Compensatory entry tax requires measurable benefit to payers; general infrastructure spending is not enough to save the levy under constitutional trade freedom.

A compensatory entry tax must satisfy the principle of equivalence by showing a quantifiable, measurable and broadly proportional benefit to the tax-paying class. Where the levy is justified only by general developmental spending on roads, bridges, infrastructure, electricity and water supply, without material showing reimbursement or special facilities for the payers, the required direct correlation is absent. On that basis, section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011 was treated as unconstitutional, not saved by article 304, and contrary to article 301.

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Issues: Whether section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011 was valid as a compensatory levy and saved by article 304 of the Constitution of India, or whether it offended the freedom of trade under article 301 of the Constitution of India.

Analysis: The levy was admitted to be compensatory in character, but a compensatory tax must satisfy the principle of equivalence, must be broadly proportional, and must be supported by quantifiable and measurable benefits to the payers. The mere creation of a trade development fund and earmarking of expenditure for roads, bridges, infrastructure, electricity, water supply, and similar general developmental purposes did not establish a direct correlation between the tax collected and special benefits to the tax-paying class. The State did not place material or data showing reimbursement or recompense commensurate with the levy, and the purposes indicated were treated as general State obligations rather than specific facilities to the payers.

Conclusion: Section 3 was held to be unconstitutional and not saved by article 304 of the Constitution of India, as it conflicted with article 301 of the Constitution of India. The levy could not be enforced.

Final Conclusion: The challenge to the entry tax enactment succeeded because the statutory scheme failed to satisfy the constitutional requirements for a valid compensatory tax.

Ratio Decidendi: A compensatory tax on trade must disclose and be supported by a quantifiable, measurable, and broadly proportional benefit to the tax-paying class; absent such material, and where the levy mainly funds general infrastructure or public obligations, it violates article 301 and is not protected by article 304.

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