Compensatory entry tax upheld: retrospective validation and industrial area inclusion survived constitutional challenge.

A compensatory, non-discriminatory entry tax was treated as a regulatory levy, so prior Presidential sanction under article 304(b) was not required, and article 304(a) was not breached because the levy did not discriminate between locally manufactured and imported goods. The retrospective notification and the amendment authorising retrospective or prospective operation were upheld as valid because they removed defects noticed in earlier litigation without altering the basic character of the tax. Industrial areas declared under the Karnataka Industrial Areas Development Act were also held not to fall outside the definition of "local area" for entry tax purposes, so the challenge failed on all substantive grounds.

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Issues: (i) Whether the addition of the words "retrospectively or prospectively" in section 3(1) of the entry tax Act and the retrospective notification issued under it required the previous sanction of the President under article 304(b) of the Constitution of India. (ii) Whether industrial areas declared under the Karnataka Industrial Areas Development Act, 1966 fell outside the expression "local area" for levy of entry tax.

Issue (i): Whether the addition of the words "retrospectively or prospectively" in section 3(1) of the entry tax Act and the retrospective notification issued under it required the previous sanction of the President under article 304(b) of the Constitution of India.

Analysis: The levy of entry tax was treated as compensatory and regulatory in character. A compensatory tax does not operate as a restriction on trade requiring prior Presidential sanction under article 304(b), and in the absence of discrimination between locally manufactured goods and imported goods, article 304(a) is not infringed. The amendment authorising retrospective or prospective notification did not, by itself, create a restrictive or discriminatory levy. The retrospective notification was issued to remove defects noticed in earlier litigation and to validate the levy already intended under the statutory scheme.

Conclusion: The challenge based on want of Presidential assent failed and the retrospective notification was upheld as valid.

Issue (ii): Whether industrial areas declared under the Karnataka Industrial Areas Development Act, 1966 fell outside the expression "local area" for levy of entry tax.

Analysis: Declaration of an industrial area for the purposes of the industrial areas statute did not divest the area of its character as part of a municipal, panchayat, or other local area for purposes of the entry tax law. The industrial area notification was only for the limited purpose of the industrial development enactment and did not exclude the area from the taxing statute's definition of local area.

Conclusion: The objection based on industrial area status was rejected.

Final Conclusion: The entry tax levy and the impugned retrospective notification were sustained, and the assessees' challenge failed on all substantive grounds.

Ratio Decidendi: A compensatory and non-discriminatory entry tax does not require prior Presidential sanction under article 304(b), and a retrospective validating notification issued within statutory power is permissible if it removes the defects noticed in earlier litigation without altering the basic non-discriminatory character of the levy.

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