2012 (8) TMI 1120 - HC - Central Excise

Summary

Issues Involved:
1. Constitutionality of the amended Rule 2(20) of the Surat City Municipal Corporation Octroi Rules, 1973.
2. Legislative competence of the Surat Municipal Corporation to collect octroi on the value of goods at the time of sale.
3. Discrimination in the application of the amended rule.
4. Double taxation due to the amended rule.
5. Violation of consent terms between the petitioners and the Surat Municipal Corporation.

Summary:
Constitutionality of the Amended Rule 2(20):
The petitioners challenged the legality and validity of the explanation to Rule 2(20) of the Surat City Municipal Corporation Octroi Rules, 1973, introduced by amendment on 28.6.1996. The amendment required octroi to be assessed at 100% on the sales value of yarn imported by manufacturers, which the petitioners contended was unconstitutional. The Court held that the rule-making authority had no power to frame such a rule since octroi is a cess on goods brought into city limits for consumption, use, or sale therein. The rule was deemed unconstitutional and ultra vires the parent Act and constitutional provisions.

Legislative Competence:
Counsel for the petitioners argued that the Corporation lacked legislative competence to collect octroi on the value of goods at the time of sale, as Entry 52 of List II to Schedule VII only permits collection of duty on the value of goods at the time of entry. The Court agreed, stating that after goods enter the Corporation limits, any expenditure related to such goods before they are sold cannot be subject to octroi. The amendment was held to be outside the legislative competence of the rule-making body.

Discrimination:
The petitioners argued that the rule was discriminatory as it only applied to yarn manufacturers, while other goods continued to attract octroi based on the value assessed at the time of entry. The Court found the rule to be discriminatory and thus invalid.

Double Taxation:
The petitioners contended that the amended rule amounted to double taxation, as octroi would be assessed on the sales value, which includes octroi itself. The Court acknowledged this issue, reinforcing the invalidity of the rule.

Violation of Consent Terms:
The petitioners argued that the amendment violated the consent terms agreed upon in a previous court order. However, the Court clarified that the consent terms were valid only as long as the original Municipal Octroi Rules remained in force. Since the rules were amended, the consent terms no longer applied.

Refund and Unjust Enrichment:
The Court directed the respondents to refund the excess octroi collected from the petitioners, subject to the petitioners establishing that the burden of excess octroi was not passed on to consumers. This exercise was to be completed within four months, with refunds carrying simple interest at 12% per annum from the date of collection till payment.

Conclusion:
The petitions were disposed of, and the rule was made absolute to the extent of the above findings, with no order as to costs.