1970 (4) TMI 131 - SC - VAT and Sales Tax

Whether levy of the Bale and Boja tax was ultra vires the Municipality? Whether a suit for refund of tax paid to the Municipality is maintainable? Held that - Appeal allowed. The rate of tax prescribed by the notification of 1912 alone could be enforced, subject to the limit prescribed by Article 276(2) of the Constitution. The Municipality was therefore incompetent to levy a tax at a rate exceeding Rs, 250/- for the whole year. The Municipality will pay the costs in this Court and in the High Court.

Summary

Issues:
1. Suit for refund of tax paid to the Municipality
2. Validity of tax levy by the Municipality

Analysis:

Issue 1: Suit for refund of tax paid to the Municipality
The appellants filed a suit seeking a refund of the "Bale and Boja" tax paid to the Municipality for the seasons 1950-51, 1951-52, and 1952-58, contending that the tax levy was ultra vires the Municipality. The Trial Court decreed the claim for injunction and partial refund. The High Court initially set aside the decree for refund, citing precedents, but the Supreme Court clarified that a suit for refund was indeed maintainable based on the judgment in Bharat Kala Bhandar's case. The Court emphasized that the High Court erred in setting aside the decree on the grounds of maintainability, as the suit was valid, and Section 48 of the C.P. & Berar Municipalities Act applied. Therefore, the Supreme Court restored the Trial Court's decree for refund of the excess tax paid by the appellants.

Issue 2: Validity of tax levy by the Municipality
The Municipality had levied the "Bale and Boja" tax on cotton ginned in factories, with rates revised in 1940. However, the Supreme Court held that the notification of 1940, which increased the tax rates, was ineffective under the Government of India Act, 1935, and could not be revived under the Constitution. The Court ruled that only the rates prescribed in the 1912 notification could be enforced, subject to the limit set by Article 276(2) of the Constitution. Referring to previous judgments, the Court concluded that the Municipality was not authorized to levy a tax exceeding Rs. 250 for the whole year. Consequently, the appeal was allowed, and the Trial Court's decree was reinstated, with the Municipality directed to bear the costs in both the Supreme Court and the High Court.

This judgment clarifies the maintainability of suits for tax refunds against Municipalities and establishes the limitations on tax levies by Municipal bodies, emphasizing compliance with constitutional provisions and legal frameworks governing tax imposition.