Compensatory taxation test fails for Haryana entry tax levy, making the charge and validation clause unconstitutional.

The Haryana entry tax levy was held not to be compensatory because, although the proceeds were earmarked for trade-related development, the statutory scheme did not show any quantifiable or measurable special benefit to the payers or a broad correlation between the tax and specific facilities. As a restriction on trade, it was therefore not saved by Articles 301 and 304 and was declared unconstitutional and void. The validating provision deeming collections under the repealed 2000 Act to have been made under the 2008 Act also failed, because it rested on the same unconstitutional levy and could not survive without a demonstrable compensatory basis.

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Issues: (i) Whether the levy under the Haryana Tax on Entry of Goods into Local Areas Act, 2008 was compensatory in character and constitutionally valid under Articles 301 and 304 of the Constitution of India; (ii) Whether the validating provision deeming tax collected under the repealed 2000 Act to have been collected under the 2008 Act was valid.

Issue (i): Whether the levy under the Haryana Tax on Entry of Goods into Local Areas Act, 2008 was compensatory in character and constitutionally valid under Articles 301 and 304 of the Constitution of India.

Analysis: The charging provision imposed tax on entry of goods into local areas, while the utilisation provision earmarked the proceeds for development or facilitation of trade, commerce and industry. However, the statutory scheme did not disclose any quantifiable or measurable special benefit to the payers, nor did it show a broad correlation between the levy and any specific facility or projected expenditure. The object of general development and infrastructure creation did not satisfy the principle of equivalence. On the constitutional test for compensatory taxation, the levy was found to be a restriction on trade not saved by Article 304.

Conclusion: The levy was held not to be compensatory and was unconstitutional and void.

Issue (ii): Whether the validating provision deeming tax collected under the repealed 2000 Act to have been collected under the 2008 Act was valid.

Analysis: The validating clause sought to sustain collections made under the earlier enactment by treating them as collections under the new Act. Since the substantive levy itself lacked compensatory character and no specific services or measurable benefits were shown to justify retention of the amounts already collected and spent, the deeming fiction could not survive constitutional scrutiny. The validation provision suffered from the same vice as the principal levy.

Conclusion: The validating provision was held unconstitutional and void.

Final Conclusion: The Court struck down the 2008 enactment in its application to the entry tax levy, holding that the statutory scheme did not satisfy the constitutional requirements for a compensatory tax under the freedom of trade guaranteed by Part XIII.

Ratio Decidendi: A levy that is imposed for general development without facially indicating a quantifiable, measurable benefit to the payer does not qualify as compensatory taxation and, if it restricts trade, is unconstitutional under Articles 301 and 304 of the Constitution of India.

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