On 4th November 2022, the Supreme Court in a Division Bench comprising of Ex-Chief Justice Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice J.B. Pardiwala observed that the inclusion of industrial townships within the definition of the local area for the purposes of entry tax do not exceed any constitutional limit and also do not violate Article 243-Q of the Constitution. (M/s. OCL INDIA LTD. Vs. STATE OF ORISSA & ORS.)
Facts of the Case:
The State of Orissa enacted the Orissa Entry Tax Act, 1999 which defined the local area so as to include industrial townships among other areas3 including areas within the industrial township constituted under Section 4 of the Orissa Municipal Act, 1950, thereby subjecting goods entering into such areas, to entry tax. 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. Two of the appellants before this Court i.e., M/s. OCL India Ltd. and Steel Authority of India Ltd. impugned the Orissa Act especially the levy of entry tax. SAIL contended that imposition of entry tax violates Article 301.
The basis of SAIL’s WP before the HC was that the levy of entry tax on capital goods and raw-materials imported into India and raw-materials used in the factories or in work was unconstitutional. The WP was dismissed by the Orissa HC. OCL challenged the levy imposed contending that by virtue of certain notifications dated 23.12.1998, the industrial townships set up by it were excluded from the local limits of the Rajgangpur Municipality and Article 243-Q was referred but the WP was also rejected by the HC.
Two appeals were preferred by Hindustan Aluminium Company Ltd. Directed against the judgment rendered by Allahabad HC, which had negatived the contentions urged by it similar to those by OCL and SAIL. Allahabad HC held that inclusion of industrial townships within the definition of the local area for the purposes of entry tax did not exceed any constitutional limit, giving rise to the present case.
Contentions of the Appellant:
The counsel for the appellant submitted that “Such industrial establishment cannot be equated with an area administered by local authority i.e., local self-government such as a municipal or town area. Therefore, its exclusion, by the proviso to Article 243-Q meant that it could not be considered as a local area, under any law, made by any state. The levy of entry tax, into such areas covered by industrial establishments, lawfully declared as such, therefore, had to fail. OCL does not possess attributes and features or any power or functions of a ‘local authority’ like Municipal Committees, District Boards, Gram Panchayats, and Panchayat Samitis.
Thus, its ‘Industrial Township’ cannot be construed to fall within the expression “Local Area”. Merely because SAIL provided municipal services within its industrial township area, does not make its area a ‘municipality’ or ‘local authority’” The cases of Union of India v RC Jain, Housing Board of Haryana v Haryana Housing Board Employees’ Union, and Diamond Sugar Mills Ltd., Anr. v. State of Uttar Pradesh & Anr., ITC Ltd v Agriculture Produce Market Committee, and Agreement between OCL and the Municipality to state that OCL’s premises are excluded from the Rajgangpur Municipal area after its declaration as an Industrial Township.
Contentions of the Respondents:
The counsel for the respondents submitted that “the notifications cover not only the factory premises but also the other areas consisting of factory premises, residential colonies, other areas including roads, sewage, several common amenities, play fields, open spaces, and other associated facilities and thus claiming that only the factory premise of OCL constitute industrial township should not be accepted. The industrial township was open to public use and the concerned Rajanagar Municipality has right of using several amenities available including the drainage and sewage facilities to establish that the Industrial Township was open to public use just like any other Industrial Township in the country.
The mere exclusion of an industrial estate or area does not render it immune from entry tax, and there can be no dispute that it is a local areaThe levy imposed is compensatory in character and cannot be considered to offend Article 301 of the Constitution. The industrial area is not excluded from the states’ territories and remain subject to state’s authority and legislative powers. Their inclusion as “local area” for the levy and collection of entry tax, is therefore not violative of any provision of the Constitution of India.”
Observations and Judgment of the Court:
The hon’ble court observed that “in Saij Gram Panchayat (supra), the court rejected the argument that exclusion of an area, which was previously declared as an industrial area, from a panchayat, by virtue of a notification, was contrary to the Gujarat Panchayats Act, 1961 or Article 243-Q of the Constitution of India. Likewise, in MGR Industries (supra), the court held that without a notification under proviso to Article 243-Q, mere declaration of an area as an industrial area or township, did not result in the exclusion of that area, from the coverage of a panchayat. The focus of provisions of Part IX-A of the Constitution inserted through the 74th Amendment was on local self-governance and all provisions concerning it. It had no relevance to the issue of State taxation.
Furthermore, the exercise of power by the Governor to exclude from the limits of a municipal area, industrial estates or large areas that were predominantly industrialised areas is upon the condition that such areas provided a minimum modicum of municipal services. The application of state laws regarding industrial areas, therefore, squarely falls within the expression “description of a body constituted for the purposes of local affairs of the State” since no one denies that industrial areas are also part of the State.
The record in the present case indicates that the areas excluded from the municipality in OCL’s case comprise of several villages. The material on record placed by SAIL also acknowledges that not less than 24,000 houses exist in its industrial area. Likewise in the case of HINDALCO as also SAIL indicate that the industrial estates or area cover large areas. If one keeps these facts in mind, there can be no doubt that such areas would fall within the description “local areas”. In the case of Diamond Sugar Mills court delt with different facts.”
The appeals were dismissed and it was held that in any case, the levy would be attracted because the incidence is the entry into the local area. Hence, no interreference was done with the decision of Orissa and Allahabad Hogh Court.
Case: M/s. OCL INDIA LTD. Vs. STATE OF ORISSA & ORS.
Citation: Civil Appeal No. 2348 Of 2004 With Special Leave Petition (Civil) No. 15179 Of 2008, Civil Appeal Nos. 4649-4650 Of 2012, And Civil Appeal No. 289 Of 2012
Bench: Chief Justice Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice J.B. Pardiwala
Date: November 04, 2022
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