1994 (11) TMI 337 - SC - VAT / Sales Tax

Entry tax under Section 3 upheld: sales tax liability not required, but non-liable dealers cannot be charged entry tax

Bhagatram Rajeev Kumar Versus Commissioner of Sales Tax, Madhya Pradesh and Others (and other appeals)

SC upheld the State's power to levy entry tax under the MP Act, holding that liability to pay sales tax is not an essential ingredient of the levy. The ... Legislative competence of the State Legislature - nature of the levy - Whether entry tax on goods such as sugar on which no sales tax is leviable, could be subjected to levy under section 3(1)(a) of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976? Held that:- Liability to pay sales tax on the goods specified in Schedule II is thus not an essential ingredient of levy. The expression 'liable to tax' has been used to identify the person who shall pay the entry tax. To put it conversely if any goods mentioned in Schedule II are brought from outside the State by a person who is not liable to tax under the Sales Tax Act then entry tax shall not be realised from such person. The intention is to levy tax only when the goods are brought inside the State by a dealer carrying on business whose turnover is not less than Rs. 1,000 annually and not by any other person. Tax under section 3 is on bringing of goods inside the local area by a dealer for consumption, use or sale therein irrespective of whether sales tax is payable on it or not. Therefore, sugar on which no sales tax is leviable because additional excise duty is payable would not be beyond the taxing net. Issues:1. Whether entry tax on goods not subject to sales tax can be levied under the Entry Tax Act.2. Interpretation of the nature and ambit of the levy under section 3(1)(a) of the Madhya Pradesh Entry Tax Act.3. Validity of the levy in relation to free-flow of trade and commerce under Article 301 of the Constitution of India.4. Determination of liability under the Sales Tax Act for the purpose of entry tax.Analysis:The Supreme Court considered the issue of levying entry tax on goods like sugar, not subject to sales tax, under the Madhya Pradesh Entry Tax Act. The main challenge was on the nature of the levy and its impact on trade and commerce under Article 301 of the Constitution. The Court examined section 3 of the Entry Tax Act, emphasizing that the taxable event is the entry of goods into a local area for consumption, use, or sale by a dealer in the course of business, not its purchase. The section identifies the person liable to pay the tax, which is a machinery provision and does not control the substantive part of the levy.The Court rejected arguments claiming vagueness and discrimination in the language of the section, noting that registration under the Sales Tax Act is required for dealers with a turnover of Rs. 1,000 per year, ensuring minimal exclusion. The expression 'liable to tax' in the section determines the person liable to pay the entry tax, not the goods subject to levy. The levy applies to goods specified in Schedule II brought for consumption, use, or sale, but it is collected only from registered dealers liable to pay sales tax.Regarding liability under the Sales Tax Act, the Court clarified that liability to pay sales tax on goods specified in Schedule II is not a prerequisite for the entry tax levy. The tax is imposed when goods are brought into the state by a dealer for consumption, use, or sale, irrespective of sales tax liability. The Court emphasized that the levy is on the act of bringing goods into the local area, not on sales tax liability.In addressing the constitutional aspect under Article 301, the Court referred to previous decisions highlighting that a tax is regulatory and compensatory if it facilitates trade, making it immune from Article 301 challenges. The Court found the nature of levy under the Entry Tax Act to be compensatory, as revenue earned was allocated to local bodies to enhance municipal services, promoting free-flow of trade and commerce.Ultimately, the Court dismissed the appeals, upholding the validity of the entry tax levy on goods like sugar under the Madhya Pradesh Entry Tax Act. The judgment emphasized the distinction between the taxable event and the realisation of tax, affirming that the levy was not contingent on sales tax liability and served a compensatory purpose to support trade and commerce.