Holding

Section 5(4) of the Punjab Municipal Act, 1911, as amended, is constitutionally valid and its retrospective application does not violate Article 14.

Summary

The petitioners, Atlas Cycle Industries Ltd. and another, challenged the levy of octroi on their factories after the Sonepat municipal limits were extended, arguing that Section 5(4) of the Punjab Municipal Act, 1911 (as amended) was unconstitutional for denying them a right of representation and for its retrospective operation, violating Article 14. The State contended that the extension of municipal limits and the consequent application of all municipal taxes, including octroi, were lawful under Section 5(4) and that the petitioners had been afforded an opportunity to object under Section 5. The Court held that Section 5(4) is constitutionally valid, that the petitioners were not discriminated against because they could object under Section 5, and that the retrospective amendment inserting the word “notification” cured the earlier defect. Consequently, the writ petitions were dismissed with no order as to costs.

Issues considered

The constitutional validity of Section 5(4) of the Punjab Municipal Act, 1911, as amended, with respect to the levy of octroi on areas newly included in municipal limits.
Whether the petitioners were denied the statutory right of representation under Section 62(3) and thus suffered discrimination violating Article 14 of the Constitution.
Whether the retrospective effect of the amendment inserting the word “notification” in Section 5(4) is permissible under Article 14.

Legislation cited

Constitution of Indias. Article 14
Punjab Municipal Act, 1911s. 5(4), s. 62, s. 70(2)(c), s. 71
Punjab Municipal (Haryana) Validation and Amendment Act, 1971

Subjects

octroimunicipal taxSection 5(4)Article 14discriminationretrospective legislationright of representationmunicipal limits

Judgment

ATLAS CYCLE INDUSTRIES LIMITED A
v.
STATE OF HARYANA AND ANOTHER

DECEMBER 17, 1992

[L.M. SHARMA, CJ., S. RATNAVEL PANDIAN, B.P. JEEVAN B
REDDY, S.P. BHARUCHA AND S. MOHAN, JJ.]

Punjab Municipal Act, 1911: Sections 5(4), 62, 70(2)(c) and
71-0ctroi-Levy of by Municipal Council of Sonepat-Whether Valid. Con-
stitutional validity of section 5(4) upheld. C
Constitution of India, 1950: Article 14-0ctroi-lmposition of-Punjab
Municipal Act, 1911-Section 5(4)-Constitutiona/ validity of.

Words and Phrases--Octroi-Meaning of.

A notification was issued under Section 62(10) of the Punjab D
Municipal Act on 3rd November, 1942 which stated that the Municipal
Committee of Sonepat had imposed a tax called 'octroi' on the articles
mentioned in the Schedule to the said notification which were imported
into the octroi limits of Sonepat municipality.
E
On 11th February, 1948, it was notified that the limits of Sonepat
municipality for the purpose of collection of octroi would be the boun·
daries of the municipality as fixed from time to time.

On 15th September, 1966 a notification was issued in pursuance
of the provisions of Section 5(1) whereby the intention of including the F
areas specified in the Schedule thereto within the municipal limits of
Sonepat was declared, and the inhabitants of the municipality were
invited to submit objections in writing to the proposed inclusion. The
area on which the factories of the petitioner were situated was proposed
to be included within the municipal limits. ,Q

On 3rd November, 1966 the petitioner filed objections to the
inclusion of the proposed area within the municipal limits of Sonepat,
and contended that the additional taxes that were already being collected
by the Central and State Government considerably increased the cost
of the production of the petitioner's bicycles, that the 'octroi' alone would H
699
( '

I
700 SUPREME COURT REPORTS (1992) SUPP. 3 S.C~:.

A be Rs~1.30 per bicycle manufactured; that the burden would thus be
unbearable and suggested that the proposed inclusion of the Industrial
Unit within the municipal limits should be dropped.

On 11th August, 1967, the notification issued und~r Section 5(3)
included within the municipal limits of Sonepat the area in which the
B factories of both tbe petitioners stood, and on 18th August, 1967, octroi
was levied upon the materials imported by the two companies into the
municipal limits of Sonepat.

The petitioners filed writ petitions in 1967 in the High Court
C challenging the collection of octroi and inclusion of the industrial area
within the municipal limits. The saine having been dismissed by the
High Court, they filed appeals to this Court. This Court in Atlas Cycle
Industries Ltd. v. State of Haryana, [1972) 1SCR127, allowed the appeals
and the writ petitions on the ground that no notifications as required
were issued and made applicable to the included areas under Section
D 5(4) of the Act, and the municipality was restrained from levying and
collecting octroi from the petitioners.

On 15th November, 1971, the Punjab Municipal (Haryana Valida·
tion and Amendment) Act ,1971 amended Section 5(4) to include the word
E 'notification' to enable the levy of octroi. The Validation and Amendment
Act also validated with retrospective effect the levy and collection of octroi.

Thereupon the petitioners filed the present writ petitions in this
Court and contended that the right of representation against the levy
of octroi was an important safeguard, that the petitioners bad been
F deprived of the right to make a representation under Section 62(3)
against the imposition of octroi upon the area in which the factories
were situated; they had, therefore, been discriminated against, so the
provisions of Article 14 of the Constitution were violated, and Section
5(4), in so far as it bad the effect of imposing octroi upon those areas,
G · was unconstitutional. It was further contended that the retrospective
imposition of octroi was bad under Article 14 because it singled out
those which were atrected by the retrospectivity and denied them the
opportunity of representation.

The writ petitions were contested on behalf of the respondent by
H contending that the levy and collection of octroi was no longer open to
ATLAS CYCLE IND. v. STAIB OF HARYANA 701

the question by the petitioners, and that Section 5 and 62 of the Act A
operated in different fields. Under the provision of Section S the. State
Government was concerned with determining whether ·or not the local
area of the municipality should be extended and objections were invited
and CQnsidered in this regard, while Section 62 set out the procedure
which was required to be followed by the Committee of a municipality B
when it proposed to impose a tax under Section 61 and objections were
invited and considered by the Committee and the State Government in
this regard. There was no hostile discrimination against the petitioners,
and, in any event, it was open to a party withiP the proposed extended
limits of the municipality to represent there against on the ground that
the levy of municipal tax upon that area would have adverse consequen- C
ces; and that, in fact, the petitioners had made such a repa-esentation.

On the question of the constitutional validity of Section 5(4) of the
Punjab Municipal Act, 1911, as amended by the Punjab Municipal
(Haryana) Amendment and Validation Act, 1971.
D
Dismissing the writ petition, this Court

HELD: (By the Court)

Section 5(4) of the Punjab Municipal Act, 1911, as amended by E
Haryana Act No. 41 of 1971 is constitutional and valid. There is no
scope for the plea that the petitioners have been discriminated against
in that they were given no opportunity to object to the imposition of
octroi, and the retrospective operation of section 5(4). (704-DJ

(L.M. Shanna, CJ!; S. Ratnavel Pandian, B.P. Jeevan Reddy, S.P. F
Bhamcha, JJ. - per Bharncha /.)

1. Section S of the Act empowers the State Government to declare by
notification its intention to include within the municipality any local area
in the vicinity and defined in the notification. To such proposal any
inhabitant of the municipality and of the local ·area proposed to be in- G
eluded may object, and the State Government is obliged · to take that
objection into consideration. If, having considered all objections the State
Government decides to include the local area in the municipality, it may
do so by notification. Section 5(4) sets out the consequences of such
extension of the municipality by such inclusion. ft is tlie St.ate Govern- H
702 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A ment, theref~re, which has to decide whether or not any local area in the
vicinity of the municipality should be included within the municipality.
f715-U-DJ

2. The object of ·the inquiry under Section S is to determine the
feasibility and the desirability of so doing. In the event that a local area
B in the vicinity of the municipality is included in the municipality that
local area becomes subject to all rules, notification, by-laws, orders,
directions and powers then in force in the municipality. That local area,
therefore, becomes· subject to· all taxes imposed within the municipality.
[715-D,E]
c
· 3. The object of the inquiry under Section 5 is different trom the.
9bject of the inquiry under Section 62. The object of the inquiry under
Section S is far broader. It would be open to an inhabitant of the local area
proposed to be included within the municipality to object under Section 5
D to such inclusion even upon the ground that a municipal tax should not
be imposed that local area. Planning regard to the differences in the
objects of Sections 62 and 5 and of the inquiries thereunder, there was no
discrimination against the petitioners in so far as the retrospective opera-
·tion of Section 5(4) was concerned. In the instant case, the petitioners had
raised the objection, under the provision of Section 5, that the inclusion
E of the local area upon which their factories were situated .within the
municipality would make them liable to pay octroi which they would be ill
able to afford. This reinforced the conclusion that they had not been
discriminated against. [715-H; 716-A-Cl

4. Power is conferred by Section 70(2)(c) and section 71 upon the
F Committee and the S~te Government respectively to exempt wholly or in
part any person or class of persons or any property or description of
property from payment of any tax. [716-B]

_In the instant case, the petitioners and other manufacturers sought
G such examption and were given partial exemption from the payment of
octrot [716-B]

Atlas Cycle Industries Ltd. v. State of Haryana & Anr., [1972) 1 SCR
127, referred to. · "

H Visakhapatnam Municipality v. Kandregu.la Nukaraju & Ors., -[197~] 1
ATLAS CYCLE IND. v. STATE OF HARYANA 703

SCR 544, distinguished. A
(per Mohan J.)

1. The power to tax by the State can be exercised only by the State
Legislature. The extent of the power is fixed by the Constitution. The said
Legislature can impose all taxes as are covered by the subjects enumerated B
in List II (State List) under the Seventh Schedule. In so far as, the
municipalities or 'local self governments are concerned, they are authorised
by the State to levy some of these taxes for their own purposes. [717-B-C]

2. The power to tax is a necessary adjunct of a system of local 'self-
goverrament'. The amounts collected byway of taxes are mainly intended to C
enable them to meet their fiscal needs in the municipal area. [717-E]

3. Under the Punjab Municipal Act, 1911 the power to levy the octroi
is traceable to Section 61(2). The procedure as to the levy is set out under
section 62. The power to fix the municipal limits within which octroi could D
be levied, is traceable to section 168. (717-G; 718-F]

In the instant case, by a notification dated 3.11.1942 octroi came to be
levied in Rohtak district in exercise of powers conferred by sections 188 and
189. On 11.12.1948 a bye-law notified that the limits of Sonepat Municipality
for the purpose of collection of octroi shall be the boundaries of the E
Municipality of Sonepat. On 15.9.1966, in exercise of powers under section
5(1), the intention to alter the limits of Sonepat municipality was notifed.
Objections were invited and the petitioner filed objections on 3.11.1966,
which were considered and were over-ruled by a notification dated 11.8.1967
under section 5(3) of the Act. It is thus clear thatit is by virtue ofinclusion of
the area within the municipal limits octroi had came to be levied in the F
included area. It was the legal consequence of section 5(4). Thus, the levy was
already there. The newly added area becomes subject to the levy by a le&al
consequence and not by an imposition_ under sectio~s 61~nd6;and.other
relevant sections relating to bye-laws. (719-G-ff; 720-B; 723-F]

Municipal Board of Hapur v. Raghubir Singh, [1966) 2 SCR 891; Jothi G
Timber Mart v. Calicut Municipality, 1970 SC 264;Atlas Cycle Industries Ltd.
v. State of Haryana & Anr., [1972) 1 SCR 127 and Hindustan Gum and
Chemicals Ltd. v. State of Haryana & Ors., (1985) 4 SCC 124, referred to.

Visakhapatnam Municipality v. Kandrecula Nukaraju & Ors., {1976) 1 H
704 SUPREME COURT REPORTS (1992] SUPP. 3 S.C.R.

A SCR 544, distinguished.
ORIGINAL JURISDICTION : Writ Petition (C) No. 1 of 1972.

(Under Article 32 of the Constitution of India).

WITH
B
Writ Petition (C) No. 54 of 1972.

Harish N. Salve, H.S. Parihar, Kuldeep S. Parihar, R.P. Kapur and
Sanjay Kapur for the Petitioner.

C Manmohan, K.C. Bajaj and Ms. Indu Malhotra for the Respondents.

L.K.P. Pandey, S.K. Verma and B.R. Kedia for the Intervenors.

The Judgments of the Court were delivered by

D BHARUCHA, J.: These writ petitions under Article 32 of the Con-
stitution of India challenge the constitutionality of Section 5(4) of the
Punjab Municipal Act, 1911, as amended by the Punjab Municipal
(Haryana Amendment and Validation) Act (Haryana Act No. 41of1971),
in so far as it has the effect of imposing octroi upon that area of the local
limits of the municipality of Sonepat in which the petitioners' factories are
E situated. -.
' ·...~.
The relevant facts of the first writ petition may be noted. On 3rd
November, 1942 a notification was issued under Section 62(10) of the
Punjab Municipal Act (hereinafter.called "the said Act") which stated that
the Municipal Committee of Sonepat had imposed a tax called 'octroi' on
F the ar~icles mentioned in the Schedule to the notification when imported
into the octroi limits of Sonepat municipality. On 11th February 1948 it was
notified that the limits of Sonepat municipality for the purpose of collection
of octroi would be the boundaries of the municipality as fixed from time
to time. On 15th September 1966 a notification was issued in pursuance of
the provisions cf Section 5(1) of the said Act whereby the intention on of
G including the areas specified in the Schedule there to within the municipal
limits of Sonepat was dedared and the inhabitants of the municipality and
of the-local area 1n respect of which the notification was published were
invited to submit objections in writing to the proposed inclusion. The area -.
upon which the factories of the petitioners are situated was proposed· to
be included within the municipal limits of Sonepat. On 3rd November 1966
H the petitioner filed objections to the inclusion of the proposed areas within
ATLAS CYCLE IND. v. STATE OF HARYANA [BHAH.UCHA) 705

the municipal limits of Sonepat. The Petitioner stated that it understood A
that the proposed inclusion was intended to increase the income of the
Sonepat municipality by bringing the different industries around Sonepat
within its. limits thereby making them pay all municipal taxes. Such addi-
tional taxes would add considerably to the cost of production of the
petitioners' bicycles and the octroi alone would be Rs.1.30 per bicycle
manufactured. The petitioner was "already groaning under the heavy B
Central and State taxes. If saddled with additional local taxes, the burden
will become unbearable." The petitioner therefore asked that the proposed
inclusion of the industrial area within the municipal limits of Sonepat
should be dropped. On 11th August 1967 a notification was issued under
Section 5(3) of the said Act by the Governor of Haryana. (This was because
the State of Haryana had been created on 1st November, 1966 by bifurca- c
tion of the State of Punjab). The notification under Section 5(3) included
within the municipal limits of Sonepat the area upon which the factories
of both the petitioners stood. On and from 18th August, 1967 octroi was
levied upon materials imported by them into the municipal limits of
Sonepat.
D
In 1968 the Manufacturers' Association of Sonepat, of which the
petitioners were members, made a representation, consequent upon which
the Sonepat municipality reduced the rate of octroi chargeable upon cycles,
tyres, tubes and parts imported, inter alia, by the petitioners.
E
In 1967 the petitioners filed writ petitions in the High Court of
Punjab and Haryana for writs of mandamus restraining the municipality of
Sonepat from levying against and collecting from them any octroi in respect
of raw materials, components and parts imported by them into their
factories situated in the industrial area of Sonepat. The High Court having F
dismissed the writ petitions, appeals were filed in this Court. This Court
based its judgment (Atlas Cycle Industries Ltd. v. State of Haryana & Anr.,
[1972] 1 SCR 127), upon the provisions of Section 5(4) of the said Act, as
it then read. Section 5(4), as it then read, spoke of rules, bye-laws, orders,
directions and powers. It did not mention notifications. Notifications under
the said Act were the only authority and mandate for the imposition and G
charge of taxes. Notifications were not made applicable to included areas
under Section 5(4). Therefore, the appeals were allowed and the Sonepat
municipality was restrained from levying against and collecting from the
petitioners any octroi in respect of raw materials, components and parts
imported by them into their factories. H
706 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A Consequent upon this judgment the petitioners were refunded the
octroi that had been collected from them.

On 15th November, 1971 was passed the Punjab Municipal (Haryana
Validation and Amendment) Act (hereinafter called "the Validation and
Amendment Act") which amended Section 5(4) to include within it the
B word 'notification'. The Validation and Amendment Act also validated with
retrospective effect and levy and collection of octroi in these terms:

"4. Validation (1) Notwithstanding any judgnient, decree
or order of any court or other authority to the contrary,
any assessment, reassessment, levy or collection of any tax
c made or purporting to have been made at the rate of fifteen
per centum instead of twelve-and-a-half per centum and
any octroi levied, charged or collected or purporting to
have been levied, charged or collected before the commen-
cement of this Act· and any action taken. or thing done
D before such commencement in relation of the· principal Act
and the rules made thereunder shall be deemed to be as
valid and effective as if such assessment, reassessment levy
or collection or action or thing had been made, taken or
done under the principal Act as amended by this Act and
the rules and bye-laws made thereunder...."
E
Thereupon the present writ petitions were filed.

To be able to better appreciate the arguments which have been
advanced the relevant provisions of the said Act are set out. Section 5 (after
inclusion of the word 'notification' in sub- section (4) thereof) read, so fat
F as is material for our purposes, thus:

"5(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, notification, bye-laws, orders,
G
directions and powers made, issued or conferred under this
Act and in force throughout the whole municipality at the
time, shall apply to such are.a."

Section 61 of the said Act empowered the Committee of a municipality to
H impose in the whole or any part of a municipality the taxes set out therein
ATLAS CYCLE IND. v. STATE OF HARYANA [BHARUCHA) 707

subject to any general or special orders which the State Government might A
make in this behalf and to the Rules. The power was circumscribed by·
stating that the imposition should be for the purposes of the said Act and
in the manner directed by it. The taxes mentioned in sub-section (1) did
not include octroi. For the purpose of octroi the relevant provision of
Section 61 is sub-section (2) which reads thus:-
B
"61(2). Save as provided in the foregoing clause, with the
previous sanction of the State Government any other tax
which the State Legislature has power to impose. in· the
State under the Constitution."

Section 62 deals with the procedure to impose taxes and reads thus:
c
"62. Procedure to impose taxes-(1) A committee may, at a
special meeting, pass a resolution to propose the imposi-
tion of any tax under Section 61.
D
(2) When such a resolution has been passed the com-
mittee shall publish a notice, defining the class of persons
or description of property proposed to be taxed, the
amount or rate of the tax to be imposed, and the system
of assessment to be adopted.
E
(3) Any inhabitant objecting to the proposed tax may,
within thirty days from the publication of the said notice,
submit his objection in writing to the committee; and the
committee shall at a special meeting take his objection
into consideration.
F
(4) If the committee decides to amend its proposals or
any of them, it shall publish amended proposals along with
a notice indicating that they are in modification of the
previsously published for objection.
G
(5) Any objections which may within thirty days be
received to the amended proposals shall be dealt with in
the manner prescribed in sub-section (3).
II
(6) When the committee has finally settled its
proposals it shall, if the proposed tax falls under clauses H
708 SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.

A (b) to (f) of sub-section (1) of section 61 direct that the
tax be imposed, and shall forward a copy of its order to
the effect through the Deputy Commissioner to the State
Government and if the proposed tax falls under any other
provision, it shall submit its proposals together with the
objection if any made in connection therewith to the
B Deputy Commissioner.

(7) If the proposed tax falls under clause (a) of sub-
section (1) of section 61, the Deputy Commissioner, after
comidering the objections received under sub-sections (3)
c and (5) may either refuse to sanction the proposals or
return them to the committee for further consideration,
or sanction them without modification or with such
modification not involving an increase of the amount to
be imposed, as he deems fit, forwarding to the State
Government a copy of the proposals and his order of
D sanction; and if the tax falls under sub-section (2) of
section 61, the Deputy Commissioner shall submit the
proposals and objections with his recommendations to the
State Government.

E (8) '.I'he State Government on receiving proposals for·
taxation under sub-section (2) may sanction or refuse to
sanction the same, or return them to the committee for
further consideration.

(9) (Omitted by Government of India (Adaptation of
F
Laws) Order, 1937.)

(10) (a) When a copy of order under sub-section (6)
and (7) has been received, or

G (b) when a proposal has been sanctioned under sub-
section (8) the State Government shall notify the imposi-
tion of the tax in accordance with such order of proposal,
and shall in the notification specify a date not less than
one month from the date of the notification, on which the
H tax shall come into force.

·-
ATLAS CYCLE IND. v. STATE OF HARYANA [BHARUCHA] 709

(11) A tax leviable by the year shall come into force A
on the first day of January or on the first day of April or
on the first day of July or on the first day of October in
any year, and if it comes into force on any other than the
first day of the year by which it is leviable, shall be leviable
by the quarter till the first day of such year than next
ensuing. B
~·

(12) A notification. of the imposition of a tax under this
Act shall be conclusive evidence that the tax has been
imposed in accordance with the provisions of the Act."

Sections 70 and 71 empower the committee and the State Government
c
respectively to, inter alia, exempt in whole or in part from the payment of
any tax any person or class of persons or any property or description of
property.

Mr. Salve, learned eounsel for the petitioner, submitted that the right D
of representation was an important safeguard and he relied upon the
judgments of this Court in Prakash Chandra Mehta v. Commissioner and
Secretary, Government of Kera/a & Ors., (1985] 3 SCR 697, andBaldev Singh
and Others v. State of Himachal Pradesh and Others, (1987] 2 SCC 510.
There can be no doubt about the correctness of this proposition.
E
Mr. Salve submitted that the petitioners had been deprived of the
right to make a representation under Section 62(3) against imposition of
octroi upon the area in which their factories were situated. The petitioners
had, therefore, been discriminated against so that the provisions of Article
14 of the Constitution were violated and Section 5(4), in so far as it had
the effect of imposing octroi upon those areas, was unconstitutional. F
Great emphasis was laid by learned counsel upon the judgment of
this Court in Visakhapatnam Municipality v. Kandregula Nukaraju & Ors.,
[1976] 1 SCR 544. In exercise of powers contained in the District
Municipalities Act, 1920, the Government of Andhra Pradesh had declared
its intention to include within the limits of the Visakhapatnam municipality G
the local area comprised in the villages of Ramakrishnapuram and
Sriharipuram. The District Municipalities Act, 1920 was repealed by the
Andhra Pradesh Municipalities Act, 1965 which came into force on 2nd
April, 1965. On 24th March, 1966 the Government of Andhra Pradesh,
acting in exercise of powers conferred by Section 3(3) of the 1965 Act, H
710 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

, A issued .a notification including within the limits of the appellant
municipality the area comprised in the villages of Ramakrishnapuram and
. Sriharipuram with effect from 1st April, 1966. On 24th March, 1970 and
10th June, 1970 the Municipal Council declared its intention to levy proper-
ty tax in the. areas newly included within the municipal limits and, after
considering objections, p;issed a resolution on 28th August, 1970 confirm-
B ing the levy .of property tax on lands and building situated within the
municipal limits from 1st October, 1970. However, it issued notices to the
....
contesting respondents demanding property tax from them not from 1st
October, 1970 but from 1st April 1966, that is to say, from.the date when
the villages of Ramakrishnapuram and Sriharipuram were included within
C the municipal limits. The contesting respondents filed the writ petition
asking for a declaration that the levy of property tax for the period prior
to 1st October, 1970 was illegal. The inclusion of the villages of Ramak-
rishnapuram and Sriharipuram within the limits of the appellant
municipality was found by the court to be in order. The true question for
D the Court's consideration, it said, was whether property tax which could be
levied under the 1920 Act could be lawfully levied under that Act, after the
repeal of that Act, on property situated in the areas included within the
_municipal limits after the constitution of the municipality. Section 391{1)
of the 1965 Act expressly repealed t~e 1920 Act from which it would follow',
ordinarily, that no action could be taken under the 1920 Act, but the
~ appellant muni~ipality contended that clause 12 of Schedule IX of the 1965
Act kept the repealed enactment alive for tax purposes and, therefore, the
municipality had the authority to impose the tax under the 1920 Act. It was
found, upon an analysis of clause 12, that it had no application. The Court
then proceeded to consider the provisions of the 1965 Act in so far as they
F obliged the Municipal Councils to impose certain kinds of taxes. Under
Section 18(1)(a) every Municipal Council was obliged to levy the taxes
. therein stated. Under sub-section .(2) the Municipal Council was obliged
to set out in its resolution determining to levy tax the rate at which and the
date from which it would be levied. The first proviso to this sub-section
required that "befor~ !)assing a resolution imposing a tax for the first time"
G or increasing the rate of an existing tax, the Municipal Council shall publish
a notice in the prescribed manner declaring its intention and inviting
objections thereto, which it was obliged to consider. Thereafter, by reason
of Section 83, when a council determined, subject to the provisions of
Section 81, to levy any tax for the first time to at a new rate, its Secretary
H
ATLAS CYCLE IND. v. STATE OF HARYANA [BHARUCHAJ 711

had forthwith to publish a notification in the prescribed manner specifying A
the rate at which, the date from which and the period of levy, if any, for
which, such tax would be levied. Section 83 was thus expressly sul?ject to
section 81 and, under the latter provision, no tax could be imposed "for the
first time" unless the procedure prescribed therein was followed. Since the
procedure prescribed therein had not been followed in the case before the
court in regard to the period prior to 1st October, 1970, the levy of property B
tax on the properties of the contesting respondents for that period was
without authority of law, The court said that the municipality might have
been levying property tax since long on property situated within its limits.
But, until 1st April, 1966, the villages of Ramakrishnapuram and
Sriharipuram were outside those limts. Qua the areas newly included within C
the municipal limits the tax was being imposed for the first time and,
therefore, it was incumbent on the municipality to follow the procedure.
prescribed by the first proviso to section 81(2)~ The residents and tax·
payers of those areas never had an opportunity to object to the imposition
of the tax and that valuable opportunity cowd not be denied to them. It
was obligatory upon the municipality not only to invite objections to the D
proposed tax, but also to consider the objections received by it within a
specified period. The policy of the law was to afford to those likely to be
affected by the imposition of the tax a reasonable opportunity to object to
the proposed levy. According to the appellant municipality, the residents
of Ramakrishnapuram and Sriharipuram had an opportunity to object to E
the imposition of tax when the State Government issued a notification
under Section 3(1)(b) of the 1965 Act declaring its intention to include the
two villages within the limits of the municipality. The Court did not fmd it
possible to accept this submission. When the State Government issued a
notification under this proviso any resident of the local area concerned
F
could "object to anything therein contained" meaning thereby anything
contained in the notification. Such notification contained only the declara-
tion of the Government's intention "to include within a municipality any
local area in the vicinity thereof and defined in such notification". The right
of objection would, therefore, be limited to the question whether a par-
ticular area should, as proposed, be included within the municipal limits. G
It would be premature at that stage to offer objections to the imposition
of any tax because it was only after the final notification was issued under
Section 3(3) that the question would arise about the imposition of a tax on
the newly included areas. A notification under Section 3(3) had to be
H
712 SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.

A followed by a resolution under Section 81(1) if the municipality wanted to
impose a tax and, for the resolution to be effective, the procedure
prescribed by the first proviso· to Section 81(2) had to be followed. The
appellant municipality was found to have short-circuited the mandatory
procedure and thereby deprived the contesting respondents of the valuable
right of objecting to the imposition of the tax.
B
Mr. Salve submitted, accordingly, that octroi had been imposed for
the first time on the area in which the petitioners'. factories were situated
without giving to the petitioners the valuable right of representation there-
against provided by Section 62 of the srud Act, an opportunity which had
C been given.to residents of the original area of the municipality when octroi
was imposed upon that area. Accordingly, the petitioners had been dis-
criminated against and there had been a violation of Article 14 of the
Constitution.

In the alternative, Mr. Salve submitted, at the very least, the
D retrospective imposition was bad under Article 14 because it singled out
those who were affected by the retrospectivity and denied them the oppor-
tunity of representation. The submission may be explained thus: when the
area of the municipality was extended to include that ·upon which the
petitioners' factories stood, Section 5(4) did not contain the word
E 'notification' and, therefore,· the imposition of octroi within that area was
bad. When Section 5(4) was amended to include the word 'notification'
octroi was imposed retrospectively but the petitioners had, in the cir-
cumstances, no opportunity to represent then against such imposition.

Mr. Manmohan, learned counsel for the respoundents, drew our
F attention to the judgment in Hindustan Gum and Chemicals Ltd. v. State
of Haryana and Others, [1985) 4 SCC 124. In this case the appellant had a
factory which, priO£ to 10th August 1965, was situated outside the local
limits of the Bhiwani Municipal Committee but with effect from that date,
by reason of the extension of the local limits of the Municipal, Committee
by a notification issued under Section 5(3) of the said Act, the factory
G premises of the appellant had come within the municipal limits of Bhiwani.
The appellant filed a writ petition questioning the imposition of octroi, inter/
alia, on the ground that it was not open to the Municipal Committee to
levy octroi without complying with the legal formalities necessary for its
imposition in the extended area. This Court noted its earlier judgment in
H Atlas Cycle Industries Limited v. State of Haryana and Anr., (ibid) and the
ATLAS CYCLE IND. v. STATE OF HARYANA [BHARUCl-IA] 713

fact that the Validation and Amendment Act had included the word A
'notification' in Section 5(4) of the Act and validated the levy of octroi
retrospectively. The Court held that if the expression 'notification' had
been there in that sub-section on the date on which the municipal limits
were extended, this Court would have upheld the levy and collection of
octroi in its judgment in Atlas Cycle Indusries Limited case. This court B
found that sub-section (4) of Section 5 which did not contain the word
'notification' was inadequate for the purpose of upholding the levy and
collection of octroi in the extended local area. Since the word 'notification'
had now been inserted in Section 5(4) of the Act with retrospective effect,
the basis on which the said decision was rendered had been removed
because the deficiency in Section 5(4), noticed by this Court, had been C
made good and the levy and collection of octroi had also been validated.
The Amending Act satisfied the tests laid down by this court in its decision
in Sri Prithvi Cotton Mills case for overcoming an earlier decision of a court
in such circu111stances. The Amending Act thus neutralised the effect of
the decision in the case of Atlas Cycle Industries Limited which could no D
longer be relied upon by the appellant after the amendment of the Act as
stated above. There was no other contention urged by the appellant in
support of its appeal. "The levy and collection of octroi in the area which
was included within the municipal limits of Bhiwani with retrospective effect
from August 10, 1965 in accordance with the notification issued earlier, are,
there/ore, no longer opon to question." E
(emphasis supplied).

Mr. Manmohan submitted that having regard to what the Court had
said, as emphasised above, the levy and collection ofoctroi was no longer F
open to question by the petitioners.

Mr. Manmohan urged that Sections S: and 62 of the said Act operated
in different fields. Sub-sections (1) to (3) of Section 5 dealt with the
procedure that had to be followed when the local limits of a municipality
were proposed to be extended and, once that had been done, the conse- G
quences that followed were set out in sub-section 4. Under the provisions
of Section 5 the State Government was concerned with determining
• whether or not the local area of the municipality should be extended and
objections were invited and. considered in that regard. Section 62 of the
said Act set out the procedure which was required to be followed by the H
714 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A committee of a municipality when it proposed to impose a tax under
Section 61 and objections were invited and considered by the Committee
and the State Government in this regard. In Mr. Manmohan's submission,
therefore,. there was no hostile discrimination against the petitioners. ·He
submitted that, in any event, it was open to a party within the proposed
extended limits of the municipality to represent thereagainst on the ground
B that the levy of municipal tax upon that area would have adverse conse-
quences; and he pointed out that the petitioners had, in fact, made such a
representation.

Mr. Manmohan also drew our attention to the power of the commit-
c tee and the State Government to grant exemption from payment of
IQunicipal taxes .in apropriate cases and he said that the petitioners had
actually availed of such exemption.

Learned counsel distinguished the judgment in the Visakhapatnam
Municipality case by pointing out that the scheme of the said Act was quite
D different from that of the Andhra Pradesh MuniCipality Act, 1965.

of
Section 61 the said Act empowers the committee of a municipality
to impose a tax. A tax may be so imposed only after the committee has .
passed a resolution at a special meeting as required by sub-section (1) of
E Section 62. Thereafter the committee is obligecJ, by sub-section (2) of
Section 62, to publish a notice defming the class of persons or the descrip-
tion of the property to be taxed, the amount or rate of the proposed tax
and the system of assessment proposed to be adopted. Any inhabitant, that
is to say, any person ordinarily residing or carrying on business or owning
F or occupying immovable property within the municipality is entitled, by
reason of sub-section (3), to submit objections to the proposed tax to the
committee and the committee is obliged to take such objections into
consideration. When the committee has finally setted its proposals, after
considering the objections received, it is obliged to forward its proposals
and all objections received to the Deputy Commissioner or, through him,
G to the State·. Government, as the nature of the tax may require, wh:o may
sanction c;r refuse the same. Upon sanction being given, the State Govern-
ment must notify the imposition of the tax and such notification is, by
reason ·of sub-section (12) of Section 62, condusive evidence that it has •
been imposed upon the municipality in accordance with the provisions of
.. H the said Act. It is, therefore, the committee of a municipality which imposes

''
AlLAS CYCLE IND. v. STATE OF HARYANA [BHARUCHA, J.] 715

a tax. Before 1t imposes a tax, it is obliged to set forth its proposals in A
regard to the same in a notice and any inhabitant of the municipality is
entitled to raise objections thereto, which the committee is bound to
consider the object of the inquiry under Section 62 is, hence, to determine
whether or not it is feasible and desirable to impose the tax.
'
Section 5 of the said Act empowers the State Government to declare B
by notification its intention to include within the municipality any local area
in the vicinity and defined in the notification. To such. proposal any
inhabitant of the municipality and of the local area proposed to be included
may object and the State Government is obliged to take that objection into
consideration. If, having considered all objections, the State. Government C
decides to include that local area in the municipality, it may do so by
notification. Sub-section (4) of Section 5 (as amended as aforementioned)
sets out the consequence of the extension of the municipality by inclusion
within it of such local area and it says that all rules, notification, bye-laws,
order, directions and powers made under the said Act. in force throughout
the whole municipality at the time would apply to such local area. It is the D
State Government, therefore, which has to decide whether or not any local
area in the vicinity of the municipality should be included within the
municipality. The object of the inquiry under Section 5 is to determine the
feasibility and desirability of so doing. In the event that a local area in the
vicinity of the municipality is included in the municipality, that local area E
becomes subject to all rules, notifications, bye-laws, orders, directions and
powers then in force in the municipality. That local area, therefore, there-
fore, becomes subject to all taxes imposed within the municipality.

The object of the inquiry under Section 5 is different from the object F
of the inquiry under Section 62. There is, therefore, in our view, no scope
for the plea that the petitioners have been discriminated against in that
they were given no opportunity to object to the imposition of octroi under
Section 62

The object of the inquiry under Section 5 is far broader. It would be G
open to an inhabitant of the local area proposed to be included within the
municipality to object under Section 5 to such inclusion even upon the
grouncl that a municipal tax should not be imposed upon that local area.
In fact, the petitioners had raised the objection, under the provisions of
Section 5, that the inclusion of the local area upon which their factories H
716 SUPREME COURT REPORTS (1992] SUPP. 3 S.C.R.

A were situated within the municipality would make them liable to pay octroi
which they would be ill able to afford. This re-inforces our conclusion that
they have not been discriminated against.

We may also note that there is power conferred by Section 70(2)(c)
and Section 71 of the said Act upon the committee and the State Govern-
B ment respectively to exempt wholly or in part any person or class of persons
or any property. or description of property from payment of any tax. The
petitioners, and other manufacturers, sought such exemption and were
given partial exemption from the payment of octroi.

c Having regard to what we have held in respect of the differences in
the object of Section 62 and Section 5 and of the inquiries thereunder,
there .is no discrimination against the petitioners even in so far as the
retrospective operation of Section 5(4) is concerned. Further, it should· be
noted that it is not quite correct to say that the petitioners had had no
D opporunity to represent against the levy of octroi from 18th August, 1967.
They had made a representation before .that date against the inclusion
within the municipality of the area upon which their factories stood ·On the
ground that the levy of octroi was uneconomic for them. The repre-
sentation had been considered but the area was included within the
municipality, and octroi was levied. Thereafter this court struck down the
E levy and the levy was validated by the Amendment and Validation Act.

The observations of this Court in the Visakhapatnam Municipality
case (ibid) appear to us to have been made in the specific context of the
provisions of the statute under consideration. Emphasis was laid in the
F judgment ·upon the fact that the proviso to the sub-section, which required
the resolution of the council determining to levy tax to specify the rate at
which and the date from which the tax would be levied, stated that "before
passing a resolution imposing a tax for the first time" the council should
publish a notice declaring that intention, to which objections were sought.
G There is no provision in the said Act which requires objections to be invited
and considered before the committee of a municipality passes a resolution
imposing a tax "for the first time".

In the result, the writ petitions are dismissed. There shall be no order
H as to costs.
ATLAS CYCLE IND. v. STATE OF HARYANA !MOHAN, J.], 717

MOHAN, J. I have had the advantage of perusing the judgment of A
my learned brother (Bharucha, J.). I am in entire agreement with the
conclusions arrived at therein. However, I think it would be appropriate to
add a few lines.

The facts have been set out in his judgment. I will confine myself only
to. the question of law. B
The power to tax by the State can be exercised only by the State
Legislature. The extent of the power is fixed by the Constitution. The said
Legislature can impose all texes as are covered by the subjects enumerated
in List II (State List) under the 7th Schedule. In so far as, the municipalities C
or 'local self-government' are concerned, they are authorised by the State
to levy some of these taxes for their own purposes. As laid down in
Municipal Board of Hapur v. Raghubir Singh, (1966] 2 SCR 891, "the local
authorities levy the tax as agent of the State Legislature. The extent of the
powers must be found in the statute which creates the municipality and
endows the municipality with such powers." D

The power to tax is a necessary adjunct of a system of 'local self-
government'. The amounts collected by way of taxes are mainly intended
to enable them to meet their fiscal needs in the municipal area.
E
In the instant case, we are concerned with the levy of octroi. The
word 'octroi' comes from the word 'octrover' which means 'to grant' and,
in its original use, it meant 'an import' or 'a toll' or 'a town duty' on goods
brought in to a town. Grice in his National and Local Finance says (at page
303) that they were known as 'ingate tolls' because they were collected at
toll-gates or barriers. F

Under the Punjab Municipal Act, 1911 (hereinafter referred to as
the Act) the power to levy the octroi is traceable to Section 61, sub-section
(2).

The said sub-section states as under: G

(2) "Save as provided in the foregoing clause with the
previous sanction of the State Government any other tax
which the State Legislature has power to impose in the
State under the Constitution." H
718 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A Explanation:-.In this section "tax" includes any duty, cess
or fee.

Octroi is treacabe to Entry 52 of the List II (State list) of the Seventh
Schedule. That Entry reads as follows:

B ·"Taxes on the entry of the goods into a local area for
consumption, use or sale therein."

In Jothi Timber.Mart v. Calicut Municipality, [1970] SC 264 at page
266, it has been held:
c 11
E,ntry of goods within the local area for consumption, use
or sale therein is made taxable by the State Legisl~ture:
authority to impose a general levy of tax on entry of goods
int~ a local area is not conferred on the State Legislature
by _Hem' 52 of List II of Schedule VII of the Constitution..
D The Municipality derives its power to tax from the State
Legislature and ~ obviously not have authority more
extensive than the authority of the St<1:te Legislature. if th~
State Legislature is competent to levy a tax only in the entry
of goods for consumption, use or sale into a local area, the
Muncipality cannot under a legislation enacted in exercise
E of the power conferred by Item 52, List II have power to
levy tax in respect of goods brought into the local area for
purposes other than consumption, use or sale."

The procedure as to the levy is set out under Section: 62 of the Act.
IF This Section details the entire procedure for the imposition of taxes and
provides the method of levy right from the point when the committee
conceives the idea of levy to the final stage when the proposal attains the
authority of· 1aw. Such a proposal will have to be initiated by a special
resolution which shall be passed at a special meeting. On passing of such
,., a resolution, a notice ~hall ·be publiShed defining class of persons or
J
description of property to be taxed, the amount or rate of the tax and the
system to be adopted for levy of the tax. If any objection is received, it has
to be considered by the committee and the committee may amend it if it
so desires. With regatd to octroi, sub-section 7 says as follows:

.1 "If the proposed·tax falls under clause (a) of sub- section
ATLAS CYCLE IND. v. STATE OF HARYANA. {MOHAN, J.] 719

(i) of Section 61, the Deputy Commissioner, after consider- A
ing the objections received under sub-sections (3) and (5)
may either refuse to sanction the proposals or return them
to the committee for further consideration or sanction
them without modification or with such modification not
involving an increase of the amount to the imposed, as he
deems fit, forwarding to the State Government a copy of B
the proposals and his order of sanction; and if the tax falls
under sub-section (2) * *** of Section 61, the Deputy
Commissioner shall submit the proposals and objections
with his recommendations to the State Government."

The State Government may either sanction or refuse to sanction or
c
return the proposals to the committee for further consideration. If the State
Government sanctions the proposed levy of octroi, it will have to notify the
imposition of the tax and specify the date not less than one month from
the date of the notification on which date octroi shall come into force.
D
The power to fix the municipal limits within which octroi could be
levied, is traceable to Section 188 of the A.ct. This Section, which enables
the committee to frame bye-laws, under Clause (g) is to the following
effect:
E
"Where the collection of an octroi or terminal tax has been
sanctioned, fix limitis for the purpose of collecting the
same, and may prescribe routes by which animals or articles
or both which are subject to octroi or terminal tax may be
imported into the municipality or exj>orted therefrom." F

All bye-laws made under the Act will have to be published under
Section 200 of the Act. Bye-laws come into force only when they are
confirmed by the State. By a notffication dated 3.11.1942, octroi came to
be levied in Rohtak district in exercise of powers conferred by Section 186
and 199 of the Act. Bye-laws were also made prescribing the routes. On G
11.12.1948, the following bye-law came to be notified:

"The limits of the Sonepat Municipality for the purpose of
collection of octroi without refunds shall be the bundaries
of the Municipality of Sonepat as fixed from time to time." H
720 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A The result of this notification is that the limits of Sonepat
Municipality were subject to the levy of octroi. What is carefully required
to be noted is that the municipal limit was; the area defind for the purposes
of octroi as per notification dated 11.12.1948. The area of the municipality
can also be altered. Such a power is available under Section 5 of the Act.

B In the instant case on 15~9.1966, in exercise of powers under Section
5(1), the intention to alter the limits of Sonepat Municipality was notified.
The area to be included was mentioned in the Schedule. Objections were
invited, Accordingly, the petitioner on 3.11.1966 filed his objections _inter
alia, it was stated as under :
c "Para 2: That it is now proposed to extend the municipal
limits of Sonepat by including therein the industrial area,
hitherto outside the municipal limits. This, the petitioner
understands, is proposed to be done with the sole aim to
increase the income of the Municipality by bringing the
D different indistries around Sonepat within municipal area,
thereby making them to pay all municipal taxes.

Para 3: That the additional taxes to be levied by the
Municipality will add considerably to the cost of produc-
. tion of bicycles manufactured by the petitioner. The octroi
E
alone on 30 kgs. of raw material required for manufacture
of on bicycle are likely to be about Rs. 1.30."

Therefore, it was prayed on behalf of the petitioner that the proposal
to extend the municipal limits may be dropped. On a consideration of those
F objections, they were overrulled by a notification dated 11.8.1967. It was
stated thus:

"No. 5998-2CI-67(B-12)/19979 - with reference to Punjab
Government Notification No. 8365-ICI-66/26616 dated the
15th September, 1966, published in the Punjab Govern-
G ment Gazette. on the 30th September, 1966 and in pur-
suance of the provisions of sub-section (3) of Section 5 of
the Punjab Municipal Act, 1911, the Government of
Haryana is pleased to include within the Municipality of
Sonepat in Rohtak District, the area lying between the
H existing boundary as defined in Punjab Government
ATLAS CYCLE IND. v. STATE OF HARYANA.rMOHAN, .T.J 721

notification No. 13295-C-55/32245, dated the 10th Decem- A
ber, 1955, as subsequently amended, vide Punjab Govern-
ment Corrigendum Notification No. 1567-CII-57/5488,
dated 25th March, 1957 and the boundary now. proposed
as specified in the Schedule hereto appended."

As could be seen from the above extract, this Notification is under B
Section 5(3) of the Act. As to what is the legal consequence of a notifica-
tion of inclusion of a local area in the municipality, is set out under Section.
5(4) of the Act. That reads:

"When any local area has been included in a municipality C
under Sub-section (3) of this Section, this Act, and except
as the State Government may otherwise by notification
direct, all rules, notifications 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." D

It requires to be stated that the word 'notification' came to be
inserted by Punjab Act 24 of 1973. Originally, the word 'notification' was
absent. Therefore, the question arose by reason of inclusion of this area
whether the levy of octroi would get attracted. It was held by this Court in E
Atlas Cycle Industries Ltd v. State of Haryana & Anr., [1972) 1 SCR 127 at
page 133 as under:

"Sub-section (6) to (9) of Section 62 of the Act deal with
the order of sanction by the appropriate authorities of the
proposals for tax. These orders are not the provisions by F
which tax is imposed. These orders are attracted by virtue of
the provisions contained in Section 5(4) of the Act to the.
included areas, But in the absence of notification by the
Government under Section 62(10) of the Act there is no
imposition of tax.. ( emph~sis supplied)
G
The controversy in the present appeals 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 H
722 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A outset that Section 5(4) of the Act speaks of rules, bye-laws,
orders, directions and powers and does not significantly
mention 'notification'. It is apposite to consider Sections 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
B 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 immedi-
c ately 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."

D Therefore, it was because of abse.nce of the word 'notification', the
decision came to be rendered that the levy of octroi would be impermis-
sible. It was to cure this defect, the word 'notification' came to be incor-
porated by the Amendment Act. Then again, it was challenged. In
Hindustan Gum and Chemicals Ltd. v. State of Haryana & Ors., (1985] 4
E sec 124 at page 132, it has been stated as under:
"In the instant case the only ground on which this Court
had found the levy of octroi in the extended area of a
municipality to be invalid was that the provisions of Section
F . 5(4). of the Act were inadequate in the af:>sence of a refer-
ence to the notifications issued under the Act also in that
sub-section. By the Amending Act the word 'notification'
had been inserted in sub-section (4) of section 5 of the Act
with retrospective effect. If the expression 'notification' had
been therein that ·sub-section on the dat~ on whic;h the
-
G municipal limits were extended, this Court would have
upheld the levy anfi collection of octroi in its judgment in
Atlas Cycle Industries Ltd. v. State of Haryana &Anr., [1972]
1SCR127. This Court found that sub-section(4) of Section
5 which did not contain the word 'notification' was inade-
H quate for the purpose of upholding the levy and collection
ATLAS CYCLE IND. v. STATE OF HARYANA [MOHAN, .I.] 723

of octroi in the extended local area. Since the word A
'notification' has now been inserted in Section 5(4) of the B
Act with retrospective effect, the basis on which the said
decision was rendered has been removed because the
deficiency in Section 5(4) noticed by this Court has been c
made good and the levy and collection of octroi have also
been validated. The Amending Act satisfies the tests laid
down by this Court in the decision in Shri Prithvi Cotton
Mills Ltd. and qnother v. Broach Borough Municipality &
Ors., [1970) 1 SCR 388, overcoming an earlier decision of
, a court in such circumstances. The Amending Act thus
neutralises the effect of the decision in the case of Atlas D
Cycle Industries Ltd. (supra) which can no longer be relied
upon by the appellant after the amendment of the Act as
stated above. There is no other contention urged by the
appellant in support of its appeal. The levy and collection
of octroi in the area which was included within the
municipal limits of Bhiwani with retrospective effect from
August 10, 1965 in accordance with the notification issued
E
earlier are, therefore, no longer open to question."

. As seen from the above, this Court explained as to what exactly was
the ratio in Atlas Cycle Industries v. State of Haryana & Anr., [1972) 1 S.C.R.
124.

It will be, thus, clear that it is by virtue of inclusion of area within F
the municipal limits, octroi has come to be levied in the included area. In
other words, it is the legal consequence of Section 5(4). The levy was
already there. The newly added area becomes subject to the levy by a legal
consequence and not by an imposition under Sections 61 & 62 and other
relevant sections relating to bye-law~.

In Visa.khapatnam Municipality v. Kandregula Nukaraju & Ors., [1976) G
1 SCR 544, on which reliance is. placed by the petitioner, the question was
whether the property tax whic~ could lawfully be levied under the District
Municipalities Act, 1920, can be levied after the repeal of that Act, on
property situated in the areas included within the Municipal limits after
the constitution of the Municipality. It was held that-

1. From the repeal of the said Act of 1920 by section 391(1) of_ the H
724 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A Andhra Pradesh Municipalities Act, 1965, it must follow that ordinarily no
action can be taken under the Act of 1920 after 1.4.1966 when the repeal
became effective.

2. The provisions oontained in the Schedule 9 of the Act of 1965 are
of a transitional nature. They. were intended to apply during the period of
B transition following upon the repeal of the old Act and the introduction of
the new law.

The object of clause 12 of the Schedule 9 was to authorise the lery
of taxes which, on the commencement of the Act of 1965, were levied under
C the repealed laws.

. 3. The Municipality might h~ve been le~ property tax since long
or p~operties situated within the limits, but, until 1.4.1966, the villages were
outside those limits. Qua the areas newly induded within the municipal
limits, the tax was being imposed for the first time, and, 'therefore, it was
,D incumbent on the Municipality· to follow the procedure prescribed by the
first proviso to section 81(2) of the Act of 1965. Residents and tax-payers
of those areas never had an opportunity to object to the imposition of the
tax. It was obligatory upon the Municipality not only to invite objections to .
proposed tax but also to consider the objections received by it within the
E specified period.

4. Therefore, it was imcompetent to the Municipality to impose the
property tax in the ·newly induded areas without following the procedure
prescribed.

F Thus, on facts, this ruling is distinguishable. In fact, this Court
pointed ·out the distinction in Ehaskar Taxtile Mills Ltd. v. Jharsuguda
Municipality & Ors., AIR 1984 583, where an identical issue arose. Ektali
Village in which the appellant's factory was located along with other
villages came to be included .in Jharsuguda Municipality. Inter alia, the
G question arose whether i:he levy of octroi in the original municipal area of
Jharsuguda could automaticalty be made. applicable to the extended limit.
In paragraphs 20-21, it was held as follows:

"As a second limb to this argument it was contended by the
appellant that even assuming that the bye-laws when intially
H . enforced might be presumed to be in accordance with law
ATLAS CYCLE IND. v. STATE OF HARYANA [MOHAN, J.] 725

in the absence ~f simllar steps being taken at the "time .of A
.· e~ention of by~-laws to the newly added area, the bye~laws ..
are not enforceable.in the new.area. This argument bas
proceeded in utter oblivion of the provisions of S.5 of the
Municipal Act, it reads: ·
'. ~

. . "5. When any local area is included in a municipality by a ·. B
notification under clause (b) or (c) of sub-section (3) of
Section 4, all the ,pro,visions of this Act and of any rules,
bye~laws:, notifieations or orders made. thereunder which' '
immediately before ·suth indusion we~e inforce throughout
suc:h municipality, shall be deemed to apply to such area c
unless the. State Government. in and by the notification,
otherwise di~ect." · · ·· · · · ·.
···'. . '· '.'

"The learned counsel for the appellant however, has placed
strong r~l.i~nce .upon Vi~akhapatnam M_unicipality v. D
Kan4regulq Nukaraju,. (1976)1.S<;:R 544 : (AIR 1975 SC
2172). ln th!lt:case the question that fel! for consideration
was whether the property tax which co'1ld lawfully .be levied
under the D~trict Municipalitit;s ~(;t, 1920 can. be levied
after the repeal of that Act on. pr<?per.ty, situated in the ~eas
included within the municipal limits .after the c0nstitution
• . . ·... · :. . '• ." .... l - . ''·
E
of the municipality. Section 391(1) of the Andhra Pradesh
Municipalities, .Act, 1965 expressly repealed th~ ·I;>istrict
· . Municipalities Act,. 1920 from whie<h it must folio"". that
on,linarily no <\Ction can be, taken under the Act of 1920
after April 11 19t;6 when the repeal became effective on the F
coming. into force of the Act. It was, however, con'tended
in that. case that Cl.. ~2 of Schedule 9 of the A.ct keeps the
repealed ~nactment alive for tax pwposes !ind, therefore,
the municipality
. had
.
the authority
..
.to impose the property
tax under the Act o~ 1920 notwithst~ding its repeal by the
new. Act. _This Court, however, took the yiew that the G
provisions contained in t4e Sche(.lule ~e of a transitional
nature.Theywere.intended to apply during the period of
· . transition following upon the repeal of old municipal laws
and the. introdustion ofthe new la"'. The object of Clause
~2 qf Schedule 9 was to authorise the levy of taxes which, H
726 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A on the commencement of the Act, were levied under the
· repealed laws. This Court further added that the munip.pa-
lity might have been levying property tax since long on
·properties situated within its lirilits. But until April 1, 1966
the villages oi Ramakrishnapuram and Sriharipuram were
outside those limits. Qua the areas newly included within
B the municipal limits, the tax was being imposed for the first
time and th~refore, it was incumbent on the municipality
to follow the procedure prescribed by the first proviso to
.S,81(2). Residents and tax-payers of those areas never had
an opporturuty to object to the imposition of the tax and
c that valuable opportunity cannot be denied to them. It is
obligatory upon the municipality not only to invite objec-
tions to the proposed tax but also to consider the objections
received by it within the specified period.

For the State, however, reliance was placed in that case on
D Section 3(4) of the Act to contend that the inclusion of the
two villages within the municipal area attracts of its own
force every provision of the Act with effect from the date
on which the final notification is published by the Govern-
ment under Section 3(3)~ In supporf of this contention it
E cited the decision of this Court in Atlas Cycle Industries
Ltd. v. State of Haryana, (1972) 1 SCR 127-AIR 1972 SC
121. This argument on belialf of the State was, however,
repelled and the Court observed:

F "Far from supporting the argument, we consider that the
decision shows how a provision like the one contained in
Section 3(4) cannot have the effect contended for by the
appellant. In the Atlas Cycle case, Section 5(4) of the
Ptinjab Municipality Act, 1911 provided that when any
local area was included in the municipality, 'this Act
G and....all rules, bye-laws, orders, directions and powers
made, issued or conferred under thi~ Act and in force
throughout the whole municipality at the time, shall apply
to such areas'."

H But this Court took ·the view that since S. 5(4) of the
!
AUAS CYCLE IND. v. STATE OF HARYANA [MOHAN J.] 727

Punjab Act did not significantly refer to notifications A
and since S. 62(1) of the Punjab Act spoke of "notifica-
tion" for the imposition of taxes it was not competent to
the municipality to levy and collect octroi from the
company on the strength merely of the provision con-

- tained in S. 5(4) of the Punjab Act. That case, however,
is distinguishable. and cannot be of much assistance for
solving the problem before us. Section 5 of the Orissa
B

Municipal Act makes all the provisions of the Act and
of any rules, bye-laws, notifications, or orders made
thereunder, which immediately before such inclusion
were in force throughout such municipality application c
to such area unless the State Government in and by the
notification otherwise direct. This section, therefore,
includes not only the provisions of the Act, rules and
bye-laws but also includes notifications. This distin-
guishes the present case from the Visakhapatnam
Municipality's case (supra).
D

This ruling fully supports the stand of respondent's municipality. This
Court has also explained the inapplicablity of the ruling of. Viskhapatnam
Municipality's case (supra) and pointed out how it is distinguishable. The
position is exactly the same here and this distinction holds good here too. E
To put it shortly, once the municipal limits have been validly extended, then
the distinction between old and the newly added area gets obliterated al-
together and a uniform levy is imposed to the whole area of mWticipality
without any distinction whatsoever between the old and the newly added areas.

Though, the right, of representation is a valuable right, for two F
reasons, the arguments addressed on behalf of the petitioner in relation to
representation cannot be accepted; (i) at the time, when the municipal
limits came to be altered, the petitioner did make representations on
3.11.1966. In particular, its grievance was directed against the municipal
taxes as well as octroi in paragraphs 2 & 3 of its representation, quoted
above and (ii) even otherwise, so long as the imposition of tax here is not G
by resort to Sections 61 & 62 but as a legal consequence of Section 5(4), it
is incorrect to contend that the levy is made for the first time. It has already
been noted how the 'Visakhapatnam Municipality' case (supra) does not
apply. Thus, the writ petitions have to fail.

N.V.K. Petitions dismissed. H