Bombay High Court
Pimpri-Chinchwad Municipal ... vs Tata Engineering & Locomotive Company ... on 26 July, 2000
Equivalent citations: (2001)3BOMLR265, 2001(1)MHLJ188
Author: D.Y. Chandrachud
Bench: D.Y. Chandrachud
ORDER JUDGMENT (Per Dr. D. Y. Chandrachud, J.
1. Rule, returnable forthwith. Respondent waives service. By consent, petition is taken for final hearing.
2. The Court of Small Causes at Pune felt that "this case seems to be uncommon arising out of common incidents". From the record, the facts before us are not within the realm of controversy. Therefore, the exercise involved in the present petition is to apply the law relating to octroi duty as settled by the Supreme Court to the facts as they have emerged. In this petition, the 1st Petitioner, which is a Municipal Corporation established under the Bombay Provincial Municipal Corporations Act, 1949 ("the Act") challenges the decision of the learned Additional District Judge. Pune in a statutory Appeal arising out of the provisions of the Act. The learned Additional District Judge by his impugned order dated 7.12.1999 confirmed the view which was taken, in the first instance, on 30.9.1996 by the Court of Small Causes at Pune to which the hearing of statutory appeals in tax matters under the Act had been entrusted.
3. Before the formation of the 1st petitioner into a Municipal Corporation under the Act, it was a Municipal Council functioning under the Maharashtra Municipalities Act, 1965. The assessment and collection of octroi was governed by the Maharashtra Municipalities Act, 1965. The respondent has its factories at Pimpri and Chinchwad in which vehicles and spare parts are manufactured. Under Section 142 of the Maharashtra Municipalities Act. 1965, a provision has been made by which the facility of keeping "an account current" could be granted to an importer of goods within the limits of the Municipal Council instead of requiring him to pay octroi duty on every occasion that octroiable goods are introduced within the octroi limits. Section 142 of the Act provides that upon the grant of such a facility, the accounts shall be settled at intervals not exceeding one month and the person to whom the facility is granted shall "give such Information or details and make such deposit or furnish such security" as the Council may consider sufficient to secure its dues. The purpose of an account current is thus to ensure a certain degree of convenience to regular importers of goods within the octroi limits of the Council so that the inconvenience and delay attendant upon the payment of octroi duty every time that consignments arrive into the octroi limits, is obviated. In the case of the 1st respondent, the facility of maintaining an account current was allowed by the erstwhile Municipal Council and was continued after the Municipal Corporation was formed, In the course of the evidence that was recorded before the Trial Court, it has come on record that the procedure involved is that upon the grant of the facility, a memo was given at the octroi Naka whenever goods came within the limits of the Municipal Council. A debit memo was prepared by the officers at the octroi check post. The 1st respondent would prepare a monthly statement on the basis of the debit memos and. octroi duty would be paid on the basis of the statements so prepared of the consignments imported over a period of one month. The statements were verified by the officers of the Municipal Council. Octroi duty was initially paid in advance every month on the basis of estimated Imports and at the end of the month, a reconciliation was carried out. There would thus be a process of making credits and debits in the account maintained in relation to the Current Account facility.
4. The period for which the dispute in the present case relates is October, 1984 to March, 1985. The dispute between the parties relates to two areas and these are. briefly stated, thus :- (1) the 1st respondent brought in within the octroi limits material consisting of forgings which was duly subjected to the payment of octroi duty upon importation within the octroi limits. There is no dispute between the parties that the octroi duty was in fact paid when the material was brought in within the octroi limits. The material was thereafter taken out from the octroi limits of the Municipal Council for carrying out processing work which, in the present case, involved a buffing process to make the surface of the forgings smooth. As in many areas of human endeavour, the rough edges needed to be smoothened. After the processing was carried out, the material was brought back within the limits of the Municipal Council. It is an agreed position between the parties that the processing was itself of a nature which would not alter the form, character and use of the articles and that the Municipal Council, in fact, did as a policy permit the taking out of octroi paid articles to a place outside the municipal limits for the purpose of carrying out processing work- The petitioner has, however, sought to demand octroi duly a second lime on the same octroi paid goods, after they were brought in after processing. (ii) Some of the goods consisting of raw material and spare parts which were brought in within the municipal limits were rejected by the 1st respondent and returned back to the suppliers under Delivery Notes on the ground that these did not meet with the requirements of quality. It is common ground thatwhen these goods which were ultimately rejected were brought in within the octroi limits in the first instance, they had been subjected to the payment of octroi duty and octroi duty was paid. The Municipal Council, at the relevant time, had in fact passed a Resolution dated 29.5.1971 by which importers who were being granted the facility of an account current had been permitted to send out rejected goods with a consequential exemption from the payment of octroi duty. The process of rejection and dispatch outside the limits of the Council had to take place within a period of 60 days of the initial arrival of the goods.
5. The petitioner demanded octroi duty in respect of goods falling under both the aforesaid descriptions, viz. duty paid goods which were taken outside the octroi limits and brought back after processing and also upon the goods which were rejected. Insofar as the rejected goods are concerned, the 1st respondent after the dispatch of the goods outside the municipal limits carried out a credit entry in the Account Current, since, when the goods had been brought in. a debit entry had been made corresponding to the octroi duty payable on the goods at the time of importation. According to the 1st respondent, the goods which had been rejected were not consumed, used or sold within the limits of the Councils and thus no octroi duty could be charged.
6. On 6.6.1985, the Municipal Corporation wrote to the respondent informing them that in respect of the Account Current facility bearing Account No. 13 enjoyed by the respondent, the inspection of the goods Inward Register by the Corporation revealed that an amount of Rs. 16,97,621.90 was due from the respondent. The letter of the Municipal Corporation categorizes the demand for octroi duty under 10 items of which the 1st two were (i) a demand for octroi duty in the amount of Rs. 6.24,392/- in respect of goods sent out for processing and (ii) a demand for octroi duty in respect of rejected goods in the amount of Rs. 5,66.194/-. This demand was based upon a report. In reply thereto, the respondent, by its letter dated 28.6.1985, admitted their liability for the payment of differential octroi duty in respect of the items listed at Sr. Nos. 3 to 10 of the Report of the Municipal Corporation and stated that the short payment of octroi duty on their part was due to inadvertence and was unintentional. Consequently, the respondent enclosed a cheque in the sum of Rs. 5,07,035.39 in respect of the said items. As regards Item Nos. 1 and 2 above, the respondent stated that it had been informed that the liability had been imposed merely because "certain procedures have allegedly not been followed" by them. The respondent stated that the matter required further consideration and as regards the procedures to be followed, this needs to be discussed with the Municipal Corporation.
7. The respondent filed an appeal being Appeal No. 41/1995 in order to challenge the demand for octroi duty under the aforesaid two heads. The Appeal was allowed by an order dated 30.9.1996 passed by learned Additional Judge of the Small Causes Court, Pune, An appeal filed by the petitioners before the District Court was rejected by an order dated 7.12.1999 passed by the learned Additional District Judge, Pune. This petition impugns the correctness of the order passed by the Additional District Judge. Pune.
8. Insofar as the first head for the payment of the octroi is concerned, the goods which were sent out for processing to contractors outside the limits of the Municipal Corporation, certain admitted facts need to be referred to :
The goods which were brought in within the limits of the Municipal Corporation, in the first place, were duly paid goods. There is no dispute about the fact that when the goods were brought in the first instance, octroi duty was levled thereon. The next important fact is that the goods were sent outside the limits of the Municipal Corporation so that surface of the raw forgings could be smoothened out through the process of buffing. There is no dispute about the fact that it was lawful and permissible to take the raw forgings out for the purpose of processing and that upon such processing there was no change in the form, character or use of the goods. After the goods had been duly processed, they could be brought back within the limits of the Municipal Corporation without the payment of octroi duty. The Administrative Officer of the Municipal Corporation, Mr. C.N. Landge, who gave evidence in the proceedings admitted that the respondent herein had duly paid octroi duty in respect of all the items shown in the Report at page 81. He admitted that the articles were sent out of the Corporation limits for the purpose of processing and were received back after the processing was done. Similarly, witness P.O. Walhekar. Deputy Octroi Superintendent, admitted that the Company had paid octroi charges on the goods when they were imported for the first time within the Corporation limits. He further admitted that after process-Ing the Corporation was claiming octroi duty as if the goods were newly imported within the Corporation limits. In view of the express admissions by these witnesses, the Small Causes Court, and in Appeal the learned Additional District Judge, held that it was not permissible for the Municipal Corporation to once again seek to recover the octroi duty after the goods came back into the municipal limits upon processing. In view of these admissions of the witnesss and the admitted facts on the record of the case, the decision which has been arrived at by the Courts below is correct and is affirmed. In fact, it must be stated in fairness that the learned Counsel appearing on behalf of the Municipal Corporation did not contest the first aspect of the matter In view of these admissions of the witnesses of the Corporation in the course of the proceedings before the Courts below.
9. Insofar as second aspect of the matter is concerned viz. the issue of rejected goods, reference may be made, briefly, to the facts on the record. The witness for the respondent in the proceedings P. J. Koshy deposed that some of the parts were purchased from outside and if they did not meet the requisite standard of quality, they were rejected and returned to the suppliers. The time required for checking and return of the defective parts was between one week and two months. The witness further stated that the parts were returned in the same form in which they were received without making any change therein and the statements prepared by the Company were checked by the officials of the Municipal Corporation at the end of every month. The process under which the rejected goods were sent back to the original suppliers, was explained by the witness for the Company. The witness deposed to the fact that the articles were sent back to the suppliers under Delivery Notes which were available with the respondent Company. Though the Delivery Notes were not actually shown at the Naka when the articles were sent out of the octroi limits, the witness stated that the details of the rejected articles were contained in the statements submitted to the Corporation in pursuance of the Account Current facility.
10. During the course of his deposition, C.N. Landge, Administrative Officer of the Municipal Corporation, admitted in para 6 of his cross-examination that no octroi was to be imposed on the articles which were rejected after purchase. The Municipal Corporation, it must be noted, had passed a Resolution on 29.7.1971 bywhich it had been resolved that goods which had been rejected and therefore sent out of the limits of the Municipal Council, would be eligible for exemption of octroi duty in the case of those entities which had been permitted to have the facility of an Account Current. The further condition which had been imposed was that goods which had been rejected should be sent out within a period of 60 days of their arrival into the octroi limits.
11. The ground on which the Municipal Corporation in this case demanded octroi dutyin respect of him goods which were rejected and were sent out of the limits of the Corporation was that the procedure of actually showing the rejected goods at the Naka and obtaining an endorsement in the form prescribed by the Resolution of 1971 was not followed. The learned Counsel for the respondent-Company, however submitted that the whole object of permitting the opening of an Account Current was to enable regular importers of goods within the limits of the Municipal Corporation to expedltiously carry out transportation of goods without being saddled with the delay involved in getting each consignment which was brought Into the limits of the Municipal Corporation certified at the octroi Naka. Section 142 of the Maharashlra Municipalities Act, 1965 empowers a Municipal Council, instead of requiring the payment of octroi at the time when the goods are brought within the octroi limits, to direct that an Account Current shall be kept on behalf of the Council of the octroi so due. The Account Current was to be settled at intervals not exceeding one month. The importer under section 142 was required to give such information or details and make such deposit or furnish such security as the Municipal Council would consider sufficient to cover the amount of octroi duty.
12. Octroi is a tax imposed upon the entry of goods into a local area for consumption, use or sale therein. In the present case, there is no dispute about the fact that goods which were ultimately rejected had been duty paid when they were brought into the limits of the Municipal Corporation in the first instance. After the goods were rejected and taken outside the octroi limits, the respondent claimed a credit in the Account Current. The Municipal Council had in its Resolution of 29.5.1971 decided to grant an exemption from octroi on the goods which were rejected and taken outside the octroi limits provided that this process was completed within 60 days and the benefi.t was claimed by a party to whom the Account Current facility was made available. Therefore, there is no dispute about the right to seek an exemption from octroi duty on goods which were rejected and taken out. The only point in this case is in regard to the procedure which was to be followed for doing so. As the holder of the Account Current facility, the respondent duly submitted monthly statements to the petitioner for verification. These monthly statements included details of the goods which had been rejected and sent outside the octroi limits. Delivery notes were available with the respondent as proof of the fact that the goods had been returned back to the suppliers. These delivery notes, it must be stated, were duly produced in evidence and the witness for the Company was cross-examined with reference to the delivery notes. Having regard to this position and the factual background of this case, the Judgments rendered by the Courts below do not call for any interference.
13. Reference may be made in this connection to the Judgment of the Supreme Court in Tata Engineering and Locomotive Company Limited v. The Municipal Corporalion of the City of Thane and Ors. The Supreme Court in this case dealt with the provisions of the Maharashtra Municipalities (Octroi) Rules. 1968. The case before the Supreme Court related to the Respondent in these proceedings. The Company had been permitted to keep dutiable goods in a bonded warehouse with an Account Current facility. The goods were exported out of the limits of the Municipal Corporation after they were repacked in smaller packages. The Supreme Court noted that under the Octroi Rules, broadly speaking, there were five categories of procedures. These were in respect of(i) goods Imported for consumption, use or sale in the municipal area; (ii) goods imported for immediate export, (in) goods Intended to be temporarily detained in a bonded warehouse for eventually export; (iv) goods intended for temporary detention in a private licenced bonded warehouse of the importers and for eventual export; and (v) goods imported by persons or a body which had been permitted to keep an Account Current. The case before the Supreme Court arose under the fifth category. The Supreme Court, in its Judgment, referred to Rules 24. 25 and 28 of the Octroi Rules and held that these would apply only to cases falling under category (iv). In the case of a Company to which an Account Current facility had been allowed, the Supreme Court held in para 19 that the Company was bound to give a declaration in the Forms prescribed under the Rules when the goods were brought in. The question before the Court was whether the production of original invoices was necessary in all such cases and, the Court held that having regard to the purpose of such production, the requirement of the production of original invoices could not be insisted upon blindly. The Court noted that if the particulars furnished in the Form could be established satisfactorily by other documents, there would be sufficient compliance with the Rules. In para 25 of its Judgment, the Supreme Court held that "if there is no consumption or use, octroi is not attracted and if any levy has been made and the amount collected, the same becomes legally refundable". The Rules framed under the Maharashtra Municipalities Act, 1965 were held to prescribe matters of procedure and, if the taxable event of consumption, use or sale has not taken place, no octroi duty could be charged. In this regard, the observations of the Supreme Court in paras 27 and 29 of the judgment are material and are extracted hereinbelow :-
"27 ..... ..... The object of requiring intimation or sanction and presence of an officer when breaking the bulk in the scheme of octroi levy and refund is to ensure that dutiable goods do not escape the assessment and refunds are made only in respect of goods exported. In other words the whole requirement relates to the identification of the goods. In that sense if the same is otherwise complied with the right to refund cannot be denied. These rules cannot be read as enabling the municipality to levy and collect octroi even in cases where the goods have not been imported for consumption or use. As held by this Court in Kirpal Stngh Duggal v. Municipal Board. Ghaztabad. the octroi rules are intended to regulate the system on which the refunds shall be allowed and paid. What are merely matters of procedure which the municipality was entitled to require compliance with In granting refund cannot be treated as condition precedent for the entitlement of the refund Itself. The Constitution prohibits levy of tax except in accordance with law. When the goods are not imported for consumption or use within the octroi area the municipality ceases to have any constitutional right to levy octroi. If the goods therefore have merely entered into the octroi limits and passed out of the same no octroi duty is attracted."
"29.... .... .... In view of constitutional bar, octroi is not leviable if the goods are not brought into the octroi area for the purposes of consumption or use in the area but for export, and in fact exported by the importer himself or the sale by him occasions the export. Compliance with the procedure prescribed in the Rules for filing claims of refunds are not conditions precedent for the right or eligibility for refund or the liability to refund but are provisions regarding proof of export of the goods imported and are not meant to be exhaustive either.. ..".
These observations show that the object of the rules is to enable the Municipal Council or the Corporation, as the case may be to verify whether taxable event of consumption, use or sale has taken place within the octroi limits. Where the goods have left the octroi limits, the forms prescribed enable the local body to verify whether the goods have, in fact, left the local limits. In the present case, on the basis of the evidence on the record; the Trial Court and in appeal the District Court came to the conclusion that the rejected goods had in fact been sent out of the octroi limits. It must be stated in fairness that it is not the case of the petitioner that there has been any evasion of octroi duty by the respondent. Similarly, there has been no allegation that the goods which were sent out as rejected goods were in fact diverted unlawfully for consumption, use or sale within the local area. There has been no suggestion that the goods had in fact not been rejected or sent out within a period of six months as prescribed in the Resolution. Not even a suggestion to that effect was made in the course of the cross-examination. These facts are material, in my view, because on the basis of the facts as they emerge from the record of these proceedings, it is abundantly clear that the goods were in fact sent out upon rejection within the stipulated period. The respondents were allowed the benefit of an Account Current facility and they sent statements from month to month for verification by the Municipal Corporation. The underlying documents including delivery notes which would reflect the due delivery of the rejected goods toasupplier outside the municipal limits were available with the 1 st respondent and were in fact referred to in the evidence. In these circumstances, in view of the concurrent finding of fact which has been arrived at by the Courts below on the basis of the evidence recorded, there is no reason to interfere in these proceedings.
14. Having said this, it would be necessary to mention that in the course of the Judgment, the District Court has observed in para 14 of the Judgment that the compliance with the Rules was a mere empty formality particularly where the officials of the Municipal Corporation were aware of the fact that these goods were taken out for processing and were brought back. These observations in the Judgment of the District Court cannot be construed to imply that the Rules, themselves are not liable to be observed. The Rules, as noticed by the Supreme Court in the Telco case are intended to ensure that dutiable goods do not escape assessment and refunds are allowed only in respect of goods exported without any consumption, use or sale having taken place within the Municipal limits. Compliance with the Rules and the forms thereunder are not conditions precedent of the right or eligibility for refund of octroi duty. In the present case, in the course of the proceedings before the Courts below, it was amply demonstrated and in fact it was an admitted position that the goods, originally brought in, were duty paid. A part of the goods in relation to which a demand for Rs. 6,24,392/- was raised were taken outside the limits for processing and admittedly were duly brought back after processing. The other part, consisting of goods rejected on which an octroi demand of Rs. 5,66,194/- had been raised, was not liable to duty since no consumption, use or sale took place within the municipal limits. In the circumstances, the impugned Judgment and order does not call for any interference and the petition is consequently rejected. In the circumstances, there shall be no order as to costs.
An ordinary copy of this order duly authenticated by the Personal Secretary of this Court may be available to the parties.
15. Petition rejected.