TaxTMI 
TaxTMI 
2013 (7) TMI 72
X X X X Extracts X X X X
X X X X Extracts X X X X
....alta Special Economic Zone. The object of the impugned Act, as stated in its preamble is to provide for the levy and collection of taxes on the entry of certain goods into local areas of the State of West Bengal for consumption, use or sale therein and to provide for matters connected therewith or incidental thereto for the purpose of creating a compensatory Entry Tax Fund. Some of the definitions in Section 2 of the impugned Act, relevant for the purpose of this writ application are as follows:- "Section 2(1) (g) "dealer" means a dealer under the West Bengal Value Added Tax Act, 2003, or under the West Bengal Sales Tax Act 1994, as the case may be, and includes- West Ben. Act XLIX of 1994. (i) a handling or delivery agent or an agent acting in any manner on behalf of the principal, or any other person who takes delivery or is entitled to take delivery of goods on behalf of a dealer on its entry into a local area, (ii) Where specified goods entering any local area have been dispatched to such local area by rail, road, water, air or post, and the consignee of such specified goods does not take delivery of such goods upon entry and such specified goods are sold under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tatutory body, a trust or other body corporatre, a society including a co-operative society, a factor, a broker, a commission agent, a del credere agent, an auctioneer, an agent for handling or transporting of goods or handling of document of title to goods, or any other mercantile agent, by whatever name called, an educational institution, any bank, any hospital or nursing home or diagnostic centre, a joint-venture company, and a limited liability partnership or other juristic person; Section 2(1) (y) "turnover of imports", used in relation to any registered dealer with reference to a period of time, means the aggregate of the import value of specified goods which the dealer brings or receives in any local area during the period for consumption, use or sale therein, and used in relation to an unregistered dealer or importer other than a dealer, means the import value of a consignment of specified goods brought or received in any local area for consumption, use or sale therein, whether by the dealer or the importer other than a dealer himself or by any other person;" Section 2(2) of the impugned Act interalia provides that words and expressions used but not defined in the imp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s dispatched at the time of entry into a local area directly to a place outside the State in the same form in which such goods have been entered into the local area; and (c) such other entry of goods, either in full or in part, as may be prescribed. (5) The expression "taxable turnover of imports" as stated in subsection (1) shall mean, in respect of a dealer or an importer other than a dealer liable to pay tax on the entry of specified goods into a local area for consumption, use or sale therein, that part of his turnover of imports which remains after deducting therefrom- (a) turnover of imports relating to entry of specified goods into a local area, if it is proved to the satisfaction of the Commissioner that such goods have already been subjected to tax under this Act in the same form; (b) turnover of imports relating to entry of specified goods into a local area, if it is proved to the satisfaction of the Commissioner that such goods have been purchased in the same form against a tax invoice, or invoice, or bill issued under the West Bengal Value Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, by a dealer registered under the West of Bengal Value Added....
X X X X Extracts X X X X
X X X X Extracts X X X X
....electronically or manually, submit a return in such form containing such particulars, to such authority, within such period, in such manner and along with such documents, as may be prescribed. (2) A registered dealer shall pay into the appropriate Government Treasury in the prescribed manner and within the prescribed date the full amount of tax payable by him under this Act on the basis of the return to be submitted under sub-section (1) and shall furnish along with such return satisfactory proof of the payment of such tax. (3) Where the Commissioner is satisfied that a registered dealer has defaulted in, or has attempted to evade, payment of tax under this Act, he may, for reasons to be recorded in writing, demand from such registered dealer an amount towards security for safeguarding revenue in respect of the tax payable under this Act, either for a single consignment or for tax payable for a particular period, and such security shall be adjusted against the tax payable under this Act for that consignment or that period, as the case may be." "Section 15. Establishment of fund - (1) There shall be established for the purposes of this Act, a fund to be called the West Beng....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... developing and maintaining pollution free environment in the concerned areas; (h) any other purpose connected with the development of trade, commerce and industry or for facilities relating thereto; (i) providing finance, aids, grants and subsidies to local bodies and State Government agencies for the purposes specified above. (2) The State Government shall - (a) ensure that the proceeds of tax collected under this Act, net of the cost of collection and incidental expenses, are utilized for facilitating trade, commerce and industry in the State; (b) identify the areas which require immediate development or maintenance of infrastructure and other facilities and allot proceeds of tax under this Act for the purposes specified in subsection (1); (c) ensure that the proceeds of tax collected under this Act, net of the cost of collection and incidental expenses, are not-much more than the amount actually required for development of local areas for facilitating trade, commerce and industry in the State." "Section 19. Maintenance of accounts - The State Government shall maintain proper accounts and other records, such forms in and in such manner, as may be prescribed.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilar goods manufactured or produced in that State are subject, so that there is no discrimination between goods so manufactured or produced in the State and those brought from outside the State and also to impose restrictions on freedom of trade or commerce in public interest. Mr. Poddar submitted and rightly that the impugned Entry Tax does not seek to impose tax to which similar goods manufactured or produced in the State of West Bengal are subject, to place goods manufactured or produced in the State at the same level with goods brought from outside the State. Mr. Poddar argued that in the absence of prior sanction of the President of India, the impugned Entry Tax Act was hit by Article 304(b) of the Constitution of India, since no Bill for enactment or amendment in law to impose restrictions on freedom of trade, commerce or intercourse with or within the State could be introduced or moved without the previous sanction of the President, if such enactment or amendment was proposed in public interest. Mr. Poddar submitted that taxing laws are not excluded from the operation of Article 301 of the Constitution of India. Mr. Poddar submitted that a taxing law which purports ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ween a tax imposed and the facilities intended to dealers, directly or indirectly, the levy could not be impugned as invalid. The Supreme Court reiterated this view in State of Bihar Vs. Bihar Chamber of Commerce reported in (1996) 9 SCC 136. In the aforesaid case the Supreme Court held that "Some Connection" between the tax and the trading facilities extended to dealers directly or indirectly, would be sufficient to characterize it as compensatory tax. In Jindal Strips Ltd. (1) Vs. State of Haryana reported in (2003) 8 SCC 136 a Bench of the Supreme Court doubted the correctness of the law enunciated in Bhagatram Rajeev Kumar (supra) and Bihar Chamber of Commerce (supra) and referred to the Constitutional Bench, the specific question of whether the theory of some connection, as propounded in Bhagat Ram's case, and applied in Bihar Chamber of Commerce case, was contrary to law and the working test laid down in the case of Automobile Transport Ltd. (supra). Mr. Poddar also cited the decision of the Constitution Bench of the Supreme Court in Jindal Stainless Ltd. (2) & Ors. Vs. State of Haryana & Ors. reported in (2006) 7 SCC 241 where the aforesaid question was answered. The C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be adjudicated in view the law laid down by the Supreme Court in Jindal Stainless Ltd. (2) (supra). Mr. Poddar strenuously contended that the impugned Entry Tax Act is not compensatory in nature. Mr. Poddar argued that the amount of Entry Tax collected is credited to the Consolidated Fund of West Bengal under Section 16 of the Act and the same is to be appropriated by the State Legislature. Thus the Act is for augmenting the general revenue and cannot be treated to be compensatory. Mr. Poddar submitted that the basic difference between a tax and a fee or a compensatory tax was, that the former was based on the concept of burden, whereas the latter was based on the concept of recompense and/or reimbursement. For a tax to be compensatory, there had to be some link between the quantum of tax and the facilities or services for which the tax was being imposed. Mr. Poddar submitted that whenever a law is impugned as violative of Article 301 of the Constitution of India, the Court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ally vague and devoid of any particulars. Mr. Poddar submitted that creation development and maintenance of infrastructure for supply of electrical energy and water to industries, contemplated in Section 18(1) (c) of the Entry Tax Act is also a common burden and responsibility of a welfare State and cannot be held to be compensatory for meeting the expenses incurred for the outlay for providing any special advantage to trade, commerce and intercourse. Mr. Poddar argued that in Jindal Stainless Ltd. (2) (supra) the Constitution Bench of the Supreme Court categorically held that exaction to reimburse and/or recompense the State, the cost of an existing facility made available to the traders or the cost of a specific facility planned to be provided to the traders, would be compensatory tax and that it was implicit in such a levy that the tax must be more or less commensurate to the cost of the service or the facility. Mr. Poddar emphatically argued that the proposition of law enunciated in Bhagatram Rajiv Kumar's case (Supra) and in State of Bihar Vs. Bihar Chamber of Commerce that indirect or incidental benefit to traders would suffice, has specifically been overruled in Jin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....less Steel Ltd. (supra), as it had not placed any material before the Court to demonstrate that payment of Entry Tax was for the reimbursement/recompense for the quantifiable, measurable benefit that "provided ought to be provided" to its tax payers. Mr. Poddar strenuously contended that the Entry Tax Act not being compensatory in nature was violative of Article 301 of the Constitution of India and liable to be struck down. Admittedly the Act had not been introduced after obtaining prior approval of the President of India. In support of his submission that the impugned Entry Tax Act was not compensatory in nature, Mr. Poddar cited the following judgements:- (i) R. Gandhi Vs. State of Tamilnadu reported in (2008) 13 VST 390; (ii) Thressiamma L. Chirayil Vs. State of Kerala & Anr. reported in (2007) 7 VST 293; (iii) ITC Limited Vs. State of Tamil Nadu & Ors. reported in (2007) 7 VST 367 (Mad); (iv) Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors. reported in (2008) 12 VST 149; (v) Bharat Earth Movers Ltd. Vs. State of Karnataka reported in (2007) 8 VST 60 (Karn). (vi) Unreported judgement of the Jharkhand High Court in Tata Steel Limited Vs. State of Jharkha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tue of any provision in the Entry Tax Act. Thus the theory of "quid pro quo" as enunciated in the judgement in Jindal Stainless Steel Ltd. (supra) for determining the levy to be compensatory in nature is completely absent. Mr. Poddar submitted that the notification issued by Government of West Bengal, Finance Department, Budget Branch, for constitution of a committee consisting of the Heads of various departments of the Government of West Bengal, inter alia provides that the provisions for the expenses from the Fund shall be made under the budgets of the respective departments as per the decision of the Committee. Mr. Poddar argued that the notification was completely contrary to Section 16 of the Entry Tax Act and also contrary to the Constitution of India, particularly Articles 266(3) and 199(1)(d) thereof. Mr. Poddar submitted that it was unimaginable how the committee comprising of secretaries of the Government of West Bengal could determine the budget provision and usurp jurisdiction of appropriation of money from the Consolidated Fund of the State which is exclusively reserved to the State Legislature. Mr. Poddar submitted that apart from Clause 5.3 two other Clauses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ivalence and direct and immediate benefit to payers of Entry Tax of Kolkata Municipal Corporation area cannot be achieved and thus the provision cannot be termed as compensatory in nature. Mr. Poddar pointed out that it had been admitted by the State that it would be open for the State Government to spend the amount collected from one local area for another local area. Mr. Poddar finally submitted that the provisions of the Entry Tax Act also violated Article 304(A) of the Constitution of India in as much in the matter of levy of Entry Tax as the Entry Tax Act discriminates between goods brought into a local area from outside the State or outside the country and goods brought into a local area from with the State. If goods enter one local area of the State from another local area, there is no tax payable. Mr. Poddar finally argued that if goods have been subjected to tax under the West Bengal Value Added Tax Act 2003 or the Bengal Sales Tax Act, 1994, such goods, on their entry into a local area, would not be liable to Entry Tax. The Section, thus, patently discriminates between goods imported from outside the State and goods manufactured within the State. In the matter of le....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... frontiers and definition of customs frontiers and also in connection with duties of customs including export duties. Mr. Poddar argued that it was evident from the aforesaid entries that Parliament had exclusive jurisdiction in the matter of levy of duties on the export and import and to frame laws in respect of trade and commerce with foreign countries including import and export across, customs frontiers. Mr. Poddar submitted that if an importer imported any goods from outside, the importer would required to pay import duty and again Entry Tax under the impugned Entry Tax Act, Entry Tax for delivery of such imported goods in factories, godowns etc. in the State of West Bengal. Thus, in a transaction which was in course of import the importer would have to pay Entry Tax over and above import duty. In support of his argument Entry Tax transgressed Article 286 of the Constitution of India. Mr. Poddar cited the following judgements:- (i) Re Sea Customs Act reported in (1964) 3 SCR 787; (ii) Godfrey Phillips India Ltd. Vs. State of U.P. reported in (2005) 2 SCC 515; Mr. Poddar submitted that, in enacting the impugned Entry Tax Act, the State Legislature had nullifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reme Court held that the abovementioned principles would apply to "any legislation under challenge whether it be a taxation law or non-taxation law violating Article 301". Mr. Kapur submitted that it was well-settled that State legislature had the power to introduce a compensatory tax because this was a judicially designed exception to the legislation normally applicable under Section 301 of the Constitution of India. However, Jindal Stainless Steel Ltd. (supra) provided that any compensatory tax would have to meet certain parameters and fulfil certain mandatory requirements. Briefly summarized these parameters are:- (i) the payment of compensatory tax is not for revenue but as reimbursement/re-compense for the special services/facility provided by the State; (ii) the Act must facially indicate the benefits to the payers which should be quantifiable and measurable; (iii) the Act must facially or patently indicate quantifiable data on the basis of which the compensatory taxes ought to be levied; (iv) the Act must indicate proportionality between the levied tax and the benefit; (v) if the Act does not indicate the above features facially then the burden is on the St....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reserve to itself a choice or right to elect whether it would make a credit to the fund or not. Since the fund had to be utilized only to provide a service/facility to the payers thereof, the mandate of the Act should have been that all and any realizations of Entry Tax - would all necessarily be required to be transferred to the Compensatory Fund in full. Mr. Kapur submitted that by giving an option or right to elect to the State Government whether or not to send the levy to the compensatory fund and, if so, the time, the amount or the proportion clearly demonstrates that the levy would be unrecognizably mixed up with the consolidated fund of the State and thereafter would cease to be identifiable or available or used to provide the service/facility to the payers, which is a mandatory requirement. Mr. Kapur submitted that the Act ought not to have left any choice to the Government to transfer the full amount of the levy to the compensatory fund. Rather, the Act should have facially provided/mandate and unquestionably shown that such disbursement was to be done on the face of the statute. Mr. Kapur submitted that the very terms of Section 18 of the Act make it clear that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Areas Act, 1962 and Taxes on Entry of Goods into Calcutta Metropolitant Area, 1972 were enacted after obtaining previous sanction of the President of India. Mr. Khaitan argued that the Entry Tax Act is not compliant with clause (a) of Article 304 since similar similar goods manufactured or produced in the State of West Bengal are not subject to Entry Tax. In terms of clause (b) of Section 4(5) of the impugned Entry Tax Act, goods purchased from a registered dealer, against a tax invoice or invoice or bill, issued under the West Bengal Value Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, are not liable to pay Entry Tax under the impugned Entry Tax Act. Mr. Khaitan further submitted that under the Value Added Tax Act, an importer-dealer is compulsorily liable to obtain registration and pay tax in respect of all his sales. A manufacturer/producer or a re-seller has to compulsorily obtain registration and pay tax as soon as his turnover exceeds Rs.5 lakhs, a petty amount, in the present day and age. A manufacturer/producer or re-seller also has the option to obtain voluntary registration even before he becomes liable to pay tax. Thus every dealer, unless he is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....exclusively for the purposes of the Act. Mr. Khaitan submitted that in exercise of the rule making power conferred by section 22 of the Entry Tax Act, by a Notification bearing No. 766-F.B. dated July 24, 2012, the Governor of the State made the West Bengal Compensatory Entry Tax Fund Rules, 2012 ('the Entry Tax Fund Rules"). Rule 5(1 1) provides that the total annual receipt of Entry Tax in the Consolidated Fund of the State shall be appropriated to the Entry Tax Fund in the Public Account. Mr. Khaitan submitted that Section 22 of the Entry Tax Act enables the making of rules for carrying out the purposes of the said Act. When the Act provides that appropriation out of the Consolidated Fund shall be made by the State Legislature by law for credit to the Entry Tax Fund, any rule made in exercise of the power under section 22 of the Act cannot provide for such appropriation. Rule 5(u) of the Entry Tax Fund Rules is ultra vires the provisions of the Entry Tax Act and also ultra vires the provisions of the Constitution. Mr. Khaitan further submitted that Chapter III of Part VI of the Constitution contains provisions relating to State Legislature. Articles 196 to 200 in the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....submitted that Article 283 does not deal with appropriation of moneys out of the Consolidated Fund of the State. Detailed provisions in respect of appropriation are contained in Chapter III of Part VI of the Constitution adverted to hereinbefore. Article 283 deals with custody of the Consolidated Fund, payment of moneys into and withdrawal of moneys therefrom, which is to be regulated by law made by the State Legislature. Until the State Legislature makes such law, the Governor of the State can make rules for such regulation. Mr. Khaitan submitted that "withdrawal is not the same as 'appropriation'. It is only after appropriation by the State Legislature by law that withdrawal of money can take place. This is evident from the provisions of sub-article (3) of Article 204 extracted hereinabove. Mr. Khaitan submitted that Article 283 dealing with regulation of custody of the Consolidated Fund and payment of moneys into and withdrawal of moneys therefrom is clearly not meant to give a go by to the entire legislative procedure relating to appropriation contained in the Constitution. The Governor of the State is not empowered by Article 283 to appropriate any moneys out of the Cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the levy shall be utilised for the development or facilitating the trade, commerce and industry in the State, the entire burden thereof has to be borne by the persons who import the goods into the State of West Bengal. However, the benefit of any development or facilitation shall be enjoyed equally by manufacturers/ producers in the State who do not have to make any imports. The assumption of the State that every manufacturer/ producer in the State makes imports is unfounded. It is submitted that in the said scheme of things, where the entire burden of the levy falls upon the importers, the tax is clearly discriminatory and cannot be said to be compensatory by way of reimbursement/ recompense in so far as the importers are concerned. Mr. Khaitant submitted that the impugned levy also constitutes an unreasonable restriction on the right to carry on business guaranteed by Article 19(1)(g) of the Constitution, and is violative of the said Article. Mr. Khaitan submitted that Goods manufactured in the State are sold not only within the State but also in the other States and are also exported outside the country. Mr. Khaitan submitted that all the States do not impose entry tax.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat thus, manufacturers/ producers in the State of West Bengal who import raw materials, plant, machinery, equipment, etc. from outside the State for their manufacture/ production activity face the prospect of losing their business outside the State as also in the international market and would ultimately have to shut down their manufacture/ production facilities in the State. Counsel appearing for some of the other writ petitioners namely Mr. Samit Talukdar and Mr. Moinak Bose adopted and elaborated on the submissions made by Mr. Poddar, Mr. Kapur and Mr. Khaitan, and as such their arguments are not separately recorded, to avoid repetition and prolixity. Mr. Bose cited International Tourist Corporation Vs. State of Haryana reported in (1981) 2 SCC 318 and the judgement of the Division Bench in Central Coalfields Ltd. Vs. the State of Jharkhand. Mr. Bose further argued that a fee is compensatory if that particular fee improves the flow of trade, and if so, it would be outside the purview of Article 301. Mr. Abhratosh Mazumdar appearing on behalf of the State traced the historical background leading to the incorporation of the Part XIII of the Constitution of India. Mr. Maz....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the case of goods manufactured or produced outside the Province, discriminates between goods manufactured or produced in one locality and similar goods manufactured or produced in another locality. (2) Any law passed in contravention of this section shall, to the extent of the contravention, be invalid." Mr. Mazumdar pointed out that the founding fathers of the Constitution while incorporating commerce clause in Part XIII of the Constitution were also inspired by commerce clause contained in Section 92 of the Australian Constitution, which reads thus:- "On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free." In this historical milieu the makers of the Constitution having regard to the economic unity and stability of the nation incorporated Part XIII in the Constitution. Mr. Mazumdar referred to Articles 301, 302, 303 and 304 of the Constitution of India. In Atiabari (supra) the constitutionality of the Assam Taxation (on Goods Carried by Roads or Indian Watherways) Act, (Assam Act 13 of 1954) was the subject matter of challenge. The purpos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....versed. Mr. Mazumdar argued that the ration laid down in Atiabari (supra) was revisited by Seven Judges Constitution Bench in Automobile Transport (supra). The Constitution Bench judicially evolved the concept of compensatory and/or regulatory taxes as exception to Article 301. Mr. Mazumdar submitted that the ratio laid down in Automobile Transport (supra) can be culled out as follows:- "(a.) The conception of freedom of trade, commerce and intercourse in a community regulated by law presupposes some degree of restriction upon the individual, that freedom must necessarily be delimited by considerations of social orderliness. (b) The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to anybody's freedom so long as they remain reasonable. (c) For the tax to become a prohibited tax it has to be a direct tax the effect of which is to hinder the movement part of trade. So long as a tax remains compensatory or regulatory it cannot operate as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....301 and as the parameters of this judicial concept are blurred particularly by reason of the decisions in Bhagat Ram (supra) and Bihar Chamber of Commerce (supra), we are of the view that the interpretation of Article 301 vis-à-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench under Article 145." In Jindal Stainless Vs. State of Haryana reported in (2006) 7 SCC 241 (Jindal) the Supreme Court enunciated the following judicial principles with regard to the interpretation of Article 301 vis-à-vis the concept of compensatory tax:- "(i) Taxing laws are not excluded from the operation of Article 301, which means tax laws do amount to restriction as held in Atiabari (supra). It has to be examined whether such tax laws directly and immediately restricts trade and commerce. (paragraphs 6 & 47). (ii) Compensatory taxes constitute an exception to Article 301. It is a judicially evolved concept in Automobile Transport case as a part of regulatory charge. (paragraphs 31). (iii) Whenever any law is impugned as violative of Article 301, the Courts will have to examine the effect of the operation of the impugned law on the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tters of pending appeals, special leave petitions and writ petitions, were directed to be disposed of in the light of this judgement. (paragraphs 53)." Mr. Mazumdar appearing on behalf of the State submitted that there could be no doubt that Article 301 guaranteed free trade, commerce and intercourse throughout the territory of India. Mr. Mazumdar also agreed that the question of whether a tax on movement of goods would amount to restriction of free trade, commerce and intercourse guaranteed by Article 301 is no longer open in view of the judgements of the Supreme Court in Atia Bari Tea Company Limited Vs. State of Assam (supra), Automobile Transport (Rajasthan) Limited Vs. State of Rajasthan (supra), Jindal Stainless Steel Ltd. (supra) and numerous other judgements of the Supreme Court and different High Courts many of which have been cited on behalf of the respective writ petitions. Mr. Mazumdar could not dispute that a tax of any kind that related to movement of goods from one part of the territory of India to another would amount to a restriction on the right to free trade, commerce and intercourse throughout the territory of India guaranteed by Article 301. Mr. Mazumdar,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... however directed to be remanded to the respective High Courts for hearing and adjudication in the light of the principles enunciated in Jindal Stainless Ltd. 2 (supra) by an order reported in 2006 (7) SCC 271. Mr. Mazumdar pointed out that pursuant to the directions of the Supreme Court in Jindal (3) various appeals pending in the Supreme Court were remanded to the High Courts for adjudication in the light of the law as enunciated in Jindal Stainless Steel Ltd. (Supra). Unlike in the instant case, where the impugned Entry Tax Act specifies the purposes for which the proceeds of the levy of entry tax might be utilized the encasements which were struck down as ultra vires could not show that the proceeds would be utilized for facilitating trade development. After the judgement of the Supreme Court in Jindal Stainless Steel Ltd. (Supra) the various states enacted statues, enacted validation Act and effected amendments to existing Acts to bring similar compliance with the law as enunciated in Jindal Stainless Steel Ltd. (Supra). Most of these Enactments /Validation Acts/Amendments have been upheld by different High Courts. Mr. Mazumdar submitted that no data was required to be s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Imposition of Entry Tax under the impugned Act does not tantamount to tax on sale. Mr. Mazumdar submitted once the goods are cleared from warehouse the importation is complete. Applying the principles of law enunciated by the Supreme Court in Automobile Transport (Rajasthan) Ltd. (supra) as reiterated in Jindal Stainless Steel Ltd. (supra). Distinguishing the judgments of the various High Court in R. Gandhi Vs. State of Tamilnadu (supra); Thressiamma L. Chirayil Vs. State of Kerala & Anr. (supra); ITC Limited Vs. State of Tamil Nadu & Ors. (supra); Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors. (supra); Bharat Earth Movers Ltd. Vs. State of Karnataka (supra); Tata Steel Limited Vs. State of Jharkhand & Ors. (supra); National Aluminium Co. Ltd. Vs. State of Orissa & Ors. (supra); Dinesh Pouches Ltd. Vs. State of Rajasthan (supra); Indian Oil Corporation Ltd. Vs. State of U.P. (supra); cited by Mr. Poddar and Mr. Kapur, Mr. Mazumdar argued that the enactments impugned in the aforesaid cases, did not facially indicate that the tax imposed was 'compensatory', as in the case of the impugned Entry Tax Act. Unlike the impugned Entry, the enactments impugned in those cases di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to as the 'State List'). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included [in a State] notwithstanding that such matter is a matter enumerated in the State List." Article 246 demarcates the legislative fields of Parliament and the Legislatures of States. While the Parliament has exclusive power to make laws in respect of any of the matters enumerated in List I of the Seventh Schedule of the Constitution, the State Legislatures have exclusive power to make laws in respect of any of the matters enumerated in List II of the Seventh Schedule. In respect of matters enumerated in List III of the Seventh Schedule, which is the Concurrent List, both Parliament and the Legislatures of States have power to legislate. Entry 52 of List II in the Seventh Schedule empowers the State Legislature to enact laws with regard to taxes on entry of goods into a local area for consumption, use or sale therein. The power to enact a law imposing a tax on the entry of goods into local areas, for consumption or for sale or for use in those areas, can only be exercised by the State Legislature. The power of Parliament and Legi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... out hereinbelow:- "366(29A) Tax on the sale or purchase of goods" includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in the some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or othervaluable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 62 and the legislative history we hold that Entry 62 of the List II does not permit the levy of tax on goods or articles. In our judgment, the word "luxuries" in the entry refers to activities of indulgence, enjoyment or pleasure. Inasmuch as none of the impugned statues seek to tax any activity and admittedly seek to tax goods described as luxury goods, they must be and are declared to be legislatively incompetent." In Godfrey Phillips India Ltd. (supra) the Constitution Bench of the Supreme Court was not concerned with imposition of any tax on entry of goods into local areas, in exercise of legislative power under Entry 52 of List II but with legislative power under Entries 54 and 62 of List II of the Seventh Schedule to the constitution, which respectively dealt with taxes on sale and purchase of goods and taxes on luxuries including entertainment amusement etc. The Supreme Court found that the word 'luxuries' in Entry 62 of List II referred to activities of indulgence, enjoyment or pleasure, and did not permit levy of tax on goods or articles by describing the same as luxury goods, as had been done by the State of Uttar Pradesh. The tax on luxury articles was held to be re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is the import of goods within the customs barriers. In other words, the taxable event occurs when the customs barriers is crossed. In the case of goods which are in the warehouse the customs barriers would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country...." Mr. Mazumdar referred to recent judgement of the Division Bench of Orissa High Court in the case of Tata Steel Ltd. [W.P.(C) 15519 of 2010] reported in 58 VST 484 heard along with various other writ petitions. The question in issue in the aforesaid writ applications was, whether Entry Tax under the Orissa Entry Tax Act, 1999 could be levied on goods imported by the petitioners from outside the country. The High Court held that the enactment of law, in exercise of the power of the State Legislature under Entry 52 of the List II of the Seventh Schedule for imposition of entry tax on goods purchased from outside the country, would not violate Article 286 of the Constitution. The Orissa High Court distinguishing the judgement of the Supreme Court in Godfrey Phillips India Ltd. Vs. State of Uttar Pradesh (supra) held that in case of entry tax the taxable event was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he country. The High Court, thus, held that the limitations in Article 286 had not been surmounted and as such the Act was inapplicable to the appellants, who had imported vehicles from abroad. The judgment has no relevance to the issue of whether imposition of a tax on entry of imported goods into a local area for consumption use, or sale therein, contravenes Article 286 of the Constitution. Entry 52 of List II relating to taxes on the entry of goods into a local area for consumption, use or sale therein, is distinct from Entry 26 of the said list relating to trade and commerce within the State, subject to Entry 33 of List III, Entry 27 relating to production, supply and distribution of goods and Entry 54 relating to sale and purchase of goods. Tax on entry of goods into local areas for consumption use or sale therein, imposed in exercise of legislative power under Entry 52 of List II, is distinct from tax on trade and commerce with foreign countries, import and export across customs frontiers, inter-state trade and commerce, taxes on sale or purchase goods or taxes on consignment of goods etc in course of inter-state trade or commerce and sale or purchase of newspapers etc.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... such reasonable restrictions on the freedom 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." Article 301 in Part XIII of the Constitution guarantees free trade, commerce and intercourse, throughout the territory of India, subject, however, to the other provisions of Part XIII of the Constitution. The Constitution makers have, in their wisdom, made the absolute freedom of trade, commerce and intercourse throughout the territory of India, guaranteed under Article 301, subject only to the other provisions of Part XIII, that is, subject to Articles 302 to 307 of the Constitution, but not any other provision of the Constitution of India. Article 302 enables the Parliament to impose by law, such restrictions on the freedom of trade commerce or intercourse between one state and another, or within any part of the territory of India, as may be required in public interest. Thus, Parliament might enact law imposing such restrictions on the freedom of trade, c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....obtained within the State did not attract any Entry Tax at all, on their entry into a local area within the State. The Division Bench, thus, held that the impugned legislation was violative of Article 303(1) of the Constitution of India in that it discriminated against States and/or gave preference to the State of Tamil Nadu. In Bharat Earth Movers Ltd. Vs. State of Karnataka (supra) the validity of the Karnataka Special Tax on Entry of Certain Goods Act, 2004 was challenged before the Karanataka High Court. The Karnataka High Court observed:- "......We also notice, the State is also discriminating between traders who bring goods from outside the State or country to a local area as defined under section 2(1)(h) read with section 2(1)(d) and person who brings goods from an area within the State to a local area in the State. Facts would indicate that on the introduction of entry tax, manufacturers have opted to purchase raw materials from within the State because they are less costlier since the levy of entry tax has definitely created a tax barrier affecting the free-flow of trade, commerce and intercourse, such a tax violates article 301 of the Constitution and therefore liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....supra) and Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & Kashmir (supra) relate to entries regarding sale or purchase and/or trade or commerce. Article 304(a) enables the legislature of a State to impose on goods imported from other State or Union Territories, any tax to which similar goods manufactured or produced in that State are subject, so that there is no discrimination between goods so manufactured or produced in the State and those brought from outside the State. The condition precedent for exercise of power by the State Legislature, to enact a law under Article 304(a) of the Constitution of India is (i) similar goods manufactured or produced in the State should be subject to tax; (ii) there should be no such tax and/or tax at lower rate on the goods in the State/Union territory from which the goods are imported; and (iii) the object of the imposition should be to prevent discrimination between imported goods and similar goods manufactured or produced within the State. To cite an example, if the Excise Duty on wines liqueurs and other alcoholic beverages is lower in the neighbouring State of Sikkim, than in the State of West Bengal, or if there is no excise dut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lature may impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State, as may be required in public interest. However, no Bill or amendment to impose restrictions on the freedom of trade, commerce or intercourse, with or within the State, is to be introduced or moved in the Legislature of a State, without the previous sanction of the President of India, even though the same may be in public interest. In this case admittedly the Bill was introduced without the previous sanction of the President of India. It is true, that a Five Judge Bench of the Supreme Court has referred the issue of whether Article 304(a) and 304(b) of the Constitution are conjunctive or disjunctive, to a larger Bench, as pointed out by Mr. Mazumdar. However, there is no order of the Supreme Court, of stay of proceedings, in which the aforesaid issue may be of relevance. There is no authoritative pronouncement of the larger Bench of the Supreme Court, on the issue of whether Clause (a) and Clause (b) of the impugned Entry Tax Act are disjunctive or conjunctive. Having regard to the language and tenor of the proviso to Article 301(b), which provides that no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dom of trade as contemplated by Art. 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII the freedom of trade on which so much emphasis is laid by Art. 301 would turn to be illusory. When Art. 301 provides that trade shall be free throughout the territory of India primarily it is the movement part of the trade that it has in mind and the movement or the transport part of trade must be free subject of course to the limitations and exceptions provided by the other Articles of Part XIII...." "54. ...We are dealing in the present case with an Act passed by the State Legislature which imposes a restriction in the form of taxation on the carriage or movement of goods, and we hold that such a restriction can be imposed by the State Legislature only if the relevant Act is passed in the manner prescribed by Art. 304(b)." As per the law pronounced by the Supreme Court in Atiabari Tea Company Ltd. (supra), a tax which affects movement of goods from one part of the territory of India, to another, directly affects free trade, commerce and intercourse, throughout the territory....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... statute imposing it. Nor do we think that it would be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used in providing any facilities. It is obvious that if the preamble decided the matter then the mercantile community would be helpless and it would be the easiest thing for the Legislature to defeat the freedom assured by Art 301 by stating in the preamble that it is meant to provide facilities to the tradesmen. Likewise actual user would often be unknown to tradesmen and such user may at some time be compensatory and at others not so. It seems to us that 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. It would be impossible to judge the compensatory nature of a tax by a meticulous test and in the nature of things that cannot be done." The parameters laid down in Automobile Transport (Rajasthan) Ltd. (supra) for determining whether any tax was compensatory or not, were broadened in Bhagatram Raji....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... regulatory power or whether it is the product of the exercise of the taxing power. If the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or nontaxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of the operation of such a law is to impede the activity, then the law is a restriction under Article 301. However, if the law enacted is to enforce discipline or conduct under which the trade has to perform or if the payment is for regulation of conditions or incidents of trade or manufacture then the levy is regulatory. This is the way of reconciling the concept of compensatory tax with the scheme of Articles 301, 302 and 304. For example, for installation of pipeline carrying gas from Gujarat to Rajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come in the category of manifestation of regulatory power. However, a tax levied on sale or purchase of gas which flows from that very pipe is a manifestation of exercise of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. if the provisions are ambiguous' or 'even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/facility provider to show by placing the material before the Court, that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to its payer(s)" After the judgement of the Constitution Bench was pronounced in Jindal Stainless Ltd. (2) (supra) the pending appeals were listed before a two judge Bench of the Supreme Court for adjudication in the light of the law as enunciated by the Constitution Bench. In Jindal Stainles Ltd. (3) Vs. The State of Haryana reported in (2006) 7 SCC 271. The Supreme Court found that data had not been placed before the High Courts to determine whether the impugned levies were 'compensatory' as per the requirements laid down in Jindal Stainless Ltd. (2) (supra), and accordingly remitted the respective writ peti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ority of the States to levy taxes under Article 245 and 246 of the Constitution, read with the appropriate legislative entries in the Seventh Schedule to the Constitution of India. The States sought reconsideration of the decisions of the Supreme Court in Atia Bari Tea Company Limited (supra) and Automobile Transport (Rajasthan) Limited (supra) by a larger bench. The Supreme Court was of the view that certain aspects which needed the consideration of a larger Bench of the Supreme Court were interplay and interrelationship between Article 304(a) and 304(b); the significance of the non obstante clause in Article 304; the balancing of freedom of trade and commerce under Article 301 vis a vis the authority of the State Legislature to levy taxes under Article 245 and 246 of the Constitution of India, read with the appropriate legislative entries in the Seventh Schedule, particularly in the context of movement of trade and commerce. The Five Judge Bench directed that the batch of cases be placed before the Chief Justice of India for constituting a larger bench for reconsideration of the judgements of the Supreme Court in Atia Bari Tea Company Limited (supra) and Automobile Transport (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded. The Supreme Court found that the appellants had not been able to discharge the initial burden, as the writ petitions were sketchy and lacking in material particulars and accordingly, allowed the writ petitions to be withdrawn, with liberty to file a proper writ petition, if so advised. Where the challenge to an action is required to be adjudicated on the basis of factual data the burden would be on those attacking the action to disclose sufficient facts to substantiate their case. For example, where an action is challenged as violative of Article 19(1)(g) of the Constitution of India, the burden would be on the writ petitioner to establish that the Act would constitute an infringement on the fundamental right guaranteed under Article 19(1)(g) of the Constitution of India. Similarly, when an action is challenged as discriminatory, a case of discrimination will have to be made out. However, when a statute is challenged on the ground of lack of legislative competence or on the ground of an apparent infringement of a constitutional provision, as in this case, factual details may not be necessary. A tax on movement of goods, having judicially been construed as a restriction o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h goods, as argued by Mr. Khaitan. Some of the writ petitioners might also rightly be aggrieved by imposition of the levy, only on goods imported from outside the State, since the benefit of the development, if any, would be enjoyed equally by manufacturers/producers in the State who do not have to make any imports. However, hardship, inconvenience or irrationality are no grounds to sustain a challenge to a Statute enacted by legislature, in exercise of power conferred by the Constitution, unless the Statute infringes some provision of the Constitution itself. In Khyerbari Tea Company (supra) the Supreme Court has said that a principle which has to be borne in mind, in examining the constitutionality of a statute is, that it must be assumed that the legislature understands and appreciates the needs of the people, and the laws it enacts are directed to problems which are made manifest by experience, and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted. As pointed out by Mr. Khaitan, earlier Entry Tax Laws enacted in the State of West Bengal, such as Tax on Entry of Goods into ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Legislature to reframe the law and cure the defects in the Act of 2001, that existed prior to the judgement of the West Bengal Taxation Tribunal in National Hydro Power Corporation Limited (supra) that rendered the Act of 2001 unconstitutional. As observed above, the object of the impugned Entry Tax Act, as declared in its preamble, is to set up a Compensatory Entry Tax Fund. The recital of the impugned Entry Tax Act also states that the levy and collection of Taxes on entry of certain goods, for consumption, use or sale in the local area and matters connected therewith and incidental thereto, is for the purpose of creating a Compensatory Entry Tax Fund. Section 4(3) casts an obligation on the State Government to specify the rates of tax under Sub-section (2) of Section 4, having regard to the financial needs for development and facilitation of trade, commerce and industry in the local areas of the State. Section 15 provides for establishment of the West Bengal Compensatory Entry Tax Fund. Section 16 provides for the manner in which the proceeds of Entry Tax are first to be credited to the West Bengal State Consolidated Fund, and thereafter, by appropriation, if law enacted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ering the Pilkhwa Municipal area, under Section 128(1)(viii) of the U.P. Municipalities Act, 1916, upheld by the High Court was questioned before the Supreme Court. The Supreme Court held:- "......The High Court has upheld the levy of the toll tax relying upon the decision of this Court in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan as being compensatory in nature. In Automobile Transport case, the majority held that regulatory measures imposing compensatory taxes for the use of trading facilities do not hamper trade, commerce or intercourse, but rather facilitate them and therefore are not hit by freedom of trade and commerce guaranteed by Article 301 of the Constitution. The toll tax in question however cannot be treated to be a compensatory tax for the use of trading facilties. The Municipal Board provides no facilities whatever to the owners of vehicles like stage carriages making use of National Highway No. 24. The township of Pilkhwa is off the national highway and is quite at some distance. It is connected by a road and a part of the national highway has been included within the municipal limits. Merely because stage carriage operators like the appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....levied. Services provided will have a direct co-relation with the trade. The main basis of compensatory tax is the quantifiable and measurable benefit represented by the cost incurred in procuring the facilities/services. The cost in turn becomes the basis of reimbursement/recompense for provider of services/facilities. As held in Jindal's case [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the compensatory tax is a charge for offering trade facilities and they are based on the principle of equivalence. Applying the above test, we are of the opinion that maintaining of roads, providing bridges, etc., cannot be said to be compensatory in nature so as to constitute special advantage to trade, commerce and intercourse. Even otherwise, a welfare State is bestowed with the responsibilities of providing good roads and bridges for the benefit of the tax-paying citizens and hence to contend that the impugned levy is being raised only for the said purpose is not justified. Maintenance of roads, bridges, etc., are generally met from the general funds or revenue. Whether goods are transported into the State from outside the State or abroad, the State has got a duty to provide facilities like road....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsatory tax......" "...... Some indirect connection or some connection, more or less commensurate, etc., are not the tests, but the direct and immediate effect is the test. Maintaining of roads, bridges, etc., and promotion of SSI units, etc., are generally met from the general funds or revenue. Whether goods are transported into the State from outside the State or abroad the State has got a duty to provide those facilities, like roads, bridges, etc., which is being enjoyed not only by persons who bring goods notified for levy of entry tax but also others...." In ITC Limited Vs. State of Tamil Nadu & Ors (supra) cited by Mr. Poddar a Division Bench of Madras High held that the Tamil Nadu Tax of Goods into Local Areas Act, 2001 did not satisfy the test laid down for compensatory tax, inter alia observing that the pleadings filed on behalf of the State merely gave statistics with regard to total costs of building roads and bridges and on maintenance of roads that had been incurred by the State from year to year. The Madras High Court was of the view that irrespective of whether any goods were transported into the State from other States, or abroad, the State had a duty to pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Stainless Ltd.'s case [2006] 145 STC 544, is that a levy which is exclusively for meeting a special service or benefit to the taxpayer is not even in the nature of a tax or a general levy and is more akin to the taxpayer receiving the service from the State and paying for it. Such is not the situation in the present cases and under the enactment under challenge." In National Aluminum Company Limited & Ors. Vs. State of Orissa & Ors. reported in [2008] 15 VST 296 (Orissa) cited by Mr. Kapur the Constitutional vires of the Orissa Entry Tax Act 1999 was challenged as violative of Article 301 and 304 of the Constitution of India and also on the ground that the State Legislature lacked legislative competence to enact the said Act. The Division Bench of Orissa High Court found that the levy under the impugned enactment was not compensatory, since the revenue received by way of Entry Tax was deposited in the Consolidated Fund of the State, and expenditure therefrom, incurred for development work was not specifically identifiable. The Court held that tax to meet expenditure in general, for infrastructure development, for the welfare of the general public, could not be considered com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d was compensatory in nature. A perusal of the judgement reveals that quantifiable data had been produced to satisfy the Court that the levy was in fact compensatory. The Assam High Court noted that part of the tax was spent for providing security to the pipelines of ONGC, which were used by the writ petitioners to import oil into the State of Assam. The Tax was thus in the nature of quid pro quo for utilisation of pile lines. The Assam High Court observed:- "Additionally, the provisions of section 10(2) which impose an embargo of use of any amount of entry tax collected for any other purpose; the transfer of the amount collected under the Act of 2001 to the special fund; the provisions of rule 11 providing for deposit of the amount of entry tax collected under an exclusive head of account, are sufficient facial indications that the levy under the Act is intended to provide certain identifiable benefits to trade. The provision in the Budget of 2008-09 for credit of Rs. 250 crores to the special fund created, the funds earmarked for infrastructure development and provisions for amenities to different departments and the constitution of a committee to examine the developmental ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in those Acts, were upheld. However, Statutes enacted before pronouncement of the aforesaid judgement which did not indicate that the taxes levied by the Statues were compensatory, were struck down as ultra vires the Constitution. It however appears that in the cases of those Statutes which were upheld, the High Courts not only considered the provisions of the Statutes, but also data and other materials disclosed in the affidavits and were satisfied that the levies against those statutes were to provide specific, measurable benefits to the class of tax payers, on the principle of approximate equivalence. The question of validity of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011, the provisions of which are almost identical to the impugned Entry Tax Act, was considered by a Division Bench of the Jharkhand High Court in W.P. 5696 of 2011 Tatal Steel Ltd. Vs. State of Jharkhand & Ors. along with a batch of other writ petitions. By a judgement and order pronounced on 3rd April, 2012, the Division Bench of Jharkhand High Court held that Section 3 of the impugned Act of Jharkhand, that is, the charging section, was ultra vires the Constitution of India and c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld still be open to the State to disclose particulars of completed projects, projects in progress and projects in contemplation, approximate/estimated costs thereof, project reports and plans and estimates of the amount proposed to be realized from the levy impugned, to show a discernible link between the levy and the corresponding benefits. An estimate of costs of proposed projects to facilitate trade and commerce, or of taxes expected to be realized, can never be exact. Realization of taxes, which varies according to the volume of trade and commerce, could well be in excess of target, in case of unexpected increase in the volume of trade and commerce. Similarly, for compelling reasons, projects may be abandoned, inordinately delayed or modified. The actual costs of projects may be lower than the estimated costs. Even otherwise, the actual expenditure may be lesser for various reasons, leaving some part of the tax collected, unutilized. Thus, an impugned enactment would not be vitiated only because it might bring in some revenue, in the sense that the unutilized amount of the levy would be utilized for other general purposes. Nor would a Statute be vitiated because the spec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ming West Bengal Compensatory Entry Tax Fund Rules, 2012. The notification dated 24th July, 2012 issued by the Government of West Bengal Finance Department, Budget Branch is in itself contrary to Section 16 of the impugned Entry Tax Act and apparently inconsistent with the Constitution of India particularly Article 266(3) and Article 199(1)(d), as argued by Mr. Poddar and Mr. Khaitan. The Rules framed in exercise of power conferred by Statute cannot be contrary to the provisions of the Statute. A committee comprising of secretaries of different departments of West Bengal, cannot determine budget provisions and assume the power exclusively reserved to the State Legislature of appropriation of money from the Consolidated Fund of the State. Furthermore, compensatory tax being equivalent to a fee, based on the principle of 'quid pro quo' and/or equivalence, to qualify as a compensatory tax, the Entry Tax collected from one local area must be identified to be spent in that local area and in no other area. In Automobile Transport (Rajasthan) Limited (supra) the Supreme Court was concerned with a tax on motor vehicles and not a tax on entry of goods into local areas for consumption,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of India, the onus would shift on the State to show that the levy is in the nature of reimbursement and/or recompense for benefits provided or to be provided to the tax payer. It is also well settled that the Court adjudicating a challenge to the validity of the provisions of a statute may, if possible, interpret the provisions of the statute in a manner that saves those provisions from constitutional invalidity. Needless to state, that in doing so, the Court must be very cautious so that it does not embark upon the legislative functions of enacting or reenacting the law. However, before reading words into a statute or omitting from the statute words thought to be surplus, the question which the Court should ask itself is, what could be the intention the legislature and what would the legislature have done, had its attention been drawn to the confusion caused by the omission or the surplusage. Thus, a provision conferring very wide and expansive powers on an authority can be read down and construed in conformity with the legislative intent that the power should be exercised within constitutional limitations. As held by the Supreme Court in Arun Kumar Vs. Union of India repo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of enactment, reenactment and amendment. This court may, however, interpret a statutory provision in a manner, that renders the provision workable and constitutional. Section 16 as enacted reads as follows:- "Section 16. Crediting of proceeds to the Fund - The proceeds of the levy under this Act shall first be credited to the Consolidated Fund of West Bengal, and the State Government may, if the State Legislature by appropriation made by law in this behalf so provides, credit such proceeds to the Fund from time to time, after deducting the expenses of collection for being utilized exclusively for the purposes of this Act." Section 16, as it stands is unintelligible. This Court, therefore, construes Section 16 to read "the proceeds of the levy shall first be deposited to the Consolidated Fund of West Bengal and the State Government may, by appropriation, if the State Legislature, by law in this behalf so provides, credit such proceeds to the Fund from time to time, after deducting the expenses of collection, for being utilized exclusively for the purposes of this act" Section 16 as construed above, read with Sections 15 and Section 18(1) of the impugned Entry Tax Act, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng pollution free atmosphere in the concerned areas has remote connection, if not, no connection with developing and facilitating trade and commerce, even though the same might improve the quality of life for citizens. Taxes utilized for keeping the environment free of pollution, would not qualify as a compensatory Tax. Be it mentioned that individual industries are responsible for ensuring that they conform to the environmental norms. Similarly vehicles including those which carry goods, are required to comply with pollution norms. The cost of railway over bridges and/or subways are substantially borne by the Railways and as argued by Mr. Poddar the purpose specified in Subclause (1) of providing financial aid grants and subsidies to local bodies and government agencies is totally vague and devoid of material particulars. In view of the law laid down by the Supreme Court in Atiabari Tea Company Ltd. (supra), the impugned Entry Tax must be held to restrict the right to free trade, commerce and intercourse, throughout the territory of India, even though the restriction is reasonable and in public interest. There can be no doubt that the State Legislature has exclusive power....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estimated expenditure on such projects. To qualify as a compensatory tax, the Statute imposing the tax must facially indicate that the tax is a recompense for identifiable, measurable benefits to the class of tax payers as a whole on the principle of equivalence. If the statute does not contain particulars of the corresponding benefits in return for the tax, details may be disclosed by affidavit. It is reiterated that a compensatory tax would not cease to be a compensatory tax, only because of some excess collection, which may have to be diverted towards the revenue of the State. However, imposition of the tax would necessarily have to be preceded by the exercise of ascertaining the approximate financial requirements for specific and/or earmarked projects and balancing the same with the targeted tax receipts. The State should be able to justify the basis on which the rate of tax has been determined. The impugned Entry Tax Act does not indicate the quantifiable or measurable benefits to be provided in lieu of the levy. The data on the basis of which the compensatory tax is sought to be levied is neither disclosed in the impugned Entry Tax Act or the Affidavit-in-Opposition fil....