TYAGI, J. - (1.) THESE 39 writ petitions were filed by the residents of Gangapur, Udaipur, Ajmer and Beawer towns challenging the validity of the rates of octroi duty on certain commodities being violative of Art. 14 of the Constitution as according to them they are highly discriminatory when compared with the rates applicable in other towns of the State.
(2.) OUT of these 39 petitions, 8 petitions relate to the octroi duty on cloth in Gangapur town, 1 to Udaipur town wherein octroi rates on medicine have been challenged, 3 petitions to Ajmer town in relation to octroi duty imposed on cigar, cigarettes and medicines and 27 petitions have been filed by the citizens of Beawar town to challenge the rates of octroi duty on different commodities which shall be dealt with separately when I would consider these petitions. Since common questions of law have been raised, it will be advisable to dispose of these petitions by one judgment. In these petitions the vires of sec. 104 of the Rajasthan Town Municipalities Act, 1955 (hereinafter called the Act) was also challenged but at the very outset learned counsel for all the petitioners Mr. Guman Mal Lodha informed the Court that in view of the decision of the Division Bench of this Court in Mohanlal Daga vs. The State of Rajasthan and others (l), against which the appeal has been taken to the Supreme Court, he would not like to agitate that question here and, therefore, I would not refer those facts mentioned in the petitions which relate to that question. The only question now left for the determination of the Court is whether the rates of octroi duty on different commodities under challenge are hit by Art. 14 of the Constitution as the disparity between these rates and the rates obtainable on these very commodities in the towns of Jodhpur, Jaipur and some other places in Rajasthan is glaring and that it cannot be explained on any rational basis. The grievance of the petitioners in reality is that the octroi duty falls within the category of obligatory taxes to be imposed in each municipality under sec. 104 of the Act by the Government and, therefore, difference in the rates of octroi duty in different towns of the State on the same commodity cannot be outrageously different. Under sec. 104 of the Act, every Board is under obligation to levy, at such rate and from such date as the State Government may in each case direct by notification in the official Gazette and in such manner as is laid down in this Act and as may be provided in the rules made by the State Government in this behalf, the following taxes, namely - (1) a tax on the annual letting value of buildings or lands or both situated within the Municipality; (2) an octroi on goods and animals brought within the limits of the Municipality for consumption, use or sale therein; and (3) a tax on professions and vocations. These taxes have been termed by the legislature as obligatory taxes. The case of the petitioners is that in the year 1960, the State Government issued a notification whereby a direction was issued to 124 Municipal Boards and Municipal Councils in the State to levy tax on the annual letting value of the buildings and lands excluding agricultural lands at the rate of 5% of the annual letting value thereof with effect from 1st July, 1960. Thus the State Government brought about a uniform pattern to levy tax on the annual letting value of the buildings and lands within each municipality or municipal council. This notification was, however, amended later on in 1962 whereby the State Government prescribed the following slab system to levy tax on the letting value of the houses and the lands within the municipal limits. Annual letting value. Rate of tax. Above the exemption limit and upto Rs. 300/ - per annum : 4% Above Rs. 300/ - and up to Rs. 600/ - 5% Above Rs. 600/ - and up to Rs. 1200/ - 6 -1/4% Above Rs. 1200/ - 7 -1/2% Thus, according to the petitioner, the Government evolved a formula on a rational basis to impose the so -called house tax in municipal areas. The professional tax has not yet been imposed by the State Government under the provisions of sec. 104 of the Act. The grievance of the petitioners is that the State Government, which is the taxing authority under the provisions of sec. 104 has in the matter of octroi duty prescribed to levy different rates in each municipality, and the difference in some cases is so outrageous that it adversely affects the trade of that commodity in the town and therefore these outrageously different rates are hit by Art. 14 of the Constitution and are liable to be struck down by this Court as they encroach upon the fundamental rights of the traders of these four towns of Beawar, Ajmer, Udaipur and Gangapur. Replies have been filed by the respective municipal councils and municipal boards in these petitions. The State Government has also filed replies only in the petitions coming from Beawar town. The learned Advocate -General has also filed a chart showing different rates of octroi duty on these commodities, which have been brought under challenge, applicable in some of the important towns of the State and has given therein the maximum and minimum rates of octroi duty in the State. On the basis of this chart learned Advocate General has urged that the rates impugned by the citizens of Beawar cannot be said to be exorbitant as they generally fall within the minimum and maximum limits and compare favourably well with the rates available in some of the towns of the State. The Municipal Councils of Ajmer and Beawar have, however, urged that these two Councils have taken up different projects under the secondary functions of the Councils as prescribed under sec. 101 of the Act and, therefore, they require larger funds to discharge their duties and functions and hence their case stands on a different footing from the case of other municipalities who discharge their duties only in respect of primary functions under the Act. According to the State Government, before prescribing the rate of octroi duty in a particular Municipal Council or a Municipal Board the Government has to take into account the policy and the history regarding the imposition of octroi duty in the past and also it has to see the functions that a particular municipality has actually to discharge under the Act. Since octroi duty forms the backbone of the finances of a local body and in some cases the revenue collected from the octroi goes upto 80% of the total gross revenue of the local body, the State Government has to keep in view various other factors, viz. the development of the trade of a particular commodity in a particular town; the capacity of the tax -payer; the changes in the pattern of the trade; the prospects of the probable reduction of revenue in case of decrease or the increase in the general revenues if the duty is increased. It is also submitted that Rajasthan has 800 miles of international frontier which is also taken into consideration while fixing the schedule of octroi in the towns situate on the border; the Government also keeps an eye on improving and facilitating trade in towns lying within the State. It is also averred that where the Government finds that certain towns in neighbouring States are competing in trade in general or in certain items in particular, it takes suitable steps in adjusting the octroi duties to suit the requirements of that trade; in particularly it is submitted by the State Government that before the reorganisation of the State of Rajasthan in 1956, Beawar was the part of 'c' State of Ajmer and the Municipality was organised under the provisions of the Ajmer -Merwara Municipalities Regulations, 1925. In that State, except Ajmer and Beawar, there was no other town of mentionable size. Municipal Services in these two towns were rendered in a much higher degree of efficiency than in any other town of Rajasthan. These two towns had, therefore, their own traditions in respect of the municipal services maintained under the old Regulations and, therefore, the Government could not ignore the historical background while fixing the schedule of octroi duty. It is also urged by the State Government that the local bodies have been classified in the state under two main heads : (1) Municipal Councils and (2) Municipal Boards. Learned Advocate General was therefore strongly of opinion that the rates of octroi duty obtainable in Municipal Councils can not and should not be compared with the rates applicable in the Municipal Boards as the conditions in trade and other matters relating to the local self - Government were different in the towns. The comparisons between the rates of octroi duty in Municipal Council and Municipal Board, according to Mr. Kasliwal, can not provide a basis for throwing a challenge under Article 14 of the Constitution.
(3.) THE arguments advanced by learned Advocate -General have been adopted by other counsel representing the Municipal Board of Gangapur and Municipal Councils of Ajmer, Beawar and Udaipur. These rival contentions give rise to this constitutional question whether the difference in rates of octroi duty in different towns of the State can be made the basis for challenging the rates of octroi duty on the ground that they are violative of Article 14 of the Constitution. After the Act of 1959 came into force, the Legislature introduced a new policy of taxation in the local bodies of the State. Under section 104 of the Act, three taxes have been mentioned which are brought under the category of obligatory taxes and in order to impose these taxes the State legislature empowered the Government to direct by notification in the official Gazette to impose these taxes in such manner as may be laid down in the Act or provided in the rules made thereunder. It is admitted by the parties that the tax on professions and vocations has not yet been imposed by the Government in any of the Municipal Councils or the the Municipal Boards. As regards the house tax, it is alleged that the State Government by issuing a notification in the year 1960 prescribed a uniform rate of tax for 124 Municipal Councils and Municipal Boards in the State, but later on in 1962 it introduced a slab system and a uniform basis was provided to impose tax on the letting value of the buildings and the lands in the town. Regarding octroi duty, the State Government did not evolve any system which could provide a rational basis for prescribing the rate of octroi duty in different towns. It is contended that at some places the octroi duty is charged on weight basis while in other places it is prescribed on ad -valorem basis. These two systems create such difference in the imposition of octroi duty that it not only affects the trade but weighs very heavily on the consumers on whose pocket the incidence of tax ultimately falls. For instance the petitioners coming from Beawar have stated that the trader of Beawar have to pay Rs. 6,800/ - octroi duty on 1 quintal of saffron whereas resident of Jaipur & Jodhpur where octroi is charged on weight basis, have to pay only Rs. 2/ - on one quintal of saffron. In Bikaner the rate of octroi duty on this commodity is only Re. 1/ - per quintal. The disparity in the rates, according to the petitioner, on this commodity obviously attracts the application of Article 14 of the Constitution as no reasonable basis can be given by the State Government for levying such a high duty on this commodity in Beawar. It is also contended by the petitioners that it only in Beawar Municipal Council that octroi is charged on postal parcels, whereas postal parcels are exempt from octroi duty in all other Municipalities in the State. This discriminatory treatment, according to the petitioners, can not be explained by the State Government on any rational basis. According to learned counsel for the petitioners, these are few glaring examples which attract Article 14 of the Constitution to declare the difference in rates of octroi duty on certain commodities in different places of Rajasthan as illegal. Learned Advocate -General when asked to explain such a glaring disparity in the rates prescribed for levying octroi duty in different places of Rajasthan, could not give any satisfactory explanation. He, however, candidly admitted that the Government has not given its thought to rationalise the basis for prescribing different rates of octroi duties in different Municipalities in the State. The history of the imposition of octroi duty reveals that this type of tax was in vogue since the concept of local body came into existence. Even in ancient India the tax in the nature of octroi was levied by the Hindu Rulers under different names though their assessment was made on a different system. Manu has also described such taxes. Magasthenese in his book also refers to octroi tax in some details. The Ain -i -Akbari records that octroi duties were in force during the period of Mugal power and that the duty of collecting such tax was in the hands of the City Kotwal. It was not only in Inida but on continent also, octroi was a familiar tax since the days of the Roman Empire. In the days of East India Company the evil effects of octroi duties were studied by the Company because it was itself carrying on trade in India. In 1828 Lord William Bentinck employed Sir Charles Trevelyon to make an enquiry into these inland transit duties. His report shows that he was not in favour of imposing such duties. Lord Ellenborough in 1835 commented very severely on the evils of the imposition of octroi duty. But in spite of this historical back ground, the system of levying octroi came down to the present generation. The Government of India set up a committee to study the local finance in 1951 and that committee submitted its report and recommended the continuance of the levy of octroi duty, but it recommended that rates must be prescribed generally on ad -valoran basis. The committee, however, observed that where ad valorem basis is not suitable, the rates may be adopted on the basis of maundage, that is, on weight basis. One of the members of the committee, however, observed in this connection as follows: "in the circumstances, I find it hard to believe that it will at any stage be possible to dispense with octroi and consequently, I am afraid, its levy shall have to be tolerated ad infinitum unless the State Governments make up their minds to share the proceeds of the sales -tax with the local bodies on the basis of realisations within those areas. . . . . . . . . " While dealing with the question of prescribing the rates for the levy of octroi duty the committee was generally of opinion that as far as possible uniformity in the rates at different places should be evolved on some rational basis, but Shri Chunilal D. Barfivala, Director of Local Self -Government Institute, Bombay wrote a very strong note of dissent on the question of evolving a model schedule for octroi duty in different places in the State and observed : "the levy of octroi in that State (Punjab State) is both by weight as well as on ad valorem basis. An attempt is being made in that State for the preparation of a model schedule of octroi rates, and my colleagues have probably taken a clue from this move on the part of the Punjab Government and made their suggestion for a model schedule. I am afraid that a State -wise attempt on these lines is not likely to succeed, and if any such scheme is enforced, numerous exceptions to the rules will have to be provided. These exceptions would actually embrace a far larger range of articles than the general rule itself. This would be the result because the circumstances regarding consumption, use and sale ( for which an octroi is levied) vary with each local body and even in the case of neighbouring areas. For instance, an article produced or manufactured in one local area may command the largest demand in a neighbouring area and vice versa. Consequently the rates in the two areas cannot be at the same level but must be regulated by the differences in economic factors of demand and supply. It was, therefore, that the U. P. Government Taxation Committee considered "uniform rates in every municipality were undesirable". ;