TaxTMI 
TaxTMI 
2003 (9) TMI 345
X X X X Extracts X X X X
X X X X Extracts X X X X
.... P.N. Puri, Ms. Veena Nanda, Atul Nanda, S.K. Sabarwal, Ms. Vijayalakshmi Menon, Rakesh K. Khanna, Ms. Rashmi Khanna, Reetesh Singh, Surya Kant, Nikhil Nayyar, Prakash Jha, H.K. Puri, S.K. Puri, Ujjwal Banerjee, Mahabir Singh, S.P. Singh Chauhan, Ajay Pal, Ms. Nitu Samita Das, Rakesh Dahiya, Ms. Vanita Bhargava, Tarun Johri, R.K. Maheshwari, Ms. Varuna Bhandari Gugnani, Neeraj Kumar Jain, Vinay Kumar Garg, Bharat Kumar, Sanjay Sen, Chetan Prabhakar, Rana Mukherjee, Rana S. Biswas, Ms. Indira Sawhney, J.P. Dhanda, Ms. Kavita Wadia and Kamlendra Misra for the parties. Senior Advocates: Shanti Bhushan, Jayant Bhushan, Dr. A.M. Singhvi, R.P. Gupta, M.L. Verma, H.N. Salve, A.K. Ganguli, P.P. Rao, Mahendra Anand and Jaideep Gupta for the parties. -------------------------------------------------- ORDER Leave granted in special leave petitions. 2.. In this batch of appeals, the constitutional validity of the Haryana Local Area Development Tax Act, 2000, has been challenged primarily on two grounds, first: that the Act is violative of article 301 of the Constitution and is not saved by article 304 and second: that the Act in fact seeks to levy sal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Central Act 2 of 1924), or a Zila Parishad established under the Haryana Panchayati Raj Act, 1994 (Haryana Act No. 11 of 1994), or any other local authority constituted or continued under any law for the time being in force". 8.. The entire State is divided into local areas. The Act ostensibly covers not only vehicles bringing goods into the State but also vehicles carrying goods from one local area to another. However those who pay sales tax to the State are exempted from payment of the entry tax. Ultimately, the entry tax only falls on concerns like the appellants which, by virtue of the provisions of the Central Sales Tax Act, 1956, pay sales tax on the purchase of raw material and sale of finished goods to other States and do not pay sales tax to the State of Haryana. Under section 22 of the Haryana Act, "The tax collected under this Act shall be distributed by the State Government amongst the local bodies to be utilised for the development of local areas". This, shortly put, is the context in which the challenge to the Act under article 301 has been made. Article 301 of the Constitution which guarantees freedom of trade, commerce and inter-course says: "Su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or inter-course with or within that State as may be required in the public interest: .........." "If a statute fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be considered unimpaired." Thus the concept of "compensatory taxes" was propounded. Therefore taxes which would otherwise interfere with the unfettered freedoms under article 301 will be protected from the vice of uncon- stitutionality if they are compensatory. The question therefore is, is the Act impugned in the present case compensatory. 11.. In Automobile Transport's case, AIR 1962 SC 1406, it was said (page 1425): ". . . a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities." (emphasis added) 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....goods into a local area for the purpose of use, consumption or sale therein has a direct effect on the movement of goods and therefore it can be saved only if the levy is in the nature of compensatory tax for the use of trading facilities or it comes under the protective umbrella of article 304. (3) So long as a tax remains compensatory or regulatory, it cannot operate as a hindrance to trade. Regulatory measures or compensatory taxes imposed to provide facilities and services to traders do not affect the freedom contemplated by article 301 and such measures/taxes need not comply with the requirements of article 304. (4) Tax imposed for augmenting general Revenues of the State such as sales tax, is not compensatory. However, motor vehicles tax is a typical instance of compensatory tax because, in substance, it is a tax imposed for the use of roads in the State and the tax enables the State to provide and maintain roads. (5) It is of the essence of compensatory tax that the service rendered or facility provided should be more or less commensurate with the tax levied. (6) A tax does not cease to be compensatory in nature merely because the precise or specific amount colle....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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-flow of trade and commerce, because of which the impost has to be regarded as compensatory in nature, in view of what has been stated in the aforesaid decisions, more particularly in Hansa Corporation's case (1980) 4 SCC 697; AIR 1981 SC 463." 18.. The reference to State of Karnataka v. Hansa Corporation (1980) 4 SCC 697 by the court was inapposite. In Hansa's case (1980) 4 SCC 697, although the challenge was to the levy of entry tax, the issue whether the tax was compensatory in nature was expressly left open. This is what the court had said (page 712): "The State did not attempt in the High Court to sustain the validity of the impugned tax law on the submission that it was compensatory in character. No attempt was made to establish that the dealers in scheduled goods in a local area wou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the welfare of the nation or the State as a whole. This may result in a general economic upliftment and the betterment of all facets of life including ultimately and in an indirect sense the trading community. The approach in the two decisions noted does away with the difference between taxes in general and compensatory taxes. If that is the law then any tax could pass the test of compensatory tax judged from the standard applied. Then no tax can impinge on the freedom ordained by article 301, a result which, it is pointed out, would go counter to the court's decision in Atiabari Tea's case [1961] 1 SCR 809 and the long line of authorities referred to earlier starting with the Automobile Transport's case [1963] 1 SCR 491. 22.. In the present case, section 22 which we have quoted earlier, says that the tax shall be given to local bodies for utilisation for the development of local areas. There is nothing in section 22 to indicate that the "development of local area" means development of roads or other trading facilities. It is argued by the appellants that the tax levied on the appellants could in fact be used purely for "non-trading facilities" such as setting up schools, hosp....