Important point
In terms of Section 127(1) of the Madhya Pradesh Municipalities Act, the power to impose the tax has to be exercised by the Municipal Council which is subject to any general or special order of the State Government.

Headnote:Madhya Pradesh Municipalities Act, 1961—Sections 127, 129(5), (7), 130 and 131—Export Tax—Powers of Municipal Council to impose export tax on cement vis-a-vis State Government—There is no question of any suo motu fixation of rate by the State Government—While acting on the proposal by the Municipal Council, State Government can direct modification affecting the substance of the proposal—However, it cannot be given effect to unless and until the modification has been accepted by the Council at a special meeting—Appellant company engaged in manufacture of various kinds of cement—Municipal Council in exercise of powers under Section 127(1)(xvi) of the Act resolved to impose export tax on cement and other commodities which are exported from the limits of the Municipal Council—Notification published levying terminal tax on cement at the rate of 0.50% on the price of cement—Since appellant was paying tax at the rate of 0.20% it was directed to pay the differential amount—Writ petition was filed by appellant questioning the demand—It was contended that Municipality is only entitled to recover the export tax on cement at the rate prescribed by the State Government and not as claimed by the municipality—Whether appellant was liable to pay the differential sum—(Yes)—Whether Municipal Council is bound by the Government Order—(No).
Held : A bare reading of Section 127 shows that the Municipal Council may from time to time and subject to the provisions of the Chapter (i.e. Chapter VII relating to “Municipal Taxation”) in question and its general or special order which the State Government may make in that behalf impose in the whole or in any part of the Municipality any of the taxes for the purposes of the Act. The present dispute relates to clause (xvi) of sub-section (1) of Section 127 of the Act. Under the constitutional scheme the power to levy the tax of the nature levied under Section 127 of the Act is that of the State Government which is clear from the fact that though the Council may impose any tax for the purposes of the Act, the same is subject to any general or special order which the State Government may make in that behalf. Furthermore, sub-section (2) of Section 127 authorises the State Government to regulate the imposition, assessment and collection of tax under the Act and also prescribes the maximum and minimum limits as to the amount or rate of tax. (Paras 11 and 12)
Though the Government Order refers Sections 127 and 129 of the Act, it is to be noted that there was no proposal by the Municipal Council for reduction of the rate of tax. In terms of sub-section (1) of Section 127, the power to impose the tax has to be exercised by the Council which is of course subject to any general or special order of the State Government. The Municipal Council exercises the power as a delegatee and the power exercised under Section 127 as noted above is a delegated legislation. Since the Municipal Council has not proposed for any variation in the rate of tax the question of the State Government passing any general or special order in that regard is not contemplated. It is to be further noted that the Government Order treats the matter as instruction to all municipalities. So far as Section 129 is concerned, there is no question of any suo motu fixation of rate by the State Government. In fact while acting on the proposal by the Municipal Council, the State Government can direct modification affecting the substance of the proposal. But the same cannot be given effect to unless and until the modification has been accepted by the Council at a special meeting. In the instant case that contingency has not arisen. Though in terms of Section 131 the State Government can initiate the action for reduction in the rate that can only be done if the enumerated circumstances exist. That situation has also not arisen in the instant case and admittedly the State Government has not acted in terms of Section 131 of the Act. Therefore, the Division Bench is right in its view that the circular of the State Government dated 15.12.1995 is really of no consequence. Further changes under Section 127 can be introduced in terms of sub-section (2) of Section 127 by framing rules. In the instant case, the rules were framed in March 1997 and did not have any retrospective effect. (Paras 14 and 15)

Judgment

Arijit Pasayat, J.—Appellant calls in question legality of the judgment rendered by a Division Bench of the Madhya Pradesh High Court at Jabalpur upsetting judgment of a learned Single Judge who held that the Municipal Council, Kymore, presently known as Kymore Nagar Panchayat (hereinafter referred to as the ‘Municipal Council’) is bound by the Government Order dated 15.12.1995 issued by the State Government under the Madhya Pradesh Municipalities Act, 1961 (in short the ‘Act’). Learned Single Judge was of the view that the power vests with the State Government who issued the said Government Order and there is no justification on the part of the Municipal Council in making the impugned demands on the basis of rates fixed by it. It was consequentially declared that the present appellant was not liable to pay the differential sum and was only required to pay tax at the rate of 0.20% as fixed by the State Government.

2. The factual position which is almost undisputed is essentially as follows:

The appellant, a company registered under the Companies Act, 1956 (in short the ‘Companies Act’) has its head office at Bombay and is engaged in manufacture of various kinds of cement. It has one cement manufacturing plant at Kymore known as Kymore Cement Works. On 2.5.1991 the Municipal Council in exercise of powers conferred under Section 127(1)(xvi) of the Act had resolved to impose export tax on cement and other commodities which are exported from the limits of the Municipal Council. A Notification was duly published in the Official Gazette on 12.7.1991 levying terminal tax on cement at the rate of 0.50 per cent on the price of the cement. Challenge was made to the said Notification before the High Court and ultimately before this Court but without any success.

3. Undisputedly, the Notification dated 2nd May, 1991 was issued in exercise of power conferred under sub-sections (5) and (7) of Section 129 of the Act. The State Government accorded sanction to the proposal of the Municipal Council for imposition of terminal tax within whole of the municipality in terms of clause (xvi) of sub-section (1) of Section 127 of the Act. Thereafter, the State Government issued a General Circular i.e. Government Order dated 15.12.1995 indicating that there must be uniformity in the rates of export tax all over the State of Madhya Pradesh. So far as cement is concerned, the rate prescribed was 0.20 per cent on the price of the cement. The appellant received a notice on 6.8.1996 followed by a letter dated 23.8.1996 requiring payment of export tax at the rate of 0.50 per cent on the price of the cement as was prescribed in the Notification dated 2.5.1991. Since the appellant was paying tax at the rate of 0.20 per cent it was directed to pay the differential amount.

4. A writ petition was filed by the appellant questioning the demand. It was contended that the Municipality is only entitled to recover the export tax on cement at the rate prescribed by the State Government and not as claimed by the municipality. It cannot impose tax on its own as the imposition is always subject to the approval of the State Government. Since the State Government in order to bring uniformity all over the State of Madhya Pradesh had issued a Government Order dated 15.12.1995 fixing the rate at 0.20 per cent on the price of cement, the Municipal Council cannot recover the tax at the old rate.

5. The writ petition was contested by the Municipal Council and it was stated that there cannot be any challenge to its competence to recover the export tax on cement at the rate prescribed by the Notification dated 2.5.1991 and the order passed by the State Government cannot override the said Notification.

6. Learned Single Judge came to hold that the Municipal Council cannot recover the tax at the old rate being of the view that when the State Government acted in terms of Sections 127 and 129 of the Act, the Municipal Council had no option but to obey. It is to be noted that there we

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2005 Supreme(SC) 573

Important pointIn terms of Section 127(1) of the Madhya Pradesh Municipalities Act, the power to ­impose the tax has to be exercised by the Municipal Council which is subject to any ­general or special order of the State Government.

Important point
In terms of Section 127(1) of the Madhya Pradesh Municipalities Act, the power to impose the tax has to be exercised by the Municipal Council which is subject to any general or special order of the State Government.