HINDUSTAN PETROLEUM CORPORATIONversusOKHA GRAM PANCHAYAT AND OTHERS

A               HINDUSTAN PETROLEUM CORPORATION
                                        v.
                OKHA GRAM PANCHAYAT AND OTHERS

                             SEPTEMBER 23, 1993

B            [B.P. JEEVAN REDDY AND S.P. BHARUCHA, JJ.)

         Ciujarat Gram and Nagar Panchayats Taxes & Fees Rules, 1964: Rules
  32 and 34(B)-Whether Rule 32 creates an irrebuttable presumption that
  goods not exported within two months should be deemed to have been con-
C sumed-Rule 32 being a substantive rnle cannot override Rule 32(B) which
  is procedural.

        · Constitution of India, 1950 : Seventh Schedule--/..,ist JJ--E,ntry
    52-Sale-Goods sold within a local area-Consumption or use in the local
    area-Relevance of, for the purpose of levy of tax.
D
          Administrative Law : Delegated legislation--f'rocedural law in a
    provision-Whether can override a substantive provision in a statute.

        . ESSO had storage facility for its products in many places including
E the respondent-Gram Panchayat. or the total quantity stored there only
    about 5% was released for consumption, use or sale within the territorial
    limits of the Gram Panchayat. The rest was taken out to places outside the
    Gram Panchayat for distribution and sale.

          The Gujarat Gram Panchayat Act, 1961 was made applicable to
F Okha from 1.4.1965. ESSO had been paying octroi to the respondent
    Panchayat on the goods consumed, used or sold within the limits of the
    Panchayat and had also been maintaining a current account as con-
    templated by Rule 34(8) of the Gujarat Gram and Nagar Panchayats
    Taxes and Fees Rules, 1964.
G       A dispute arose between      the Panchayat and ESSO. Panchayat
                              ,
  claimed octroi duty on all goods imported into the Panchayat limits,
  irrespective of the fact whether they were consumed, used or sold within
  the limits of Panchayat or were taken out for being sold and distributed
  outside the Panchayat limits. Further, while determining the value of the
H goods for the purpose of octroi duty, the Panchayat added the excise duty
                                       502
              PETROLEUM CORP. v. GRAMPANCHAYAT                        503

to their value, though by that of import excise duty was not paid. ESSO A
contested both the claims of the Panchayat and filed two revision applica·
tions before the Development Commissioner which were disposed of by
him. Aggrieved, the Panchayat as also ESSO filed writ petitions in the High
Court.

      . The High Court negatived the challenge to the validity of Rule 32 B
.and at the same time directed the Panchayat to entertain the appellant's
 claim for refund of octrpi duty after giving it a reasonable opportunity of
 being heard in the matter. So far as the valuation for the purpose of levy
 of octroi duty was concerned, the High Court upheld the Gram
 Panchayat's claim. It also held that the failure to follow Rule 34 did not C
 extinguish appellant's right to refund if it was entitled to it in law. Hence
 these appeals by Hindustan Petroleum Corporation.

      Disposing of the appeals, this Court

       HELD :1. Even if the goods are sold within the local area, it must be D
for the purpose of consumption or use within that local area to be· a sale
for the purpose of Entry 52 of List II of Seventh Schedule to the Constitu·
tion. If the goods are not consumed, used or sold within the local area, no
taX can be imposed under the said Entry. [509-D·E]

     Tata Engineering & Locomotive Company v. Municipal Council,
                                                                            E
Thane, A.I.R. (1992) S.C. 645, referred to.

       2.1. The Explanation to Rule 32 of the Gujarat Grani Panchayat
 Taxes and Fees Rules, makes it clear beyond any doubt that the presump·
 tion created by it is a rebuttable presumption. The main limb of the Rule F
 provides that an importer of goods on which octroi had been paid shall be
 entitled to refund of the amount so paid on export of such goods from the
 octroi limits if the goods have not been consumed, used or sold within the
 limits. The Explanation then provides that in three situations mentioned
 therein, it would be deemed, unless the contrary is proved, that th.e gonds G
 have been used, consume~ or sold within the octroi limits and refund
 would be allowed in those cases. The three situations contemplated by the
 explanation are (i) where the goods have broken bulk; (ii) where the goods
 are not exported within two months after their import and (iii) where the
·goods have changed its form by any process whatsoever. A reading of the
 Explanation clearly shows that the presumption created by the Explana· H
    504                  SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.

A tion applies to all the three situations. [510-D-F]
          2.2. The essential nature of the taA/'duty contemplated by Entry 52 of
    List II of the Seventh Schedule to the Constitution should be kept in mind
    while construing Rule 32 inasmuch as the Gujarat Panchayat Act, 1961
    and the Rules are referrable to that Entry and that Entry alone. The
B   Explanation creates a rebuttable presumption and not an irrebuttable
    presumption. The object behind prescribing the period of two months in
    clause (ii) of Rule 32 was merely to emphasise that after the expiry of two
    months the burden cast upon the person becomes heavier, viz., the burden
    to establish that the goods which have been imported into the octroi limits
C   and whereon octroi has been paid have been exported without being used,
    consumed or sold within the said limits. [511-F-HJ

          Tata Engineering & Locomotive Company v. Municipal Council
    Thane, A.I.R. (1992) S.C. 645 and Bunnah Shell v. Belgaum Municipality,
    [1963) 2 Supp. S.C.R. 216, distinguished.
D
           3. Rule 34(B) provides for maintenance of an 'account current'
    wherein .the particulars of imports and exports and particulars of deposit
    of octroi duty and other specified particulars are entered. This Rule is
    procedural in nature. It is meant for those persons who regularly import
E   and export goods. It only provides for a facility - convenient to both the
    person concerned and the Panchayat. Such a procedural rule cannot
    override the provisions of Rule 32 which is of a substantive nature. Both
    Rules 32 and 34(B) could be operated simultaneously. Rule 34(B) does not
    say that accounts cannot be settled at an interval less than three months.
    It only prescribes the outer limit viz., that the account should be settled
F   "at intervals not exceeding three months" Even while settling the account,
    whenever it may be, the Panchayat authorities are entitled to apply Rule
    32. [512-C-F]

        4. The Panchayat authorities should look into the relevant facts and
  circumstances relating to the period concerned viz., from April 1, 1965 to
G June 10, 1969 and decide whether and, if so, what amount is liable to be
  refunded to the appellant. Before taking a decision on the said question,
  the Panchayat authorities should allow the appellant to place such
  material as it thinks appropriate before it and consider the same alone
  with other relevant material. The appellant is permitted to file a written
H representation with necessary material before the Panchayat authorities,
   PETROLEUM CORP. v. GRAMPANCHAYAT(JEEVANREDDY,J.] 505

if not already filed. The amount found refundable to the appellant should A
be refunded within three months from the date of such decision.
                                                         [512-G-H, 513-A]
     CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 29-31
and 317-18 of 1973.
                                                                                B
     From the Judgment and Orde( dated 21/24-4-72 of the Gujarat High
Court in S.C.A. No. 1650/69 and 191 & 192 of 1970.

      R.F. Nariman, S. Sukumaran and S.B. Pathak for the appellant.

      S.K. Dholakia, Narsimhan, Yashank Adhyaroo and Anip Sachthey              C
for the respondents.

      The Judgment of the Court was delivered by"

      B.P. JEEVAN REDDY, J. This appeal is preferred by the Hindustan
Petroleum Corporation Limited, successor to the ESSO Standard Eastern           D
Corporation against a common judgment of the Gujarat High Court in
three writ petitions. Writ petition no. 1650 of 1969 was filed by the Gram
Panchayat, Okha. The other two writ petitions Nos. 191-and 192 of 1970
were filed by the appellant. The dispute pertains to levy of octroi duty by
the Gram Panchayat. The writ petitions were filed against the orders            E
passed by the Development Commissioner who was approached by the
appellant by way of two Revision Applications. The writ petition filed by
the Gram Panchayat has been allowed . .In writ petition (Special Civil
Applications) Nos. 191 and 192 of 197@;1,he High Court negatived the
challenge to the validity of Rule 32 of the Gujarat Gram and Nagar
Panchayats Taxes and Fees Rules, 1964 (Rules). At the same time, the            F
Gram Panchayat was directed to entertain the appellant's claim for refund
of octroi duty and to decide it according to law and in the light of the
observations made in the judgment, after permitting the appellant to lead
evidence in support of its claim and after giving it a reasonable opportunity
of being heard in the matter. It directed further that if the appellant had     G
not made a formal application to the Panchayat in that behalf, the'
Panchayat shall permit it to do so.

      ESSO, a company incorporated in U.S.A. had been dealing in
petroleum products in India. It had oil terminals in different parts in India
where it had storage facilities. One such storage facility was located within H
    506                  SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.

A   the limits of Okha Gram Panchayat in the State of Gujarat. Petrol, diesel
    oil and furnace oil were stored there. The ESSO was importing products
    at Okha from Bombay. It had b_onded warehouses both at Bombay and
    Okha, maintained under the provisions of the Central Excise and Salt Act,
    1944. When the goods were removed from the bonded warehouse at Okha
    for the purpose of sale or for marketing, excise duty was payable and was
B   paid. Of the total quantity stored at the storage facility within the Okha
    Gram panchayat, only about 5% was released for consumption, use or sale
                                                                                   •
    within the territorial limits of the Gram Panchayat. The rest was taken out
    to places outside the Gram Panchayat for distribution and sale.

c          The Gujarat Gram Panchayat Act, 1961 was made applicable to
    Okha on and with effect from April 1, 1965. Since that date, ESSO has
    been paying octroi to the Panchayat on the goods consumed, used or sold
    within the limits of the Panchayat. ESSO was also maintaining a current
    account facility as contemplated by Rule 34(B) of the Rules. In July, 1966,
D   a dispute arose between the Panchayat and the ESSO. Panchayat claimed
    octroi duty on all goods imported into Okha Panchayat limits, irrespective
    of the fact whether they were consumed, used of sold within the limits of
    Panchayat or were taken out for being sold and distributed outside the
    Panchayat limits. Further while determining the value of the goods for the
    purpose of octroi duty, the Panchayat added the excise duty to their value,
E   even though by that date of import, excise duty had not yet been paid by
    the appellant. (This was for reason that transfer from the bonded
    warehouse and to the bonded warehouse at Okha did not call for payment
    of excise duty). ESSO contested both the claims of the Panchayat. When
    demand notices were served by the Panchayat on the above basis, ESSO
    filed revisions before the Development Commissioner which were disposed
F
    of on November 13, 1969. It is against the said order that both the
    Panchayat and ESSO filed writ petitions in the Gujarat High Court.

           ESSO did not press before the High Court its challenge to the
    validity of Rule ·32 on the ground of violation of Article 19(1)(g) of the
G   Constitution. It raised only the following three contentions before the High
    Court:                                 ·


           (1) Where. the goods are exported from the Panchayat limits even
    after two months, it is entitled to refund of the octroi duty. Rule 32 does
H   not create any irrebuttable presumption that goods not exported within two
   PETROLEUM CORP. v. GRAMPANCHAYAT[JEEVANREDDY,J.] 507

months. shall be deemed to have been consumed, used or sold within the A
Panchayat limits. If it is not so construed, Rule 32 falls foul of the
provisions of the Act as well as Entry 52 in List II of the Seventh Schedule
to the Constitution.

      (2) That the Panchayat has no power to include the excise duty while
valuing the goods, for the purpose of levy of octroi duty, ~en though it      B
was not paid by that date. No octroi is leviable on the excise duty com-
ponent.

      (3) That Rules 32 and 34 had no application to ESSO inasmuch as
it was governed by the special procedure prescribed by Rule 34(B).
                                                                              c
       The High Court held that Rule 32 does not create an irrebuttable
presumption. It directed the Panchayat to adjudicate on the Claim for
refund made by ESSO in the light of the observations made by it in the
judgment. So far as the valuation for the purpose of levy or octroi duty Is
concerned, the High Court upheld the Gram Panchayat's claim. With D
respect to the third contention, the High Court held that the failure to
follow Rule 34 does not extinguish appellant's right to refund if it is entitled
to it in law.

      Sri Rohinton Narirnan reiterated the very same three contentions as
were urged before the High Court whereas Sri Dholakia, learned counsel        E
for the respondent-Panchayat sought to construe Rule 32 as creating an
irrebuttable presumption. Sri Dholakia also supported the judgment of the
High Court on other questions.

      For a proper appreciation of the questions arising herein, it is
necessary to notice Entry 52 in List II of the Seventh Schedule to the        F
Constitution, Sections 2(2) and Section 178 of the Act and Rule 27, 32, 34
and 34(B) of the Rules.

        "52. Taxes on the entry of goods into local area for consumption,
        use or sale therein."
                                                                             G
      Section 2(20) of the Gram Panchayat Act defines octroi or octroi
duty to mean "a tax on the entry of goods into a Gram or Nagar for
consumption, use or sale therein." Section 178(1)(ii) empowers the
Grarn/Nagar Panchayat to levy octroi subject to any general or special
order made by the Government in that behalf and subject to the minimum H
    508                  SUPREME COURT REPORTS (1993] SUPP. 2 S:C.R.

A   and maximum rates fixed by the Government. Rules 27, 32, 34 and 34(B)
    may now be set out:

            "27. Where the rate of octroi is leviable ad valorem under rule 25,
            the value of the goods shall be calculated by adding to the cost
            price of the goods the charges incurred till their arrival at the octroi
B           naka for the carriage and other incidental charges, if any such as
            shipping, insurance, customs and railway freight, as the case may
            be, in respect of such goods.

            32. An importer of goods on which octroi has been paid shall be
c           entitled to a refund of the amount so paid on export thereof from
            the octroi limits, if the goods have not been used, consumed or
            sold within these limits. Explanation, if :-

                 (i) The goods have broken bulk, or

D                (ii) The goods are not exported within two months after their
                 import, or

                 (iii) The goods have changed form by any process what-
                 soever, they shall, unless the contrary, is proved be deemed
                 to have been used, consumed or sold within the octroi limits
E
                 and no refund shall be paid on such goods.

            34. (1) Unless there are reasons to believe that a claim for refund
            is not admissible, the Sarpanch or in the absence of the Sarpanch,
            the Upa-Sarpanch shall sanction refund, if :-
F
                  (i) An application in writing is made to the Sarpanch within
                  three days from the date .of the Export and,

                  (ii) The claimant produces a receipt signed by the Naka
                  Karkun which was given to him at the time the octroi was
G                 paid.

            (2) Where a claim for refund is rejected under Sub-rule (i), the
            Sarpanch, or as the case may be the Upa-Sarpanch shall record
            his reasons in writing for rejecting the claim and on demand by
H           the importer, furnish him with a copy of such reasons duly signed.
    PETROLEUM CORP. v. GRAM PANCHAYAT[JEEVANREDDY,J.] 509

         34(B). A panchayat if it thinks fit, instead of requiring payment of A
         octroi, due from any person, merchantile firm or public body, to
         be made at the time when the animals or goods in respect of which
         it is leviable enter the octroi limits of the panchayat, may any time
         direct that an account current shall be kept on behalf of the
         panchayat of the octroi so due from any such person, firm or body B
         as the panchayat may specify in this behalf. Such account shall be
         settled at intervals not exceeding three months, and such person,
         firm or body shall give such information or details and makes such
         deposit or furnish such security as the panchayat or any officer
         authorised by it in this behalf shall consider sufficient to cover the
         amount which may at any time be due from such person, firm or C
         body in respect of such dues."


         The nature and character of the taxes mentioned in Entry 52 of List
  II of the Seventh Schedule to the Constitution has been the subject matter
  of more than one decision of this Court. The levy can be imposed on goods D
  entering a local area " for consumption, use or sale therein therein". The
• words "for consumption" and "for use" do not present any difficulty but the
  words "for sale" presented some difficulty but it has since been held that
  even· if the goods are sold within the local area, it must be for the purpose
  of consumption or use within that area to be a sale for the purposes of E
  Entry 52. (Sea Tata Engineering and Locomotive Company v. Municipal
  Counsel, Thane, A.I.R. (1992) S.C. 645)). If the goods are not consumed,
  used or sold within the local area, no tax can be imposed under the said
  Entry. By way of illustration, if the goods merely pass through a local area
  to a destination beyond, no tax can be levied thereon under Entry 52. But
  where the goods are brought ·into a local area, stored or kept there for a
                                                                                F
 ·sufficient length of time and then re-exported, questions of identity and
  quantity arise. With a view to discourage such long storage and also .to
  prevent abuse of law, provisions have sometimes been made fixing an outer .
  limit beyond which it will be presumed that the g~ods hav~ been consumed,
  used or sold within that local area. An example of such a provision is Rule G
  28(2)(b) of Maharashtra Municipalities (Octroi) Rules, 1968, referred to
  in the decision of this Court in Tata Engineering and Locomotive Company
  v. Municipal Council, Thane, A.LR. (1992) S.C. 645. The Rule provided·
  that if· the goods entering a local area are not exported within six months,
  refund will not be allowed even if the goods are exported as a fact. Dealing H
    510                   SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.

A with the said Rule and other allied Rules, this Court said: "Compliance
  with the procedure prescribed in the Rules for filing claims of refunds are
  not conditions precedent for the right or eligibility for refund or the liability
  to refund but are provisions regarding proof of export of the goods
  imported and are not meant to be exhaustive either. They are to be
B interpreted and understood in that sense. The object of the Rules fixing a
  period of limitation for export however is different. The export cannot be
  put in perpetual doubt and the goods may be considered to have come to
  a repose if they were not exported within a particular period provided in
  the rules." Similarly, inBurmah Shell v. Belgaum Municipality, A.I.R. (1963)
C S.C. 906, a Constitution Bench of this Court ~~Id: "That concept (concept
  of octroi) included the bringing in of goods in a local in a local area so
  that the goods comes to a repose there." Rule 32 of the Gujarat Gram
  Panchayat Rules, however, is of a deferent character altogether. It does not
  create any such irrebuttable presumption. On the c.ontrary, the Explanation
  to Rule 32 makes it clear beyond any doubt that the presumption created
D by it is a rebuttable presumption. Let us see what Rule 32 says. The main
  limb of the Rule provides that an importer of goods on which octroi had
  been paid shall be entitled to refund of the amount so paid on export of
  such goods from the octroi limits if the goods have not been consumed,
  used or sold within the limits. The Explanation then says that in three
E situations mentioned by it, shall be deemed, unless the contrary is proved,
   that the goods have been used, consumed or sold within the octroi limits
   and refund shall be allowed in those cases. The three situations con-
   templated by the Explanation are (i) Where the goods have broken bulk,
   (ii) where the goods are not exported within two months after their import,
F and (iii) where the goods have changed its form by any process whatsoever.
   A reading of the Explanation clearly shows that the presumption created
   by the Explanation applies to all three situations. We are saying this
   because of the contention of Sri Dholakia that the words "unless the
   contrary is proved "qualify only clause (iii) of the Explanation (which
   speaks of "the goods have changed form by any process whatsoever)" and
G not clauses (i) and (ii) in the Explanation . In our opinion, this contention
   is contrary to the plain language used in the Explanation. The interpreta-
   tion sought to be placed thereupon by Sri Dholakia ia simply and plainly
   unacceptable. The Explanation says that in any of those situations the
   goods shall be deemed to have been used, consumed or sold within the
H
   PETROLEUM CORP. v. GRAMPANCHAYAT[JEEVANREDDY,J.] 511

 octroi limits unless tlie contrary is proved by the person concerned. Sri A
 Dholakia then contended that if this is the meaning of the Explanation then
 the prescription of two months period in clause (ii) of the Explanation
 becomes meaningless and superfluous. He says - and with some justifica-
 tion - that even where the goods are exported from the octroi limits within
 two months, the person has to prove that they are very same goods which B
 had entered the octroi limits whereupon duty has been paid. Only on proof
 of the said facts will he be entitled to refund. Sri Dholakia says that even
where the goods are exported beyond two months, the very same facts
have to be established. If so, asks he, what was the meaning and purpose
behind the prescription of m:o months period in clause (ii) of the Explana- C
 tion. He, therefore, contends that clause (ii) of Explanation creates an
irrebuttable presumption of the nature considered in Tata Engineering and
Locomotive Company. Om;:e the two months period expires, no person can
be allowed to claim that inasmuch as he has taken the goods outside the
 octroi limits without consumption, use or sale within such limits, he is D
 entitled to the refund of duty, says Sri Dholakia. It is obvious that in the
presence of the clear· words "'unless the contrary is proved", we cannot
 accede to the contention that clause (ii) of the Explanation creates an
irrebuttable presumption. At the same time, Sri Dholakia is right that by
saying so, the presumption of two months period in clause (ii) is berefit
any sanctity. We agree that where a person claims that he has exported the E
goods which had entered the octroi limits and whereupon he has paid the
duty, the burden lies upon that person to prove those facts, whether the
·export is within two months or beyond two months .. May be that where the
goods are exported beyond two months, t~e onus becomes heavier. Be that
as it may, we must keep in mind the essential nature of .the tax/duty F
contemplated by Entry 52 of List II of the Seventh Schedule to the
Constitution while construing the said Rule inasmuch as the Gujarat
Panchayat Act, 1961 and the Rules are· referable to that Entry and that
Entry alone. We are, therefore, of the opinion that the Explanation creates
a rebuttable presumption and not an irrebuttable presumption and that the G
object behind prescribing the period of two months in clause (ii) was
merely to emphasise that after the expiry of two iµonths the burden cast
upon the person becomes heavier, viz., the burden to establish that the
goods which have been imported into the octroi limits and whereon octroi
had been paid have been exported without being used, consumed or sold H
    512                  SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.

A   within the said limits. (We are told that the words "within two months" have
    since been deleted from clause (ii) of the Explanation).

          The next question is whether the Panchayat is not entitled, by virtue
    of Rule 27, to include the excise duty while valuing the goods for the
    purpose of levy of octroi duty. In our opinion, Rule 27 does warrant the
B   same. This is the opinion of the Gujarat High Court which is not been
    seriously questioned in this appeal.

           Now remains the question whether Rule 32 does not apply to a
    person following the special procedure prescribed in. Rule 34(B). Rule
C . 34(B) provides for maintenance of an "account current" wherein the par-
    ticulars of imports and exports and particulars of deposit of octroi duty
    and other specified particulars are entered.

          The contention of Sri Rohinton Nariman is th<1t inasmuch 'as Rule
    34(B) contemplates accounts being settled at intervals not exceeding three
D   months, the period of two months prescribed in Rule 32 cannot be applied
    or operated simultaneously. We are no impressed by the argument. Rule
    43(B) is proddural in nature. It ia meant for those persons who regularly
    import and export goods.Jt only provides for a facility - convenient to both
    the person concerned and the Panchayat. Such a procedural rule cannot
E   over-ride the provisions of Rule 32 which is of a substantiye nature. We
    see no difficulty, much less an impossibility in operating both Rules 32 and
    345(B) simultaneously. Rule 34(B) does not say that accounts cannot be
    settled at an· interval less than three months. It only prescribes the outer
    limit viz., that the account should be settled "at intervals not exceeding
    three months". Even while settling the account, whenever it may be, the
F   Panchayat authorities are entitled to apply Rule 32.

           For the above reasons, we dispose of the appeals with the following
    directions:

          The Panchayat authorities shall look into the relevant ·facts and
G circumstance relating to the period concerned herein (from April 1,1965
    to June 10, 1969) and decided whether and·if so, what aillountis liable to
   be refunded to the appellant. Before-taking a decision on the said question,
    the Panchayat authorities .shall allow the appellant to place such material
  · as it thinks appropriate before it and consider the same along with other
H relevant material. The appellant is permitted to file a written repie-
   PETROLEUM CORP. v. GRAMPANCHAYAT[JEEVANREDDY,J.] 513

senta.tion with necessary material before the Panchayat authorities, if not   A
already filed. The amount found refundable to the appellant shall be
refunded within three months from the date of such decision. It is also
directed that the decision referred to above shall be taken within a period
of four months from today.

      Sri Nariman lastly contended that since the Panchayat had the use       B
of the appellant's monies, the amount found refundable should be directed
to be refunded with interest. We are not inclined make any such direction
in the facts and circumstances of this case.

       There shall be no order as to costs.
                                                                              c
S.K.                                                  Appeal disposed of.