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SUPREME COURT OF INDIA
Uday Umesh Lalit, CJI., S. Ravindra Bhat, J.B. Pardiwala, JJ.
M/s. OCL India Ltd. – Appellant
Versus
State of Orissa & Ors. – Respondents
Civil Appeal No. 2348 of 2004 with Special Leave Petition (Civil) No. 15179 of 2008, Civil Appeal Nos. 4649-4650 of 2012, Civil Appeal No. 289 of 2012
Decided On : 04-11-2022
local area - interpretation of local area under Entry 52 of List II - General Clauses Act, 1897, Orissa Entry Tax Act, 1999, Uttar Pradesh Municipalities Act, 1916, Uttar Pradesh Kshetrra Panchayats And Zila Panchayats Adhiniyam, 1961, United Provinces Panchayat Raj Act, 1947, U.P. Industrial Area Development Act, 1976 - Entry 52 of List II authorizes State Legislatures to levy entry tax on the entry of goods into a local area for consumption, use or sale therein. The term 'local area' has not been defined in the Constitution, but the General Clauses Act, 1897 defines 'local authority' as a municipal committee, district board, body of port Commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund. The State of Orissa enacted the Orissa Entry Tax Act, 1999, which defined the local area to include industrial townships among other areas, thereby subjecting goods entering into such areas to entry tax. The proviso to Article 243-Q of the Constitution allows the Governor to exclude an area industrial establishment in which an industrial township may be set up and in which certain municipal services may be provided by such establishment. The court held that the exclusion of an industrial area or areas from the limits of municipal councils or municipalities under the state laws in exercise of statutory power or by virtue of a declaration under proviso to Article 243-Q, would not result in that area ceasing to be a 'local area' within Entry 52 of List II and consequently precluding State from levying and collecting entry tax from those areas.
Fact of the Case:
The case involved common questions of law relating to the interpretation of 'local area' under Entry 52 of List II of the Seventh Schedule to the Constitution. The State of Orissa enacted the Orissa Entry Tax Act, 1999, which defined the local area to include industrial townships among other areas, thereby subjecting goods entering into such areas to entry tax. The proviso to Article 243-Q of the Constitution allows the Governor to exclude an area industrial establishment in which an industrial township may be set up and in which certain municipal services may be provided by such establishment. The appellants, including OCL India Ltd., Steel Authority of India Ltd. (SAIL), and Hindustan Aluminium Company Ltd. (HINDALCO), challenged the imposition of entry tax on the grounds that the industrial areas or estates should not be treated as local areas and therefore should not be subject to entry tax.
Finding of the Court:
The Court found that the exclusion of industrial areas or estates from the limits of municipal councils or municipalities under the state laws or by virtue of a declaration under proviso to Article 243-Q did not result in those areas ceasing to be 'local areas' within Entry 52 of List II. The Court also held that the levy of entry tax on goods entering industrial areas or estates was valid and did not violate any constitutional provisions.
Issues: The main issue was whether the exclusion of industrial areas or estates from the limits of municipal councils or municipalities under the state laws or by virtue of a declaration under proviso to Article 243-Q would result in those areas ceasing to be 'local areas' within Entry 52 of List II and preclude the State from levying and collecting entry tax from those areas.
Ratio Decidendi: The Court's decision was based on the interpretation of the term 'local area' under Entry 52 of List II, the General Clauses Act, 1897, the Orissa Entry Tax Act, 1999, the Uttar Pradesh Municipalities Act, 1916, the Uttar Pradesh Kshetrra Panchayats And Zila Panchayats Adhiniyam, 1961, the United Provinces Panchayat Raj Act, 1947, and the U.P. Industrial Area Development Act, 1976. The Court held that the exclusion of industrial areas or estates from the limits of municipal councils or municipalities did not result in those areas ceasing to be 'local areas' and therefore did not preclude the State from levying and collecting entry tax from those areas.
Final Decision: The special leave petition and appeals were dismissed as unmerited without any order on costs.
JUDGMENT :
S. Ravindra Bhat, J.
1. Since common questions of law relating to the interpretation of “local area” occurring under Entry 52 of List II of the Seventh Schedule to the Constitution are involved, this Court by its order dated 26.03.2015 referred the issue for the decision of a larger bench. The reference order took note of a previous Constitution Bench ruling in Diamond Sugar Mills Ltd. & Anr. v. State of Uttar Pradesh & Anr., (1961) 3 SCR 242 where the court held that a “local area” would be an area which is administered by a local body such as a municipality, a district Board, a local board, a Panchayat or the like and that factory premises are not covered by the aforesaid expression. The court also took note of the Constitution (Seventy-fourth) Amendment Act, 1992 which introduced Article 243-Q relating to the constitution and administration of municipal bodies and held that having regard to these developments, the issues which need adjudication in the present appeals have to be considered by a larger bench. Hence, the appeals are listed before this Bench.
2. For a proper determination of the issues involved, it would be necessary first to notice Entry 52 of List II which authorises State Legislatures to levy entry tax:
“taxes on the entry of goods into a local area for consumption, use or sale therein”2[This entry was omitted by the Constitution (One Hundred and First) Amendment Act, 2016].
3. The term “local area” has not been defined in the Constitution; however, by Article 367, provisions of the General Clauses Act, 1897, subject to adaptations or modifications made under Article 372 shall apply for interpretation of the Constitution. The General Clauses Act, 1897 does not per se define a local area, however, it does define a “local authority”, by Section 2(31) in the following terms:
“(31) “local authority” shall mean a municipal committee, district board, body of port Commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund.”
4. The State of Orissa enacted the Orissa Entry Tax Act, 1999 (hereafter, “the Orissa Act”) which defined the local area so as to include industrial townships among other areas3[(f) “Local area” means the areas within the limits of any –
(i) Municipality constituted under the Orissa Municipal Act,1950 (Orissa Act 23 of 1950);
(ii) Grama Panchayat constituted under the Orissa Grama Panchayats Act, 1964 (Orissa Act 1 of 1965);
(iii) Other local authority by whatever name called, constituted or continued in any law for the time being in force, and includes the area within an industrial township constituted under Section 4 of the Orissa Municipal Act, 1950 (Orissa Act 23 of 1950).] including areas within the industrial township constituted under Section 4 of the Orissa Municipal Act, 1950 (hereafter “the 1950 Act”), thereby subjecting goods entering into such areas, to entry tax.4[By Section 3, a levy and collection of tax on the entry of scheduled goods into local area for consumption, use or sale was imposed] The 1950 Act, by Section 4 provides that the State Government can constitute (a) a notified area council for every “transitional” area; (b) a municipal council for every smaller urban area; and (c) a municipal corporation for every larger urban area. The proviso to Section 4(1), however, indicates that no such council or corporation:
“shall be constituted in any urban area or part thereof which the Governor may, having regard to the size of the area under Municipal services being provided or proposed to be provided by an industrial establishment in that area and such other factors as he may deem fit, by notification, specified to be an industrial township.”
5. Two of the appellants before this Court i.e., M/s. OCL India Ltd. and Steel Authority of India Ltd. (hereafter, “SAIL”) impugned the Orissa Act especially the levy of entry tax. SAIL contended that imposition of entry tax violates Article 301 of the
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