packed in packets and bottles of different sizes it does not add the utility of the commodity itself. In fact no process on the commodity itself had taken place in the case of H.M.M. Ltd. (supra).
11. Again, it may be noted that in the case of Kathiawar Industries Ltd. (supra) uncrushed salt it self had undergone the process of being crushed. The facts of this case are almost similar to the case of Kathiawar Industries Ltd., before the Supreme Court. Applying the test laid down by the Supreme Court in the case of Amvarkhan Mahboob Co., (supra) and in the case of Kathiawar Industries Ltd. (supra) it has got to be held that in the process of cutting the cloth the petitioner-Company "uses" as well as "consumes" the cloth Therefore when it brings cloth into the octroi limits for this purpose it would attract octroi duty.
Other grounds and contentions mentioned in the petition were not pressed. No other contention is raised. In the result the petition fails and the same is hereby rejected. Rule discharged with no order as to costs.