An octroi duty levied by a municipality is essentially a compensatory tax and, therefore, does not require the previous sanction or the subsequent assent of the President under Article 304 of the Constitution.

NARASIMHAM, C. J.

( 1 ) IN these 2 applications under Article 226 the constitutional validity of Clause (kk) of Sub-section (1) of Section 131 of the Orissa Municipal Act, 1950, as amended by the Orissa Municipal (Amendment) Act, 1954, is under challenge. Hence they were both heard together and will be disposed of in one judgment.

( 2 ) SUB-SECTION (1) of Section 131 of the Orissa Municipal Act confers power on the municipalities in Orissa, to levy various kinds of taxes and fees after obtaining the sanction of the State Government. By the amending Act of 1954 a new Clause (kk) was inserted in that Section as follows :

" (kk) An octroi on goods brought within the limits of the Municipality for consumption, use or sale therein is maintained by the Municipal Council, (sic.)"

( 3 ) MR. Das for the petitioners urged that the said Clause (kk) of Sub-section (1) of section 131 is unconstitutional on the following two grounds :

(i) It amounted to excessive delegation by the Legislature, inasmuch as the maximum or minimum limit to the octroi duty that may be levied was not indicated in the Act and the Municipality was conferred unfettered discretion to levy octroi at any rate that it may consider fit, subject to the sanction of the State Government.

(ii) It imposed an unreasonable restriction on the freedom of trade, commerce and intercourse within the territory in India and as neither the previous assent of the Presi- (dent (before the introduction of the Bill)nor his subsequent assent (after the passing of the Act) was obtained it would not be saved by Article 304 (b) of the Constitution.

( 4 ) THE power of a Municipality to levy octroi duty on the entry of goods within that municipality for sale, consump-tion or use therein is a well recognised statutory power which has been in existence for a long time. In the recent Report of the taxation Enquiry Commission, 1955-56, Part I of Chapter IV deals with the history of octroi duties, the 'various objections to the levy of such duties and the final recommendations of the Commission to allow their eontinu-ance subject to certain restrictions. But it is unnecessary to discuss this aspect at length because we are concerned only with the constitutional validity of the provision. It is true that neither in impugned Sub-section (1) of Section 131 nor in the succeeding subsection of that Sec- tion is there any provision for the guidance of the Municipality while fixing the rate of levy of the octroi duty. The only restriction on the exercise of its power is the requirement about obtaining sanction from Government. But it was urged that compliance with this requirement alone would not suffice. Mr. Das invited our attention to Sections 112, 133, 134 and 135 of the Orissa Municipal Act which impose certain restrictions on the levy of taxes on holdings, lighting and water tax, latrine tax, drainage tax etc. It was urged that in the absence of such restrictions regarding the imposition of octroi duty, Clause (kk) must be struck down as unconstitutional as it is primarily the function of the Legislature to fix the rate of levy of tax or duty or at any rate, to fix the maximum and the minimum within which the rate should range or to give guidance to the Municipality in the statute itself for fixing the rate.

( 5 ) THOUGH there may be no express provision in Chapter XIII of the Orissa municipal Act (which deals with municipal taxation) regarding the principles to be followed by the Municipality while fixing the rate of levy of the octroi nevertheless i think the Legislature has, in Sections 114 and 117 of the Act clearly indicated the main principles which should guide the Municipality in levying octroi duty. Section 114 says that all sums received by the Municipality from taxes or fees shall be included in the Municipal funds. Section 117 says that any sum included in the municipal fund (subject to certain limited exceptions) cannot be used for any other purpose than the purposes of the Municipalit