1972 (9) TMI 144 - SC - Companies Law

Octroi demand - whether the Rules did not authorise the municipality to impose octroi as the Rules only conferred that power upon the Government? - Held that - The High Court after having found that the petition was liable to be dismissed on the ground that the appellant has suppressed a material fact nevertheless chose to pass upon the contentions of the appellant on merits instead of disposing of the petition on its finding on the preliminary objection. The High Court having entered into the merits of the case and disposed it of on that basis we do not think it necessary to consider at length the merit of the preliminary objection. Suffice it to say that it does not appear to us that omission to refer to the agreement dated September 26 1960 can be characterized as suppression of a material fact in view of the nature of the relief claimed in the writ petition. The appellant can take just exception only to the extent of one-third of. The amount shown in the demand notice as that alone represents the 50 per cent increase. In the result we quash the demand notice to the extent of the 50 per cent increase. The question whether the rest of the tax can be realised under the provisions of the Rules by issue of distress warrant does not arise for consideration in this proceeding. The appellant will be free to question the legality of any distress warrant if and when it is issued. The appeal is allowed to the extent indicated above and it is dismissed in other respects.

Issues Involved:
1. Authority to levy and collect octroi.
2. Legality of the enhancement of octroi by 50%.
3. Validity of the procedure followed for imposing octroi.
4. Alleged suppression of material facts by the appellant.
5. Estoppel and waiver of the right to challenge the tax.
6. Delay and acquiescence in challenging the tax.
7. Legality of the demand notice and potential distress warrant.

Detailed Analysis:

1. Authority to Levy and Collect Octroi:
The appellant contended that the Rules conferred power only on the Government to levy and collect octroi, and the Municipality had no authority to impose it. The Supreme Court examined Clause 3 and Clause 4 of the Saurashtra Terminal Tax and Octroi Ordinance, 1949, which clearly stated that the Government alone had the power to impose octroi or prescribe its rate. The High Court had also concurred that the Municipality lacked the authority to impose or enhance the rate of octroi under the Rules.

2. Legality of the Enhancement of Octroi by 50%:
The appellant argued that the enhancement of octroi by 50% from July 1, 1953, was illegal as the Rules had not been revised by the Government. The resolution passed by the Municipality to increase the octroi by 50% was examined, and it was found that the Municipality had purported to enhance the octroi under the existing Rules. However, the Supreme Court concluded that the Municipality did not have the power to alter the Rules to enhance the levy.

3. Validity of the Procedure Followed for Imposing Octroi:
The appellant argued that even if the levy was under the Act, the procedure prescribed for imposing octroi had not been followed. The Supreme Court scrutinized Sections 60 to 62 of the Bombay District Municipalities Act, 1901, which outlined the mandatory procedure for imposing a tax, including the preparation and publication of rules, inviting objections, and obtaining the sanction of the Collector. The Court found that the Municipality had not framed any rules as required under Section 60(a)(ii), nor had it followed the mandatory publication and objection procedures. Consequently, the imposition of the tax was deemed illegal.

4. Alleged Suppression of Material Facts by the Appellant:
The respondent had raised a preliminary objection that the appellant had suppressed material facts by not referring to the agreement dated September 26, 1960, in the writ petition. The High Court had found the petition liable to be dismissed on this ground but chose to address the merits of the case instead. The Supreme Court did not find the omission to refer to the agreement as suppression of a material fact, given the nature of the relief claimed.

5. Estoppel and Waiver of the Right to Challenge the Tax:
The respondent argued that the appellant was estopped from questioning the validity of the tax due to the agreement of September 26, 1960, where the appellant agreed to pay the tax at the rate in vogue in 1953 in exchange for the Municipality not increasing the tax for one year. The Supreme Court held that there was no agreement to pay the tax waiving the illegality, and there was no evidence that the appellant was aware of the illegality and waived it with full knowledge. The agreement did not preclude the appellant from challenging the validity of the tax.

6. Delay and Acquiescence in Challenging the Tax:
The respondent contended that the appellant's delay in challenging the tax should bar the writ petition. The Supreme Court noted that the appellant was challenging the demand notice dated September 15, 1962, and had filed the writ petition promptly on September 26, 1962. The Court found no circumstances indicating that the appellant had waived the illegality of the tax.

7. Legality of the Demand Notice and Potential Distress Warrant:
The Supreme Court quashed the demand notice to the extent of the 50% increase in octroi, as it was illegal. The question of whether the rest of the tax could be realized under the Rules by issuing a distress warrant was not considered in this proceeding. The appellant was allowed to question the legality of any distress warrant if and when issued.

Conclusion:
The Supreme Court allowed the appeal to the extent of quashing the 50% increase in the demand notice and dismissed the appeal in other respects. No order as to costs was made.

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