LAGATAR24 DESK
New Delhi, Oct. 6: The Supreme Court recently upheld the power of Municipal Councils to levy terminal tax within the limits of Scheduled Areas, dismissing an appeal brought by a coal mining company challenging the imposition of such taxes in Madhya Pradesh, reports LiveLaw.
The Court emphasized that Paragraph 5(1) of the Fifth Schedule grants the Governor the power to direct either that the parliamentary or state laws would not apply to Scheduled Areas or it’ll apply only with certain exceptions and modifications. The Court found that no such notification was issued by the governor. Therefore, the municipal council could levy tax as empowered under the state’s legislation.
The Court observed “The consequence of paragraph 5(1) of the Fifth Schedule is that it enables the Governor to direct either that a parliamentary or state law shall not apply to a Scheduled Area in the State or that it would apply subject to exceptions and modifications. Therefore, unless a notification has been issued by the Governor indicating that
(I) a parliamentary or state law shall have no application to the Scheduled Area; or
(ii) the parliamentary or state legislation would apply subject to exceptions or modifications, there would be no hindrance in the application of the law to the State
A 3 judge Supreme Court bench comprising CJI DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Mishra was hearing an appeal against a judgment by the division bench of the MP High Court which had rejected the appellant’s challenge to the levy of terminal tax within the limits of the Municipal Council.
The case stemmed from an appeal filed by a company owning coal mines, Jamuna & Kotma Colliery, challenging the levy of terminal tax by the Municipal Council. The High Court had rejected the appellant’s plea on the grounds that the land where coal mining occurred fell within the Municipal Council’s jurisdiction, which had the legislative competence to levy terminal tax, and no exceptions had been notified under the Constitution.
Aggrieved by this judgment, the appellant approached the Supreme Court.
As far as the levy of terminal tax by the municipality is concerned, it may be noted that by virtue of the statutory powers conferred by the Madhya Pradesh Municipal Corporation Act 1956 and Madhya Pradesh Municipalities Act 1961, the Terminal Tax (Assessment and Collection) on the Goods Exported from Madhya Pradesh Municipal Limits Rules 1996 was framed.
Section 2(c) defines the expression “terminal tax” to mean-
“(c) “Terminal tax” means the terminal tax on goods exported from the Municipal limit in accordance with the sanction of the State Government under clause (o) of sub-section (2) of Section 132 of the Madhya Pradesh Municipal Corporation Act, 1956 and the tax described in clause (xvi) of sub-section (1) of Section 127 of the Madhya Pradesh Municipalities Act, 1961.
Now, let us go through the constitutional framework governing scheduled areas and municipalities. Article 244 of the Constitution provides for the administration and control of Scheduled Areas and Scheduled Tribes. Part IXA dealing with the Municipalities was inserted by the 74th Amendment. Article 243-ZC(1) indicates that Part IXA would not apply to the Scheduled Areas as mentioned in Article 244.
Article 243-X provides the power to impose taxes by, and Funds of the Municipalities- “The Legislature of a State may, by law-(a) authorize a Municipality to levy, collect, and appropriate such taxes, duties, tolls, and fees in accordance with such procedure and subject to such limits…. as may be specified in the law.”
Now in this context, Mr. N Venkataraman, Additional Solicitor General, appearing on behalf of the appellant had argued that “Article 243X empowers the Legislature of a State by law to authorize the Municipalities to levy, collect and appropriate taxes, duties, tolls, and fees. Since Part IXA does not apply to Scheduled Areas, the power under Article 243X is not available in relation to a Scheduled Area. The provisions of the two municipal laws would have no application; hence, the terminal tax levy was ultra vires.”
On this aspect, the court clarified that the inapplicability of Article 243X, which empowers State Legislatures to authorize Municipalities to levy taxes, does not undermine the State Legislature’s authority to enact legislation for the entire State.
The Court opined “The impact of Article 243-ZC is that Part IXA has no application to a Scheduled Area. The inapplicability of article 243X did not denude the state legislature to enact legislation for the State.”
The Court agreed with the HC’s decision since apart from the notification of 2003 specifying the Scheduled Areas no notification was produced before the court to substantiate the claim for non-application of the state law. The Court therefore dismissed the appeal.
