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(4) When any local area has been included in a municipality under sub-section (3) of this section, this Act, and, except as the State Government 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 municipality at the time, shall apply to such area.

Before the High Court the appellant relied upon the decision of this Court in Bagalkot City Municipality v. Bagalkot Cement 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 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 Act, and, expect as the State Government may otherwise by notification direct all rules, bye laws, orders, directions and 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 Bagalkot 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 levied within the municipal limits of Bhiwani before the extension 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 on business at Sonepat town against the State of Haryana 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 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 Haryana & Anr. [1972] 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 octroi from the appellant therein by virtue of the provisions contained in section 5(4) of the Act. A writ in the nature of mandamus was issued to the Sonepat municipality, 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 info its factory under the notification levying octroi which was in force in the said local area before its limits were extended. In reaching the above conclusion, this Court observed at pages 133-135 thus:

The controversy in the present appeal is solved by finding out as to whether the notification dated 3rd 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 of rules, bye Laws, orders, directions and powers and does not significantly mention 'notification'. It is apposite to consider section 6, 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 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 immediately preceding section 5 refrained from using the word 'notifications' becoming applicable in the case of inclusion of areas the legislative intent is unambiguous and crystal clear that notifications could not become applicable to an included area on the strength of section 5(4) of the Act.