OCL Limited v. State of Orissa & Ors

Case snapshot

Sections / provisions: Entry 52 of List II of Constitution of India and Article 301 of the Constitution of India

Questions before the Court / Tribunal

• OCL Limited Vs State of Orissa & Ors (Supreme Court) Date- 4th November, 2022 Sub-Whether 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 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. The three judges bench of Supreme Court including CJI was dealing with a vexatious issue relating to levy of entry tax by holding the…
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

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 Constitution. It relied upon the five judge Bench decision in Jindal Stainless Ltd. & Anr. V. State of Haryana & Ors. 5 This Court had held that whenever a law is impugned as violative of Article 301, the court has to consider whether the enactment facially or patently indicates quantifiable data based on which compensatory taxes sought to be levied. The basis of SAIL’s writ petition before the High Court 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 High Court by its impugned judgment dismissed SAIL’s writ petition holding that the Orissa entry tax did not violate any constitutional prohibition and was in conformity with Article 304(a) of the Constitution. SAIL relied on notification dated 15.04.1995 as modified on 07.03.1996 and 17.11.2014. It contended that the effect of these was to exclude the areas in its…

HINDALCO, in its petitions had relied on notifications dated 07.04.2000 which declared its industrial area, in Renukoot Sonebhadra, as an “industrial township” under the UPIAD Act. 8. It was held by the Allahabad High Court that the inclusion of industrial townships within the definition of the local area for the purposes of entry tax did not exceed any constitutional limit and also did not violate Article 243-Q of Constitution. A Submission of Parties (i) Appellants’ contentions

29. From the facts narrated and the arguments of parties, it is quite evident that the narrow issue requiring determination in these appeals is whether 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 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. 30. The Constitution Bench ruling in Diamond Sugar Mills Ltd. (supra), which was heavily relied upon by the appellants, was rendered in the context of pointed authorization by the state enactment - U.P. Sugarcane (Regulations of State and Purchase) Act, 1953 in Section 20 and the U.P. Sugarcane Cess Act, 1956 in Section 3 to State to collect entry tax “into the premises of a factory”. The challenge in that judgment was on the ground that the levy was invalid as it was beyond the legislative competence of the State – the argument being that the factory premises could not be characterised as a “local area”. This Court analysed Entry 52, by first…

36. In two judgments i.e., MGR Industries Association & Anr. V. State of Uttar Pradesh & Ors21 and NOIDA (supra), this Court had occasion to consider the question of applicability of Article 243-Q. In MGR Industries (supra), specifically the provisions of the U.P. Industrial Area Development Act, 1976 particularly, Section 12A was also considered. In MGR Industries (supra) the argument urged was that the appellant was an association of industrial areas which were declared as industrial areas under the U.P. enactment but in respect of which no notification had been issued under Article 243-Q, the levy of taxes by Panchayats was questioned. The court noticed Section 12A of the U.P. Industrial Areas Development Act, 1976, which reads as follows:

ambit of panchayats. The court noted crucially that “the exclusion of industrial development area from panchayats has serious consequences since the person residing within the industrial development are immediately deprived of facilities and benefits extended to them by from their respective panchayats. The deprivation of said benefits has to be a conscious decision in accordance with condition as contained in Article 243Q.” 38. In NOIDA (supra), the issue was with respect of whether, the appellant authority, also constituted under the UPIAD Act could claim the benefit of exemption under Section 10 (20) of the Income Tax Act, 1961 as a “local authority”. The appellant had relied upon on a notification (dated 24.12.2011) issued by Governor under proviso to Article 243-Q(1). The argument made was since the industrial area i.e. NOIDA was excluded from the requirement of provisions of Part IX of the Constitution, it ceased to be a municipal area and therefore was itself a local authority. This Court rejected the argument and observed, – after noticing the Statement of Object and Reasons to the Constitution (Seventy-fourth) Amendment Act, 1992 and the memorandum, moved by the Minister…

Appellant / assessee submissions

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 Constitution. It relied upon the five judge Bench decision in Jindal Stainless Ltd. & Anr. V. State of Haryana & Ors. 5 This Court had held that whenever a law is impugned as violative of Article 301, the court has to consider whether the enactment facially or patently indicates quantifiable data based on which compensatory taxes sought to be levied. The basis of SAIL’s writ petition before the High Court 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 High Court by its impugned judgment dismissed SAIL’s writ petition holding that the Orissa entry tax did not violate any constitutional prohibition and was in conformity with Article 304(a) of the Constitution. SAIL relied on notification dated 15.04.1995 as modified on 07.03.1996 and 17.11.2014. It contended that the effect of these was to exclude the areas in its…

were excluded from the local limits of the Rajgangpur Municipality It, therefore, argued that the inclusion of its industrial township as a local area by virtue of the definition of that term in the Orissa Act was unconstitutional. OCL contended that having regard to the agreement (hereafter "Agreement") 6 which it had entered into with the Municipal Council, in regard to the provision of services and the nature of services provided, its industrial township could not be characterised as a local area. It also relied upon Article 243-Q of the Constitution and contended that any enactment by the Parliament or the State Government had to conform to the amended Constitution, especially provisions of Article 243-Q, the object of which was to exclude from within the purview of municipalities and municipal bodies, industrial establishments. Therefore, the imposed or levy of entry tax was void. The Writ Petitions of both OCL and SAIL were rejected by the Orissa High Court.7 7. This batch also comprises of two appeals 8 preferred by Hindustan Aluminium Company Ltd. (hereafter, “HINDALCO”). Both appeals are directed against the common judgment rendered by the Allahabad High Court dated…

9. It was argued by Mr Braj K Mishra, learned counsel for OCL, that no octroi was being levied or leviable in its notified industrial township and therefore, it is not covered by the definition of “local area” under Entry 52 of List II of the Seventh Schedule to the Constitution. Consequently, the levy of entry tax on entry of goods into such industrial township for use, sale or consumption therein must be declared unconstitutional on the ground of incompetency of the State Legislature to levy the same. 10. It was also submitted by the counsel that interpretation of Entry 52 in List II (of the Seventh Schedule to the Constitution) declared in Diamond Sugar Mills (supra) is applicable, even after introduction of Article 243-Q, under Part IX-A of the Constitution. The purpose of introducing that provision was to strengthen functioning of local bodies because they were unable to perform effectively as vibrant units of self-government. The proviso to the article 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. Counsel submitted that such…

12. OCL relied on the 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. Further, Clause 5 of the minutes of discussions11 dated 01-02-1999 between the State Government, Rajgangpur Municipality, and OCL declares that goods procured by OCL will not be liable for octroi. Learned counsel submitted that once the OCL is exempted from payment of octroi, the State Government cannot impose entry

Revenue / respondent submissions

Learned counsel also asserted that exemption given to OCL from payment of octroi was made after taking into account that the amount of ₹ 2 crores deposited by it would be enough to set off the loss of octroi and that the municipality was compensated for even the potential future loss of revenue. 14. Mr Bagaria, learned senior, relied on Diamond Sugar Mills (supra) to urge that meaning of the term ‘local area’ as expounded in that decision must be applied in the present case to declare SAIL’s industrial area as not a ‘local area’ within the meaning of Entry 52 of List II. It was further argued that merely because SAIL provided municipal services within its industrial township area, does not make its area a ‘municipality’ or ‘local authority’. Furthermore, no powers, authority and responsibilities of municipalities under Article 243-W13 were endowed upon SAIL by the State Government to enable 12 (2018] 9 SCC 351 13 Article 243W - Powers, authority and responsibilities of Municipalities, etc. Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow-- (a) the Municipalities with such powers and authority as may be necessary to enable them to…

Court / Tribunal analysis and reasoning

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. 1 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

26. The counsel sought to distinguish the present case from NOIDA (supra) by arguing that while in latter, the court held that an industrial township

39. It is immediately clear that in all the decisions, which the appellants relied upon, (save Diamond Sugar Mills (supra) and Shaktikumar M. Sancheti (supra)) the question which had arisen for consideration was whether after the exclusion of an industrial area, either under the provisions of some state law, or in terms of Article 243-Q, such an industrial area was part of a municipality, or a panchayat. 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. In NOIDA (supra), the question which arose for decision was whether the NOIDA was a local authority for claiming income tax exemption status, under Section 10 (20) of the Income Tax Act, 1961. This Court held that the exclusion of an area from the…

of municipality of its ultimate destination. In Sahaj Gram Panchayat (supra), the argument that the industrial areas could not be excluded in exercise of the powers under Article 243-(Q)(1) was repelled. MGR Industries (supra) is an important judgment because the Court held that the mere exclusion of an industrial area under a local enactment was insufficient for it to be removed from the coverage of Panchayat’s jurisdiction in the absence of a notification under Article 243-Q (1). The judgment in NOIDA (supra) explained the intent and purport of the provision of Part IX-A of the Constitution. None of these, in the opinion of the Court, can be of any assistance to the appellants, who contend that industrial areas or industrial estates can be treated as local areas the moment they are excluded from the limits of municipality or whenever they are excluded by virtue of exercise of power under proviso to Article 243- Q (1) of the Constitution.

Operative decision and relief

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 Constitution. It relied upon the five judge Bench decision in Jindal Stainless Ltd. & Anr. V. State of Haryana & Ors. 5 This Court had held that whenever a law is impugned as violative of Article 301, the court has to consider whether the enactment facially or patently indicates quantifiable data based on which compensatory taxes sought to be levied. The basis of SAIL’s writ petition before the High Court 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 High Court by its impugned judgment dismissed SAIL’s writ petition holding that the Orissa entry tax did not violate any constitutional prohibition and was in conformity with Article 304(a) of the Constitution. SAIL relied on notification dated 15.04.1995 as modified on 07.03.1996 and 17.11.2014. It contended that the effect of these was to exclude the areas in its…

49. The Court is of the opinion that the argument – made by counsel that the levy could not be retrospective, in the facts of this case, is insubstantial. The earlier effort to tax the assessee by demand led to petitions which quashed them – where the legal regime was that some compensatory element had to be disclosed. With the object of curing this defect, the fresh law was enacted by the State of U.P., with retrospective effect which on the application of principles enunciated by this Court, in Sri Prithvi Cotton Mills v. Baroda Borough Municipality & Ors.24, is valid. 50. In view of the foregoing discussions, this Court finds no reason to interfere with the decision of the Orissa and Allahabad High Courts. The special leave petition and appeals are consequently dismissed as unmerited without any order on costs.

Ratio and legal principle

• The packaged judgment addresses OCL Limited Vs State of Orissa & Ors (Supreme Court) Date- 4th November, 2022 Sub-Whether 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 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. The three judges bench of Supreme Court including CJI was dealing with a vexatious issue relating to levy of entry tax by holding the…. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with ocl limited vs state of orissa & ors (supreme court) date- 4th november, 2022 sub-whether 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 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. the three judges bench of supreme court including cji was dealing with a vexatious issue relating to levy of entry tax by holding the… Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• Entry 52 of List II of Constitution of India and Article 301 of the Constitution of India - apply the exact version considered in the judgment.

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