2006 (12) TMI 444 - HC - VAT and Sales Tax

Kerala's Entry Tax Act of 1994 ruled unconstitutional; lacked compensatory justification and Presidential assent, deemed discriminatory.

Thressiamma L. Chirayil Versus State of Kerala

Thressiamma L. Chirayil Versus State of Kerala - TMI, [2007] 7 VST 293 (Ker) Issues Involved:1. Constitutional validity of the Kerala Tax on Entry of Goods into Local Areas Act, 1994.2. Whether the provisions of the Act are discriminatory and ultra vires of various Articles of the Constitution of India.3. The nature of the entry tax and whether it is compensatory or regulatory.4. The requirement of Presidential assent for the amendment of the Act.5. The applicability of the Act to goods brought from outside the country.Detailed Analysis:1. Constitutional Validity of the Kerala Tax on Entry of Goods into Local Areas Act, 1994:The petitioners challenged the constitutional validity of Section 2(1)(d), 2(1)(g), 2(1)(i), and Section 3 of the Kerala Tax on Entry of Goods into Local Areas Act, 1994, claiming it was discriminatory and ultra vires of Articles 14, 19(1)(a), 19(1)(g), 246, 265, 286, 301, 304(a), 304(b) of the Constitution. The State defended the Act, asserting its legislative competence under Articles 245 and 246 read with Entry 52 List II of the VII Schedule to the Constitution of India.2. Discriminatory and Ultra Vires Provisions:The petitioners argued that the Act was discriminatory and violated the freedom of trade, commerce, and intercourse guaranteed under Article 301. They contended that the Act imposed entry tax on goods brought from outside the State and country, which was not compensatory in nature and lacked quantifiable data to justify it as a compensatory tax. The court noted that the State failed to provide quantifiable/measurable benefits to justify the tax as compensatory.3. Nature of the Entry Tax - Compensatory or Regulatory:The court examined whether the entry tax was compensatory or regulatory. The State claimed that the tax was compensatory, providing services like roads and police protection. However, the court found no quantifiable data to support this claim. The court reiterated the principles from Jindal Stainless Ltd. v. State of Haryana, emphasizing that a compensatory tax must show measurable benefits to the payer, which the State failed to do.4. Requirement of Presidential Assent for Amendment:The petitioners argued that the amendment to the Act had not received the President's assent as required under Article 304(b). The court agreed, stating that the amendment lacked the necessary Presidential assent, making it void. The court emphasized that the State must prove that the restrictions imposed by the tax were reasonable and in the public interest, which was not demonstrated.5. Applicability to Goods Brought from Outside the Country:The court examined whether the Act applied to goods brought from outside the country. It found that the Act's provisions specifically referred to goods brought from outside the State, not the country. The court held that the Act did not include goods imported from abroad, supporting the view from Fr. William Fernandez v. State of Kerala.Conclusion:The court concluded that the Kerala Tax on Entry of Goods into Local Areas Act, 1994, was unconstitutional and invalid. The State failed to prove that the entry tax was compensatory or regulatory, and the amendment to the Act lacked the necessary Presidential assent. The Act was discriminatory and violated Articles 14, 301, and 304 of the Constitution. Consequently, the court quashed the levy and demand notices issued under the Act.