TaxTMI 
TaxTMI 
1997 (8) TMI 471
X X X X Extracts X X X X
X X X X Extracts X X X X
....and "second" notification) issued under section 3(1) of the Act, the raw materials brought by them in the local areas, which having been purchased from outside the State of Karnataka, have been made liable for levy of entry tax at 1 per cent but similar goods of Karnataka and brought into those very local areas have been exempted from such the levy. Accordingly, they have impugned the validity of the said notifications by raising various contentions. 3.. On hearing the rival submissions made at the Bar, we find that the following contentions call for our consideration: a) the notifications have been issued in excess of the legislative power delegated to the State Government under section 3(1) of the Act inasmuch as the State Government as a delegatee was competent to only specify the rate or rates "in respect of different goods or different classes of goods" as specified in the Schedule but it could not have specified the rate of tax by dividing the given commodity into further groups thereby levying tax on similar goods fulfilling certain condition and leaving the remaining out of the taxing net. b) the impugned notifications are also constitutionally invalid as offending artic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he powers conferred by sub-section (1) of section 3 of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), the Government of Karnataka, hereby specify that with effect from the first day of April, 1994, tax shall be levied and collected under the said Act on the entry of goods specified in column (2) of the table below into a local area from any place outside the State for consumption or use therein, at the rates specified in the corresponding entries in column (3), thereof: TABLE Sl. No. Commodity Rate of tax (1) (2) (3) 1. Machinery (all kinds) and parts and accessories thereof but excluding agricultural machinery. 2% 2. Motor vehicles (all kinds) and parts and accessories thereof including chassis-motor vehicles. 5% 3. Packing materials, namely: (i) Fibre board cases, paper boxes, folding cartons, paper bags, carrier bags and cardboard boxes, corrugated board boxes and the like. 2% (ii) Tin plate containers (cans, tins and boxes), tin sheets, aluminium foil, aluminium tubes, collapsible tubes, aluminium or steel drums, barrels and crates and the like. 2% (iii) Plastic, polvinyl, chloride and polyethylene films, bottles, pots, jars, bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....II.-If any of the goods liable to tax under this Act, other than the goods specified in serial numbers 5, 22, 29(i) and (ii) of Notification No. FD 109 CET 97(10), dated 31st day of March, 1997 are brought into a local area for consumption or use as raw materials, component parts and inputs in the manufacture of an intermediate or finished product, the tax payable on such goods, shall be at the rate of one per cent." Re: Contention (a): 6.. Under entry 52 of List II (State List) of the Seventh Schedule to the Constitution the State Legislature has been empowered to make law in relation to "taxes on the entry of goods in a local area for consumption, use or sale therein". Therefore, keeping in view this legislative entry, which is more appropriately recognised as a field of legislation, empowering the concerned Legislature to enact a law in relation to any aspect of that field subject to the limitations prescribed in the other parts of the Constitution, the State Legislature has enacted the present Act. A reading of sub-section (1) of section 3 of the Act shows that the Legislature in its wisdom had devised that there shall be levied and collected tax on the entry of goods specifi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dealers, thought it proper to amend the first notification retrospectively and accordingly, the second notification was issued substituting the words "from any place outside the State for consumption or use" by the words "where such entry is for consumption or use of such goods and where such goods have not suffered tax under the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957)". But despite the said amendments carried out in the first notification, the dealers by filing amendment petitions or fresh writ petitions, which are all before us for consideration, have maintained their grounds of attack by taking the plea that the infirmities in the notifications, as pleaded by them earlier still subsists and the exercise undertaken by the State Government is colourable in nature. 10.. On hearing the rival contentions and having closely examined the provisions of the Act, particularly, sub-section (1) of section 3 of the Act, even on a plain reading thereof, it seems quite clear to us that the Legislature had empowered the State Government only to prescribe the rates of tax by picking out any of the goods enumerated in the First Schedule to the Act. It could have been done either....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icable to a commodity having the same nature and contents and known as such in the common parlance or commercial sense without suffixing or prefixing any other criterion to create classes among the said commodity. To illustrate, if the State Government decides to specify the rate of tax for butter (No. 7), then it cannot prescribe different rates of tax for butter manufactured by different classes of manufacturers or butter suffering tax under a particular Act or butter imported or locally produced or butter having different colours and taste and the like. For these reasons, in our opinion, the impugned notification prescribing rate of tax in respect of goods mentioned therein if those have not suffered tax under the Karnataka Sales Tax Act, has to be held as ultra vires and unenforceable as having been issued in excess of the legislative delegation. 13.. We are also constrained to hold that it was not permissible on the part of the State Government to prescribe the rate of tax only on the entry of goods in the local areas meant for consumption or use therein and not on goods meant for sale, since, the State Government has not been authorised to prescribe different rate of tax dep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aw that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. Article 304.-Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported by other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose 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. Re: Contention (b): 15.. Challenge to the impugned notifications on the ground of infraction of article 304(a) has two facets, namely,- (i) the meaning of the expression "similar goods"; and, (ii) whether the discrimination is to be worked out on the basis of rate of tax made applicable to such goods or on the basis of the overall burden of tax ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nation one is required to only see the rate of tax applied to imported goods as compared to locally manufactured or produced goods and whether it is the same or different and nothing more. But the contention of the State is that the discrimination envisaged under article 304(a) should be viewed by taking at the forefront the constitutional scheme under articles 301 to 303 which intends to ensure trade, commerce and intercourse throughout the territory of India to be free and the economic unity of India may not be broken up by internal barriers by creating the total tax burden created by the taxing legislations of the State concerned as comparatively higher on goods imported from outside the State. According to Mr. D'Sa, the discrimination in question cannot be worked out by merely referring to an isolated taxing statute like the present one. His submission is that if the sum total of tax levied on the goods produced in the State by taking into account the levy of sales tax and the entry tax is found to be higher than the entry tax levied on imported goods, then no discrimination can be alleged in terms of article 304(a). 19.. In our opinion, the argument advanced on behalf of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bed. Thus, keeping in view the rate of entry tax, there is a clear discrimination between the two and thus offends article 304(a). In State of Uttar Pradesh v. Laxmi Paper Mart [1997] 105 STC 1 (SC); (1997) 2 SCC 697, the apex Court has clearly spelt out that, "Once the discrimination is made out, the enquiry by the court ends. The price structure of the imported goods vis-a-vis the locally manufactured goods or the economics of the importer need not be gone into". For these reasons, the validity of the impugned notifications cannot be sustained as also on the touchstone of the constitutional prohibition. Re: Contention (c): 22.. This ground of challenge is based on article 304(b) of the Constitution. It has been submitted on behalf of the petitioners that the retrospectivity of the second notification is bad because the insertion of the words retrospectively or prospectively in section 3(1) of the Act were inserted by Karnataka Act 8 of 1993 which has never received the assent or previous sanction of the President and therefore the said amending Act has not come into force so far. 23.. In the case of State of Karnataka v. Hansa Corporation AIR 1981 SC 463, the Supreme Court whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been." 26.. Contrary to the said stand taken by the State in the earlier round of litigation pertaining to the validity of certain amending Acts relating to entry tax, now an affidavited statement has been filed in W.P. No. 41966-67 of 1995 with copies circulated to all the appearing counsel, taking the plea that the impugned entry tax is in fact compensatory in nature. The affidavit has been sworn by the Under Secretary to the Government, Finance Department. He has stated that the amounts collected by way of entry tax are distributed to the local bodies to compensate for the loss of octroi revenue suffered by such local bodies. He has set out the break-up of the figures showing the amounts collected during the year 1994-95 and the manner of its disbursement. 27. In the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654, the Supreme Court, while negativing the contention that the M.P. Entry Tax Act interferes with the free-flow of trade and commerce within the meaning of article 301 of the Constitution has held that: "The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the ta....