Octroi - Definition / Legal Terminology - Income Tax

Meaning of word Octroi The term Entry Tax traces its history back to a particular tax called Octroi . The word Octroi comes from the French word octroyer which means to grant and in its original use meant an import or a toll or a town duty on goods brought into a town. At first, octroi were collected at ports but being highly productive, towns began to collect them by creating octroi limits. They came to be known as town duties . The term octroi appeared in the Scheduled Tax Rules framed under the Government of India Act, 1919. The expression signified a tax levied on entry into an area of a unit of local administration. The entry was re-fashioned and enacted as item 49 of the Provincial Legislative List under the Government of India Act, 1935. Item 49 reads as Cesses on the entry of goods into a local area for consumption, use or sale therein . In Burmah Shell Oil Storage and Disturbing Co. of India Ltd. Belgaum v. Belgaum Borough Municipality Belgaum Cell , 1962 (11) TMI 61 - SUPREME COURT , the Supreme Court of India while distinguishing terminal tax and Octroi held that the Octroi s leviable in respect of goods brought into a municipal area for consumption or use of sale. When Government of India Act, 1935 was enacted, terminal taxes were separated from octroi and were included in the Union List while octroi was allocated to the provinces. The term octroi was avoided because terminal taxes are also octroi in a sense. This scheme has been adopted in the Constitution with the difference that in the entry relating to octroi the word tax replaces the word cess . Levy of octroi was also criticized for being an obsolete method of the collection, involving stoppage of vehicles at the check posts outside the city limits, thereby obstructing flow of vehicular traffic, and causing wastage of business hours, loss of fuel etc. Entry tax like octroi is a tax on entry of goods into a local area for consumption, use or sale therein. However, entry tax is different from octroi, inter alia , in the following respects:- Firstly, it is not collected at the checkpost; but is payable by furnishing returns of the purchases from outside the local area or the details of the goods entered into the local area. Entry tax is easier to administer as returns are filed on self- assessment and it avoids the harassment associated with octroi. Secondly, it is imposed as an ad valorem tax as against octroi, which is generally a combination of specific and ad valorem levies. Thirdly, entry tax is a State-level levy while octroi is a local levy; entry tax revenue is treated as State revenue and is spent on local bodies for their development and the State in general. The imposition of octroi has a historical significance both in India and elsewhere. Tracing its history, a Constitution Bench of this Court in Diamond Sugar Mills- 1960 (12) TMI 83 - SUPREME COURT , explained the meaning of octroi thus : Octroi is an old and well known term describing a tax on the entry of goods into a town or a city or a similar area for consumption, sale or use therein. According to the Encyclopaedia Britannica octroi is an indirect or consumption tax levied by a local political unit, normally the commune or municipal authority, on certain categories of goods on their entry into its area. (Id. at p. 252) Octroi was a tax levied on the entry of goods into areas which were administered by local bodies. In Burmah Shell Oil Storage and Distribution Co. India Ltd. v. The Belgium Borough Municipality (1963) Supp. 2 SCR 216, the appellant had unsuccessfully moved the High Court for a writ seeking to prohibit the municipality from charging octroi on its products which were brought inside octroi limits for sale. The goods brought into octroi limits by the appellant comprise of four categories : (i) Goods consumed by the appellant; (ii) Goods sold by the appellant itself or through dealers and consumed within octroi limits by others; (iii) Goods sold by the appellant itself or through dealers within octroi limits but consumed outside; and (iv) Goods sent by the appellant from its depot within octroi limits to points outside the municipality where they were produced and consumed by others. [JINDAL STAINLESS LTD. AND ANR. VERSUS STATE OF HARYANA AND ORS.- 2016 (11) TMI 545 - SUPREME COURT (LB)]