TaxTMI 
TaxTMI 
1996 (2) TMI 430
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....or sale therein at a rate, not exceeding five per cent, as may be specified by the State Government. The goods mentioned in the Schedule are; (i) motor vehicles, (ii) tobacco products (excluding beeris), (iii) Indian-made foreign liquor, (iv) vegetable and hydrogenated oils, (v) cements and (vi) crude oil. The Act replaces Bihar Ordinance No. 19 of 1993. (Indeed, the said Ordinance was preceded by yet another Ordinance.) The expression "local areas" is defined in clause (f) of section 2 to mean the areas within the limits of a (i) Municipal corporation, (ii) Municipality, (iii) Notified area committee, (iv) Cantonment board, (v) Town board, (vi) Mines board, (vii) Municipal board, (viii) Gram panchayat and (ix) any other local authority by whatever nomenclature called constituted or continued under any law for the time being in force. Section 3 is the charging section. The levy is upon the entry of scheduled goods into a local area for consumption, use or sale therein. The proviso to sub section (3) empowers the Government to specify different rates of tax for different goods mentioned in the Schedule. Sub-section (2)....
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....rrectness of the judgment of the High Court in so far as it has negatived its contentions concerning the validity of the Act. Special Leave Petition (C) No. 23303 of 1995 is preferred by Vazir Sultan Tobacco Industries Limited and another. Sri M. Chandrasekharan, learned Additional Solicitor-General, appearing for the State of Bihar urged the following contentions: (1) The High Court was in error in holding that the impugned tax is not established either to be compensatory or regulatory. In fact, it is both. The Act was enacted by the Bihar Legislature to off-set, at least partly, the loss of revenue to the State resulting from the decision of this Court in India Cement Ltd. v. State of Tamil Nadu (1990) 1 SCC 12. The finances of the State will be spent on public welfare and to carry out the welfare schemes meant for the people of Bihar. The entire State of Bihar is divided into local areas of one or the other category. The money raised under the Act will naturally be spent for the welfare of the State which necessarily means for the benefit of the local areas. (2) Even if it is held, for some reason that the levy is not established to be compensatory or regulatory in natu....
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....t of the Taxation Enquiry Commission on the basis of which the said Act was enacted and the practice and understanding of the various States at the Centre since the enactment of the said Act clearly establish that while sharing the revenues under the ADE Act, the States have agreed not to impose any tax, cess or fee on tobacco under whatever name. As a matter of fact, entry tax is a tax similar to the sales tax. (b) The impugned Act does not indicate either expressly or by necessary implication that the revenues raised thereunder will be utilised for the purposes of local areas. Entry 52 in List II of the Seventh Schedule to the Constitution has been understood in a particular manner right from 1920. The entry tax is a substitute for octroi. Octroi was levied by the local authorities on consumption, use or sale of goods within their areas. The revenues so raised were meant for the purpose of such local authorities. The character of entry tax is no different. Even though levied by the State, it is levied (a) on the entry of goods into a local area for consumption, use or sale therein and (b) for the purposes of such local area. Since the impugned Act does not indicate in any m....
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....rade and interfere with the flow of trade and commerce do offend article 301. Similarly, non-fiscal measures which have the above effect are equally hit by article 301. It has, however, been held by a seven-Judge Constitution Bench of this Court in Automobile Transport (Rajasthan) Limited v. State of Rajasthan [1963] 1 SCR 491 that "regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304(b) of the Constitution." It is held that regulatory measures do not really impede the trade, commerce or intercourse but rather facilitate it. Similarly, it is held that compensatory taxes for the use of trading facilities are outside the purview of article 301. Since the impugned Act is not a regulatory measure but a taxing enactment and the tax is levied upon the entry of goods into a local area, i.e., upon the movement of goods, the question is whether the impugned tax is compensatory in nature for the use of trading facilities provided by the State. The High Court has observed that the State has....
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....regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom." It is not possible to deny the force of this submission. Where the local areas contemplated by the Act cover the entire State, the distinction between the State and the local areas practically disappears. (The situation would, no doubt, be different if the local areas are confined to a few cities or towns in the State and the levy is upon the entry of goods into those local areas alone. This is an important distinction which should be kept in mind while appreciating this aspect and also while examining the decisions of this Court rendered in "fifties and sixties"). The facilities provided in the State are the facilities provided in the local areas as well. Interests of the State and the interests of the local authorities are, in essence, no different. It is not and it cannot be stipulated that for the purpose of establishing the compensatory character of the tax, it is necessary to establish that every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities.....
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....eedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. 255.. Requirements as to recommendations and previous sanctions to be regarded as matters of procedure only.-No Act of Parliament or of the Legislature of a State and no provision in any such Act, shall be invalid by reason only that some recommendation or previous sanction required by this Constitution was not given, if assent to that Act was given- (a) where the recommendation required was that of the Governor, either by the Governor or by the President; (b) where the recommendation required was that of the Rajpramukh, either by the Rajpramukh or by the President; (c) where the recommendation or previous sanction required was that of the President, by the President." For, the exception in article 304(b) to come to the rescue of the State, three requirements have to be satisfied, viz., (a) that the Bill was introduced or moved in the Legislature with the previous sanction of the Preside....
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....85 and other judgments of the Patna High Court following it, public interest required the State to find alternative sources of revenue to keep its various welfare programmes and other governmental functions going and that the impugned tax was conceived as one of the alternate sources. He relies upon the statement in the counter-affidavit of Sri Binoy Krishan, filed on behalf of the State, referred to hereinbefore, in support of his submissions. He also relies upon the Objects and Reasons appended to the Bill, which are to the following effect: "To collect funds for various public welfare schemes and to implement various financial recommendations of the State Government, taxation according to the existing financial condition is highly essential. With a view to fulfil the above object and to make the provisions of the Bihar Finance Act more workable, it is essential that tax is levied and collected on certain goods entering the local areas of the State for consumption, use or sale; Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Second Ordinance, 1993 (Bihar Ordinance 19 of 1993) has been promulgated incorporating the aforesaid provisions. T....
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.... credit towards the sales tax payable on the sale of the said goods, which means that no additional burden is created on the dealers by the impugned levy. It is pointed out that entry tax is levied and collected mainly from the dealers in the said goods/commodities and that a dealer brings the said goods into a local area only for the purpose of sale. Such sale attracts sales tax which is levied at a far higher rate than the entry tax. Once the entry tax paid in respect of a commodity/goods is given credit towards the sales tax, there is in effect no levy of entry tax on these goods. Thus, no extra burden is cast by the impugned Act in so far as four out of six commodities mentioned in its Schedule are concerned. These facts are not disputed by anyone before us. No such credit is, of course, given in respect of crude oil and tobacco products, which means that, in effect, the entry tax is being levied only upon two commodities, viz., tobacco productions and crude oil. But there is a good reason, says the learned Additional Solicitor-General, for not providing for such credit in the case of the said two commodities. The reason given for not making a similar provision (giving credi....
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.... either an unreasonable restriction on the freedom of trade and commerce or that it is not required in public interest. In this connection, it is necessary to notice a few decisions brought to our notice. In Bhagatram Rajeev Kumar [1995] 96 STC 654, a three-Judge Bench of this Court has rejected the argument that to be compensatory, the tax must facilitate the trade. The reason is obvious: if a measure facilitates the trade, it would not be a restriction on trade but an encouragement to it. It was observed: "...........The submission of Shri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide municipal services more efficiently, which would help or ease free....
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....uch as taxes are levied to raise money in order to carry on the functions of the Government and to sustain the manifold activities undertaken by it. This decision also points out that the fact that President has given assent to the Bill also raises a presumption that the President (Central Government) had applied his mind to the problem and had come to the conclusion that the proposed tax constitutes a reasonable restriction and is required to be imposed in public interest. It is true that these are only presumptions but taken together with other material, referred to above, they do firmly establish the said requirement in article 304(b). The learned Additional Solicitor-General also relied upon the following holding in Hansa Corporation [1981] 1 SCR 823: "The next question is whether this levy is in public interest. As has been pointed out earlier, the levy was to compensate the loss suffered by abolition of octroi. These very people were paying octroi without a demur. After removing the obnoxious features of octroi a very modest impost is levied on entry of goods in a local area and that too not for further augmenting finances of the municipalities but for compensating the los....
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....ll collect additional duties of excise under the Act and make over a portion of the same in specified proportion to the several States in the country. The Report of the Taxation Enquiry Commission (1953-54) is the basis of this Act. The Report of the Taxation Enquiry Commission states, inter alia, that various duties imposed (by certain States) upon tobacco are casting an unduly heavy burden on tobacco and on tobacco manufacturers and that there is need "for ensuring proper co-ordination between the taxes on tobacco levied by the Central Government, the States and the local authorities". For this purpose, the report stated: "We consider that such co-ordination would be best evolved through the machinery of the Inter- State Taxation Council to which we have already alluded". (Para 23 at page 136 of the Report). At a meeting of the National Development Council held in December, 1976, the Centre and all the States agreed unanimously that "sales tax levied in States on mill-made textiles, tobacco including manufactured tobacco and sugar should be replaced by surcharge on the Central excise duties on these articles, the income derived therefrom being distributed among States on the basi....
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....nsumption, use or sale therein. It is not possible to agree with Sri Ganesh. Entry tax is a tax levied at the point of entry of goods into a local area for the purpose of consumption, use or sale therein. It is not a tax on sale. It is a tax on the entry of goods into a local area and it is precisely because of this that the petitioners say, article 301 is attracted. They cannot, at the same time, say that it is not a tax on entry but a tax in the nature of a tax on sale If it is a tax on sale, article 301 is not attracted.-apart from the fact that such a contention is wholly misconceived. Taxes on sale and purchase of goods are provided by entry 52 in List II. Moreover, entry 52 has been the subject-matter of several decisions of this Court which say that the tax is upon the entry of goods into a local area, i.e., upon entry of goods for the purpose of consumption, use or sale therein. Neither mere entry of goods is enough to attract the levy nor the mere sale thereof within the local area. What attracts the levy under entry 52 (and under the impugned enactment) is the entry of goods into a local area for consumption or for use or for sale within that local area for the purpose....
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....e additional duties levied and collected during that financial year, as are specified in the Schedule. Section 5 says that any expenditure incurred under the Act shall be charged to the Consolidated Fund of India. Section 6 confers the rule-making power upon the Central Government. The proviso to rule (2) in the Second Schedule to the Act is of crucial relevance to us. Rule (2) along with its proviso reads thus: "During each of the financial years commencing on and after the 1st day of April, 1974, there shall be paid to each of the States specified in column 1 of the table below such percentage of the net proceeds after deducting therefrom a sum equal to 1.41 per cent of the said proceeds as being attributable to Union Territories, as is set out against it in column 2: Provided but if during the financial year there is levied and collected in any State a tax on the sale or purchase of sugar, tobacco, cotton fabrics, woollen fabrics, rayon or artificial silk fabrics or one or more of them by or under any law of that State, no sums shall be payable to that State under this paragraph in respect of that financial year unless the Central Government by special order otherwise dire....
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....rliament could not, and did not, prohibit any State from making any law or levying any tax which a State can levy by virtue of the entries in List II. The decision of this Court in State of Kerala v. Attesee (Agro Industrial Trading Corporation) [1989] 72 STC 1; (1989) Supp 1 SCC 733 does bear out our understanding. At page 15 of STC (744 of SCC), this Court observed: "The 1957 Act also has a bearing on the sales tax levy of various States. By levying sales tax on an item covered by the Schedule to the 1957 Act, the State will have to forego its share on distribution of the proceeds of the additional excise duty levied. Whether it should impose sales tax on an item of declared goods, limited by the restrictions in section 15 of the CST Act and at the risk of losing a share in the additional excise duty levied in respect of those very items, is for the State to determine. As pointed out by Sri Potti, it was open to the Kerala Legislature to decide-and it did so also-that on some items there should be one or other of the levies or both of them and to modify these levies depending upon its own financial exigencies. But these factual or periodical variations do not detract from the ....
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....e ADE Act or for that matter, the proviso to rule (2) in the Second Schedule thereto. So long as the language of the enactment is clear and unambiguous, it is not permissible to refer to the kind of material relied upon by Sri Ganesh for altering, expanding or modifying the meaning or scope of the provisions of the Act. We are, therefore, unable to say that by agreeing to take a share in the proceeds of the additional duties of excise, the State of Bihar has deprived itself of its power to levy entry tax under and by virtue of entry 52 in List II in the Seventh Schedule to the Constitution. Indeed, it has not even forsaken its power to levy taxes on sale or purchase of tobacco or any other scheduled commodity; if it does so, all that would happen is that the consequence provided in the proviso to rule (2) in the Schedule to the ADE Act will follow and nothing more. The ADE Act does not affect the legislative competence of the State Legislature to make a law with reference to any of the entries in List II. The contention of Sri Ganesh on this score is accordingly rejected. Pausing here, we may mention a particular submission made by Sri Ganesh on this score. He submitted that thi....
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.... Government of India Act, 1935. Octroi was levied by the local authorities to raise money for their own purposes. It was meant to meet the financial needs of the local authorities and not for supplementing or augmenting the general finances of the State. The impugned Bihar Act, however, seeks to do precisely that which is not contemplated by entry 52. It has levied the impugned tax for the purpose of supplementing and augmenting the finances of the State and not the finances of the local authorities and hence, outside the purview of entry 52 in List II, says Sri Ganesh. Sri Ganesh relied upon the following decisions: In Central India Spinning and Weaving and Manufacturing Co. Ltd. v. Municipal Committee, Wardha [1958] SCR 1102, this Court observed: "The legislative history of this tax thus shows that octroi was leviable on the entry of goods in a local area when the goods were for consumption, use or sale therein..... In the absence of clear intention to the contrary the incidence of the tax leviable under item 8 of Schedule II of the Schedule Tax Rules is incapable of having a different complexion from that which it had before 1920 or that which was clearly given after 1935"....
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....ay that after collecting it, the State must make over the proceeds to the local authorities. The highest that Sri Ganesh can legitimately put his submission is that the tax is meant for and must be utilised for the purpose of the local areas. It cannot further be stipulated that this utilisation should be through or by the concerned local authorities. In our opinion, the relevant requirement is satisfied in this case. As stated hereinbefore, the entire State of Bihar is divided into local areas. From the point of view of the entry tax, one may say that the State is a compendium of local areas. Spending for the purposes of the State is thus spending for the purposes of local areas. Situation may perhaps be different where the local areas are confined to a few cities or towns in the State. But where the local areas span the entire State, it cannot be argued that money spent for welfare schemes for improvement of roads, rivers and other means of transport and communication is not spent on or for the purposes of local areas. The purposes and needs of local areas are no different from the purposes and needs of the State-not at any rate to any appreciable degree. In this con....
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....ss of dealers, persons or importers." The proviso to section 3(1) empowers the State Government to specify different rates of entry tax for different commodities mentioned in the Schedule to the Act. This is, however, subject to the ceiling of five per cent specified in section 3(1) itself. In such a situation, it cannot be held that the power conferred upon the State Government to specify the rate of tax is unguided. In Municipal Corporation of Delhi v. Birla Cotton Spinning and Weaving Mills, Delhi [1968] 3 SCR 251, it was held that where the power is given to a responsible elected body like the municipal corporation to prescribe the rates of tax subject to a ceiling prescribed and where the rates fixed have to be submitted to the Government for its sanction, it cannot be held to be a case of excessive delegation of legislative power. In this case, the delegation is to the State Government and a ceiling is also prescribed. The State Government must be deemed to be aware of the needs of the State and the interest of its people. It is the State Government that prepares the budget for every year. The very provisions of the Act and its scheme coupled with the above factors prov....