KATHIAWAR INDUSTRIES LTD. versus JAFFRABAD MUNICIPALITY

243

KATHfAWAR INDUSTRIES LTD. v. JAFFRABAD MUNICIPALITY

August 8, 1979

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

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

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 Jaffrabad Munici applied to the said State became applicable to Jaffrabad. the Bombay pality the predecessor of the respondent was constituted under District Municipal Act, 1901.

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 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. II enumerated a list of items which- are exempt from octroi duty and contained in Item No. 6, a sub-item in Gujarat which means "salt''.

Item No. 23 is "Salt for Factory!>. Schedule

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 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 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 to the jetty. From the jetty the salt whether crushed or uncrushed as the case may be is exported by . steamers.

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SUPREME COURT REPORTS

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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· 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 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.

the On the question whether the salt manufactured by the appellant outside 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.

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HELD : 1. Octroi is Ieviable 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.

[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 SCR 53; referred to.

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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' ·rhese tion" and "use" will depend upon the context in which they are used. than import ::tre of wide import, the vvord "use" being of ¥:ider \VOrds "consumption".

[248A, 247H. 249EJ.

the 3. \Vhile terminal tax is a kind of octroi which is concerned only with 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 They are Ierviable in respect of the goods put to some use or the other in sale. the area but only if they were meant for such use.

[248B]

4. The word

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

its primary sense means

''consumption"

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KATHIAWAR INDUSTRIES V. JAFFARABAD MUNICIPALITY

245

(Kailasam, J.)

"consumption" has a wider meaning. consumption the commcxlity must be destroyed or used up.

It is not necessa1y that by the act of

[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]

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.

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 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.

Tl1e grinding mills and the part of the trolly-track leading

The appellant is running a salt manufacturi'ng works at Jaffrabad The company had called "Nawabsidi Mohmad Khan Salt Works". constructed salt works, grinding mills, trolly-tracks and a jetty at the The major portion of the salt works is situate out of the port site. municipal limits. The salt is manufactured outside the municipal limits. 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 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 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 from hindering or obstructing the free passage of salt and goods and [or the refund of Rs. 250. The appellant also for the refund of Rs. 1271-14-0 paid under protest. These two suits were decreed, the court declaring that the salt manufactured by

filed another suit

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[J 980] l S.C.R.

The court also the appellant company is not liable to octroi duty. 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 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 to octroi provided the plaintiff company followed the prescrib~d rules the suits were dismissed. and formalities. The other claims Against the judgment of the High Court the plaintiff company has pre krred these two appeals.

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The only question that falls for consideration in these civil appeals 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 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 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 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 The salt that is crushed in the crushi'ng factory of the Municipality. 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 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.

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KATHIAWAR INDUSTRIES v. JAFFARABAD MUNICIPALITY

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(Kailasam, /.)

In 1948, on the formation of Saurashtra State, Jaffrabad came with 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.

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 2 clause (2) of the Ordinance defines 'octroi' as including a terminal tax. Section 3 empowers the Government to impose terminal tax and It provided that octroi may be imposed on "animals or octroi duty. 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 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 to means "Salt". Thus under item 23 "Salt for Factory" on octroi duty. "animals or goods, or both, within the octroi limits brought for consum 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 It is the common case that the uncrushed salt as brought into the octroi limits is crushed and in the crushed form sent to the jetty for export. 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 .

The octroi duty may be imposed under section 3

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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" In Bunnah Shell Oil Storage & Distributing Co. India is conferred. Ltd. v. The Belgawn Borough Municipality(') this Court alter trac ing the history of octroi and terminal tax observed that while terminal 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 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.

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 It is not nece55ary that by th~ "consumption" has a wider meaning. 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 It was contended that remov dust from the tobacco was removed. 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 the purchase of changing was delivered iu the State of Bombay for 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 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-

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(!) [1963] Supp. (2) S.C.R. 216. (2) [1961] 1 S.C.R. 709. (3) [1954] S.C.R. 53.

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KATHIAWAR INDUSTRIES V. JAFFARABAD MUNICIPALITY

249

(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, 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 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 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 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 In the amount to both consumption and use of the uncrushed salt. result the appeals fail and are dismissed with costs.

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Appeals dismissed.

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