Supreme Court Rules: Non-Discriminatory Taxes Allowed; Compensatory Tax Theory Rejected; State Fiscal Laws Scrutinized.

The SC held that taxes simpliciter do not infringe Part XIII of the Indian Constitution, and only discriminatory taxes are prohibited by Article 304(a). The compensatory tax theory lacks juristic basis and is rejected. Entry tax validity requires statute-specific examination under Articles 301 and 304. Clauses (a) and (b) of Article 304 are read disjunctively, and a levy violating Article 304(a) cannot be saved by Article 304(b) compliance. States can design fiscal legislation to ensure equal tax burdens on imported and locally produced goods. Discrimination under Article 304(a) refers to hostile protectionism, not mere differentiation.

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Issues Involved:
1. Whether the levy of a non-discriminatory tax per se constitutes an infraction of Article 301 of the Constitution of India.
2. If a compensatory tax can also fall foul of Article 301 of the Constitution.
3. Tests for determining whether a tax or levy is compensatory in nature.
4. Validity of Entry Tax levied by States in light of Articles 301 and 304 of the Constitution.

Detailed Analysis:

1. Non-Discriminatory Tax and Article 301:
The Court held that taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word 'free' used in Article 301 does not mean "free from taxation." Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that the levy of a non-discriminatory tax would not constitute an infraction of Article 301.

2. Compensatory Tax and Article 301:
The compensatory tax theory evolved in the Automobile Transport case and subsequently modified in Jindal’s case has no juristic basis and is therefore rejected. All legislation, including compensatory or regulatory, has to be examined in accordance with the Constitutional Scheme as contained in Part XIII of the Constitution. The nature and content of taxation at best may shed light on the aspect as to whether it impedes/restricts the freedom of trade, commerce, and intercourse or facilitates the same.

3. Tests for Determining Compensatory Nature of Tax:
The Court did not find it necessary to answer the question regarding the tests for determining whether a tax or levy is compensatory in nature, as the compensatory tax theory itself was found incompatible with the Constitutional Scheme.

4. Validity of Entry Tax Levied by States:
To determine whether Entry Tax levied by different States violates Article 301, each statute has to be looked into and examined as per the discussions and conclusions detailed in the judgment. A law made by State Legislature complying with clause (a) of Article 304 and not containing any restriction on the freedom of trade, commerce, and intercourse need not comply with Article 304(b). However, a law even though complying with Article 304(a) but containing restrictions on freedom of trade, commerce, and intercourse has to be routed through the proviso to clause (b) of Article 304 of the Constitution.

Separate Judgments and Concurrences:
- The Chief Justice pronounced a separate judgment comprising Hon’ble Mr. Justice A.K. Sikri and Hon’ble Mr. Justice A.M. Khanwilkar.
- Hon’ble Mr. Justice S.A. Bobde, Hon’ble Mr. Justice Shiva Kirti Singh, Hon’ble Mr. Justice N.V. Ramana, Hon’ble Mrs. Justice R. Banumathi, Hon’ble Dr. Justice D.Y. Chandrachud, and Hon’ble Mr. Justice Ashok Bhushan pronounced separate judgments.

Final Conclusions:
1. Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India.
2. Only such taxes as are discriminatory in nature are prohibited by Article 304(a).
3. Clauses (a) and (b) of Article 304 have to be read disjunctively.
4. A levy that violates Article 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso thereunder is satisfied.
5. The compensatory tax theory evolved in Automobile Transport and subsequently modified in Jindal’s case has no juristic basis and is therefore rejected.
6. Decisions of this Court in Atiabari, Automobile Transport, and Jindal cases (supra) and all other judgments that follow these pronouncements are to the extent of such reliance overruled.
7. A tax on the entry of goods into a local area for use, sale, or consumption therein is permissible although similar goods are not produced within the taxing state.
8. Article 304(a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation.
9. States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally.
10. The questions whether the entire State can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country are left open to be determined in appropriate proceedings.

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