2008 (1) TMI 834 - HC - VAT and Sales Tax

Jharkhand VAT Act Section 11 Unconstitutional violating Article 301

Tata Steel Limited Versus State of Jharkhand and others (and other cases)

The court held that Section 11 of the Jharkhand Value Added Tax Act, 2005, and its amendments were unconstitutional as they violated Article 301 and were ... Vires of section 11 of the Jharkhand Value Added Tax Act, 2005 challenged as ultra vires and violative of article 301 read with article 304(a) of the Constitution of India Held that:- The purposes for which the trade development fund has been created, do not directly facilitate trade and commerce and do not specially benefit the trade people in the local areas from which such entry tax is collected. Curiously enough, the trade development fund has been created by notification dated March 29, 2008 giving retrospective effect from April 1, 2006. Nothing has been brought on record by the respondent-State to show that the entry tax collected from April 1, 2006 till the date of notification has been utilised. In our considered opinion, therefore, levy of entry tax is discriminatory being violative of article 304(a) of the Constitution of India. Section 11 of the Jharkhand Value Added Tax Act, 2005 and the amendment made therein by Jharkhand VAT (Amendment) Act, 2007 are ultra vires and unconstitutional as being opposed to article 301 of the Constitution and are not saved by article 304 of the Constitution of India. W.P. allowed. Issues Involved1. Constitutional validity of Section 11 of the Jharkhand Value Added Tax Act, 2005.2. Whether the imposition of entry tax is compensatory in nature.3. Compliance with Articles 301 and 304 of the Constitution of India.4. Requirement of Presidential assent for the amendment.5. Retrospective effect of the Jharkhand Value Added Tax (Amendment) Act, 2007.Detailed Analysis1. Constitutional Validity of Section 11 of the Jharkhand Value Added Tax Act, 2005The petitioners challenged the vires of Section 11 of the Jharkhand Value Added Tax Act, 2005, arguing it was ultra vires and violative of Article 301 read with Article 304(a) of the Constitution of India. They contended that the provision was not saved by Article 304(b) and sought a direction to restrain the respondents from enforcing Section 11, which mandates the collection of entry tax on goods listed in the Third Schedule.2. Whether the Imposition of Entry Tax is Compensatory in NatureThe petitioners argued that the entry tax was not compensatory, thus violating Article 301 of the Constitution. The respondents countered by asserting that the tax was compensatory, supporting their stance with various defenses and supplementary affidavits. They claimed the tax facilitated trade, commerce, and industry development, citing the creation of the Jharkhand Trade Development Fund for infrastructure improvements.3. Compliance with Articles 301 and 304 of the Constitution of IndiaArticle 301 ensures freedom of trade, commerce, and intercourse throughout India, subject to provisions in Part XIII of the Constitution. Article 304(a) allows state legislatures to impose taxes on goods imported from other states, provided similar goods manufactured within the state are taxed equally. Article 304(b) permits states to impose restrictions on trade if deemed reasonable and in the public interest, with the President's prior sanction.The court referred to the Supreme Court's judgment in Jindal Stainless Ltd. v. State of Haryana, which clarified that compensatory taxes must be based on quantifiable and measurable benefits. The court noted that the VAT Act and its amendments did not facially indicate such quantifiable benefits, failing to meet the compensatory tax criteria.4. Requirement of Presidential Assent for the AmendmentThe petitioners argued that the amendments to Section 11 lacked the President's prior sanction, as required under Article 304(b). The respondents failed to produce evidence showing that the tax was compensatory or that the amendments had received Presidential assent.5. Retrospective Effect of the Jharkhand Value Added Tax (Amendment) Act, 2007The petitioners contested the retrospective application of the Amendment Act from April 1, 2006, arguing it was irrational and arbitrary. The court agreed, noting that the Trade Development Fund was constituted only in March 2008, making retrospective application unreasonable.ConclusionThe court held that Section 11 of the Jharkhand Value Added Tax Act, 2005, and its amendments were ultra vires and unconstitutional, violating Article 301 and not saved by Article 304 of the Constitution. The court emphasized that the provisions did not facially indicate quantifiable benefits, and the State failed to show that the tax was compensatory. Consequently, the writ petitions were allowed, and Section 11 was struck down.