Holding

The State may prescribe different octroi rates and bases for different municipalities based on local conditions, and such differentiation does not violate Article 14.

Summary

The State Government of Rajasthan, under section 104 of the Rajasthan Municipalities Act, 1959, issued notifications revising octroi rates for cloth in the Abu Road municipality (1964) and later for all cloth in Sujangarh municipality (1976). Both were challenged on the ground of discrimination and violation of Article 14. While the High Court initially struck down the Abu Road notification, the amendment of section 104(2) by the Rajasthan Municipalities (Amendment) Act, 1978 allowed the State to prescribe different rates for different municipalities based on local conditions. The Supreme Court held that such differential treatment is constitutionally permissible and not violative of the equality clause. Consequently, the appeals of the Abu Road municipal board were allowed, whereas the appeals concerning Sujangarh were dismissed.

Issues considered

Whether the State Government may levy octroi at varying rates and on different bases (weight vs ad valorem) across municipalities under section 104 of the Rajasthan Municipalities Act, 1959.
Whether such differential rates constitute unreasonable discrimination violative of Article 14 of the Constitution.

Legislation cited

Constitution of Indias. Article 14, s. Article 246(3), s. Schedule VII Entry 52
Rajasthan Municipalities Act, 1959s. 104(1), s. 104(2), s. 7
Rajasthan Municipalities (Amendment) Act, 1978s. 12

Subjects

octroimunicipal taxdifferential ratesArticle 14equality clausestate taxation powerweight basisad valorem basisRajasthan Municipalities Act

Judgment

MUNICIPAL BOARD OF ABU ROAD
A
v.
JAISHIV & ORS. ETC.

OCTOBER 27, 1987

B [RANGANATH MISRA AND S. RANGANATHAN JJ.]

Rajasthan Municipalities Act, 1959-S. 104 Levy of Octroi by
different municipalities within the State on varying basis and at varying
rates-Validity of.

By a notification issued in 1964 under s. 104 of the Rajasthan
c Municipalities Act, 1959, the State Government revised the rate of
octroi levied on cloth by the municipal board of Abu Road which was
j
challenged by a batch of writ petitions. A Single Judge of the High
Court held that the provisions of s. 104(1) of the Act were valid but the
notification in respect of the municipal board of Abu Road relating to
D cloth was bad. During the pendency of the appeals before the Division
Bench sub-s. (2) of s. 104 was added by s. 12 of the Rajasthan
Municipalities (Amendment) Act of 1978. The Division Bench over-
looked this amendment and reiterated the reasons of the Single Judge
and dismissed the appeals. By another notification issued in 1976, the
State Government revised the levy of octroi on all types of cloth in
E respect of Sujangarh Municipal Board which was challenged by another
batch of writ petitions relying on the decision in the Abu municipal
board cases; but the Single Judge, as also a different Division Bench
which dealt with the matter did not entertain the challenge in view of
the amended provision of s. 104 of the Act. These two groups of appeals
...
arose from the two batches of writ petitions aforesaid.
F
Allowing the appeals preferred by the Municipal Board of Abu
Road and dismissing the appeals relating to Snjangarh Municipality.

HELD: There is no dispute as to exigibility of octroi. Every
municipality under s. 7 of the Rajasthan Municipalities Act, 1959 is a
G body corporate. People residing within each municipal area can be
classified as one group different from residing in any other municipality
since octroi is to be levied by the municipality as provided in s. 104(1)
subject to the control regarding the rates of levy by the State Govern-
ment. The plea of discrimination on the basis of the rates prevalent in
another municipality cannot be entertained. The scheme in s. 104 takes
H note of the position that local conditions and needs varied and accord-
584
MUNICIPAL BOARD v. JAISHIV [MISRA. J.] 585

ingly both in the proviso to sub-s. (1) as also in sub-s. (2) itself, emphasis A
on that feature has been put. It is thus open to the State Government on
the basis of local conditions and needs to prescribe different rates in
relation to different municipalities in the matter of taxes to be levied,
varying duty of octroi is, therefore, not open to challenge. The Division
Bench while dealing with the appeals of Abu Road municipality should
have taken note of the amendment of sub-s. (2) with retrospective B
effect. [588B-E]

2. In some municipalities the levy is on the value of goods while in
-, others it is on the basis of weight. Here again, the State Government
seems to have applied its mind and has authorised charge of octroi on
weight basis taking into consideration the special circumstances. ln C
bigger municipalities where there are wholesale markets particularly of
cloth. a reduced rate of octroi has been prescribed to encourage larger
import. In smaller municipalities where the import is for direct con-
sumption the levy is on ad valorem basis at a higher rate. The State
Government seems to have also taken into consideration that in smaller
municipalities there is not much demand for costly and fine cloth which D
have higher prices while the position is otherwise in bigger municipal
areas. This appears to be the justification for adopting the weight basis
in respect of larger municipalities and ad valorem basis for the smaller
municipalities. This seems to be a legitimate basis and we do not think
any valid objection is available against this differential treatment.
Law is well settled that if unequals are treated unequally there is no E
discrimination and Art. 14 of the Constitution is not available to be
invoked. [588E-H]

- CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
2255-56 of 1979.
F
From the Judgment and Order dated 20.12.1978 of the Rajas-
than High Court in Special Appeal Nos. 40 and 39 of 1968.

V.M. Tarkunde, Tapas C. Ray, Chandmal Lodha, S.K. Jain,
Dalveer Bhandari and Badridas Sharma for the appearing parties.
G
The Judgment of the Court was delivered by

"-, RANGAN.ATH MISRA, J. These are appeals by special leave.
Two of them being Civil Appeals 2255 and 2256 of 1979 are by the
Municipal Board of Abu Road. The rest of the appeals are by asses-
sees living within the municipal area of Sujangarh. The common ques- H
586 SUPREME COURT REPORTS [1988] 1 S.C.R.

A tion involved in these appeals is as to whether the levy of octroi by '>!-
different municipalities within the State of Rajasthan on varying
basis-some on weight of the material and others on the ad valorem
basis of the price thereof at varying rates is valid in law. The High
Court decided against the Abu Road municipality while a different
bench of that Court in the cases of Sujangarh municipality decided in
B its favour on the same qestion.

Entry 52 of List II of Schedule VII read with Article 246(3) of the
Constitution authorises the State Legislature to raise a tax on the entry
of goods into a local area for consumption, use or sale. The Rajasthan ·
Municipalities Act, 1959 (hereinafter referred to as the Act) in Chap-
ter Vil makes provisions for imposition of taxes. Section 104 deals
C with obligatory taxes while section 105 authorises imposition of other
taxes. As far as relevant, section 104 provides:-
J
"(1) Every Board shall levy, at such rate and from
such date as the State Government may in each case direct
D by notification in the official gazette and in such manner as
is laid down in this Act and as may be provided in the rules
made by the State Government in this behalf, the following
taxes, namely-

"(')
I . . . . . . . . . . . . . . . . . . . . . . • ... • ........ • • ..... .

E
(ii) an octroi on goods and animals brought within
the limits of the municipality for consumption, use or
sale therein; and -

(iii) .......................................... .
F

(2) A direction under sub-section (1) may provide for the
levy of taxes at different rates in different municipalities
having regard to their varying local conditions and needs,
G and on the same considerations and by a like direction, the
State Government may, from time to time-

(i) vary uniforrnally or differently in relation to diffe-
rent municipalities, the rates of taxes levied, or

H ( u'') ··········································"
MUNICIPAL BOARD v. JAISHIV [MISRA, J.[ 587
-Y Abu Road municipality prior to 1956 was a part of the State of
A
Bombay and with effect from 1st November 1956, as a res.ult of the
States Reorganisation Act of 1956, became a part of the State of
Rajasthan. While within the State of Bombay the Abu Road munici-
pality had prescribed octroi duty on cloth at the rate of 1.9 annas per
cent ad valorem and the rate continued till it was varied after promul-
gation of the Rajasthan Municipalities Act of 1959. The rates in cities B
A- like Jaipur were on the basis of weight. Judicial notice can be taken of
the fact that the areas which now constitute the State of Rajasthan
prior to independence of India were independent States of different
' dimensions and the local conditions and needs of the people inhabiting
those areas considerably varied. There were 13 different Acts then in
vogue governing the municipalities within that State. The Rajasthan

~ Municipalities Act was, therefore, introduced to consolidate and c
amend the law relating to municipalities in that State. In February,
1962, the State Government by notification dated 13th February, 1962
issued under section 104 of the Act fixed the rate of octroi at 0.50 paise
in place of 1.9 annas with effect from 15th February, 1962. By notifica-
tion dated 10th of April, 1964, published in the Gazette on 20th of D
August, 1964, the State Government in exercise of powers under sec-
tion 104 of the Act revised the rates of octroi and so far as the munici-
pal board of Abu Road was concerned, Item 62 of the Schedule pro-
vided the rate of 1 per cent ad valorem on cloth. This led to the
-I challenge before the High Court. The learned Single Judge who dealt
with the writ petitions relied upon the provisions of section 104 of the E
Act as it then stood and came to hold that the provisions of section

-- 104( 1) of the Act were valid but the notification in respect of the
municipal board of Abu Road relating to cloth was bad. During the

...
pendency of the appeals before the Division Bench of the High Court,
sub-section (2) of section 104 was added by section 12 of the Rajasthan
Municipalities (Amendment) Act of 1978. The Division Bench over- F
looked this amendment and reiterated the reasons of the learned
Single Judge and dismissed the appeals by judgment dated 20th of
December, 1978.

The State Government authorised levy of octroi on all types of
cloth at the rate of one and a half per cent ad valorem in respect of G
Sujangarh Municipal Board by notification dated 3rd January, 1976.
"Ai 34 writ petitions were filed before the High Court challenging the levy.
It was contended inter alia that there was unreasonable discrimination
between the citizens and traders of cloth within Sujangarh Municipal
area on the one hand and those of Judhpur, Jaipur and other named
towns on the other, as by authorising levy of octroi at different rates H
588 SUPREME COURT REPORTS [1988] 1 S.C.R.

A and on different basis discrimination resulted. Reliance was placed on
the decision in the Abu Board municipal cases but the Single Judge as
also the Division Bench did not entertain the challenge by relying
upon the amended provision of section 104 of the Act. That is how that
group of appeals too has come before this Court by special leave.

B There is no dispute as to exigibility of octroi. Every municipality
under the Act is a body corporate. Section 7 of the Act provides for it.
People residing within each municipal area can be classified as one
group different from those residing in any other municipality since
octroi is to be levied by the municipality as provided in section 104( 1)
of the Act subject to the control regarding the rates of levy by the State
Government. The plea of discrimination on the basis of the rates pre-
C valent in another municipality cannot be entertained. The scheme in )
section 104 of the Act takes note of the position that local conditions
and needs varied and accordingly both in the proviso to sub-section ( 1)
as also in sub-section (2) itself, emphasis on that feature has been put.
It is thus open to the State Government on the basis oflocal conditions
D and needs to prescribe different rates in relation to different
municipalities in the matter of rates of taxes to be levied. Varying duty
of octroi is, therefore, not open to challenge. The Division Bench
while dealing with the appeals of Abu Road municipality should have
taken note of the amendment of sub-section (2) with retrospective
effect.
E
In some of the municipalities the levy is on the value of the goods
while in others it is on the basis of the weight. Here again, the State
Government seems to have applied its mind and has authorised charge
of octroi on weight basis taking into consideration the special circum-
stances. In· bigger municipalities where there are wholesale markets
F particularly of cloth, a reduced rate of octroi has been prescribed to ......
encourage larger import, In smaller municipalities where the import is
for direct consumption the levy is on ad valorem basis at a higher rate.
The State Government seems to have also taken into consideration
that in smaller municipalities there is not much of demand for costly and
fine clothes which have higher price while the position is otherwise in
G bigger municipal areas. This appears to be the justification for adopt-
ing the weight basis in respect of larger municipalities and ad valorem
basis for the smaller municipalities. This again seems to be a legitimate '£-
basis and we do not think any valid objection is available against this
differential treatment. Law is well settled that if unequals are treated
unequally there is no discrimination and Article 14 of the Constitution
H is not available to be invoked,
MUNICIPAL BOARD v. JAISHIV {MISRA. J.] 589

In view of what we have said above, the appeals preferred by A
Municipal Board of Abu Road will have to succeed. They are allowed.
Other group of appeals relating to Sujangarh Municipality have to be
dismissed. Parties are directed to bear their own costs throughout.

Before we part with the cases we would like to suggest that in the B
backdrop of a consolidating and uniform municipal legislation now
operating in the field, the State Government may rationalise the rate
structure prevalent in different municipal areas so that assessment of
octroi would be convenient, a common method would be adopted and
the challenge which is raised now and again-though we have made it
clear that it would be competent for the State Government to allow
varying rates in different municipalities keeping the provisions in sec- C
tion 104 of the Act in view may be avoided.

H.L.C. Appeals allowed.

-