Holding

The 1936 exemption under section 157(3) continues to apply, making octroi on rail‑borne sugarcane exempt, and the municipal board cannot collect octroi in violation of that exemption.

Summary

The Municipal Board of Pilibhit charged the managing director and officials of L.H. Sugar Factory with failing to pay octroi on 804 maunds of sugarcane brought by rail into the factory on 30 November 1967, alleging a violation of the 1960 octroi bye‑laws. The appellants contended that a 1936 Government order under section 157(3) of the U.P. Municipalities Act exempted rail‑borne sugarcane delivered at factory sidings from any octroi, and therefore the prosecution was vexatious. The High Court dismissed the petition to quash the proceedings, holding that the exemption was no longer available after the 1960 bye‑laws. The Supreme Court examined whether the 1936 exemption persisted, whether octroi is a tax or a fee, and whether a municipal board can override a statutory exemption by amending its bye‑laws. The Court held that octroi is a tax within the State List, the 1936 exemption under section 157(3) remained effective, and the 1960 bye‑laws did not rescind it; consequently the Municipal Board could not collect octroi on the rail‑borne sugarcane. The appeal was allowed, the High Court judgment set aside, and the criminal proceedings quashed.

Issues considered

The applicability of the 1936 exemption order under section 157(3) of the U.P. Municipalities Act to the 1960 octroi levy.
Whether octroi is a tax or a fee/cess and the implications for exemption.
Whether a municipal board's new bye‑laws can override a statutory exemption granted by the State Government.
Whether the High Court erred in treating the exemption as a general rule under section 128(1).

Legislation cited

Code of Criminal Procedure, 1898s. 561-A
Constitution of Indias. Seventh Schedule, List II entries 49, 52
Government of India Act, 1935
U.P. Municipalities Act, 1916s. 128(1)(viii), s. 133, s. 155, s. 157(3), s. 561-A

Subjects

octroitax exemptionmunicipal taxationU.P. Municipalities Actsection 157(3)section 128railway transportsugarcanetax vs feeState List

Judgment

•

321

KUNWAR RAM NATii AND OTHERS
A
v.

THE MUNICIPAL BOARD, PILIBHIT

June 2, 1983
B
[E.S. VENKA'fARAMIAH AND V. BALAKRISHNA ERADI, JJ.)

U.P. Municipalities· Act, 1916 (Act. No. 11of1916)-section 128(1) (viii)- ·
·Power to impose octroi on certain goods-Reatf with section 157(3')-Power to
exempt from payment of tax. Exemption-granted by U.P. GoverntnLnt Order No.
3613(1)/Xl-395 dated November 20, 1936 from octroi duty-Whether available
after publication of new bye-laws on May 18, 1960. Order of exemption under
c
s. iS7(3) is not the same as any general rule or special order referred ins. 128(1).

Wori.'s & p!trases-Cess-lnterpretatian of-Whether tax or fee depends
upon purpose of its levy.

Words and phrase.-Octroi-Intcrpretation of-Octroi exempted by 1936 D
order and levy of 1960 are both taxes levied under the Act.

The respondent Municipal ~oard tiled a complaint in the tria.I court
against the appellants under s. 155 of the U.P. Municipalities Act, 1916
alleging that the appellants had brought by railway on November 30, 1967 at
the railway ~iding in their sugar faCtory withjn the limits of the respondent for E
purposes of consumption or use certain quantity of sugarcane without paying
octroi paya'!:>le under the new bye· laws of the respondent published on May .18,
1960. The appellants pleaded that since the payment of octroi on sugarcane
brought by railway at the railway siding situated inside their factory had been
exen1pted by U.P. Government's order dated Noverhber 20, 19j6 passed under
s: 157 (3) of the Act the prosecution should fail. As the respondent went on
seeking adjournments and the case remained undisposed Qf for nearly four F
years, the appellants filed a petition under s. 561-A of the Code of Criminal
Procedure, 1898 in the High Court for quashing the proceedings On the ground
that" they were vexatious. The High Court dismissed the petition observing
that after the commencement of the· Constitution there has been a material
change in the nature of octroi levied under the Act and on account of the
framing of the new bye·laws the exemption granted under s. 157(3) of the Act
would no longer be available. The 1-Iigh Court held that since a petition filed G
by the appellants challenging the notification containing the new bye-laws was
earlier dismissed by the High Court it was not open to the appellants now to
contend that the exemption granted under the Order of 1936 was still
y available.

•
, In this appeal the respond~nt contended that the levy from which
H
exemption had been given by·the Order of 19J6 was either a terminal tax or a
fee and not a tax and since what was being levied as octroi from the year 1960
'
•

322 SUPREME COURT REPORTS (1983) 3 S.C.R.

under the new"' bye-laws was a tax, the drder of exemption would not be
A applicable to it.

Allowing the appeal,

HELD : The respondent was not entitled to collect octroi on sugarcane
brought into i'ts municipal limits by the appellants by rail on the relevant date~
B [336 BJ

·The v.:ord 'octroi' ins. 128(1) (viii) of the Act is found in the group of
taxes referred to in s. 128. The sum received by a ~unicipal Board on account
Of octroi is ;ilso dealt with like any other tax. There iS no eiement of quid
pro quo between the person who pays the octroi and the Muilicipal Board. Th•
octroi Ieviab1e under ('fltry 49 of List Ir of the Seventh Schedule to the
c Government of India Act, 1935 was not a fee but was a tax. [332 B-C, 335 A]

A cess may either be a tax or a fee. Whether a cess in a given context
is a tax or a fee depends L•pon the pUipose for which it is Jevied. Jn entry 49
of List II of the Seventh Schedule of the Government of India Act 1935 the
expression 1cesses' is used in the sense of 'taxes=. In entry 52 of List IT of the
D Seven'tlt Schedule of the Constitution the expression 'taxes' is substituted in
th~ p1ace of the expression 'cesses' which was in the former entry 49 in the
Government of India Act, 1935, but the nature and content of the _legislative
powe·r under both are the san1e. {331 C, E-FJ

When tax is clearly l~vied on goods when they are brought into a local
area for purposes of use, sale or consumption, it doe! not cea~e to be a tax
E levied under s. 128(1) read with entry 49 of List II of the Seventh Schedule to
the Government of India Act, 1935 merely because the municipalities concerned
render no 5ervice with regard to it. [330 F, 334- GJ

The Punjab Flour afid General Mills Co., Ltd., Lahore v. The Chief Officer,
Cor{iordtion of the City of Whore and the Provinfe _of the Punjab, [1947] F.C.R.
F 17; and The Hingir-Rampur Coal Co., Ltd., & Ors. v. The State o/Orissa & Ors.,
[196i] i S.C.R. 531 referred to.

The octroi which was being levied in 1936 when the exemption was
granted and· the subsequent levy imposed in the year 1960 are bo~h taxes levied
1

under the Act and fall within the State List both under the Government of
India A:ct, 1935 and under the ·constitution. It was not a terminal tax falling
G under entry· 58 of List I of the ~eventh Schedule to the Government of India,
Act 1935. It does notalso fall under entry 89 of List I of the Seventh Schedule >·
to the Constitution riow. The said levy came within entry 49 of List II of the
Seventh Schedule to the Government of India Act, 1935 and now falls under
entry 52 of List II of the Seventh 8chedule of the Consthution. The exemption
· granted in the year (936 should be cohstrued as an exemption from all taxation
H by way of octroi Ieviable and levied under the Act on rail-borne sugarcane and
that exe1nption would continue until it is ·eith~r rescinded or modified -by the
State Government or becomes inapplicable for any other reason. The new set
of bye-laws brought into force in 1960 by the Municipal Board th<iugh with
RAM NATH V. MUNICIPAL BOARD 323
the sanction of the State Gover~ment does not have the effect of rescinding or
annulling the exemption granted under s. 157(3) by the former Provincial A
Government. [330 G, 331, A-B, 336 A-DJ

There is no irreconcilable in·consistency between notification published in
1960 and the order of exemption made in the year 1936. While under the
Notification of 1960 octroi is payable on the import of sugarcane into municipal
Jimits for purposes of sale, use or consuffiption, by virtue of the order tnade in
1936 under section 157(3) sugarcane brought by rail and delivered at the railway B
siding inside the factory premises alone is exempted from the levy of octroi.
Sugarcane brought by other means of transport would be governed by the
. notification issued in 1960. There is no provision in the notification of 1960
to the effect that the said exemption is either withdrawn or that sugarcane
brought by rail would be taxable. [335 C-E]

The High Court was in error in holding that the ·order of exemption
c
~r
granted under section 157(3) was the same as any general rule or special order·
of the State Government referred tO in sub-section (1) of section 128 subject
to which the Municipal Board may impose any tax referred to therein and the
effect of the exemption granted tn 1936 was also in issue in earlier writ petition.
Jn that writ petition the said question was neither directly' nor constructively
in issue. An exemption becomes operative only when the tax is validly D
imposed under section 1'.!8. The rcstdction that may be imposed by any general
rule or special order of the State Government under section 128(1) affects the
intial power of the Municipal Board to le\y a tax. An order under section
157(3) operates only after a tax is validly imposed with the sanction of the
State Government or of the Commissioner as the case may be, as stated in
section 133 of the Act. It is therefore, open to the appellants to Contend even
after the dismis5al of their earlier petition that they are entitled to the Jimited
E
_exemption granted by the Order of 1936. [333 D-G]

Vir Singh & Ors. v. Municipal Board & Anr., Civil Misc. Writ No. 3181
of 1960 decided on ·May 4, 1960, not relevant to the point raised.
F
CRIMINAL APPELLATE JURISDICTION Criminal APPeal No.
440 of 1976.

Appeal by Spedal leave from the Judgment and Order dated
the 3rd September, 1975 of the Allahabad High Court in Criminal G
Misc. Case No. 3291 of 1972.

Shankar Ghose, R. P. Bhatt, S. R. Aggarwa/a, Praveen Kumar,
y and Anil Kumar Sharma for the Appellants.
H
B. D. Sharma, Dalveer Bhandari, lf. M. Singh, and R. S. Yadav
for the Respondent- (State).
324 SUPREME COURT REPORTS (1983) 3 s.c.R.

Yogeshwar Prasad and Mrs. Rani Chhabra for Municipal Board.
A
The Judgment of the Court was delivered by

VENKATARAMIAH, J. This appeal by special leave arises out of
a complaint instituted under section 155 of the U.P. Municipalities
B Act, 1916 (Act. No. II of 1916) (hereinafter referred to as 'the Act')
by the Municipal Board of Pilibhit in the court of the Sub Divisional
Magistrate, Puranpur, District Pilibhit against the Managing Director,
the General Manager and the Cane Manager of L. H. Sugar Factory
Pilibhit and one Bishan Swaroop, an employee of the said Sugar
Factory, the appellants herein, alleging that they had brought by
C· railway on_ November 30, 1967 into their godown at the "railway
. siding situated within their Sugar Factory which was within the
limits of the Pilibhit Municipal Board for purposes of consumption
or use three wagon.loads of sugarcane weighing in all 804 maunds
for which octroi of Rs. 8.48 P. was payable under the bye-Jaws of
)) the Municipal Board published under notification dated May 18, ·
1960 without paying the said octroi. The said complaint was filed •·
on September 12, 1968. Duri~g the proceedings before the Magis-
trate the appellants pleaded that since the payment of octroi by the
factory of the appellants on sugarcane brought by railway had been
exempted by an order of the Government of the United Provinces
E bearing G. 0. No.· 3613(1)/Xl-395 dated November 20, 1936, the
prosecution should fail. The relevant part of the Government order.
which is contained in a letter addressed by the Municipal Department·
of the Government of the United Provinces to the Commissioner of
Rohilkhand Division reads thus
F
"I am directed to say that Government have, after
full examination of the question of local taxation of
sugarcane imported for the inanufacture of sugar in
factories situated within the limits of certain municipali-
G ties, decided that there is no justification for the continu-
ance of taxes on rail-borne cane which is delivered at the
railway sidings situated inside the sugar factories because
the municipalities concerned render no service with regard
to it. The Governor acting with his ministers is accor-
H dingly pleased to exempt, under seetion 157(3) of the
United Provinces Municipalities Act, 1916. with' imme-
diate effect, all such sugarcane from the octroi duty
levied in the municipality of Pilibhit. The Municipal
RAM NATH v. MUNICIPAL BOARD (Venkataramiah, J.) 325

Board of Pi!ibhit may be informed accordingly and also
directed to take formal action to an;iend its octroi A
schedule to that effect."

After the above plea was raised, the complainant Municipal
Board went on seeking adjornments in the criminal case and the
case remained undisposed of for nearly four years. So the appellants B
filed a petition under section 561-A of the Code of Criminal Proce-
dure, 1898 !Act No. V of I 98) before the High Court of Allahabad
in Criminal Misc. Case No. 329'1 of 1972 in September, 1972 re-
questing the High Court to quash the proceedings on the ground
that they were vexatious. In the High Court the appellants admitted
that they had brought intci the municipal area of Pilibhit sugarcane
c
by railway as pleaded by the Municipal Board without paying octroi
but submitted that octroi was not payable in view of the exemption
granted by the State Government under section 157(3) of the Act.
l'he High Court rejected the plea of the appellants and dismissed
the petition filed by them on the ground that the case was governed D
by certain earlier judgments of the High Court arid that the exemp-
tion was no longer available as the octroi claimed was a new levy·
not.covered by it. Although there was some dispute about the exis-
tence of the Government order granting the exemption, the High
Court held that such an order had been passed by the Provincial
Government but it was of no 1avail to the appellants. Accordingly E
the High Court dismissed the petition filed by the appellants.
Against the judgment of the High Court, this appeal has been filed.

At the outset it should be stated that until the complaint was
.filed in the year 1968 the M_unicipal Board' had not collected any F
octroi from the factory in question on sugarcane brought by railway.
We are also informed that by an order communicated to all the
Divisional Commissioners and the District Magistrates of the State
of Uttar Pradesh on June 3, 1982, the levy of 'octroi on sugarcane
brought by sugar factories into the municipalities in the State of G
Uttar Pradesh for crushing purposes is generally exempted irres-
·pective of the mode of transport used to bring such sugarcane. The
relevant part o(that communication reads thus:

H
"Sub : F>)temption from octroi on sugarcane brought
for crushing in sugar mills within munfoipal
limits.
SUPREME COURT REPORTS [1983] 3 s.c.R. ·

Sir,
A
dn the above subject, in continuatiou of the radio,
gram of the Government No. 2065 B/11 ·9·82 dated
27.5.1982, I have been directed to state that in exercise
of the powers conferred under sec. 157(3) of the U.P.
Municipalities Act, 1916, the Governor exempts sugar-
B
cane brought within municipal limits for crushing in _·
sugar mills from octroi duty with immediate effect.

You are requested to ensure that the order is carried
out and acknowledge receipt of the Governm~nt order.
c
Yours faithfully,
- Sd/- '
Shashi Kant Jain
Under Secretary"
n·
This communication may, however, have no bearing on the
period in question but only shows bow the State Government has·
understood the scope of its power•under section 157(3) of the Act.
Since all ·the facts are admitted the only question which requires to
be considered is whether on the relevant date the appellants were
E liable in Jaw to pay octroi on sugarcane brought by them by railway
into the sugar factory which was situated within the municipal limits
of Pilibhit. Chapter V of the Act contains the provisions relating to
municipal taxation. Section 128(1) (viii) and section 157 of the Act
are In that Chapter. The relevant part of section 128 (as it stood·
in the year 1936) and section 157 are as follows:

"128. Taxes which may be imposed.-(!) Subject
to any general rules or special orders of the Local
oovernment in this behalf, the taxes which a board may
impose in the whole or any part of a municipality are-
G
(i} a tax on ~e annual value of buildings or lands
or of both;

'(ii) a tax on trades and callings carried on within
H
' lhe municipal limits and deriving special advan-
tages from, or imposing special burdens on,
municipal services;
RAM NATH v. MUNICIPAL BOARD (Venkataramiah, J.) . 327

(iii) ·a tax on trades, callings and vocations including
all employments remunerated by salary or fees; A

(iv) a tax on vehicles and. other conveyances plying
for hire or kept within the municipality or on
boats moored therein;
B
(v) a tax on dogs kept within the municipality;

(vi) a tax on anim'als used for riding, driving,
draught or burden, when kept within ·the
' ... municipality;
c
(vii) a toll on vehicles and other conveyances, a.1imals
and laden coolies entering the municipality;

.(viii) an octroi on good; .or animals brought within D
the municipality for consumption or use
therein;''
(There are seven other clauses in section 128(1)
which relate to other taxes).
E
"157. Exemption-(!) A board may exempt, for a
period not exceeding one year, from the payment of a
tax, ·or any portion of a tax, imposed under this Act by
any person who· is in its opinion, by reason of poverty,
unable to pay the same and may renew such exemption
as often as it deems necessary.
F

(2) A board may, by a special resolution confirnied
by the Local Government in the case of cities and by
the Commissioner in other cases, exempt from the pay-
ment of a tax, or any portion of a tax, imposed under G
this Act any person or class of persons or any property
or description of property.

(3) The Local G~vernment may, by order, exempt
from the payment of a tax, or any portion of a tax, ii
imposed under this Act any person or class of persons or
any property or description of property."
328 SUPREME COURT REPORTS (1983] 3 s.c.R.

It may be noted that while the p{/wer of exemption under sub·
A. sections (1) and (2) of section 157 of the Act is vested iu the
Municipal Board, the power of exemption under sub-section (3) of
section 157 is exercisable by the Local Government. Under sub·

B
section (2) of section 157 the resolution of the Municipal Board
granting exemption should, however, be confirmed by the Local
Governm~nt or the Commissioner, as the. case may be.
--
The first submission made. before us is somewhat subtle and
needs to be ·considered in some detail. It is argued that since the
exemption had been given under the order dated ·November 20, 1936
on the ground that there was no justification for the continuance of
c the levy of taxes on rail-borne sugarcane as the municipalities were
not rendering any service in regard to. it, the levy from which
exemption had been given by that order was either a terminal tax or
a fee and not a tax. Since what is being levied as octroi from the
year 1960 was a tax, the order of exemption would be inapp!lcable
to it. In support of the first part of this argument that the tax
D referred to in the order of .exemption could only be a terminal tax .
reliance was placed on a decision of the Federal Court in The Punjub
Flour and General Mills Co ... Ltd. Lahore v. The Chief Officer, Car·
poration of the City of Lahore and the Province of the Punjab.( 1) In
that case the Federal Co.urt had to construe the meaning of entry
58 of List I of the Seventh Schedule to the Government of India Act,
1935 which read as '58. Terminal taxes on goods or passengers
carried by railway or air; taxes on railway fares and freigpts' and of
entry 49 of List II of the Seventh Schedule to the Government of
India Act, 1935 which read as '49. • Cesses on the entry of goods
into a local area for consumption, use or sale therein'. The fal:ts in
F that case were these: The Lahore Municipality had in the year 1926
imposed under its then existing power of taxation a tax called
terminahax calculated on the gross weight of consignments or per
tail as the case might be at the rates and on the specified articles or
animals, specified in the Schedule to the notification imposing the
G levy, imported into its municipal limits by rail or by road. This was
superseded by a notification issued in the year 1938 by which the
municipality gave notice of the imposition of a new tax called
'octroi (without refunds)' which was to be calculated on ·the gro~s
weight of consignments and on animals. per tail at th.e rates and on
H the articles specified in the Schedule to the relevant notification

(I) {1947) F.C.R. J7.
RAM NATH v•. MUNICIPAL BOARD (Venkataramiah, J.) 329
imported into its limits. This notification was superseded by a
further notification of the year 1940 by which a tax called 'octroi A
(without refunds)' was.to be charged at the new rates with effect froin
May' 11, 1940' on consignments including grain, ·imported int-0 its
limits. The Punjab Flour and General Mills Co. Ltd., Lahore which
was importing for use or consumption grain into its factory which
was situated within the Lahore municipal limits contended that the
B
tax in question was a terminal tax, by whatever name it might have
been called, falling under entry 58 of List I of the Seventh Sc!iedule
to the Government of India Act, 1935 and was not imposable in
1938 or in 1940 after the relevant provisjons of th_e Government of
India Act, 1935 had come into force, It was contended by the
company that the fax in question did not fall under entry 49 of List c
II of the Seventh Schedule to the Government of 'India Act, 1935.
The Federal Court after explaining the difference between the termi-
nal taxes and cesses which can be -levied on goods imported into a .
local 'area for purposes of use', consumption· or sale therein rejected
the contention of the company with these observations :
D
"There appears to us a definite distinction between·
the type of taxes referred to as termiqa1 taxes in entry
No. 58 of List I of the Seventh Schedule and the
type of taxes referred to as cesses on the entry of goods E
into a local area in entry No. 49 of List II. The former
taxes must be (a) terminal {and) (b) confined to goods
and passengers carried by railway or air. They must be
chargeable at a rail or air terminus and be referable to
services (Whether of carriage or otherwise) rendered or
to he rendered by some rail or air transport organisation.
F
The. essential features of the casses referred to in entry
No. 49 of List II are on the othe'r hand .simply (a) the
entry of goods into a definite local area and '.'(b) the· .
requirement that the goods should enter for the purpose
of consumption, use sale therein. It is to be noted that
there is no limitation on the manner by which the goods G
to be subjected to such cesses may enter.. There is no
ground for suggesting that entry of goods by rail or air
is any less contemplated than entry by waterway or road.
It was argued by the appellant's counsel that because by
entry No, 20. of List l Federel railways and the regulation
of railways and so forth is included in the. Central
Government Legislative List and by List II the Provincial
/
330 SUPREM(COURT REPORTS [1983] 3 s.c.&:

Government is mainly given powers of legislation over.
A roads and internal waterways and . transport thereon
(entry No. 18), it should therefore be deduced that
all taxation on. rail and air borne goods must be
imposed, if at all, under the powers confer~ed by entry
No. 58 of Lisi I and that. powers of taxation conferred
by entry No. 49 of List II must be confined to goods
B that enter by road or internal waterway only; We cannot
accept this argument. It is not in our judgment justified
by the wording of the various-entries in "the two Lists and
would impose a limitation on local. taxation under entry
No. 49, in List II, which would often work most inequit-
c ably in practice between those impOriing 'goods by
road or waterway ana those who could import by rail
or air. In our judgment there is no limitation to be
·implied in entry No. 49 List JI, in regard to die manner
in which goods may ·be transported into a local area'.
It follows that so far as rail borne goods are concerned
the same goods may well be subjected to taxation under
entry No. 58 of List I as ·well as to local taxatation under . ''
entry No. 49 of List II. The grounds of taxation under
the two entries are as indicated above, radically different, ~-·
and there is no case for suggesting that taxation under
E the one entry limits or interferes in -any way with taxation
under the other."

It is true that in the course of the above decision it is observed

., . that the element of service to be rendered is treated as an ingredient
of.a terminal tax but tb.at does not· mean that when tax is clearly
laid on goods when they are brought into a local area for purposes
of use, sale or consumption, it ceased to be a tax levied under
section 128 (I) (viii) read with ~ntry 49 of List II of the Seventh
Schedule to the Government of India Act, 1935 merely .because of
the · reason given for granting exemption under the order the
G Provincial Government datea November- 20, 1936 issued mider
section 157 (3) of the Act. There is no doubt that the octroi which
was being levied in 1936 when the exemption was· granted and the
subsequent levy imposed in the year 1960 are both taxes levied
under the Act and fall·within the State List both under the Govern-
H ment of India Act, 1935 and under the Constitution. It was
not a terminal tax falling under entry 58 ·of List I of the Seventh
Schedule to th~ Government of India Act, 1935. It does ·not
RAM NATH'· MlJ!IJCJPAL BOARD (Venkataramiah, J.) 33i
·also fall under entry 89 of List I of the Seventh Schedule
to the Constitution now. The said levy came . within entry A
49 of List II of the Seventh Schedule to the Government of lndia
Act, 1935. and now falls· under entry 52 of List II of the Seventh
Schedule to the Constitution. The exemption granted in the year
1936 should be construed as an exemption from all taxation by
way of octroi lcviable and levied under the Act on rail-borne
sugarcane and that exemption would, continue until it is either
B
rescinded or modified or becomes inapplicable for any other reason.
The second part of the above submission was that the levy was in
.the nature of a fee and not a tax as it had been described as a cess
in entry 4 9 of List II of the Seventh Schedule to . the Government
of India Act, 1935. There is no merit in this· submission also. A c
cess may either be a tax or a fee. Whether a cess in a given context
is a tax or a fee depends upon the purpose for which it is levied.
The very decision relied on by the respondents in this con-
nection, namely The Ifingir-Rampur Coal Co., Ltd. & Ors. v. Ji 1e
State of Orissa & Ors.(l) substantiates the above view. In that case
this Court held that the cess imposed by the Orissa Mining Areas D.
Development Fund Act, 1952 was a fee relatable to entries 23 and
66 of List II of the Sevenih Schedule to the Constitution having
regard to the object and the sheme of that Act and the purpose for
which the cess collected under it was to be used. There is no doubt
that in entry 4~ of List II of the Seventh Schedule to the Govern- E
ment of India Act, 1935 the expression 'cesses' is used in the sense
of 'taxes'. In entry 52 of List II of the Seventh .Schedule to the
Constitution, the expression 'taxes' is subtituted in t_he place -of the
expression 'cesses' which was in the former entry 49 in the
Government of India Act, 1935 but the nature aud content of the
·legislative power under both are the same. The ·decision of the . F
J:'ederal Court in the case of the PUJ1jab F/~ur and Genafa/ Mills
Co. Ltd. (supra) itself shows that a cess levied in ~xercise of the
power under entry 49 of List II of the Seventh Schedule to. the
Government of India Act, 1935 was a tax irrespective of any refund
allowed or not allowed by the Government as can be seen from the
following observation made by the Federal Court at page 26 of. the
G
Report:

"We can see no cause whatsoever for holding that if.
· cesses are imposed in pursuance of the powers conferred H

(1) [196112 S.C.R. 537.
· SUPREME COURT REPORTs IJ983) 3 S.C.R.

by entry No. 49 in List II, any provision need be made
A for refunds. Whether or not there. should be any refunds
in respect of such cesses appears to us to be a matter open
for determination by Provincial or local taxing authority,
and the existence or non-existence of a· provision of system
of refunds cannot affect the tax being or not being a cess
within entry No. 49 ."
B
. '

It is also significant that the word 'octroi in se~tion 128 (I)
(viii) of the Act is found in the gr~up of taxes referred to in section
1

128. All sums received by a Municipal Board on account of the
various levies made 11nder section IZ8 have tr> be credited to the
c municipal fund under secction 114 of the Act which can be utilised
for the purposes of the Municipal Board as stated in section I 20 of
the Act. The sum received as octori is also dealt with like any
other tax. There is no element of quid pro quo between the
person who pays the octroi . and the Muncipal Board. Hence
D octroi being a tax it was competent to the Provincial Government '•
to make an order under section 157 (3) of the Act exempting rail-
borne sugarcane from payment of octr6i.

The next submission urged before us is that the appellants
having failed in an earlier writ petition in which they had que ;tioned
E the validity of the levy of octroi cannot now be permitted.· to
challenge the levy again in these proceedings. The facts bearing on
the above contention are these : In the year 1960, by a notification
published in the Oflkial 'Gazette dated April 23, 1960 the Municipal
Board of Pilibhit promulgated new ml.es relating to the levy of
F octroi and also published a fresh schedule of rates of octroi in
the Official ·Gazette dated May 18, 1960. This was .done with the
· previous sanction of the State Government under section !'33 of the
Ad. The octroi imposed by these notifications related to number
of ~rticles including sugar, sugarcane etc. The appellants _who
were liable to pay octroi on many of those. articles challenged in a
G petion filed under Article 226 · of the Constitution in Civil Misc.
Writ No. 2310 of 1960 on the file of the High Court of Allahabad
the validity of the levy on the ground that the procedure followed
in imposing Qctroi at the fresh rates was not valid It was also pleaded
that sugar industry being a controlled industry levy of octroi on
H ·sugar was invalid. By that notification octroi had been imposed
also 9n the import of sugarcane into the municipal limits of Pilibhit
for purposes of sale, use or consumption. That _ petition was
'.RMi NATH v. MUNICIPAL-BOARD {Venkataramiah, J.) 33~

dismissed by the High Court. It is urged that because that petition ·
had been dismissed, it is not open to the appellants now to contend
that the exemption granted under the order of 1936 was still
· available. The High Court has accepted this contention urged on
behalf of the respondents. With due respect, we should say that
the conclusion of the High Court on the above point is erroneous.
In the earlier , writ petition, the appellants had challenged the B
validity of the new octroi bye-laws and. the imposition of octroi· on
many ar.ticles brought by them into the municipal limits. By reason
of the dismissal of the writ petition, they would no dou.bt be not
entitled to reagitate the same question. In this case the question
involved is a different one and that is whether even if the octroi
bye-laws and the imposition of octroi on sugarcane was good, the c
Municipal Board of Pilibhit. is competent to recc;iver octroi on
sugarcane brought by rail by reason of the exemption accorded
under section 157 (3). There is however, no ·dispute that octroi
would be payable under the octroi bye-laws when sugarcane js
brought by the appellants by any other means of transport In the
>
circumstances, the High Court was iµ error in holding that the order
D
•
of exemption granted under section 157. (3) was the same as any
general rule or specia,l order of the State Government referred to in
sub-section (1) of section 128 subject to which the Municipal Board
may impose any tax referred to therein and the effect of the
exemption granted in 1936 was also in issue in the earlier writ E
petition. In that writ petition the said question was neither directly
.... nor constructively in issue in. that case. Ari exemption becomes
operative only when the tax is validly imposed under section 128. The
restriction that may be imposed by any general rule or special order
of the State Government under section 128 (1) affects the initial.
power of the Municipal Board to.levy a tax. An order under section F
157 (3) operates only after a .tax is validly imposed with the sanction
of the State .Government or of the Commissioner a~ the case may
be, as stated in section 133 of the Act. It is, therefore, open to the
appellants to coniend even after the dismissal of their . earlier petition
that they are entitled to th~ limited exemption granted by the order G
· of 1936, generally in favour of a number of sugar factories in several
· municipal areas. The decision of the High Court of Allahabad in
Vir Singh & Ors. v. Municipal Board & Anr.(1 ) also has no bearing on
this question. . • . ·
H
(1) Civil Misc. Wiit No. 3181 of 1960 decided on May 4,.1960.
'
334 SUPREME COURT REPORTS t1983l' 3 s.c.R.
The next question is whether the nature of the tax levied under
A clause (viii) of section 128(1) of the Act has, undergone any change
. ' after the commencement of the Constitution. The said clause has
not been materially amended after the commencement of the Consti-
, tu ti on. While it formerly read as 'an octroi on goods or. animals
brought within the municipality for consumption or use therein' now
it reads as 'an octroi on goods or animals brougbt within the nrnni-
B cipality for consumption, use or sale therein' by reason of the addi-
tion of the word 'sale' by an amending Act passed sub,equent to the
commencement of the Constitution. The High Court has observed
that after the commencement of the Constitution there has been a
material change in the nature of octroi levied under the Act and on
C account of the framing of the new bye-laws the exemption granted
under section 1.57(3) would no longer be available for the following
reasons:

'·It is significant that un<ler .Government of India
D Act, 1935, 7th Schedule, List II, item No. 49 provides
cess on the entry of goods into the ·local area for con-
sumption or use or sale therein, For the purposes of
cess, it was necessary that the local body should render
some service as principle of quid pro quo applies. Under
the Constitution of India 7th Schedule, List II, item No.
E 52 provides for levying taxes on the entry of goods into
the area for consumption or use or sale therein. The tax
certainly is different from cess and as such different
. considerations arise for levying taxes. Learned counsel
for the. opposite party has also pointed out that by Act
F VII of 1953, section 128(1) (viii) has been substituted and
as such more powers were conferred on the Municipal
.. Board. The only difference is that octroi can now be
imposed on goods meant for sale also. The fact remaius
that the.Government order of 1936 was under section
157(3) of the Act and,as such had the effect of allowing
G exemptioll' with regard to levy of octroi duty on sugar-
cane according to the rules . then iu force. When the -~
rules themselves were: changed and~ new bye-Jaws had
been enforced, which had the sanction of State Govern-
ment or the delegated authority that exemption could no
H longer apply unless fresh order was passed under section
157(3) of the Act."
RAM NATH v. MUNICIPAL BOARD (Venkataramiah, J.) 335
With respect, we should express our disagreement with ihe above
vie"'· As already observed by us, under the Government of India Act, A
1935, octroi leviable under-entry 49 of List II of the Seventh Schedule
thereto was not a fee but was a tax. The new set of bye-Jaws with
the modified rates of octroi brought into force in 1960 by the
Municipal Board though with the sanction of the State Government
does not have the effect of rescinding _or annulling the exemption
B
granied under section 157(3) by the former Provincial Government..
· An order under section 157(3) can be withdrawn or modified by the
State Government only. Even if the said provision is capable of
a construction that when the new bye-law or rates of tax imposed
by the Municipal Board with the sanction of the Government under
section 133 which are totally inconsistent with the .exemption granted c
earlier under-section 157(3) the exemption would cease, in the instant
case we do not find any such irreconcilable -inconsistency between
the notification published in 1960 and the order of exemption made
in the year 1936 which is in respect of a number of municipalities .
.While under the notification of 1960 octroi is payable on the import
of sugarcane into the municipal limits for purposes of sale, use or D
>.
consumption, by virtue. of the order made in· 1936 under section
"' 157(3) sugarcane brought by rail and· delivered at the railway siding
inside the factqry premises alone is exempted from the levy of octrcii.
Sugarcane brought by other means of transport would be governed
by the notification issued in 1960. It is worthy of note that there is E
no provision in the notification of 1960 to the effect that the said
exemption is either withdrawn or that sugarcane brought by rail
__, would be taxable. The order of exemption does not say that it
> .
relates to a particular tax levied un<)er a specific notification issued
by a particular Municipal Board. It is in general terms ~nd therefore
the exemption would continue to operate even after the notification F
was issued in 1960 in supersession of the former notification in so
for as rail-borne sugarcane is concerned. If the contention urged
by the Municipal Board is accepted, then it would indirectly arm a
Municip!ll Board to get over any order of exemption passed by the
.State Government by merely amending its taxation bye-laws. It G
may be noted here that in the case of municipalities· other than city
municipalities, the sanctioning authority is the Commissioner and
y- not the State
/
Government
'
while under' section 157(3) the State
Government alone can grant exemption. . Hence such a construction
should be avoided. It is singificant that for nearly eight years after H
the promulgation of the new bye-laws no claim was made by the
Municipal Board in respect of octroi payable ?il rail-borne sugarcane -
336 SUPREME coORt REPORTS [i98J] 3 s.c.R.

and subseuently the State Government by the letter dated June
A 3, 1982 referred to above has enlarged the scope of exemptiou by
exempting from payment of octroi on sugarcane brought ·into the
municipal limits of aU municipalities for crushing in the sugar miJJs
irrespective of the mode of transport employed for bringing it. t.
'
On a consideration of au the contentions urged by 'the parties
B
-before us we bold that the Municipal Board of Pilibhit was not
entitled to collect octroi on sugarcane brought into its municipal
limits by the appellants by rail on the relevant date. The prosecution,
therefore, is not sustainable.

c In the result, this appeal is aUowed, the judgment of the High
Court is sei aside and the proceedings in the Magistrate's court out
or which this appeal has arisen are quashed. · There will be no order
as to costs. '

H.S.K. Appeal allowed.