Entry tax unconstitutional where it burdens trade, lacks compensatory character, and grants unguided exemption discretion.

State entry tax competence under Entry 52 of List II was upheld because the legislative field is broad and revenue purpose alone does not negate power, but the levy failed under Articles 301 and 304(b) as it was not shown to be compensatory or regulatory and operated as a general fiscal burden impeding free trade. The absence of prior Presidential approval did not save the levy because assent was later obtained. The proviso to section 3 and section 6 were also struck down under Article 14 because they conferred unguided discretion to fix rates or grant exemptions without intelligible standards.

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Issues: (i) whether the State Legislature had competence under Entry 52 of List II of the Seventh Schedule to enact the entry tax law; (ii) whether the levy was hit by the doctrine of colourable legislation; (iii) whether the levy violated the freedom of trade and commerce under Articles 301 and 304(b) of the Constitution of India and whether the absence of Presidential approval was fatal; and (iv) whether the proviso to section 3 and section 6 conferred unguided and arbitrary power in violation of Article 14.

Issue (i): whether the State Legislature had competence under Entry 52 of List II of the Seventh Schedule to enact the entry tax law.

Analysis: Entry 52 of List II confers power to levy tax on the entry of goods into a local area for consumption, use or sale therein. The width of legislative entries must receive a broad construction, and the power of the State Legislature is plenary subject only to constitutional limitations. The mere fact that the levy is imposed by the State and is intended to raise general revenue does not, by itself, denude competence under the entry. Historical assumptions about octroi cannot cut down the plain constitutional field of legislation.

Conclusion: The challenge to legislative competence failed and the enactment was within the State's legislative field.

Issue (ii): whether the levy was hit by the doctrine of colourable legislation.

Analysis: Colourable legislation concerns legislative power, not motive. If the Legislature is competent to enact the law directly, the law does not become invalid merely because its object or effect is said to be indirect or disguised. Since the State possessed competence to impose the entry tax, the doctrine could not be invoked to invalidate the enactment on the ground of supposed revenue-raising purpose.

Conclusion: The levy was not invalid as colourable legislation.

Issue (iii): whether the levy violated the freedom of trade and commerce under Articles 301 and 304(b) of the Constitution of India and whether the absence of Presidential approval was fatal.

Analysis: A tax directly on the movement of goods can attract Article 301. To survive under Article 304(b), the restriction must be reasonable, in the public interest, and, where applicable, supported by Presidential sanction. The levy in question was not shown to be compensatory or regulatory and the State failed to demonstrate any nexus with facilities for trade or commerce. The levy operated as a general fiscal measure and thereby impeded free trade. The objection based on absence of prior Presidential approval did not survive because assent was later accorded.

Conclusion: Section 3 of the Act was held ultra vires Articles 301 and 304(b) of the Constitution of India.

Issue (iv): whether the proviso to section 3 and section 6 conferred unguided and arbitrary power in violation of Article 14.

Analysis: A taxing statute may leave classification or exemption to executive discretion only if it lays down a principle or policy to guide that discretion. Here neither the proviso to section 3 nor section 6 supplied any criterion for fixing rates or granting exemption. The absence of standards made the discretion arbitrary and discriminatory, and the objects and reasons did not furnish a lawful guide because they disclosed only a revenue-raising purpose.

Conclusion: The proviso to section 3 and section 6 were held ultra vires Article 14 of the Constitution of India.

Final Conclusion: The writ petitions succeeded substantially, the impugned entry tax law was struck down in the respects found unconstitutional, and enforcement of the challenged provisions was restrained.

Ratio Decidendi: A State entry tax that is not shown to be compensatory or regulatory, and that confers unguided exemption or rate-fixing discretion without intelligible standards, fails the tests of Articles 301, 304(b), and 14 of the Constitution.

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