Compensatory entry tax and works-contract goods remain taxable where the levy does not directly impede trade.

A compensatory entry tax on goods entering local areas does not offend Article 301 where it does not directly and immediately impede the flow of trade, commerce and intercourse; revenue earmarked for local bodies to offset octroi loss and fund municipal services supports that characterisation, so invalidity for non-compliance with Article 304(b) does not arise. Goods brought into a local area for use in executing works contracts remain taxable under the charging provision because the statute expressly covers goods for consumption, use as raw material, incidental goods, packing material, and works contracts, and the constitutional definition of sale in Article 366(29A)(b) cannot be imported into entry tax legislation. The levy was upheld and the goods were held taxable.

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Issues: (i) Whether the Madhya Pradesh entry tax law was unconstitutional for alleged violation of the freedom of trade under Article 301 of the Constitution and non-compliance with Article 304(b). (ii) Whether goods brought into a local area for use in the execution of works contracts were liable to entry tax under section 3 of the Madhya Pradesh entry tax law.

Issue (i): Whether the Madhya Pradesh entry tax law was unconstitutional for alleged violation of the freedom of trade under Article 301 of the Constitution and non-compliance with Article 304(b).

Analysis: Only taxes or restrictions that directly and immediately impede the free flow of trade, commerce and intercourse fall within the prohibition of Article 301. A tax does not become unconstitutional merely because it may have some effect on movement of goods. The levy in question was treated as compensatory in nature, with the revenue earmarked for local bodies to make good the loss of octroi and to support municipal services, and a compensatory levy is not hit by Article 301.

Conclusion: The challenge under Article 301 failed and there was no occasion to invalidate the levy for want of compliance with Article 304(b).

Issue (ii): Whether goods brought into a local area for use in the execution of works contracts were liable to entry tax under section 3 of the Madhya Pradesh entry tax law.

Analysis: The charging provision expressly subjected to entry tax goods entering a local area for consumption or use as raw material, incidental goods, packing material, or in the execution of works contracts, while excluding goods brought for sale. The constitutional enlargement of the expression "tax on the sale or purchase of goods" in Article 366(29A)(b) applies to sales tax legislation and could not be imported into the entry tax law enacted under Entry 52 of List II. The statute also deliberately excluded the sales-tax definition of "sale" and the proviso did not grant a blanket exemption for such goods merely because they were imported from outside the State.

Conclusion: Goods used in the execution of works contracts remained taxable under section 3 and the appellants were liable to pay entry tax.

Final Conclusion: The entry tax levy was upheld as constitutionally valid and applicable to the goods used in works contracts, and the appeals failed.

Ratio Decidendi: A compensatory entry tax that does not directly and immediately impede trade is not barred by Article 301, and a statute enacted under entry tax powers must be construed according to its own charging language, not by importing the constitutional definition of sale from sales-tax law.

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