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2003 DIGILAW 182 (ORI)

OCL INDIA LIMITED v. STATE OF ORISSA

2003-02-28

A.S.NAIDU, P.K.BALASUBRAMANYAN

body2003
A. S. NAIDU, J. ( 1 ) M/s. OCL India Limited, an existing Company engaged in the business of manufacture of cement and refractory products, having its registered office and factory at Rajgangpur in the district of Sundargarh, Orissa, seeks to challenge the inclusion of its "industrial Township" within the purview of the Orissa Entry Tax Act, 1999 and prays mainly for issuance of a mandamus commanding the opposite parties to alter, cancel or rescind the Orissa Entry Tax Act, 1999 so as to exclude from its operation and purview of "industrial Township" constituted and notified under Section 4 of the Orissa Municipal Act. There is also a further prayer to declare Section 2 (f) of the Orissa Entry Tax Act, 1999 as amended to the extent it seeks to levy Entry Tax on goods entering the area within the Industrial Township constituted under Section 4 of the Orissa Municipal Act, 1950 as ultra vires apart from other ancillary prayers. ( 2 ) IN course of hearing, Mr. Gangadhar Rath, learned senior Advocate appearing for the petitioner, did not challenge the vires of the Orissa Entry Tax Act, 1999 and confined his arguments only to the point that levy of Entry Tax on areas constituted, declared and notified to be "industrial Township is beyond the competence of the State Legislature. ( 2 ) IN course of hearing, Mr. Gangadhar Rath, learned senior Advocate appearing for the petitioner, did not challenge the vires of the Orissa Entry Tax Act, 1999 and confined his arguments only to the point that levy of Entry Tax on areas constituted, declared and notified to be "industrial Township is beyond the competence of the State Legislature. ( 3 ) BEFORE entering into the arena of controversy in the present case, it is worthwhile to state that by our judgment dated 13th of November, 2002 in OJC No. 3995 of 2000 (Indian Metals and Ferro Alloys Corporation of Orissa v. State of Orissa and others) and other connected cases, we have declined to strike down the Orissa Entry Tax Act, 1999 as ultra vires, but have read down the provisions as follows :-" (1) Unless the basic ingredients, i. e. Entry of Scheduled goods for the purpose of Consumption, use or sale into a local area of the State are satisfied, the provisions of the Orissa Entry Tax Act, 1999 shall not be attracted; (2) The goods which enter into a local area/areas only for the purpose of transit will not be subject to Entry Tax; and (3) Every manufacturer of scheduled goods under Section 26 shall collect by way of Entry Tax amount equal to the tax payable on the value of the finished products under Section 3 of the Act from the buying dealer either directly or through an intermediary only if the scheduled goods sold are intended for Entry into any local area of the state for the purpose of Consumption, Use or Sale. "3a. Developing his submissions, Mr. Rath invited our notice to a Notification dated 23/12/1998 of the Housing and Urban Development Department issued by order of the Governor of Orissa in exercise of power conferred by the proviso to sub-section (1) of Section 4 of the Orissa Municipal Act, 1950 (Orissa Act 23 of 1950), thereby specifying the area of M/s. OCL India Limited, as mentioned in the Schedule to the Notification, to be an "industrial Township" with effect from the date of publication of the Notification in the Orissa Gazette (Annexure 1 ). It is submitted by Mr. Rath that consequent upon issue of such Notification, the premises of M/s. OCL India Limited were excluded from the territorial jurisdiction of the Rajgangpur Municipality with effect from 24-12-1998. It is submitted by Mr. Rath that consequent upon issue of such Notification, the premises of M/s. OCL India Limited were excluded from the territorial jurisdiction of the Rajgangpur Municipality with effect from 24-12-1998. Accordingly, the goods procured by M/s. OCL India Limited were not liable for payment of Octroi Tax as was resolved in a Committee constituted by the Government of Orissa in the Housing and Urban Development Department and the Company, vide Enclosure I to Annexure 2. It was mutually decided that OCL would pay a sum of Rs. 2 crores to Rajgangpur Municipality before 31st of March, 1999 in addition to the payment already made and the same has already been paid. Thus for all acts and purposes, OCL premises which is an "industrial Township" cannot be construed to be a 'local area' so as to attract the rigours of the Orissa Entry Tax Act, 1999. It is further submitted that the State Government has no power to levy and collect Entry Tax in respect of goods entering into the areas constituted, declared and notified as "industrial Township" in terms of Section 4 (1) of the Orissa Municipal Act, 1950 read with Article 243-Q of the Constitution of India for "consumption, Use or Sale" therein and that an Industrial Township does not come within the purview of the expression 'local area' referred to in Entry 52 of List II of the Seventh Schedule to the Constitution. According to Mr. Rath the impugned Entry Tax Act, 1999 transcends the Constitutional limits inherent in Entry 52 of List II of the Seventh Schedule to the Constitution of India, inasmuch as the Act construed in all the amplitude does not authorise levy of Entry Tax in an area outside the purview of the expression 'local area' within the meaning of Entry 52 of List II of the Seventh Schedule to the Constitution of India and is respect of which there is a local authority administering it, and is therefore ultra vires the Constitution and is beyond the competence of the State Legislature. ( 4 ) IN support of his contention, Mr. Rath relied upon a case, reported in AIR 1961 SC 652 (Diamond Sugar Mill v. State of U. P.) and submitted that the etymological meaning of the word "local" is "relating to" or "pertaining to" a place. ( 4 ) IN support of his contention, Mr. Rath relied upon a case, reported in AIR 1961 SC 652 (Diamond Sugar Mill v. State of U. P.) and submitted that the etymological meaning of the word "local" is "relating to" or "pertaining to" a place. It may be first considered whether or not the whole of the State can be a "local area" for the purpose of Entry 52. It is clear that to be a "local area" for this purpose, the area must be within the State. In other words, an area in respect of which Entry Tax is leviable would confine only to a local area administered by a local authority. Since the Industrial Township of the petitioner which was originally within the area of Rajgangpur Municipality and by virtue of a Notification under Section 4 of the Orissa Municipal Act, 1950 read with Article 243q of the Constitution of India has been excluded therefrom and is no more a "local area", and to add to it, the same is not administered by any "local authority" like Rajgangpur Municipality, Entry Tax on this Industrial Township is clearly illegal and without jurisdiction. ( 5 ) ANALYSING the expression "local area" vis-a-vis "local authority", Mr. Rath relied upon a decision of the Supreme Court, reported in AIR 1981 SC 951 (Union of India v. R. C. Jain) wherein it has been held as follows:-". . . . . . First the authorities must have separate legal existence as Corporate bodies. They must not be mere Governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next, they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. . . . . Next, they must be entrusted by Statute with such Governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets. . . . . Broadly, we may say that they may be entrusteed with the performance of civic duties and functions which would otherwise be Governmental duties and functions. . . . . Broadly, we may say that they may be entrusteed with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they must have the power to raise funds for the futherance of their activities and the fulfilment of their projects by levying taxes, rates, charges or fees. . . . . . " ( 6 ) ACCORDING to Mr. Rath, none of the conditions laid down in the aforesaid decision is satisfied in the present case. Neither the petitioner is created by a Statute nor has it been elected by the local residents. It is purely a business organisation and has no power to run administration, impose tax or raise funds from the residents. As such, a private body like OCL cannot be a "local authority". ( 7 ) FURTHER developing his argument, Mr. Rath once again relied upon the Notification issued by the Government in the Housing and Urban Department (Annexure 1) and forcefully submitted that the basic municipal and essential services like road, water, sanitation, public health and other services in the aforesaid area are being provided by OCL and it has agreed to provide all such municipal services in future. Thus the question of compensating the Municipality and or imposing a compensatory nature of tax does not arise. As a matter of fact, pursuant to the agreement between the Municipality and OCL, the latter has paid a further sum of Rs. 2 crores as non-withdrawal Fixed Deposit in the name of the Collector and the Executive Officer of the Municipality and only the interest accrued thereon has to be withdrawn by the Municipality to be utilised by it. ( 8 ) SUMMING up his arguments, Mr. Rath submitted that in the context of the Notification coupled with the agreement between the parties as well as payment of R. 2 crores by OCL, the levy of tax on entry of goods into the private premises of the Company is illegal and outside the scope of Entry 52 of List II of the Seventh Schedule to the Constitution and Section 2 (f) of the Orissa Entry Tax Act as amended should be declared ultra vires. ( 9 ) DR. M. R. Panda, learned counsel appearing for the revenue, counterring the arguments advanced by Mr. ( 9 ) DR. M. R. Panda, learned counsel appearing for the revenue, counterring the arguments advanced by Mr. Rath submitted that in spite of the Notification constituting OCL premises as an "industrial Township", such Township does not lose its entity of a "local area" and levy of Entry Tax under the Orissa Entry Tax Act, 1999 is well within the competence of the State Legislature. Power to levy a tax under the relevant entries is that of the State Legislature and not of any local Government. No local Government can levy or collect tax unless authorised by law. The duties and responsibilities of the State are not limited to providing municipal services in any particular area. The facilities with the advancement of civilisation are not confined only to municipal services. The purposes and needs of local areas are not different from the purposes and needs of the State. Therefore, the submission that in the absence of any municipal services the State has no authority to levy tax within the premises of OCL is not tenable. According to Dr. Panda, levy of Entry Tax under the Act of 1999 is not for entry of goods to the factory area of the petitioner Company, but to the whole Industrial Township. The levy is also not confined only to the owners of the factory, but all other dealers or persons residing within the Township are also otherwise liable to pay tax under the Entry Tax Act. In support of his contentions, Dr. Panda has relied upon the decision in State of Bihar v. Bihar Chamber of Commerce, AIR 1996 SC 2344 , wherein taking note of the decision in the case of Diamond Sugar Mills ( AIR 1961 SC 652 ) (supra), the Hon'ble Supreme Court observed as follows"entry 49 of List II of the Seventh Schedule to the Government of India Act, 1935 as well as Entry 52 in List II in our Constitution speak of "local areas" and not "local authorities". The tax, by whatever name called, is levied upon the entry of goods into a local area for consumption, use or sale therein. The decisions relied upon by Sri Ganesh too use the same words. Entry 52 empowers the State Legislature to levy this tax. The local authorities cannot themselves levy this tax. The power is that of the State Legislature and of none else. The decisions relied upon by Sri Ganesh too use the same words. Entry 52 empowers the State Legislature to levy this tax. The local authorities cannot themselves levy this tax. The power is that of the State Legislature and of none else. So long as the tax is levied upon the entry of goods into a local area for the purpose of consumption, use or sale therein, the requirement of Entry 52 is satisfied. The character of the tax so levied is that of entry tax by whatever name it is called. "thus according to Dr. Panda, the meaning of the expression "local area" occurring in Entry 52 under no circumstances can be confined to only such areas as are administered by local authority. We have carefully perused the voluminous pleadings filed by all sides, so also the documents annexed to the writ petition and the respective counter-affidavits. We have heard learned counsel for the parties patiently, considered the submissions diligently and examined the materials meticulously. The Orissa Entry Tax Act, 1999 is an Act enacted by the Legislature to provide for levy and collection of tax on entry of goods into a local area of the State of Orissa for consumption, use and sale therein and the materials incidental thereto and connected therewith. "local Area" has been defined in Section 2 (f) of the Act as follows :-"local area" means the areas within the limits of any- (i) Municipal Corporation; (ii) Municipality; (iii) Notified Area Council; (iv) Gram Panchayat; and (v) Other local authority by whatever name called, constituted or continued in any law for the time being in force and shall also include an industrial township constituted under Section 4 of the Orissa Municipal Act, 1950. "according to the petitioner, "industrial Township" declared by the Governor shall cease to be a local area and shall not be a part of the Municipality and thus the Amended Act of 1999 cannot be made applicable. On the other hand it is forcefully submitted by the learned counsel for the Revenue that the status of "industrial Township" under Section 4 of the Orissa Municipal Act is a statutory status like several other constituents, and it does not confer an autonomy. An Industrial Township cannot be construed to be an island, to which no law is applicable. On the other hand it is forcefully submitted by the learned counsel for the Revenue that the status of "industrial Township" under Section 4 of the Orissa Municipal Act is a statutory status like several other constituents, and it does not confer an autonomy. An Industrial Township cannot be construed to be an island, to which no law is applicable. The State Legislature having plennary power can extend operation of the Act to the Industrial Township. Such power is available to the State Legislature and inclusion of Industrial Township within the definition of "local Area" is not only in consonance with law, but also within the legislative competence of the State. In the case of State of Bihar v. Bihar Chamber of Commerce (supra), AIR 1996 SC 2344 the Supreme Court observed as follows :-"where the local area contemplated by the Act covers the entire State, the distinction between the State and the local areas practically disappears. The situation would, no doubt, be different if the local areas are confined to a few cities or towns in the State and the levy is upon the entry of goods into those local areas alone. This is an important distinction which should be kept in mind while appreciating this aspect and also while examining the decisions of this Court rendered in "fifties and sixties" ). The facilities provided in the State are the facilities provided in the local areas as well. Interest of the State and the interests of the local authorities are, in essence, no different. "thus the expression "local authority" in Entry 52 is not confined to areas within the limits of a local authority. The underlined object of the proviso to Article 243q of the Constitution is to keep out urban areas where municipal services are being provided by industrial establishments off the municipal area, so that the facility consistent with the growth of industrial establishments continues to be provided by the establishments for the sake of convenience, continuity and independence of action. The proviso to Article 243q clearly stipulates that an urban area only can be declared as an "industrial Township". An Industrial Township is thus first an urban area and then as Industrial Township if so notified by the Governor. An urban area is a local area within the limits of the State. The proviso to Article 243q clearly stipulates that an urban area only can be declared as an "industrial Township". An Industrial Township is thus first an urban area and then as Industrial Township if so notified by the Governor. An urban area is a local area within the limits of the State. ( 10 ) UNDER the provisions of the Orissa Entry Tax Act, 1999, the goods moving from one local area inside the State to another local area for the purpose of consumption, use or sale are subjected to levy of tax. The "local area" contemplated by the Act covers the entire State. Therefore, all the scheduled goods that move from one local area to the other for the purposes indicated in the Act are subjected to levy of tax. The principal burden of providing various facilities for commercial development vests on the State. Such facilities including infrastructure for trade and commerce are provided by the State Government. The overall facilities are also enjoyed by the industrial concerns like the petitioner. They are also largely benefited by the overall developmental activities and creation of infrastructure like road, markets, water ways, etc. in the State. It cannot be construed that local areas are completely isolated pockets within the State. For movement of goods from outside the local area and even from outside the State the infrastructure provided by the State has to be availed of otherwise the movement of goods would be an impossibility. Taking into consideration all these reasons, the Supreme Court in the Bihar Chamber of Commerce case ( AIR 1996 SC 2344 ) (supra) observed that the facilities provided in the State are the facilities for the local areas as well. The observations of the Supreme Court are quoted hereinbelow:-"the facilities provided in the State are the facilities provided in the local areas as well. Interest of the State and the interest of the local authorities are, in essence, no different. It is not and it cannot be stipulated that for the purpose of establishing the compensatory character of tax, it is not necessary to establish that every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities. It is enough if some connection is established between the tax and the trading facilities provided. It is enough if some connection is established between the tax and the trading facilities provided. The connection can be a direct one or an indirect one, as held by this Court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh, (1995) 96 STC 654- "the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers, directly or indirectly, the levy cannot be impugned as invalid". Though not stated in the counter-affidavit, we can take notice of the fact that the State does provide several facilities to the trade including laying and maintenance of roads, water-ways and markets, etc. As a matter of fact, since the levy is by the State, we must also look to the facilities provided by the State for ascertaining whether the State has established the compensatory character of the tax. On this basis, it must be held that the State has established that the impugned tax is compensatory in nature. " ( 11 ) UNDER the Scheme of the Orissa Entry Tax Act, 1999, levy of tax is at a single point and the same is levied on scheduled goods, both manufactured or produced within the State and or imported from outside on their entry into a local area for consumption, use or sale. The goods manufactured inside the State also stand on the same footing for the purpose of tax under the Act of 1999 as those goods brought from outside the State. ( 12 ) WHILE answering a similar question, the Supreme Court in the case of State of Karnataka v. Hansa Corporation, AIR 1981 SC 463 , has observed as follows (Para 31):-"tax under the impugned legislation would be levied on scheduled goods either manufactured or produced within Karna-taka State or imported from outside on their entry in a local area. Thus, this tax is non-discriminatory in that it does not discriminate between scheduled goods manufactured or produced within Karnataka State or those imported from outside. And the microscopic discrimination relied upon by the respondents that there is differential treatment accorded to goods produced within a local area and those imported from outside the local area is hardly relevant for the purpose of Art. 304 (a ). And the microscopic discrimination relied upon by the respondents that there is differential treatment accorded to goods produced within a local area and those imported from outside the local area is hardly relevant for the purpose of Art. 304 (a ). The High Court was accordingly right in concluding that the impugned tax satisfied the requirements of Art. 304 (a ). " ( 13 ) UNDISPUTEDLY, levy of tax under the Orissa Entry Tax Act, 1999 is applicable to the goods manufactured inside the State for the purpose of Consumption, Use or Sale and an Industrial Township constituted under Section 4 of the Orissa Municipal Act, 1950 is brought well within the "local area" as per the definition of Section 2 (f) of the Act of 1999. ( 14 ) SEVERAL other decisions cited by both sides were referred to by us in the judgment in IMFA v. State of Orissa and others (supra ). In view of the discussions made above as well as the reasons given by us in the said earlier judgment, we are not in agreement with the contention raised on behalf of the petitioner that the Orissa Entry Tax Act, 1999 extended to an Industrial Township with the amendment of Section 2 (f) of the Act is in any way beyond the competence of the State Legislature or is ultra vires the Constitution. According to us, the State Legislature has the power and authority to extend operation of the Orissa Entry Tax Act, 1999 throughout the State including an Industrial Township. ( 15 ) WE do not find any merit in the case and dismiss the writ petition. Petition dismissed.