MAFATLAL INDUSTRIES LTD. versus NADIAD NAGAR PALIKA AND ANR.

Citation: [2000] 2 S.C.R. 52 · Decided: 01-03-2000 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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MAFATLAL INDUSTRIES LTD. 
v. 
NADIAD NAGAR PALIKA AND ANR. 
MARCH 1, 2000 
[S.P. BHARUCHA, S.N. PHUKAN AND RUMA PAL, JJ.] 
Municipalities : 
Gujarat Municipal Act, 1963: Sections 16(2) and 99-0cfroi Duty-
Conditions for levy of 
Constitution of India, 1950: Seventh Schedule-State List-Entry 52-
Taxes bn entry of goods. 
Octroi duty-Levy of-Company-Bringing cloth pieces of 100 meters 
length within octroi limits-Cloth pieces cut into smaller pieces of different 
sizes and sent out-side octroi limits-Held no octroi duty was leviahle on cloth 
pieces brought by appellant-company-Mere entry of goods into municipal 
limits does not entail levy of octroi-Goods must be brought in for use or 
consumption or sale-Cutting of cloth pieces into smaller pieces did not result 
in use. or consumption within the octroi limits. 
The appellant-company brought cloth pieces of 100 meters length 
within the octroi limits of Nadiad town. These cloth pieces were cut into 
smaller pieces of different sizes and thereafter sent outside the octroi limits 
of the town. The question in this appeal is whether on these pieces of 100 
meters length octroi duty was Ieviable under section 99 of the Gujarat 
Municipal Act, 1963? The Gujarat High Court has answered in the af-
firmative. It held that (i) when the cloth pieces were cut to smaller pieces, 
some utility was added to cloth because cutting was done to meet the 
requirements of excise rules and demands of consumers; (ii) in the process 
of cutting the cloth pieces were used as well as consumed. Against the 
decision of High Court, the appellant-company preferred appeal before 
this Court. 
Allowing the appeal, this Court 
HELD : 1. The High Court erred in its conclusion. Mere physical 
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entry of goods into the octroi limits would not attract the levy of octroi 
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MAFA1LAL INDUSTRIES LTD. v. NADIAD NAGAR PALIKA [PHUKAN, J.] 
53 
unless goods are brought in for use or consumption or sale. Use and 
consumption would involve conversion of the commodity into a different 
commercial commodity by subjecting it to some processing. [56-D-E] 
2. It this appeal, cloth pieces of 100 meters length were brought 
within the octroi limits and those cloth pieces were cut into smaller pieces 
of different sizes. By doing so, no different commercial commodity is 
shown to have been produced, so it cannot be said that there was use or 
consumption of the cloth within the octroi limits. Therefore, no octroi is 
leviable on the cloth pieces of 100 meters length brought by the appellant 
within the octroi limits ofNadiad town. [56-E-F] 
Mis. Anwarkhan Mahboob Co. v. The State of Bombay & Ors., [1961] 1 
SCR 709; State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Fac-
tory, [1954] SCR 53; Khatiawar Industries ltd. v. Jaffrabad Municipality, 
[1979] 4 sec 56, referred to. 
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HMM Limited and Anr: v. Administrator, Bangalore City Corporation 
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and Anr:, [1989] 4 SCC 640, explained .. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 143 of 1992. 
From the Judgment and Order dated 12.4.91 of the Gujarat High Court 
in S.C.A. No. 833 of 1985. 
B.K. Mehta, R.P. Bhat, M.L. Verma, K.G. Shah, Arun N. Mehta, Mrs. 
Ketty, M.N. Shroff, Ms. Priya Hingorani, Ms. Hemantika Wahi, Mrs. Tanuja 
Sheel, Ms. Anu Sawhney and Chirag M. Shroff for the appearing parties.-
The Judgment of the Court was delivered by 
PHUKAN, J. This appeal by special leave is against the judgment of 
the Gujarat High Court holding that the appellant is liable to pay octroi duty 
under Section 99 of Gujarat Municipal Act, 1963 (for short the Act.). 
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The appellant, a textile manufacturing company, brought cloth pieces 
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of 100 meters length within the octroi limits of Nadiad town. To meet the 
requirement of relevant excise mles and also demands in the market, cloth 
pieces were cut into smaller piece~of different sizes and thereafter sent 
outside the octroi limits of the said town. 
On the above facts, the High Court held that in the process of cutting, 
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SUPREME COURT REPORTS 
[2000] 2 S.C.R. 
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the cloth pieces are used as well as consumed, therefore,the cloth pieces· 
brought into the octroi limits for this purpose, would attract octroi duty. 
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The Act is relatable to entry 52 of List - II (State List) of the 7th 
Schedule to the Constitution and the said entry runs as follows : 
"taxes on the entry of goods into a local area for consumption, use 
or sale therein" 
Clause (16)
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