Case title:

South Eastern Coalfields Ltd V. State of Madhya Pradesh & Ors

Date of Order:

21^st SEPTEMBER 2023

Bench:

Hon’ble Justice Dr. Dhananjaya Y Chandrachud, Hon’ble Justice J B Pardiwala& Hon’ble Justice Manoj Misra

Parties:

APPELLANT –South Eastern Coalfields Ltd

RESPONDENT -State of Madhya Pradesh & Ors

SUBJECT:

A judicial issue concerning the imposition of terminal taxes on products and animals exported from specific municipal boundaries in the state of Madhya Pradesh appears to be the focus of the lawsuit. The case involves constitutional and legal considerations regarding the applicability of municipal laws in Scheduled Areas and the interpretation of pertinent constitutional provisions. The appellant, South Eastern Coalfields Ltd, challenged the levy of this terminal tax within the boundaries of the Municipal Council.

IMPORTANT PROVISIONS:

• Constitution of India –

1. Article 226 - Provides for the power of High Courts to issue writs and orders for the enforcement of fundamental rights and other legal rights.
2. Article 244 - Pertains to the administration and control of Scheduled Areas and Scheduled Tribes in specific states.
3. Article 243-ZC - Exempts Scheduled Areas referred to in Clause (1) from the application of Part IXA (dealing with Municipalities) and tribal areas referred to in Clause (2) of Article 244.
4. Article 243-X - Empowers the State Legislature to authorize Municipalities to levy, collect, and appropriate taxes, duties, tolls, and fees.

• Madhya Pradesh Municipal Corporation Act, 1956 –

1. Section 132 - Empowers Municipal Corporations to impose various taxes, including "terminal tax" on goods and animals exported from municipal limits.
2. Section 127(6) (n) - Grants Municipal Councils the power to levy taxes, including "terminal tax" on goods or animals exported from the limits of the Council.

• Terminal Tax (Assessment and Collection) on the Goods Exported from Madhya Pradesh Municipal Limits Rules, 1996

• Entry 56 of List II (State List) of the Seventh Schedule to the Constitution of India - Empowers State Legislatures to levy taxes on goods and passengers carried by road or on inland waterways.

• Entry 89 of List I (Union List) of the Seventh Schedule to the Constitution of India - Grants Parliament the power to levy terminal taxes on goods and passengers carried by railway, sea, or air, and taxes on railway fares and freights.

• Paragraph 5 of the Fifth Schedule to the Constitution of India - Grants the Governor the power to specify whether particular laws, including parliamentary or state laws, apply to Scheduled Areas and whether they apply with exceptions or modifications.

OVERVIEW:

A legal issue involving the imposition of terminal taxes on products and animals exported from particular municipal boundaries in Madhya Pradesh is the subject of the case. It revolves on the issue of whether municipal ordinances are applicable to state-controlled Scheduled Areas and poses issues with how relevant constitutional clauses should be interpreted. The Supreme Court of India heard this case, and on September 21, 2023, it dismissed the appeals in question.

Brief Facts –

1. The case involves South Eastern Coalfields Ltd, a company with coal mines in Jamuna & Kotma Colliery, Madhya Pradesh.
2. Municipalities in Madhya Pradesh had the authority to levy “terminal tax” on goods and animals exported from their limits.
3. The Terminal Tax (Assessment and Collection) on the Goods Exported from Madhya Pradesh Municipal Limits Rules 1996 were framed to govern this taxation.
4. South Eastern Coalfields Ltd challenged the levy of terminal tax by a Municipal Council through a petition under Article 226 of the Constitution.
5. The High Court of Madhya Pradesh rejected the plea, stating that the municipality had the legal right to impose the tax within its limits.
6. The appellant appealed this decision to the Supreme Court, arguing that Part IXA of the Constitution, dealing with Municipalities, does not apply to Scheduled Areas.
7. The appellant also argued that Entry 89 of List I and Entry 56 of List II of the Seventh Schedule raised questions about the validity of the terminal tax.

ISSUES RAISED: Whether the imposition of terminal tax by a Municipal Council within the limits of Scheduled Areas in Madhya Pradesh is constitutionally valid, considering the applicability of municipal laws to these areas, as well as the interpretation of Entry 89 of List I and Entry 56 of List II of the Seventh Schedule?

ARGUMENTS ADVANCED BY THE APPELLANT:

1. The appellant claimed that Scheduled Areas, as defined in Article 243-ZC, are not covered by Part IXA of the Constitution, which deals with Municipalities.
2. They argued that the Fifth Schedule's Paragraph 5 gives the Governor the authority to order that certain legislative or state laws be applied with exceptions and modifications or not at all to Scheduled Areas, but that no such notification had been provided.
3. The appellant stressed that they had not presented any notice stating that the relevant statutes should not apply to Scheduled Areas or that they should apply with exceptions and changes.
4. They stated that Article 244(1) governs and controls Scheduled Areas, and that this should be taken into account in light of the circumstances of the case.
5. The appellant expressed doubts about the Municipality's legislative capability and questioned the constitutionality of the Municipality's decision to collect a terminal tax inside the boundaries of Scheduled Areas.
6. They questioned whether Entry 89 of List I of the Seventh Schedule, which gives Parliament the authority to impose terminal taxes on products, is applicable in this situation.
7. They also questioned whether Entry 56 of List II, which gives state legislatures the authority to tax commodities and people traveling by land or water, applied to the terminal tax.

ARGUMENTS ADVANCED BY THE RESPONDENT:

1. The respondent claimed that Section 132 of the Madhya Pradesh Municipal Corporation Act 1956 and Section 127(6) (n) of the Madhya Pradesh Municipalities Act 1961 gave the Municipal Council the legal right to impose a terminal tax on commodities and animals exported from its borders.
2. They argued that no limitations to the Municipal Council's powers under any article of the Constitution had been made and that the authority of the Municipality to impose taxes was conferred by a State act with legislative competence.
3. The respondent emphasized that the appellant failed to present any documentation demonstrating that the Scheduled Areas should be exempt from the application of municipal laws or that such laws should be applied with modifications and exceptions.
4. They claimed that because the terminal tax was based on statutory provisions and was only levied within municipal boundaries, it was constitutionally legitimate to do so.
5. The respondent argued that because Part IXA does not apply to Scheduled Areas and Article 243-X gives the State Legislature the authority to permit Municipalities to levy and collect taxes, this authority is applicable.
6. In order to support their argument, they cited the Constitution Bench's precedent in the case Central India Spinning and Weaving & Manufacturing Co. Ltd. The Empress Mills, Nagpur v. The Municipal Committee, Wardha, specifically paragraph 33.

JUDGEMENT ANALYSIS:

1. In this case, the Madhya Pradesh Supreme Court heard appeals pertaining to the imposition of terminal taxes on goods and animals exported from particular municipal limits. The main concerns concerned whether municipal laws applied to Scheduled Areas and how the relevant constitutional provisions should be interpreted. On September 21, 2023, the case was thrown out. Here is a review of the ruling and its conclusion:
2. The Court examined the Municipal Council's ability to impose terminal taxes within its purview. It stated that a State statute with legislative authority had granted the right to impose taxes.
3. The appellant claimed that Scheduled Areas, as defined in Article 243-ZC, are not covered by Part IXA of the Constitution, which deals with Municipalities. The Fifth Schedule, which gives the Governor the authority to specify whether laws apply to Scheduled Areas or with exceptions and modifications, was examined by the Court.
4. The Court made a point of pointing out that the appellant failed to present any notification stating that the municipal laws should not apply to the Scheduled Areas or that they should apply with exceptions and modifications. In the Court's analysis, this lack of a notification was significant.
5. In the end, the Supreme Court upheld the Madhya Pradesh High Court's judgement and dismissed the appeals. The Court discovered:
6. It was significant that the Governor had not issued a notification outlining any modifications or exceptions to the application of municipal laws in Scheduled Areas.
7. The Municipality's right to levy the terminal tax within its borders was supported by constitutional provisions and legislative competence.
8. The levy of the terminal tax was not rendered invalid by the constitutional entries, Entry 89 of List I and Entry 56 of List II.
9. As a result, the appeals were denied and the Municipal Council of Madhya Pradesh's imposition of the terminal tax within the boundaries of Scheduled Areas was deemed constitutionally valid.

CONCLUSION:

In conclusion, the Madhya Pradesh Municipal Council's imposition of terminal taxes within the boundaries of Scheduled Areas was upheld by the Supreme Court of India. The Governor's failure to issue a notification outlining any modifications or exceptions to the application of municipal laws in these instances was emphasised by the Court. In light of the legislative capacity and the lack of obstacles to the state's ability to apply the law, it confirmed the tax's constitutional validity. The appeals were thus denied, upholding the Municipal Council's right to impose the terminal tax.