The article is written by Jyotika Saroha. This article provides a detailed overview of the landmark judgement given by Hon’ble Supreme Court in the case of Town Municipal Committee, Amravati vs. Ramchandra Vasudeo Chimote (1964). This case deals with the power of local authorities to levy taxes with respect to goods exported and imported within or outside the country. It elaborates on the factual background, issues, judgement of the court, laws and precedents applied in the said case. Lastly, it deals with the analysis of the court’s judgement.

Introduction 

The taxation system in India was introduced with the objective of developing infrastructure and financing public welfare activities and schemes. The distribution of powers amongst the governments at both the Union and State levels was made to ensure that the work can be done in an effective manner in order to protect and promote the rights and duties of taxpayers, as tax is one of the most important sources of revenue for the government. The Indian Constitution has also provided for certain provisions that provide for the levying of taxes, cesses, and duties in a lawful manner by the State Governments, municipality or by any other local authority. There are various types of taxes that are being levied by different authorities; likewise, local taxes also come in different forms and include taxes on goods imported and exported into or outside the municipal area levied by the municipal authorities. The Town Municipal Committee, Amravati vs. Ramchandra Vasudeo Chimote (1964) is a significant precedent in which the issue regarding the power to levy taxes by the municipal authorities was dealt with. The case discussed has helped in delving into the scope of the powers of municipal authorities in dealing with cases of levying taxes as per the provisions of a specific statute.

Details of the case

• Name of the case: The Town Municipal Committee, Amravati vs. Ramchandra Vasudeo Chimote and Ors.
• Case number: Civil Appeal No. 598 of 1962
• Equivalent citations: [1964] 6 SCR 947; 1964 (66) BOM LR 492; 1964 INSC 49; [1964] 53 ITR 444 (SC)
• Laws discussed: Central Provinces and Berar Municipalities Act, 1922 (Act II of 1922), Article 277, Article 226, and Article 227 of the Constitution of India, and the Government of India Act, 1935 (repealed).
• Court: Supreme Court of India
• Bench: The then Hon’ble Chief Justice of India, Justice P.B. Gajendragadkar, Justice K.C. Das Gupta, Justice K.N. Wanchoo, Justice N. Rajagopala Ayyangar, and Justice J.C. Shah
• Author of the judgement: N. Rajagopala Ayyangar
• Parties to the case:
  • Petitioners- The Town Municipal Committee, Amravati
  • Respondents- Ramchandra Vasudeo Chimote and Ors.
• Judgement date: 3rd March, 1964

Facts of the case

The Municipal Committee of Amravati has been constituted under the Central Provinces & Berar Municipalities Act, 1922 (Act II of 1922). Chapter IX of the said Act provides for the assessment, collection and imposition of taxes by the municipal committee.

A notification dated August 10, 1916 was passed by the Amravati Municipality, wherein a terminal tax was imposed on the goods imported by way of road or train. The said notification also prescribed exemptions to certain goods, which were silver, bullion and coins. However, the said notification was replaced by another notification dated June 2, 1921, in which the schedules were amended and the terminal tax charged was limited to goods imported or exported into or out of the municipal area by way of rail. The above notification of 1921 was modified during the said time as other items were also included and the rates were increased; however, there was no change in the taxes levied after 1936.

Earlier, the distribution of powers between the provinces and the Central Government under the Government of India Act, 1935, was exclusively given to the Federal Centre under Item 59 of List 1 of Schedule VIII to impose the terminal taxes upon the goods carried out through rail but, the validity of levying and collecting terminal taxes that were in force prior to 1st April, 1937 was continued by Section 143 of the said Act and, by way of this continuance, these taxes were continued to be levied after April 1, 1937. 

The terminal taxes that were charged before the commencement of the Constitution were also charged and collected after its commencement, as per Article 277 of the Indian Constitution, which is similar to Section 143 of the Government of India Act, 1935, which existed before the commencement of the Constitution.

Subsequent to January 26, 1950, which means after the commencement of the Indian Constitution, in a notification dated December 1, 1959, the municipality imposed terminal taxes on certain items, including silver, silver jewellery, gold items, gold jewellery and precious stones, not merely by rail but also by road. 

The newly added procedure laid down under Section 67 came into being before the notification was issued and the Government gave its sanction to the new rules made by the Municipal Committee of Amravati for levying tax on these newly added items. The tax imposed on these three items was similar to that of other articles by the notifications prior to the Constitution. 

The 1st respondent in the present case had a business in gold, silver and precious stones and came within the local jurisdiction of the municipality of Amravati. The 1st respondent filed a writ petition before the High Court of Maharashtra (Nagpur) Bench under Article 226 against the newly imposed terminal taxes by the municipality for the purposes of challenging their validity on the grounds of legislative incompetence. The High Court allowed the writ petition and ruled in favour of the respondent.

Therefore, aggrieved by the decision of the High Court, the appellant came before the Hon’ble Supreme Court by way of filing an appeal against the order, dated March 18, 1961, passed by the High Court after getting the certificate of fitness from the High Courts. There were a total of three appeals on the certificate of fitness granted by the High Court of Maharashtra (Nagpur Bench) and the High Court of Madhya Pradesh. These appeals raised a similar issue regarding the interpretation of Article 227 of the Indian Constitution and the terminal taxes imposed by the respective municipal authorities.

Issues raised in the case

1. Whether the terminal taxes levied by the Town Municipal Committee in Amravati were legally valid?
2. Whether the orders passed by the Municipal Committee were within the ambit of powers provided to them?
3. Whether the tax imposed by the municipal authority was the same tax that was being charged before the commencement of the Constitution?

Arguments of the parties

Appellant

1. The first contention of the appellants was that the tax that was charged by the municipal committee was the same tax levied before the commencement of the Constitution.
2. It was contended that the words ‘tax or duty’ should be read as a tax or duty under the specified legislative entry and if such duties are of the same kind and fall within the same category, then tax might be imposed upon them even after the commencement of the Constitution. 
3. The word ‘levy’ mentioned under Article 277 does not only mean the assessment or collection of tax; it also refers to the imposition of tax and it must be construed in its widest sense.
4. The learned Attorney General supported the above contentions and stated that it is not even mandatory that a terminal tax should be charged in the actual sense and that it was being levied prior to the Constitution; it was enough if an enactment of the State vested powers in the municipality to levy certain taxes.

Respondent

In Article 277 of the Indian Constitution, the phrases “continue to be levied” and ‘to be applied for the same purposes’ are given, which implies the intention of the makers of the Constitution that the word ‘levy’ is to be construed as a collection of tax. The respondents cited the case of Chuttilal vs. Bagmal and Balwantrai (1956) in order to support the above statement, wherein they attempted to show the correlation between the words ‘levy’ and ‘the application of tax’ which helped in the interpretation of the phrase “continue to be levied”.

Laws involved in the case

Central Provinces and Berar Municipalities Act, 1922

The Central Provinces and Berar Municipalities Act, 1922, was an important legislation in the colonial period. The main objective of the Act was to regulate and govern the municipalities in the Central Provinces and the region of Berar, which was administered by Britishers at the time and included Madhya Pradesh, Chhattisgarh, Telangana and Maharashtra. 

Section 66 of Central Provinces and Berar Municipalities Act

It provides for the taxes that the committee may impose from time to time. It further provides that the State Government may regulate the imposition of taxes and may also increase the amount of rates for any tax. It states that the first imposition of any tax requires a prior sanction from the State Government. The committee may also abolish a tax that has already been imposed or vary the amount or rate of such tax but subject to the control of the State Government. 

Section 67 of Central Provinces and Berar Municipalities Act

It laid down the procedure for the imposition of taxes, which provides that a committee may pass a resolution for the purposes of imposing any tax under Section 66 and, after the said resolution has been passed, the committee shall publish a notice that defines the description of persons and property that is to be taxed, the amount or rate of the tax that will be imposed and the system for the assessment that needs to be taken. After receiving such proposals, the State Government may approve, provide its sanction or refuse to approve the same if it deems fit or else it may refer the same to the committee for reconsideration of the proposal. It further provides that the notification that describes the imposition of tax shall be conclusive proof that the said tax has been imposed as per the provisions of this Act. 

Section 68 of Central Provinces and Berar Municipalities Act

This Section deals with the procedure of variation of taxes, which provides that, in a special meeting, the committee may pass a resolution in order to present the abolition of any tax imposed already or in case of variation in any amount thereof. If the said proposal is regarding an increase in amount, then it shall be published in the manner prescribed by rules. If any inhabitant of the municipality objects to the increase in the amount of taxes, he may, within 30 days from the publication of the notice, object to the same in writing to the committee. The committee, in its special meeting, shall take into account all the objections filed and may modify the proposal if it thinks fit. It lastly provides that the publication of an abolition or variation in the tax shall be conclusive proof as per the provisions of the Central Province and Berar Municipalities Act, 1922.

Constitution of India

Article 277 of the Constitution

Article 277 of the Indian Constitution deals with the taxes, duties, cesses or fees that were being levied in a lawful manner before the commencement of the Constitution. They were levied by the State Governments or by any municipality or by any other local authority. It further provides that, in spite of the fact that those taxes and duties are mentioned in the Union list, they shall continue to be levied and applied for the same purposes until any contrary provision is made by the Parliament. 

Entry 89 of the Union List

Entry 89 of the Union list under the Constitution of India deals with the terminal taxes levied on goods or passengers, carried out by mode of rail, sea or air, as well as taxes on railway fares and freights. 

Government of India Act, 1935 (repealed)

The Act was passed by the British Parliament in August 1935 and is one of the longest legislation implemented by Britishers at that point in time. The said Act provided for the establishment of federal, provincial and joint public service commissions. The Act was formed on the basis of recommendations made by the Simon Commission.

Section 143 of Government of India Act, 1935

Section 143(1) provides that nothing in the foregoing provisions shall affect any duties or taxes charged in any Federal State unless any contrary provisions are made by the Act of the Federal legislature of that State.

Section 143(2) deals with the taxes, duties or cesses that were levied or charged in a lawful manner by the Provincial Government, municipality or any local authority before the commencement of Part III of this Act. It further provides that, in spite of that those taxes and duties were mentioned in the Federal legislative list, they shall continue to be levied and applied for the same purposes until and unless any other contrary law is made by the Federal legislature.

Relevant judgements referred to in the case

Rama Krishna Ramanath vs. the Janpad Sabha, Gondia (1962)

In this case, the District Council of Bhandara imposed a terminal tax on the export of bidis through rail as per the provisions of Central Provinces and Berar Local Self Government Act, 1920. The terminal tax was included in the Federal legislative list and as per Article 143(2), it was stated that the tax is being levied lawfully and will continue to be levied until any contrary provisions are made. Later, in 1948, the C.P. and Berar Local Government Act, 1948, came into being  and the earlier Act was repealed. The District Council was also replaced by Sabhas, and all the taxes and dues will now be dealt with by the newly established Janpad Sabhas. By way of an amendment in 1949, the Provincial Legislature replaced Section 192(b) of the C.P. Berar Local Government Act, 1948, which provided that all the taxes levied before the commencement of the 1948 Act shall continue to be levied and the amendment was given a retrospective effect. The appellant contended that, once the tax is discontinued through new legislation, it cannot be levied again and is beyond the competence of the legislature. The Supreme Court upheld the provisions of the new Act and held that the terminal tax that was being levied after the commencement of this Act is valid and the Provincial Legislature is competent to implement the Amendment Act of 1949. 

Judgement in Town Municipal Committee, Amravati vs. Ramchandra Vasudeo Chimote (1964)

The Supreme Court upheld the judgement given by the High Court and stated that the terminal tax imposed on goods like silver, silver jewellery, gold, gold jewellery and precious stones was never imposed by the municipality and thereby it cannot be stated that they were being levied lawfully. The Court further stated that if a State has given power to the municipality to charge taxes, then it cannot be said that the tax that had never been charged was levied in a lawful manner by the municipality or applied for the same purposes prior to the Constitution. However, in the present case, the Court stated that in the present appeal, the terminal tax was imposed on the gunpowder exported or imported through rail and before the commencement of the Constitution, there was no tax imposed on the same; hence, the appeal filed by the municipality is dismissed.

Rationale behind the judgement

The Supreme Court, while dealing with the facts of the present case, stated that the three appeals have a common question and raise a common ground, which is the levy of terminal taxes by the municipality. 

Power of municipality in levying of taxes

The Court observed that it is well stated that the power to levy terminal taxes distributed under the Constitution of India is specifically assigned to Union and that would not make any difference in the continuance of levying of terminal taxes. The Court rejected the argument of the learned Attorney General, who contended that it is enough that a state enactment vests its powers in the municipality in levying taxes. The Court observed that it lacks substance and stated that, if a state enactment has vested powers into municipalities to levy taxes, it does not mean that the tax which is being levied is lawful.

Construction of Article 277

The Court, while looking into the argument made by Mr. Setalvad, stated that it ignores the terms of Article 277 and that the intention of this provisions is to allow the present taxes to be continued, not that this Article confers authority on municipalities or government to increase the range of taxation by adding new taxes or increasing new items. The words “notwithstanding the taxes, etc. mentioned in the Union list” do not confer unlimited legislative power to impose new taxes that are of the same type or nature as those present before the commencement of the Constitution. The Court looked into the decision given in the case of Rama Krishna Ramnath vs. The Janpad Sabha, Gondia (1962), wherein the respondent contended that, as per Section 143(2) of the Government of India Act, 1935, the Provincial Legislature has been vested with plenary powers to make laws with regard to every tax. The Supreme Court rejected this contention and states that Section 143(2) is a savings provision and is introduced with an aim to prevent the dislocation of finances of the state and local authorities. In the above case, the Court also looked into the scope of the limited legislative power of the State. The words laid down in the said subsection ‘may continue to be levied’ if so desired by the provincial legislature which refers to that until any contrary provision is made by the federal legislature and hence this would suggest that there is a limited power of the province in this regard. While dealing with the phrase ‘may continue to be levied’, the same was given three different connotations:

1. Firstly, the tax must be levied lawfully;
2. Secondly, that the purpose for which tax was levied, the area for whose benefit the tax was being levied should be same; and
3. Thirdly, the rate or price of tax should not be increased. 

The Court, while dealing with the above three tests, stated that, if they are to be applied, then the contentions on behalf of the appellant cannot be accepted.

Construction of phrase ‘continue to be levied’

It was submitted by Mr. Setalvad that the phrase ‘continue to be levied’, which includes the word ‘levied’, has a wide connotation and not only includes the collection of tax but also the imposition of tax and the ascertaining of the amount due upon the taxpayer. The Court, while agreeing with the contention of Mr. Setalvad, stated that it is rightly contended that, before any tax is collected or assessed, the quantum of said tax must be assessed carefully and it must be done lawfully by a previous legislative sanction, i.e., an imposition of charge as decided by the authorities in the taxing statute. The Court further looked into the construction of the word “continue to be levied” under Article 277. For the said purposes, the Court looked into the judgement referred to by the respondent counsel in Chuttilal vs. Bagmal and Balwantrai (1956), wherein the relationship between the levy and application of tax was discussed and the Court agreed to its decision. Therefore, the Court upheld the judgement given by the High Court of Maharashtra (Nagpur bench). The Court stated that, in the present appeal, the terminal tax was imposed on the gunpowder exported or imported through rail and, before the commencement of the Constitution, there was no tax imposed on the same, hence, the appeal filed by the municipality is dismissed. 

Analysis of the case

The Town Municipal Committee, Amravati vs. Ramchandra Vasudeo Chimote (1964) is significant as it has affirmed the principles of reasonableness in the actions of administration passed by the municipal authorities. It has also indirectly discussed the importance of the principles of the Constitution, specifically Article 14, which deals with equality before law and prohibits the actions of the state that are arbitrary in nature. If we look at the decision given in this case, the Supreme Court set a precedent with regard to the taxes charged by the authorities at the local level, wherein some instances of exercising arbitrariness are prevalent. The Court, through its judgement, has protected the rights of citizens who have to pay unnecessary tax, which is not valid as per the law. The decision also sheds light on the use of the power of judicial review by the Supreme Court, wherein it looked into the decision of the administrative authorities who imposed taxes on the goods imported and exported by rail. In this case, the scope of municipal powers has also been dealt with in regard to taxation and property. The Court observed that such powers vested in the municipal authorities must be used cautiously and within their specified ambit. Such instances in the future would prove to be very significant for the lower courts and High Courts as well in order to determine the legality of provisions with respect to levying taxes.

Conclusion  

It can be concluded that the case of the Town Municipal Committee, Amravati vs. Ramchandra Vasudeo Chimote (1964), is of paramount importance and sets an impactful precedent while dealing with the decisions of administration and in interpreting the provisions of the Constitution. The judiciary has played a significant role in protecting the rights of the persons who were aggrieved by the imposition of unnecessary terminal tax on the goods imported and exported by rail transport. This case will work as an important precedent for future cases that deal with the same aspect and are of the same subject matter.

Frequently Asked Questions (FAQs)

Whether the local authorities have the authority or power to levy taxes?

Yes, the local or municipal authorities have the authority and power to collect taxes at the local level. The local authorities at different levels have been vested with the powers to levy local taxes like property tax, sales tax, excise tax etc. 

What are the local taxes levied by the competent authorities?

The local taxes are different in every city and town and they are also known as the municipal taxes which are being levied by the municipalities as per the authority or power assigned to them in the relevant statutes or by the State or Central Government. They may include the property tax, sales tax, excise duties and taxes related to the other amenities like water supply. 

References

• https://www.legalauthority.in/judgement/the-town-municipal-committee-amravati-vs-ramchandra-vasudeo-chimote-and-another-36782 
• https://www.the-laws.com/Encyclopedia/browse/Case?caseId=004691450000&title=town-municipal-committee-amraoti-talig-vs-ramchandra-vasudeo-chimote 

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