Holding

Octroi is leviable on uncrushed salt brought into the octroi area and crushed, as the activity amounts to both consumption and use of the salt.

Summary

Kathiawar Industries Ltd operated a salt manufacturing plant where raw (uncrushed) salt was produced outside Jaffrabad Municipality and then transported into the municipality's octroi limits for crushing before export. The municipality demanded octroi on the salt, asserting that the salt, once brought into the area for crushing, was liable to tax. Lower courts held the salt not liable, but the High Court partially reversed, holding that uncrushed salt taken directly to the jetty was exempt while salt taken for crushing was taxable. The Supreme Court examined the meaning of "consumption" and "use" under the Saurashtra Terminal Octroi Ordinance, 1949 and the Constitution's entry on local taxes. It concluded that crushing the salt transforms it into a different commercial article, constituting consumption and use within the octroi area, and therefore octroi is payable on the uncrushed salt brought in for crushing. The appeals were dismissed with costs.

Issues considered

Whether octroi tax is leviable on uncrushed salt brought into municipal limits for crushing, i.e., whether such salt is "goods brought for consumption or use" within the octroi area.
Interpretation of the terms "consumption" and "use" under the Saurashtra Terminal Octroi Ordinance and constitutional tax provisions.

Legislation cited

Bombay District Municipal Act, 1901
Constitution of Indias. Entry 52, List II, Seventh Schedule
Saurashtra Octroi and Terminal Tax Rules, 1949s. Rule 3
Saurashtra Terminal Octroi Ordinance, 1949s. 2(2), s. 3

Subjects

octroiterminal taxconsumptionusesalt industrymunicipal taxconversion of goodsconstitutional tax powerEntry 52 List II

Judgment

243

KATHfAWAR INDUSTRIES LTD. A
v.
JAFFRABAD MUNICIPALITY
August 8, 1979

[A. C. GUPTA AND P. S. KAILASAM, JJ.] B

Octroi-Terminal tax a kind of Octroi-Levy of Octroi on uncrushed salt-
Uncrushed salt crushed in factory-Whether conversion into another commer-
cially different article-If amounts to consumption-"Consumption", "Use"-
Meaning of.
Saurashtra Terniinal Octroi Ordinance, 1949, Ss. 2(2) & 3; & Saurashtra c
Octroi and Terminal Tax Rules 1949, Rule 3 Schedule I lten1 No. 23.

In 1948 on the formation of Saurashtra State, Jaffrabad came within its
territorial limits and the Bombay District Municipal Act, 1901 as adapted and
applied to the said State became applicable to Jaffrabad. Jaffrabad Munici-
pality the predecessor of the respondent was constituted under the Bombay
District Municipal Act, 1901. D

The State of Saurashtra, within the territorial limits of which the said
Municipality was situate, promulgated Ordinance No. 47 of 1949 on 31-8-49
called the Saurashtra Terminal Octroi Ordinance, 1949. Section 2 ..:..1. (2) oi
the said Ordinance defines ''octroi" as including a terminal tax. Section 3
empowered the Government to impose terminal tax and octroi duty, and pro-
vided that Octroi may be imposed on "animals or goods, or both, within the E
octroi limits brought for consumption or use therein." Section 4 empowered the
Government to make rules in exercise of which the State Government made
the Saurashtra Octroi and Terminal Tax Ru1es on 8th December, 1949. Rule
3, the charging rule provided that octroi is payable in respect of goods set out
in Schedule I of the Rules and prescribed that it shall be payable at the nakas
at rates set out therein. Item No. 23 is "Salt for Factory!>. Schedule II
enumerated a list of items which- are exempt from octroi duty and contained F
in Item No. 6, a sub-item in Gujarat which means "salt''.

The appellant \Vas running a salt manufacturing works at Jaffrabad. The
company had constructed salt works, grinding mills, trolly-tracks and a jetty
at the port site. The major portion of the salt works is situated out of the
municipal limits. The salt is manufactured outside the municipal limits. The
grinding mills and the part of the trolly-track leading to jetty came within the G
municipal limits of the respondent Jaffrabad Municipality.

The salt is prepared in the salt pans outside the Octori limit and the salt
which is crushed is taken to the crushing factory and the salt which is not to
be crushed is taken in uncrushed form directly to the jetty over the trolly-
track part of which passes through the octroi limits of the municipality. The
salt that is crushed in the crushing factory is also after crushing taken by trolly H
to the jetty. From the jetty the salt whether crushed or uncrushed as the case
may be is exported by .steamers. '
244 SUPREME COURT REPORTS fl 980] J. S.C.R.

A The 1'1unicipality demanded from the appellant octroi in respect of salt
manufactured by it. The' appellant paid under protest and filed a suit against
the respondent for declaration that the salt manufactured by the lppellant at
its sa1t \VOrks at Jaffrabad and exported uncrushed and/or crushed was not
liable to octroi duty and the goods passing through municipal limits irom the
salt works are not hable to octroi duty and for an injunction restraining the
re:spondent from recovering the amount claimed as octroi. Another suit claim·
B ing refund of the octroi paid was also filed.

'The t¥:o suits were decreed, the court declaring that the salt manuf:.u.:tured
by the appeJlaIU company is not liable to octroi duty. The Municipality being
aggrieved preferred appeals and the appellate· court while dismissing the ~ppeals
and confirming the decrees of the trial court held that the perpetual injunction
granted by the trial court would not apply to the salt entering the octroi limits
c for consumption or use for the factory situated within the octroi limits of the
~Iunicipality.

The :r-.1 unicipality preferred second appeals to the High Court, which allowed
them except to the extent of confirming the declaration that uncrushed salt of the
appellant company which is directly sent from the stacking ground to the jetty is
not Jiable to octroi provided the plaintiff company followed the prescribed rules
and formalities. The other claims. in the suits were however dismissed.
D
On the question whether the salt manufactured by the appellant outside the
octroi limits of the respondent and brought within those limits for the purpose of
being crushed into powder in the appellant's factory situated within those limits
rind then exported is liable to octroi.

HELD : 1. Octroi is Ieviable on the uncrushed salt which is brought to the
E octroi area and crushed as the activity would amount to both consumption and
use of the uncrushed salt. [249 F]

Bunnah Shell Oil Storage &- Distributing Co. India Ltd. v. The Belgaum
Borough Municipality, [1963] Supp. 2 SCR 216; M fs. Anwarkhan Mahboob Co.
v. The State of Bombay (now Maharashtra), [1961] 1 SCR 709, State of Trava11-
core Cochin & Ors. v. ShannuLgha Vilas Cashew Nut Factory & Ors., [19541
F SCR 53; referred to.

2. In the Constitution of India, Entry 52 in Lisl IT in Seventh Schedule a
right to impose tax "on entry of goods into the local area for consumption, use
or sale" is conferred. The precise meaning to be given to the words "consumP'
tion" and "use" will depend upon the context in which they are used. ·rhese
\VOrds ::tre of wide import, the vvord "use" being of ¥:ider import than
G "consumption". [248A, 247H. 249EJ.
3. \Vhile terminal tax is a kind of octroi which is concerned only with the
entry of goods iri a local area irrespective of whether they would be used there or
not, octrois were taxes on goods brought into the area for consumption, use or
sale. They are Ierviable in respect of the goods put to some use or the other in
the area but only if they were meant for such use. [248B]
H 4. The word ''consumption" in its primary sense means the act of
consuming and inl ordinary parlance means the use of anr article in al way which
destroys, wastes or uses up that article. But in some legal contexts the word
KATHIAWAR INDUSTRIES V. JAFFARABAD MUNICIPALITY 245
(Kailasam, J.)
"consumption" has a wider meaning. It is not necessa1y that by the act of A
consumption the commcxlity must be destroyed or used up. [248C-D]

In the instant case the uncrushed salt is crushed in the factory which is com-
mercially a different article and the uncrushed salt must be held to have been
consumed. The uncrushed salt has been used and by the use a new product
crushed salt has come into existence. [249E]
B
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2330-2331
of 1969.
Appeals by Special Leave from the Judgment and Order dated 17 I
18-1-69 of the Gujarat High Court in Second Appeal No. 187 and
857 /61.
c
H. S. Parihar and I. N. Shroff for the Appellant.
K. !. John for the Respondc-nt.

The Judgment of the Court was delivered by
KAILASAM, J.-Thesc two Civil Appeals are by the Kathiaw~r In-
D
dustries Ltd. by special leave against the judgment of the Gujarat High
Court holding that the appellants are liable to pay octroi duly on un-
crushed salt which is brought by the appellant to the factory situate
within the octroi limits and crushed there.
• The appellant is running a salt manufacturi'ng works at Jaffrabad
called "Nawabsidi Mohmad Khan Salt Works". The company had E
constructed salt works, grinding mills, trolly-tracks and a jetty at the
port site. The major portion of the salt works is situate out of the
municipal limits. The salt is manufactured outside the municipal
limits. Tl1e grinding mills and the part of the trolly-track leading to
jetty come withi·n the municipal limits of the respondent J affrabad Muni-
cipality. The Municipality by a notice dated 3-1-1955 demanded F
from the appellant Rs. 7289-6-0 as arrears of octroi. The appellant
paid under protest and filed the suit out of which this appeal arises
before the Civil Judge Gohilwad, District Bhavn~gar, against the res-
pondent for a declaration that the salt manufactured by the appellant
at its salt works at Jaffrabad and exported uncrushed and/or crushed
G
was not liable to octroi duty and that the goods passihg through munici-
pal limits from the salt works are not liable to octroi duty, and for an
injunction restraining the respondent from recovering an amount of
Rs. 7289-6-0 and for a further injunction restraihing the Municipality
I from hindering or obstructing the free passage of salt and goods and
[or the refund of Rs. 250. The appellant also filed another suit H
for the refund of Rs. 1271-14-0 paid under protest. These two
suits were decreed, the court declaring that the salt manufactured by
246 SllPREME COURT REPORTS [J 980] l S.C.R.

A the appellant company is not liable to octroi duty. The court also
grahted an injunction as prayed for. The Municipality preferred ap-
peals. The appellate court while dismissing the appeals and confirm-
ing the decree of the trial court observed that the perpetual injunction
granted by the trial court would not apply to the salt rntering the ••
B octroi limits for consumption or use for the factory situated within the ..
octroi limits of the municipality. The Municipality preferred two
Second Appeals to the High Court of Gujarat at Ahmedabad. A
Bench of the High Court allowed the appeals except to the extent of
cohfirming the declaration that uncrushed salt of the appellant company
which is directly sent from the stacking ground to the jetty is not liable
c to octroi provided the plaintiff company followed the prescrib~d rules
and formalities. The other claims in the suits were dismissed.
Against the judgment of the High Court the plaintiff company has pre-
krred these two appeals.

The only question that falls for consideration in these civil appeals
D is whether the salt manufactured by the appellant outside the octroi
limits of the respondent and brought by the appellant within those
limits for the purpose of being crushed into powder in the appellant's
factory sitnate within those limits and then exported is liable to <Jctroi.
The facts as found by the High Court and which cannot be questioned
are that the salt works consists of (i) salt pans; (ii) stacking ground
E for the salt .collected from the pans; (iii) trolly track for carrying salt
from stacking ground to the factory within the octroi limits of the
Municipality and to the jetty which is outside the octroi limits; (iv)
jetty; (v) Power house; (vi) store-room; (vii) workshop and (viii)
grinding mill which is referred to in the evidence as the crushing factory.
Of these. the crushing factory and part of the trolly track (about 1400
F feet) are within the octroi Limits of the Municipality and the rest
outside those limits. Thus it is not in dispute that only the crushing
factory and part of the trolly track are withiu the octroi limits. Th~
salt is prepared is the salt pans outside the octroi limit and the salt
which is to be cruslled is taken to the crushing factory and the salt
G which is not to be crushed is taken in uncrushed form directly to the
jetty over the trolly track part of which passes through the octroi limits
of the Municipality. The salt that is crushed in the crushi'ng factory
is also after crushing taken by the trolly to the jetty. From the jetty
the salt whether crushed or uncrushed, as the case may be, is exported
by steamers. The High Court has found that the salt which is taken
B to the crushing factory within the octroi limits for the purpose of crush-
ing and is crushed and later taken to the jetty is liable to octroi. Tue
question is whether this levy is sustainable in law.
KATHIAWAR INDUSTRIES v. JAFFARABAD MUNICIPALITY 24 7
(Kailasam, /.)
In 1948, on the formation of Saurashtra State, Jaffrabad came with- A
in the territorial limits of the Saurashtra State and the Bombay District
Muhicipal Act, 1901, as adapted and applied to Saurashtra State be-

.. came applicable to Jaffrabad. The Jaffrabad Municipality, the prede-
cessor of the respondent, was constituted under the Bombay District
Municipal Act. 1901. B
J
The State of Saurashtra, within the territorial limits of which the
said Municipality was situate, published an ordinance on 31-8-1949
being Ordinance No. 47 of 1949 called the Saurashtra Terminal Tax
and Octroi Ordinance, 1949. The Ordinance extended to the whole
of tl1e State of Saurashtra and came into force from 31-8-1949. Section c
2 clause (2) of the Ordinance defines 'octroi' as including a terminal
tax. Section 3 empowers the Government to impose terminal tax and
octroi duty. It provided that octroi may be imposed on "animals or
goods, or both, within the octroi limits brought for consumption or use
therein". Under section 4 Government is empowered to make rules.
In exercise of the powers under the Ordinance the State Government
made rules relating to octroi known as the Saurashtra Octroi and Ter-
minal Tax Rules on 8th December, 1949 which was published in the
Saurashtra Gazette on 15th December, 1949. Rule 3 is the chargihg
rule which provides that octroi is payable in respect of goods set out
in the Schedule I attached to the Rules and prescribed that octroi shall
E
be payable at the nakas at rates set out therein. Item No. 23 is "Salt
for Factory". Schedule II which gives a list of items which are exempt
from Octroi duty contains in item No. 6, a sub-item in Gujarat which
means "Salt". Thus under item 23 "Salt for Factory" is liable to
octroi duty. The octroi duty may be imposed under section 3 on
"animals or goods, or both, within the octroi limits brought for consum- F
ption or use therein". Oh the facts found, namely that uncrushed salt
was brought into the factory situate within the octroi limits and crushed
salt taken away for export from the octroi limits can it be said that the
salt thus brought are goods for consumption or use therein. It is
the common case that the uncrushed salt as brought into the octroi
.. 1 limits is crushed and in the crushed form sent to the jetty for export. G
The finding of the High Court is that the crushing of the uncrushcd salt
ahd sending the crushed salt to the jetty within the octroi limits will
• be used therein as required under section 3.

In this appeal it is necessary for us to consider the scope of the H
words "consumption" and "use". The precise meaning to be given
to the words "consumptioh" and "use will depend upon the context in
17-475 SCI/79
248 SUPREME COURT REPORTS [I 980] 1 S.C.R.

A which they arc used. These words arc of wide import. In the Consti-
tution of India, Entry 52 in List II in Seventh Schedule a right to impos•o
tax "on entry of goods into the local area for consumption, use or sale"
is conferred. In Bunnah Shell Oil Storage & Distributing Co. India I
Ltd. v. The Belgawn Borough Municipality(') this Court alter trac- •
ing the history of octroi and terminal tax observed that while terminal
B tax is a kind of octroi which is concerned only with the entry of goods
in a local area irrespective of whether they would be used there or t
not, octrois wem taxes on goods brought into the area for consumption,
use or sale. They were lcviable in respect of the goods put to some
use or the other in the area but only if they were meant for such user.
c In considering the meaning of the words "consumption" and "use"
this Court observed in Burmah Shell case (supra) that the word con-
sumption in its primary sense means the act of consuming and in ordi-
nary parlance means the use of an article in a way which destroys,
wastes or uses up that article. But in some legal contexts, the word
"consumption" has a wider meaning. It is not nece55ary that by th~
D act of consumption the commodity must be destroyed or used up.
In M/s. Anwarkhan Mahboob Co. v. The' State of Bombay (now
Maharashtra) and others, ( 2 ) the question that arose was whether
conversion of one commodity into another commercially different
article would amount to consumption. The facts of the case were
that tobacco was purchased and in the Bombay State the stem and
E dust from the tobacco was removed. It was contended that remov-
ing the' stem and dust from the tobacco did not amount to consum-
ption of tobacco or had the effect of converting tobacco into an arti-
cle commercially different. The Court held that when the tobacco
was delivered iu the State of Bombay for the purchase of changing
F it into a commercially different article, viz., biddipatti the delivery
was for the purpose of consumption. This Court followed the deci-
sion in State of Travancore Cochin and Ors. v. Shanmugha Vilas
Cashew Nut Factory and Ors. (3) wherein it was held that the raw
cashew nuts were put through a process and new articles of com-
merce, namely cashew nut oil and edible cashew nut kernels were
G obtained. The Court expressed the view that the raw cashew nut
is consumed in the process. On the facts the High Court found
after referring to the different processes of baking or roasting, shel-
ling, pressing, pealing etc. that although most of the process is done •
by hand, part of it is also done mechanically by drums. Oil is ex-
tracted out of the outer shells as a result of roasting. After roast-
H (!) [1963] Supp. (2) S.C.R. 216.
(2) [1961] 1 S.C.R. 709.
(3) [1954] S.C.R. 53.
KATHIAWAR INDUSTRIES V. JAFFARABAD MUNICIPALITY 249
-f (Kailasam, J.)
ing the outer shells are broken and the nuts are obtained. The
poison is eliminated by pealing off the inner skin. By this process
of manufacture the respondents really consume the raw cashew and
produce new commodities. This Court accepted this finding and ob-
• served at p. 113 that the raw cashew nuts, after they reach the res-
pondents, are put through a process and new articles of commerce,
B
J namely, cashew-nut oil and edible cashew nut kernels, are obtained.
Jn /tnwarkhan Mahhoob Co. (supra) this Court gave the example
of the process through which cotton is put through before ultimately
the final product the wearing apparel is consumed by men, women
and children. The Court observed : "But before cotton has become
a wearing apparel, it passes, through the hands of different pro- c
ducers, each of whom adds some utility to the commodity received
by him. There is first the act of ginning; ginned cotton is spun
into yarn by the spinner; the spun yarn is woven into cloth by the
weaver; the woven cloth is made into wearing apparel by the tailor."
At each of these stages distinct utilities are produced and what is
produced is at the next stage consumed. It is usual, and correct to D
speak of raw cotton being consumed in ginning.
Applying this test the conclusion is irresistible that when un-
crushed salt is crushed in the factory it is commercially a different
article and the uncrushed salt must be held to have been consumed.
The word "use" is of wider import than "consumption". It cannot
E
be denied that the uncrushed salt has been used and by the user
a new product crushed salt has come into existence.
On a consideration of the facts and circumstances of the case
we are satisfied 1that octroi is leviable on the uncrushed salt which
is brought to the octroi area and crushed as the activity would
amount to both consumption and use of the uncrushed salt. In the F
result the appeals fail and are dismissed with costs.

N.V.K. Appeals dismissed.

'