TaxTMI 
TaxTMI 
2006 (11) TMI 558
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....DGMENT I.A. ANSARI, J. 1. It was in an age of struggle that India's struggle for independence achieved success, for, with the end of the Second World War, countries were struggling to overcome the disastrous consequences, which the war had brought. It was an age, when the people, all over the world, were struggling for space and everyone wanted to have greater say in the governance of their respective countries. British empire had fragmented and struggle to occupy he void created by the fall of the British empire had had fragmented and struggle to occupy the void created by the fall of the British empire intestified. It was in such a period of transition from colonial rule to a rule of self-governance that the constitution of India was in prepared. What our constitution-makers witnessed and experienced had its reflection in our Constitution. The concept of entry tax is a concept routed in history. Before the industrial revolution, the society, world over was mainly agriculture based, there were small principalities and very little quantity of goods moved from one area to another, because gods were, ordinarily, produced for consumption by the producers themselves, such as,....
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....ution of India and, particularly, Article 301 read with Article 304 contained therein? Does an enactment imposing entry tax, legislated under Entry 52, necessarily have a direct and immediate impact on the movement of goods and, if so, how to decide whether such an enactment falls within the ambit of the freedom of trade, commerce and intercourse guaranteed under Article 301 or not? Can an entry tax be sustained if the same is not compensatory in nature or are there any exceptions thereto? When does such legislation require President's sanction in terms of the proviso to Article 304(b)? Whether the Assam Entry Tax Act, 2001 (hereinafter referred to as "the AET Act, 2001"), notifications, issued under Section 3(4) thereof, imposing entry tax on goods, such as, biscuits, textiles and fabrics, crude oil, tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture, the Assam Entry Tax (Amendment) Ordinance, 2005 (hereinafter referred to as "the AET (Amendment) Ordinance, 2005") or the Assam Entry Tax (Amendment) Act 2005 (hereinafter referred to as "the AET (Amendment) Act, 2005") are compensatory in nature? What is the difference between tax simplici....
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.... another. However, those, who pay sales tax to the State, are exempted from payment of the entry tax. The entry tax, thus, falls only on those persons, who, such as the present writ petitioners, pay sales tax on the purchase of raw materials and sale of finished goods to States other than the State of Assam. Entry tax, under the AET Act, 2001, is a single point tax as the entry tax can be levied only at one stage. Once entry tax has been paid, or liability has been incurred, on the entry of any of the scheduled goods into any local area, the entry tax cannot be levied thereafter, though the goods, which have been so taxed, may be moved from one local area to another local area and so on irrespective of the fact whether the movement of the scheduled goods, out of a local area, is by way of stock transfer, inter-State sale or sale in the course of export or import. By impugned notifications, issued under Sub-section (4) of Section 3 of the AET Act, 2001, when the goods, namely, biscuits, textiles and fabrics, crude oil, tobacco including cigarette, charoots, cigar, biri, zarda, khaini, sada and smoking mixture, were added to the schedule of the goods under the AET Act, 2001, and were....
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....d order No. 13/1/99-Judl., dated 30th August, 2000. The State Government is requested to make necessary provisions in the Bill to exempt goods relating to "Prasar Bharti" and all kind of textiles and fabrics, as agreed to by them vide their letters No. (i) FTX. 31/89/Pt/93 dated 8th November, 1999 and (ii) FTX. 31/89/Pt/104 dated 30th March, 2000 before introduction of the Bill in the State Legislature. (emphasis supplied) 7. Section 3 of the AET Act, 2001, is the charging Section and it provides that entry tax can be levied and collected on the entry of goods specified in the Schedule appended to the AET Act, 2001, into any local area for consumption, use or sale therein at the rate shown against each item in the Schedule and such tax shall be paid by every importer of such goods. Before Section 3 under went amendment and Sub-section (4) thereof was deleted, Sub-section (4) of Section 3 empowered the State Government, by publication of notification in the Official Gazette, to add to, delete, amend or otherwise modify the said Schedule and also to vary the rates of tax of the goods specified in the Schedule. 8. However, the amended Section 3, now, reads' as fo....
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...., art silk and nylon textile, whether manufactured by handloom, powerloom or otherwise, crude oil and tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture, as specified goods to the Schedule of the said Act. By various other notifications, the Government, from time to time, included some other articles to the Schedule of the said Act. 10. The relevant dates of the notifications along with the numbers and dates thereof are, for the sake of convenience, quoted hereinbelow: Biscuits No. FTX.90/2003/5 dated 21-8-2003 All varieties of textiles, viz., cotton, woollen or silken, including rayon, art silk and nylon textiles, whether manufactured by handloom, power loom or otherwise. FTX.90/2003/5 dated 26-8-2003 Crude oil No. FTX.2694/2 dated 29-9-2004 Tobacco including cigarette, cheroots, cigar, biri, zarda, khoini, sada and smoking mixture No. FTX.89/2004/Pt/15 dated Bitumen FTX 146/2001/5 dated 8-1-2002 Marble tiles FTX. 146/2001/5 dated 8-1-2002 Marbles FTX. 146/2001/5 dated 8-1-2002 Decorative slabs FTX. 146/2001/5 dated 8-1-2002 Plant and machineries FTX. 146/2001/5....
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.....2005, whereby the Governor of Assam, in exercise of powers conferred under Section 3(1) of the AET Act, 2001, fixed the rate of tax payable against each of the entries specified in the Schedule to the Act save and except entries made in Serial Nos. 54 and 55. As per the notification, dated 12.5.2005, aforesaid, the specified goods to which the present writ petitions relate are biscuits, all varieties of textiles, namely, cotton, woollen or silken including rayon, art silk and nylon textile, whether manufactured by handloom, power-loom or otherwise, crude oil and tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture, and fall under Serial Nos. 23, 25, 38 and 47(a) respectively. 13. In course of time, the AET Ordinance, 2005, was replaced by the AET (Second Amendment) Act, 2005, which, having received, on 7.9.2005, the assent of Governor of Assam, came into force with retrospective effect, i.e., with effect from 12.5.2005. What is, however, important to note is that apart from ratifying the AET Ordinance, 2005, the AET (Second Amendment) Act, 2005, also introduced three new sections to the AET Act, 2001, namely, Sections 3A, 8A and 8B, Section....
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...., issued under Section 3(4) of the AET Act, 2001, suffered from the vice of excessive delegation, Mr. Shanti Bhusan, learned senior Counsel, points out that prior to its amendment by the AET (Amendment) Ordinance, 2005, Sub-section (4) of Section 3 empowered the State Government to add any new item to the Schedule of the said Act without providing any guidelines therefore and also to vary the rates of tax without providing upper ceiling limits in this regard. Such delegation of primary power of taxation by the State Legislature to the State Government is, according to Mr. Shanti Bhusan, nothing, but abdication of the essential legislative function by the State Legislature, The power of taxation, submits Mr. Shanti Bhusan, cannot be delegated to the Government empowering it to tax any new item and to vary the rates of tax unless the Legislature provides to the Government the necessary guidelines in this regard. The power to impose tax, further submits Mr. Bhusan, is a substantive power and such substantive power cannot be delegated in the manner as has been done in the present case. 18. In support of his submission that by leaving the executive completely free to bring any new it....
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.... is sought to be placed on the freedom of trade and commerce guaranteed by Article 301, the restriction can be imposed only by Legislature and it cannot, as is the case at hand, be imposed by any executive action, Mr. Shanti Bhushan has relied on the decisions in District Collector of Hyderabad v. Ibrahim and Co. reported in [1970] 3 SCR 498 and Kalyani Stores v. State of Orissa [1966] 1 SCR 865 , Mr. Shanti Bhushan also relies on State of Mysore v. H. Sanjeeuiah [1967] 2 SCR 673 to demonstrate that no restrictions, on the freedom of trade and commerce, can be imposed by the executive under Article 304(b) in exercise of delegated authority. 22. The submissions made above by Mr. Shanti Bhusan on the question of excessive delegation have been adopted by the other learned Counsel, appearing on behalf of the various writ petitioners, in the present set of writ petitions. Moreover, Dr. B.P. Todi, learned senior Counsel for the petitioners, who are textile merchants, has further pointed out that the inclusion of all varieties of textiles by the impugned notification, dated 26.8.2003, clearly shows that though, at one stage, all kinds of textiles and fabrics were, in terms of the denia....
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....965] 2 SCR 477 . 26. Reacting to the submissions made on behalf of the respondents, Mr. Shanti Bhushan has pointed out that there is no dispute that if the Legislature lays down the legislative policy and provides necessary guidelines, it can delegate to the executive the functions, such as, selection of persons on whom the tax shall be levied and the rates at which the tax shall be charged. The decision, in Pandit Banarasi Das Bhanwahlol v. State of M.P. (1958) 9 STC 258, has not, contends Mr. Shanti Bhushan, laid down the proposition that the Legislature, without providing guidelines, can delegate absolute power to the Government to impose tax on new items by way of notification and to vary the rate of tax without providing any upper ceiling limits in this regard. 27. Mr. Shanti Bhusan submits that the decision of Apex Court, in Sitaram Bishambher Dayal v. State of U.P. AIR 1972 SC 1168, in fact, supports the case of the petitioners inasmuch as the Apex Court, in Sitaram Bishambher Dayal (supra), has clearly held that if the Legislature provides necessary guidelines, the power to fix the rate of tax can be delegated to the executive. Similarly, submits Mr. Shanti Bhusan, in....
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.... piece of legislation and the action taken pursuant thereto by the State Government be allowed to survive? 30. While considering the question posed above, it needs to be borne in mind that, as held by the Supreme Court, in Pandit Banarasi Das Bhanwahlol (supra), it is not unconstitutional for the Legislature to leave it to the executive to determine the details relating to the working of a taxing statute, such as, selection of persons on whom to impose tax, rates at which it is to be charged, etc. Such a liberty is given to the Legislature, because, the Legislature often finds it convenient and necessary to delegate subsidiary and auxiliary power to the delegatee to carry out the policy laid down by the legislation as a part of the administrative law. The Legislature must, however, in such a case, lay down the legislative policy and principles so as to afford the executive necessary guidelines enabling it to implement the policy. See Shalimar Chemical Works Ltd., In re AIR 1997 SC 2502 . 31. In Avinder Singh v. State of Punjab [1979] 1 SCR 845 , the Supreme Court laid down the tests for valid delegation of legislative power. These tests are: 1. That Legislature canno....
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.... of its choice, but the Legislature should before delegating enunciate either expressly or by implication, the policy and the principles for guidance of the delegates. These principles also apply to taxing statutes. The effect of these principles is that the delegatee which has been authorized to make subsidiary rules and regulations has to work within the scope of the Act or the policy laid down there under. It cannot in the grab of making rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act. 33. In the case at hand, while Sub-section (4) of Section 3, prior to its amendment by the AET (Amendment) Ordinance 2005, empowered the State Government to add new entries into the Schedule appended to the AET Act, 2001, and to vary the rates of tax on the goods, so included in the Schedule or which already stood included in the Schedule, what is of immense importance to note is that the Act, in question, gave no guidelines to the State Government as to how it would determine as to which item shall be brought within the ambit of the said Act nor did the Legislature lay down the upper ceiling limits o....
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....ry guidelines, this power can be delegated to the Executive. Though a tax is levied primarily for the purpose of gathering revenue, in selecting the objects to be taxed and in determining the rate of tax, various economic and social aspects, such as the availability of goods, administrative convenience, the extent of evasion, the impact of tax levied on the various section of the society etc., have to be considered. It can be used to achieve the economic and social goods of the State. For that reason, the power to tax must be flexible power. It must be capable of being modulated to meet the exigencies of the situation. In a Cabinet form of Government, the Executive is expected to reflect the views of the Legislature. In fact, in most matters it gives lead to the Legislature. Present position as regard the delegation of legislative power may not be ideal, but in absence of any better alternative there is no escape from it The Legislature has neither time nor the required detail information, nor even the mobility to deal in detail with innumerable problems arising time and again. In certain matters, they can only lay down the policy and guidelines in as clear a manner possible. In....
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....survive. In consequence thereof, the impugned notifications, dated 21.8.2003, 26.8.2003, 29.9.2004 and 28.2.2005, aforementioned cannot be sustained. Whether the imposition of Entry Tax on the specified goods, namely, tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture and crude oil is in violation of Sections 14 and 15 of the Central Sales Tax Act, 1956, and/or of the provisions of Additional Duty of Excise (Goods of Special Importance) Act, 1957? 40. Referring to Article 286 of the Constitution of India, Dr. Saraf submits that same as Article 301, Article 286 also aims at preserving the economic unity of India and, hence, the Parliament has, by enacting the Central Sales Tax Act, 1956, made provisions therein to ensure that imposition of sales tax by the States does not cause hindrance to the inter-State trade and commerce or upset the economic unity of India. With this end in view, points out Dr. Saraf, Section 14 of the Central Sales Tax Act, 1956, declared certain goods to be of special importance in inter-State trade and commerce. Though tobacco, further points out Dr. Saraf, had not been included in the list, which appeared under ....
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....etion of Article 272, the 11th Finance Commission has diluted the special significance of the additional duty of excise by making the additional duty of excise a part of the general revenue of the Central Government and, as a result thereof, the States have been deprived of the proceeds of the additional excise duty to a large extent. It is contended by Mr. Choudhury that after the 80th Amendment of the Constitution, the additional duty of excise is no longer a levy in lieu of sales tax. Upon deletion of Article 272 and because of the nature of the recommendations of the 11th Finance Commission, the States are, now, according to Mr. Choudhury, not only empowered to make laws under Entry 52 of the State List, such as, the present entry tax, but also to impose sales tax by taking recourse to Entry 54 of the State List. 43. Let me, now, consider the correctness or merit of the rival submissions made on the question as to whether, in the face of the fact that the Central Sales Tax Act, 1956, declares some goods, such as tobacco, crude oil, etc., as goods of special importance in the inter-State trade and commerce, the fact that the Central Sales Tax Act, 1957, imposes a ceiling on t....
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.... power, what is relevant is not the consequence of the enactment on the subject-matter, but whether, in its pith and substance, it is a law upon the subject-matter in question. This was emphasized very clearly in Gallagher v. Lynn 1937 AC 863 , in these words, "It is well established that you are to look at the 'true nature and character of legislation'; the 'pith and substance of the legislation'. If, on the view of the statute, as a whole, you find that the substance of the legislation is within the express powers, then, it is not invalidated if incidentally it affects matters, which are outside the authorized field." 46. The doctrine of 'pith and substance' has been developed in Canada. The leading Canadian cases on this doctrine are : Citizens. Insurance Co. v. Parsons 7 AC. 96; Russell v. The Queen 1882 7 AC. 829; Attorney General for Canada v. Attorney General for British Columbia 1930 AC. 111. 47. The Federal Court in AL.S.P.P.L. Subrahmanyam Chettiar v. Muattuswami Goundan AIR 1941 FC 47 followed the doctrine. In Prafulla Kumar Mukherjee v. Bank of Commerce Ltd. Khulna AIR 1947 PC 60, the Privy Council referred to Subramanayam Chettiar's ca....
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....into as an organic whole. It would be a wrong approach to view the statute as a mere collection of sections, to disintegrate it into parts, to examine under which entry each part would fall and, then, to determine which part of it is valid and which invalid. Instead, the enactment should be taken in one piece and, then, its true character determined. The doctrine of pith and substance saves the incidental encroachment if the law, in pith and substance, falls within an entry or within the legislative field of the particular Legislature, which has made it. Once it is found that in pith and substance, a law falls within the permitted field, any incidental encroachment by it on a forbidden field does not affect the competence of the Legislature to enact the law. Effect is not the same thing as subject-matter. If a State enactment, otherwise valid, has the effect on a matter in Union List, it does not cease to be a legislation with respect to an entry in State List or Concurrent List. 50. The doctrine of pith and substance introduces a degree of flexibility into the otherwise rigid scheme of distribution of powers. It gives an additional dimension to the powers of the Centre as well ....
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.... power is contained in Article 246 of the Constitution. In deciding question of legislative competence, it has to be kept in view that the Constitution is not required to be considered with a narrow or pedantic approach. It is not to be construed as a mere law but as a machinery by which laws are made. The interpretation should be broad and liberal. The entries only demarcate the legislative field of respective Legislature and do not confer legislative power as such and if it is found that some of the entries overlap or is conflict with the other, an attempt to reconcile such entries and bring about a harmonious construction is the duty of the court. When, however, reconciliation is not possible, as here, then the court will have to examine the entries in relation to legislative power in the Constitution. (emphasis is added) 53. From the concurring judgment of Ruma Paul, J, in the ITC Ltd. (supra), it is clear that the majority accepted that the non-obstante clause in Article 246(1) and the words "subject to", in Articles 246 and 243, establish supremacy of Parliament and if any of the entries in the three Lists overlap, the entry in List I will prevail. Coupled with this, so....
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....ative fields contained in List II, the State Legislatures exercise authority as plenary and ample as Parliament. The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis-a-vis the States does not mean that States are mere appendages of the Center. Within the sphere allotted to them, States are Supreme. The Centre cannot tamper with their powers. More particularly, the courts should not adopt an approach, an interpretation, which has the effect of or tends to have the effect of whittling down the powers reserved to the States. 130. Although Parliament cannot legislate on any of the entries in the State List, it may do so incidentally while essentially legislating within the entries under the Union List. Conversely, the State Legislatures may encroach on the Union List, when such an encroachment is merely ancillary to an exercise of powers intrinsically under the State List. The fact of encroachment does not affect the vires of the law even as regards the area of encroachment. This principle commonly known as the doctrine of pith and substance, does not amount to an extension of the Legislative fields. Therefore, such incidental encr....
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.... in conformity with the provisions of the Constitution and the law in force. Merely because of the fact that in respect of some of the goods, such as, cigarettes, cheroots, cigars, biri, zarda, khaini, sada and smoking mixtures and crude oil, parliamentary legislations, such as, the CST Act and/or the ADE Act exists, such parliamentary legislations cannot be taken to have denuded the State of its legislative power under Entry 52 of the State list. 57. Bearing the above aspect of the matter in mind, it may be further pointed out that Article 286, as correctly contended by Dr. Saraf, seeks to preserve the economic unity of India. There can also be no doubt that the CST Act, enacted by the Parliament, in exercise of its powers under Article 286, are measures taken to ensure that imposition of sales tax by the States does not cause hindrance or obstruction in the inter-State trade and commerce and upset thereby the economic unity of the nation. Section 14 of the CST Act declares certain goods as goods of special importance in inter-State trade and commerce. This list of goods of special importance, admittedly, includes tobacco, its products and crude oil. If an entry tax is not a re....
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....may note the object behind interdicting multiple-point tax on declared goods which follows from the mandate contained in Clause (a) of Section 15 of the Act. According to us, the purpose behind this provision is to minimize the tax burden on declared goods because of the special importance of these goods in inter-State trade and commerce. 60. What is, however, of immense importance to note, now, is that while Section 14 declares certain goods as goods of special importance in inter State trade and commerce and Section 15 put a cap on the legislative powers of the State to impose local sales tax on goods of special importance at a rate higher than 4 per cent of the sale or purchase price and at not more than one stage, the fact remains that a tax imposed under Entry 52 of the State List, such as the present entry tax, is not a sales tax. Logically, therefore, merely on the ground that a particular commodity is a commodity included in the list given under Section 14 of the CST Act, inclusion of such a commodity in such a list cannot be taken to have, and, in fact, has not, denuded the States of its legislative freedom to impose a tax in terms of Entry 52 of the State List. Thus, i....
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....as follows:- 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 directs. 63. A patient examination of the proviso to Rule 2 makes it clear that if, during a financial year, a State levies and collects a tax on the sale or purchase of any of the Scheduled goods by or under a law made by such a State, no sums shall be payable to such a State in respect of that financial year unless the Central Government, by special order, otherwise, directs. Thus, the AD....
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....ve. This part of the decision of the Bihar Chamber of Commerce (supra) has not been overruled by the Constitution Bench in Jindal Stainless Steel Ltd. (supra). In Bihar Chamber of Commerce (supra), the Apex Court, having discussed the effect of the ADE Act on the State's power to impose levy under Entry 52 of the State List, has concluded, thus: We are also of the opinion that the scope of the ADE Act cannot be extended by reference to anterior reports or correspondence between the Centre and the States, as the case may be, apart from the fact that the material referred to is not unambiguous. Para 32 at p. 126 of the Taxation Enquiry Commission (1953-54), the relevant portion whereof we have extracted hereinbefore, is more in the nature of a statement of fact coupled with a recommendation. All that it says is that the States had imposed several duties and other imposts upon tobacco which were casting an unduly heavy burden upon it and that, therefore, there should be coordination between different taxes on tobacco levied by the Central Government, the States and the local authorities. For that purpose, the Commission recommended the constitution of an Inter-State Taxat....
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....er the entry tax imposed on the goods, which form subject-matter of the present set of writ petitions, is violative of Article 301 read with Article 304(b)? 67. Contending that the AET Act, 2001, is in violation of Article 301 of the Constitution of India, Mr. Shanti Bhusan, learned senior Counsel, has pointed out that Article 301 guarantees freedom of trade, commerce and intercourse throughout the territory of India. Referring to Atiabari Tea Co. Ltd v. State of Assam [1961] 1 SCR 809 , Mr. Shanti Bhusan has also pointed out that the law of taxation is not immune from guarantee of freedom of trade, commerce and intercourse, which Article 301 provides. At the same time, submits Mr. Shanti Bhusan, it is not every restriction, which can be treated as an infringement of the guarantee given by Article 301, but only those restrictions, which have direct and immediate impact on the freedom of trade and commerce. Placing reliance on the State of Karnataka v. Hansa Corporation [1981] 1 SCR 823 and Jindal Strips Ltd. v. State of Haryana reported in (2003) 8 SCC 60 , Mr. Shanti Bhusan has contended that the entry tax, as originally, contemplated under the AET Act, 2001, and even after its....
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.... reveals that the revenue, realized from entry tax, is, in fact, meant for augmenting general revenue of the State and not for providing any specific or particular facility to the traders of tobacco and its products, who are importing goods from the outside the State. The entry tax, in the present case, cannot, therefore, be regarded, according to Mr. Shanti Bhusan, as compensatory. 69. To support his contention that the entry tax, under the impugned Act, is not compensatory tax within the meaning of what a compensatory tax, in the light of the decision in Automobile Transport (Rajasthan) Ltd. (supra) means, Mr. Shanti Bhusan has referred to and relied upon, Sharma Transport v. Govt. of Andhra Pradesh reported in AIR 2002 SC 322, G.K. Krishnan v. State of Tamilnadu reported in [1975] 2 SCR 715 , International Tourist Corporation v. State of Haryana reported in [1981] 2 SCR 364 , and Kamaljit Singh v. Municipal Board, Pilkhowa reported in AIR 1987 SC 56 . 70. Pointing out that the AET Act, 2001, not being compensatory, in nature, ought to have received, in the facts and circumstances of the present case, prior sanction from the President in accordance with the mandatory requir....
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....obacco products too, no sanction of the President exists, for, tobacco and its products, which are treated to be goods of special importance in the course of inter-State trade and commerce under the Central Sales Tax Act, 1956, had not been included in the Schedule to the original Bill nor did it appear in the AET Act, 2001, when the Act, initially, came into force. After the impugned Act had come into force, the Legislature of the State, in Assam, according to Mr. Shanti Bhusan, could not have added goods, such as, textile or even tobacco and its products, into the Schedule of the impugned Act without having obtained prior sanction from the President in terms of Article 304(b) of the Constitution. Contending that the impugned entry tax, not being compensatory, in nature, ought to have received President's prior sanction, but the same having not received, according to Mr. Shanti Bhusan, the requisite sanction of the President, the impugned Act is, submits-Mr. Shanti Bhusan, not sustainable in law. 71. Adopting the above arguments of Mr. Shanti Bhusan and lending support to the same, Dr. A.K. Saraf, learned senior Counsel, has put great emphasis on Section 5 of the impugned A....
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.... to the traders as a class and, at the same time, does not require the traders not to pay patently much more than what is required for providing such facilities to them, the court held that the concept of compensatory nature of tax has been widened and if there is some substantial link between the tax and the facilities extended to the dealers, levy cannot be regarded as invalid. Referring, particularly, to the views expressed, in Bihar Chamber of Commerce (supra), to the effect that so long as there is some connection between the tax imposed and facilities provided, levy is valid, Dr. Saraf has submitted that the respondents relied on the concept of some connection, as propounded in Bihar Chamber of Commerce (supra) and accordingly amended the AET Act, 2001, by adding Section 8A with the help of the AET (Second Amendment) Act, 2005. This Section (Section 8A), points out Dr. Saraf, clearly shows that even this section, which has been added to show utilization of the fund collected by way of entry tax, does not really promise, far less guarantee, that the fund, so collected, would be spent on providing facilities to the traders; rather, Section 8A, contends Dr. Saraf, clearly provid....
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....islature is competent to impose entry tax under Article 246(3) read with Entry 52 of the State List, such a tax cannot be said to be violative of Article 301 inasmuch as a tax, merely because it is an entry tax, does not cause any hindrance in the freedom of trade and commerce. Such legislation, therefore, does not require, according to the learned Additional Advocate General, previous sanction of the President. In the present case too, the imposition of entry tax, according to Mr. Choudhury, did not strictly speaking, require the President's sanction. 76. In the case at hand, contends the learned Additional Advocate General, the petitioners have miserably failed to specifically and pointedly show before this Court as to how an entry tax can be regarded as a levy, directly and immediately, impeding free flow of trade. In the absence of any such specific case having been made out, the petitioners, according to Mr. Choudhury, erroneously seek to get the AET Act, 2001, declared violative of Article 301. This apart, according to Mr. Choudhury, it is the specific stand of the respondents, as reflected from their consolidated affidavit-in-opposition, dated 3.3.2006, that the entry....
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....issue has arisen in the present case and the settled position of law is that every decision is an authority for what it actually decides, it is clear, contends Mr. K.N. Choudhury, that since the principal Act, which introduced the impugned levy, had received President's sanction under Article 304(b), no fresh sanction is required when the amendments are made in the Schedule to the Act. The impugned notification, impugned Ordinance and/or the AET (Second Amendment) Act, 2005, have not created, according to Mr. K.N. Choudhury, any additional restriction as one can construe in the context of Article 301 of the Constitution and, hence, previous sanction of the President was not a necessity for the amendments, which have been subsequently introduced into the Schedule of the Act by way of impugned notification, dated 28.2.2005, or otherwise. Pointing out to the decision in Hansa Corporation (supra), Mr. Choudhury has submitted that this judgment has been sought to be used by the petitioners in support of their proposition that whenever a State Legislature has attempted to impose a tax on the movement of goods, it has always obtained President's sanction. As a matter of fact, poin....
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....Act and other taxation laws, is utilized by the State in laying and maintaining roads, waterways, establishment and maintenance of market, etc. It is further submitted by Mr. Choudhury that after the decision of the Apex Court, in Godfrey Philips India Ltd. v. State of U.P. reported in (2005) 194 CTR (SC) 257, declaring the levy of luxury tax as ultra vires, the State faced a sudden loss of large scale revenue hitherto collected from imposition of luxury tax on tobacco and tobacco products. Public interest, therefore, contends Mr. Choudhury, demanded immediate action on the part of the Government to find alternative source of revenue to keep its various welfare programmes and other Governmental function going. Merely because these facts were indicated in the affidavit filed by the respondents, it cannot be construed, submits Mr. Choudhury, that the impugned Act was passed solely for augmenting general revenue of the State. Mr. Choudhury further submits that assuming, while not admitting, that the impugned levy is not compensatory in character, still it would be open to the State of Assam to sustain the restriction, if any, on the ground that the tax is levied not merely to raise ge....
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....y has a direct and immediate impact on the movement of goods and can be saved only when the levy falls within the protective umbrella of Article 304(b). In the case in hand, submits Mr. Shanti Bhusan, since the tax sought to be levied under the AET Act, 2001, is on the entry of goods into a local area, it directly operates as a restriction on the freedom of trade and commerce and such restrictions, being violative of Article 301, can stand only if the levy, in question, is proved to be either compensatory or is a levy imposed in conformity with the requirements of Article 304(b). In the present case, neither the levy, according to Mr. Shanti Bhusan, is compensatory in nature nor is the same in conformity with the provisions of Article 304(b) inasmuch as no sanction of the President for inclusion of tobacco and its other products, which have, now, been added by way of amendment of the Schedule to the impugned Act, was ever obtained. Mr. Shanti Bhusan has also submitted that the mere fact that the present levy is traceable to Entry 52 of the State List is no answer to the question, which has been raised by the writ petitioners contending that the impugned levy is in violation of Arti....
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....t on tobacco or tobacco products, which are goods of special importance. Thus, imposition of entry tax on tobacco and tobacco products being, according to Mr. Shanti Bhusan, a new restriction, or at any rate, an additional restriction, which was not contained in the original enactment, must satisfy the provisions of Article 304(b) and sanction of the President earlier obtained in respect of the original enactment is, insists Mr. Shanti Bhusan, of no relevance. 87. It is further submitted by Mr. Shanti Bhusan that since the present amendments made to the Act bringing in tobacco and tobacco products within the ambit of the Act are contrary to, and in clear violation of, the agreement, which had been reached by the State with the Central Government at the time of passing of the Bill and subject to which President's sanction to the original Bill was given, it would, now, be wrong to suggest, on the part of the respondents, that the amendments have not created any additional restriction under Article 301 of the Constitution. Seeking to draw support from the decision in Syed Ahmed Aga (supra), Mr. Shanti Bhusan submits that the present levy on tobacco and tobacco products is an ad....
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.... rely on the fact that the luxury tax earlier imposed by the State Government had been struck down as ultra vires, the Legislature has, in replacement of the said luxury tax, introduced the levy of entry tax on tobacco and tobacco products, Mr. Shanti Bhusan submits that in Hansa Corporation (supra), State of Karnataka had been validly levying octroi in proper exercise of its legislative powers and it was replaced by entry tax under the same constitutional entry in order to relax the rigour of octroi, which was known to be obnoxious. In the case at hand, submits Mr. Shanti Bhusan, the State of Assam had levied the luxury tax, which was not within its legislative competence as has been held by the Supreme Court, and when such an illegal law has been set at naught by a judicial pronouncement, replacement of such an illegal levy by another levy, in the name of entry tax, cannot be claimed to be sustainable. There is obviously, contends Mr. Shanti Bhusan, no similarity between the facts of the two cases, namely, the Hansa Corporation (supra) and the present one. With the overruling of the decision rendered in Bhagatram Rajeeb Kumar (supra), it has, now, become transparent, submits Mr. ....
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....dom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in the public interest. 303. Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce. - (1) Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorizing the giving of any preference to one State over another, or making, or authorizing the making of any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. (2) Nothing in Clause (1) shall prevent Parliament from making any law giving, or authorizing the giving of any preference or making, or authorizing the making of, any discrimination if it is declared by such law 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. 304. Restrictions on trade, commerce and intercourse among States. -Notwithstanding anything in Article 301 or Article 303, the Legislature of a State ....
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....as a strong economic unit, it was but natural for them to introduce into our Constitution a meaningful scheme for growth of industries so as to strengthen economic base of India. The makers of our Constitution knew that no meaningful growth of industries is achievable unless obstructions in the movement of the goods were, if not completely removed, be, at least, reduced as much as possible. 98. Before India achieved her independence, the western world, particularly, Europe was, as already indicated above, fragmented into small principalities having toll-barriers imposing toll taxes and these toll-barriers caused hindrance to the movement of goods resulting into obstructions to the growth of industries and commerce in those countries. Having realised that unless these trade barriers were removed, no real growth of industry was possible, these trade barriers were started being removed. Having noticed the history of development of industries all over the world, and in order to give India strong economic base, the makers of our Constitution incorporated, in Part XIII, a specific constitutional scheme for conduct of trade, commerce and intercourse and while making this scheme, they n....
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....es and enshrines a principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country. In appreciating the significance of these general considerations were may profitably refer to the observations made by Cardozo, J., in C.A.F Seelig Inc. v. Charles H. Baldwin 294 U.S. 511, 79 L. Ed. 1033, while he was dealing with the commerce clause contained in Article 1, Section 8, Clause 3 of the American Constitution. "This part of the Constitution", observed Cardozo J., "was framed under the dominion of a political philosophy less parochial in range. It was framed upon the theory that the peoples of the several states must sink or swim together and that in the long fun prosperity and salvation are in union and not division. 99. From the above observations made in Atiabari Tea Company Limited (supra), it is clear that our Constitution makers wanted to ensure freedom of movement and exchange of goods throughout the territory of India in order to strengthen the economic base of the nation and for sustaining and improving the living standard of our countrymen. 100....
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....a), observed: 50. Thus the intrinsic evidence furnished by some of the Articles of Part XIII shows that taxing laws are not excluded from the operation of Article 301; which means that tax laws can and do amount to restrictions freedom from which is guaranteed to trade under the said Part. Does that mean that all tax laws attract the provisions of Part XIII whether their impact on trade or its movement is direct and immediate or indirect and remote? It is precisely because the words used in Article 301 are very wide, and in a sense vague and indefinite that the problem of construing them and determining their exact width and scope becomes complex and difficult. However; in interpreting the provisions of the Constitution we must always bear in mind that the relevant provision "has to be read not in vacuo but as occurring in a single complex instrument in which one part may throw light on another". Vide. James v. Commonwealth of Australia (1936) A.C. 578. In construing Article 301 we must, therefore, have regard to the general scheme of our Constitution as well as the particular provisions in regard to taxing laws. The construction of Article 301 should not be determined on ....
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....supra), clarified that it is not all taxes, which will hit Article 301, but only such taxes, which, directly and immediately, restrict trade, for, it is only direct restrictions causing impediments to the movement of goods that Article 301 seeks to avoid and nullify. It is in this light that the following further observations, made in Atiabari Tea Company Limited (supra), need to be read. 51. We do not think it necessary or expedient to consider what other laws would be affected by the interpretation we are placing on Article 301 and what other legislative entries would fall under Part XIII. We propose to confine our decision to the Act with which we are concerned. If any other laws are similarly challenged the validity of the challenge will have to be examined in the light of the provisions of those laws. Our conclusion, therefore, is that when Article 301 provides that trade shall be free throughout the territory of India it means that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or the transport of goods from one part of the country....
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....hat even in public interest, Parliament is not authorized to make laws giving preference to one State over the other. This restriction is, however, subject to one exception, the exception being that the Parliament is left with the discretion to make laws giving preferential treatment or making discriminatory provisions if such laws become necessary for the purpose of dealing with the situation arising from scarcity of goods in any part of the territory of India. 105. Thus, a State Legislature, apart from the limitation imposed by Article 301, has the limitation of not making laws to give preference or make discrimination between one State and another, while making laws, in exercise of its powers, relating to trade, commerce and intercourse. However, this limitation on the State Legislature, is lifted in two cases, namely, that the State may, under Article 304(a), impose, on goods, imported from sister States or Union territories, any tax to which similar goods manufactured in its own State are subjected, but not so as to discriminate between the imported goods and the goods manufactured in the State. In other words, Article 304(a) authorizes State Legislature to impose non-discr....
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....ri. They carried their tea to Calcutta in order that it might be sold, in Calcutta, for consumption and sale outside India. Tea, produced in Jalpaiguri, had to move through a few miles of the territory of the State of Assam. Besides the tea, which was carried by railways, a substantial quantity of tea was also carried by road or by inland waterways and, as such, became liable to pay tax leviable under the Assam Taxation (on goods carried by roads or inland waterways) Act, 1954, for, this Act levied tax on certain goods, such as, tea, which was carried by road and inland waterways. The principal ground of attack on the legislation was that it violated the provisions of Article 301 and was not saved by Article 304(b). It is of immense importance to note that in Atiabari T&a Company Ltd. (supra), three views were expressed. The views, expressed in Atiabari Tea Company Ltd. (supra), by the learned Chief Justice BP Sinha, which the Supreme Court, in its subsequent judgment in Automobile Transport (Rajasthan) Ltd. (supra), described as the narrow view, was that taxation simpliciter was not within the ambit of Article 301 and a tax, on the movement of goods or passengers, did not necessar....
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....ordship then was) expressed his view thus, The guarantee of freedom of trade and commerce is not addressed merely against prohibitions, complete or partial; it is addressed to tariffs, licensing, marketing regulations, price-control, nationalization, economic or social planning, discriminatory tariffs, compulsory appropriation of goods, freezing or stand-still orders and similar other impediments operating directly and immediately on the freedom of commercial intercourse as well. Every sequence in the series of operations which constitutes trade or commerce is an act of trade or commerce and burdens or impediments imposed on any such step are restrictions on the freedom of trade or commerce and intercourse. What is guaranteed is freedom in its widest amplitude - freedom from prohibition, control, burden or impediment in commercial intercourse. 109. However, the majority, in Atiabari Tea Company Ltd. (supra), differed from what the learned Chief Justice had concluded and did not accept as the correct proposition that tax laws are governed by Part XII of the Constitution and were outside Part XIII. The majority did not also agree with the views expressed by Shah, J. Hence....
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....J, being based on purely taxtual interpretation of Part XIII of the Constitution of India, was not the correct view, for, this view ignores altogether, amongst others, the reality that the freedom of trade, commerce and intercourse in a society, regulated by law, must be understood in the context of working of an orderly society and the effect of such a view, if conceded to, would be that even when a. State Legislature wishes to control or regulate trade, commerce and intercourse in such a way as to facilitate its free movement, it must, nevertheless, proceed to make a law under Article 304(b) and that no such Bill can be introduced or moved in the Legislature of the States without the previous sanction of the President. In other words, the views of Shah, J, if acceded to, would mean that even when a Bill seeks to impose restrictions in order to facilitate trading or commercial activities, such a Bill has to receive sanction of the President under Article 304(b). Such an interpretation, according to the majority, in Automobile Transport (Rajasthan) Ltd. (supra), would, if accepted, result into stoppage of every Bill undermining thereby effective legislation, which may, at times, be....
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....envisaged by our Constitution. An examination of the entries in the lists of the Seventh Schedule to the Constitution would show that there are a large number of entries in the State list (List II) and the Concurrent list (List III) under which a State Legislature has power to make laws. Under some of these entries the State Legislature may impose different kinds of taxes and duties, such as property tax, sales tax, excise duty, etc., and legislation in respect of anyone of these items may have an indirect effect on trade and commerce. Even laws other than taxation laws, made under different entries in the lists referred to above, may indirectly or remotely affect trade and commerce. If it be held that every law made by the Legislature of a State which has repercussion on tariffs, licensing, marketing regulations, price control, etc., must have the previous sanction of the President, then the Constitution in so far as it gives plenary power to the States and State Legislatures in the fields allocated to them would be meaningless. In our view the concept of freedom of trade, commerce and intercourse postulated by Article 301 must be understood in the context of an orderly society an....
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....carefully examined the provisions in Part XII of the Constitution and are unable to agree that those provisions exhaust all the limitations on the power to impose a tax. The effect of Article 265 was considered in the majority decision and it was pointed out that the power of taxation under our Constitution was subject to the condition that no tax shall be levied or collected except by authority of law. Article 245 which deals with the extent of laws made by Parliament and by the Legislatures of States expressly states that the power of Parliament and of the State Legislatures to make laws is, 'subject to the provisions of this Constitution'. The expression subject to the provisions of this Constitution" is surely wide enough to take in the provisions of both Part XII and Part XIII. In view of the provisions of Article, 245, we find it difficult to accept the argument that the restrictions in Part XIII of the Constitution do not apply to taxation laws. As to the argument that Article 301 must take colour from Article 303, we are unable to accept as correct the argument that the provisions of Article 303 must delimit the general terms of Article 301. It seems to us that so f....
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.... interpretation nor the narrow interpretation canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co. case (1961) 1. S.C.R. 809, is correct, but subject to this clarification. 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. 114. Having laid down the parameters of the freedom guaranteed under Article 301, the majority examined the scheme of the Act, which was under challenge in Automobile Transport (Rajasthan) Ltd. (supra) and having found that the tax imposed by the enactment, questioned therein, was compensatory in nature, it upheld the enactment. This aspect can be discerned from the observations made in paragraph Nos. 19 and 20, which run as follows: * * * The taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in a good state of repairs. Whether a tax is compensatory or nor ....
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....s". In Atiabari Tea Co. Ltd. (supra), as the tax was found to have imposed restrictions on the freedom of trade, the enactment, in question, was declared void, for, the State Legislature had not complied with the mandatory provisions of Article 304(b). In Automobiles Transport (Rajasthan) Ltd. (supra), however, the court, as reflected from para 19 of the decision, on noticing that the taxes imposed was really compensatory in nature, upheld the levy. The Court further clarified, in Automobiles Transport (Rajasthan) Ltd. (supra), at para 21 of the decision "...If statute fixes a charge for a conveyance for service provided by the State or an agency of the State, and imposes it upon those, who choose to avail those services or conveniences, the freedom of trade and commerce may well be considered unimpaired." Thus, the concept of compensatory tax, which has not been specifically incorporated, in our Constitution, was judicially evolved in Automobiles Transport (Rajasthan) Ltd. (supra) as a part of the regulatory charge, the concept of compensatory tax being that the taxes, which would, otherwise, interfere with unfettered freedom under Article 301, will still be protected from the vic....
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....f the Supreme Court, in Bihar Chamber of Commerce (supra), extended the concept of some 'link' between the tax imposed and the facilities provided, as propounded in Bhagatram Rajeeb Kumar (supra), by holding, thus: 12. 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 shou....
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....rovided, on the other, so that the traders, as users of such facilities, shall not be required to pay patently much more than what is required to provide such facilities. However, in Bhagatram Rajeeb Kumar (supra) and Bihar Chamber of Commerce (supra), the court took the view that it is not-necessary for a levy, to be compensatory, that the purpose of the levy shall be to provide any specific service or facility to the traders and that for a levy to be compensatory, it is enough if the facilities are provided to the public, in general, and traders are incidentally beneficiaries of such facilities. 121. Confronted with the fact that the constitutionally held view as regards the compensatory tax has been departed from in Bhagatram Rajeeb Kumar (supra) and Bihar Chamber of Commerce (supra), a two Judges Bench, in Jindal Stripes Ltd. (supra), pointed out, at para 23, that if Bhagatram Rajeeb Kumar (supra) and Bihar Chamber of Commerce (supra) are taken to their logical conclusion, there will be no distinction left between a tax imposed for the purpose of revenue collection and a compensatory tax meant for a specific purpose of providing facilities or services to the persons subject ....
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.... Article 145(3). 123. In Jindal Stainless Ltd. (supra), the Constitution Bench has, in fact, pointed out that Part XIII of our Constitution amalgamates two distinctly different concepts of freedom of trade as prevails, on the one hand, in the Constitution of the United States and, on the other, in the Constitution of Australia. The decision, in Jindal Stainless Ltd. (supra), points out that Section 8 of Article 1 of the U.S. Constitution, contains what is called "Commerce Clause", which regulates trade and commerce and in view of the dual form of government in the United States, the U.S. Supreme Court has held that the commercial power, embodied in the Commerce Clause, implies the power to regulate, that is, power to prescribe the rules by which the commerce has to be governed, but this commercial power prohibits, at the same time, the States from enacting any law, which impedes the very flow of trade between the States. As against the commercial power, which the U.S. Constitution envisages, Section 92 of the Australian Constitution provides for freedom of trade and commerce and does not seek to regulate commerce as in the case of Commerce Clause. However, notwithstanding the fa....
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....ich impedes free flow of trade between the States. On the other hand, Section 92 of the Australian Constitution provides for freedom of trade and commerce. It does not seek to regulate as in case of commerce clause. However, it has been held in numerous decisions of the Privy Council and the Australian High Courts that Section 92 leaves open the regulation of trade and commerce at all events until the regulation is enacted provided it does not impede the true freedom of inter-State commerce. This reasoning is based on the principle that all trade and commerce must be conducted subject to law. Thus, we have the difference between taxing and regulatory laws. This is how the concept of "regulatory charges" came about. Article 301 is inspired by Section 92 of the Australian Constitution when it refers to freedom of trade and commerce, however, Article 301 is subject to limitations and conditions in Articles 302, 303 and 304 which are borrowed from the commerce clause under Article 1 of the US Constitution. Therefore, Part XIII is an amalgam of the United States and Australian Constitutions which brings out the difference between regulatory and taxing powers. This is h....
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....activity, such as, movement or transportation of goods, as the criterion for its imposition and if the effect of such imposition of tax is to impede trading activities, then, the levy would be restrictive as conceived under Article 301. In short, if the law enacted is meant to enforce discipline or regulate conduct of the trade or commerce or if the payment is for regulation of conditions or incidence of trade or manufacture, then, the levy is regulatory. One may, in this regard, refer to the observations made, in Jindal Stainless Ltd. (supra), which proceed, at para 35, as under: In the generic sense, tax, toll, subsidies etc. are manifestations of the exercise of the taxing power. The primary purpose of a taxing statute is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulatory power or whether it is the product of the exercise of the taxing power. If the impugned law seeks to control the conditions unde....
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....basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the government action and even if such benefit results from the government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee Or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable. 39. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services which costs in turn become the basis of imbursement/recompense for the provider of the services/facilities, compensatory tax is based on the principle of "pay for the value". It is a sub-class of "a fee". From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progress....
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.... if any, is incidental, indirect and immeasurable. A tax can be progressive; whereas a compensatory tax has to broadly proportional and not progressive. The concept of compensatory tax is based on the principle of "pay for the value" and from the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of the trade and commerce, which does not happen in the case of tax. A compensatory tax is levied on an individual as a member of a class; whereas a fee is levied on an individual as such. Reimbursement or recompense are the closest equivalence to the cost incurred by the provider of the services/facilities. The principle of compensatory tax is that if the Government, by some positive action, confers upon individuals, as a class, a particular measurable advantage, it is only fair that those, who receive such benefit, pay for the same. 128. Firmly laying down the parameters of compensatory tax, the court, in Jindal Stainleh Ltd. (supra), observed, 40. In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the c....
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....5SCR975 . 130. Having analyzed the concept of compensatory tax, which was judicially propounded in Automobile Transport (Rajasthan) Ltd. (supra), the Constitution Bench, in Jindal Stainless Ltd. (supra), has pointed out, 46. The concept of compensatory taxes was propounded in the case of Automobile Transport in which compensatory taxes were equated with regulatory taxes. In that case, a working test for deciding whether a tax is compensatory or not was laid down. In that judgment, it was observed that one has to enquire whether the trade as a class is having the use of certain facilities for the better conduct of the trade/business. This working test remains unaltered even today. "Having, thus, adhered to the working test of compensatory tax, which was laid down in. Automobiles Transport (Rajasthan) Ltd. (supra), the Constitution Bench, in Jindal Stainless Ltd. (supra), commented on the decisions, rendered in Bhagatram Rajeeb Kumar (supra) and Bihar Chamber of Commerce (supra), in the following words: 47. As stated above, in the post 1995 era, the said working test propounded in the Automobile Transport stood disrupted when in Bhagatram's case, a Bench of t....
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....the concept of re-imbursement. The parameters of compensatory tax, as laid down in Jindal Stainless Ltd. (supra), are summarized hereinbelow: (a) The, 'principle of equivalence', which is converse of the 'principle of ability to pay, applies to a case of compensatory tax; (b) The benefits, under a compensatory tax, are quantifiable and measurable; (c) A compensatory tax has to be broadly proportional and not progressive; (d) A compensatory tax is based on the principle of pay for the value'; (e) Reimbursement or recompense are the closest equivalence to the cost incurred by the provider of the services/facilities; (f) Compensatory tax is based on the concept of recompense/reimbursement; (g) Compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the cost of regulation or facilities or special advantages provided to trade, commerce and intercourse. (h) The burden of showing that the tax is compensatory in nature lies on the State. 132. Put in the briefest of words, one can safely say that the Constitution Bench, in Jindal Stainless L....
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....f it is shown that either the tax imposed is compensatory in nature or is protected under Article 304(b). 136. Bearing in mind the ambit of Article 301 vis-a-vis the law of taxation, when one reverts to the impugned Act, it clearly transpires that the impugned Act seeks to impose tax on the very entry of goods into a local area. Irrespective of the fact as to whether the tax, so imposed, is discriminatory or not, the fact remains that the immediate impact of such a tax is on the movement or transportation of goods. Thus, an enactment, such as, the one, impugned in the present set of writ petitions, which seeks to levy tax upon entry of goods into a local area for the purpose of use, consumption or sale therein and has a direct and immediate effect on the movement of goods can be saved only if the levy is found to be in the nature of compensatory tax for the use of trading facilities or if the levy comes under the protective umbrella of Article 304(b); otherwise, such a tax cannot be allowed to survive. 137. For what have been pointed out above, let me, now, ascertain if the impugned levy is as a compensatory measure for providing trading facilities to the petitioners as a tra....
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....9.9.2005. Section 8A, is, however, retrospective, for, it comes into force with effect from 12.5.2005. Section 8A reads as follows: 8A. Subject to such condition as may be prescribed such sum of the proceeds of the tax as may be determined by the State Government shall be spent by the State Government for the purpose of development of trading facilities, maintenance of roads and other infra-structures in the local area. 140. As would shortly transpire, the insertion of Section 8A appears to be a result of the legislative anxiety to prove or show that the Assam Entry Tax Act, 2001, is compensatory in nature and would, therefore, fall outside the purview of Article 301. 141. What is, now, of paramount importance to note is that a microscopic reading of Section 8A reveals that the impugned Act, including subsequent amendments made thereto, do not specify how much of the revenue realized, by way of entry tax, will be utilized for facilitating trade and commerce. Section 8A, which relates to utilization of the proceeds of the entry tax, merely states that subject to such conditions, as may be prescribed, the State Government may determine such sum of the proceeds of the t....
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....of various local bodies. For example, Rs. 80 crore has been earmarked for this purpose during the current year 2005-06. Similarly, substantial amount of funds are also being transferred by the State Government to the A.S.E.B. for development of electricity network in both urban and rural areas of the State. The quantum of such support has been at an average of around Rs. 100 crore per year. Year Amount of entry tax collected Amount released to local bodies (Rs. in crores) 2001-02 7.84 67.48 2002-03 28.34 90.29 2003-04 28.81 97.48 2004-05 106.50 176.56 From the above, it is clear that the amount being spent by the State Government on development of infrastructure facilities to facilitate trade and commerce within the territories of various local bodies is substantially higher than the amount of entry tax collected. Because of the existence of several layers and categories of local bodies in the State, it has been found administratively expedient to resort to the above compensatory mechanism for facilitating trade and commerce in the local areas of various urban local bodies, Panchayati Raj Institutions and Autonomous Cou....
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....t expenses are incurred for providing such facilities and how much amount, realized from the imposition of the entry tax, is being utilized for providing the trading facilities so that this Court could feel satisfied that the traders are paying, for the facilities, if any, provided to them, patently not much more than what is required for providing the facilities. No such thing has been done. Situated thus, it is clear that the State Government has not discharged its burden of showing that the entry tax, in the present case, is compensatory in nature. 143. I may, at this stage, pause here to point out that Dr. Saraf has made pointed submissions to show that so far as movement of crude oil is concerned, no facility of any kind is provided to the petitioners, who are involved in the business of marketing crude oil in the State of Assam. In para 1 of their writ petition, the petitioner in WP(C) No. 4775 of 2005, has averred, thus: xi... The petitioner-company receives Crude Oil from Oil and Natural Gas Corporation Ltd. (for short 'ONGC') and also from Oil India Ltd. (for short 'OIL') through the pipelines owned by OIL. The crude oil of OIL is injected into ....
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....n equivalent loss to the company. In either event, it imposes an additional cost on the petroleum products of the refineries in Assam which makes them much more expensive in comparison to similar products produced in refineries in other states where there is no entry tax (e.g., West Bengal) and, therefore, far less competitive. 144. From the above averments made in WP(C) No. 4775/2005, it clearly transpires that according to the petitioners, the movement or transportation of crude oil, through pipelines, is entirely at the expenses of the petitioners. Even pipelines are laid on the land, which the petitioners have acquired at their own expenses, and that the same are maintained by the oil companies themselves. In short, according to 3the petitioners, the State provides no facility and incurs no expenses in the movement of crude oil, which takes place. The respondents have not been able to refute the averments so made by the oil companies. In these circumstances, the entry tax cannot be regarded as compensatory tax and one has no option, but to hold that imposition of entry tax on the movement of crude oil is nothing, but a restriction imposed on the freedom of movement of trade ....
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.... Act, 2003. Though Assam Entry Tax Act, 2001, and the Assam Value Added Tax Act, 2003, have been enacted on two distinctly separate footings, the former having been enacted for the purpose of levy of tax on entry of goods into any local area, in Assam, for consumption, use or sale therein, this power being traceable to Entry 52 of the State List, the latter is enacted for the purpose of levy of tax on sale or purchase of goods in Assam, the subsequent legislation being traceable to Entry 54 of the State List, yet the common and broad objective, in both the enactments, are to earn revenue for the State. One can also not ignore the grievances expressed, on behalf of the petitioners, that the respondents have, time and again, placed before this Court not only varied, but self-conflicting and contradictory reasons for enactment of the impugned Act. In this regard, it can be noted that at para 5 of their affidavit, filed in WP(C) No. 5827/2002, the respondents have clearly admitted that the impugned enactment is aimed at preventing or checking evasion of tax. This affidavit reads as follows: 7. That as regards the statements made in paragraph 6 of the writ petition, it is state....
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....ayment of entry tax. Viewed from this angle, I find considerable force in the submissions, made on behalf of the petitioners, by Dr. A. Saraf that the impugned levy is a colourable exercise of power and that though the entry tax is, now, being claimed to be compensatory in nature, the legislative object and the scheme of the impugned enactment are to really realize payment of sales tax in advance inasmuch as those, who pay entry tax, would be exempted from payment of State sales tax or Value Added Tax. Reliance placed, on behalf of the petitioners, on the decision in Sri Krishna Marbles and Granites v. State of Kerala and Ors. reported in 137 STC 481 (Ker.), to show that the impugned levy is nothing, but an advance payment of sales tax cannot be said to wholly unjustified. The relevant observations, made in Sri Krishna Marbles and Granites (supra), read as follows: It is clear from the operation of Section 4 that once the item brought in respect of which entry tax is paid is sold in Kerala, the dealer who is liable to pay sales tax need pay so much of the sales tax after reducing the entry tax paid on the very same item. In other words, the payment of entry tax goes to red....
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....C) 257 , declared the levy of luxury tax-to be beyond the legislative competence and ultra vires. Having, thus, failed to sustain the luxury tax on tobacco and its products, which had been imposed @ 10 paisa at a rupee under the Assam Taxation (Luxury) Act, 1997, the State Government, as delegated authority, under the AET Act, 2001, issued notification, dated 28.2.2005, inserting tobacco and tobacco products, in the Schedule to the Act, making tobacco and its products taxable at the same rate at which the luxury tax had been imposed on these items under the Assam Taxation (Luxury) Act, 1997. From these glaringly noticeable facts, there can be no escape from the conclusion that the impugned notification, dated 28.2.2005, aforementioned is in colourable exercise of power to levy and collect tax, under the AET Act, 2001, on items on which the State could not have, otherwise, imposed luxury tax. When the State is unable to show that the entry tax, in question, is compensatory in nature, there can be really no escape from the conclusion that the imposition of entry tax, in the case of, at least, tobacco and tobacco products, is nothing, but sales tax imposed by the State, for, the State....
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....t it differently, entry tax cannot be imposed in violation of the freedom of trade and commerce guaranteed under Article 301. It is, therefore, no answer to the question that an entry tax, being a legislation under Entry 52 of the State List, is a valid piece of legislation even if the imposition of entry tax is found to be violative of Article 301. 158. What crystallizes from the above discussion is that the impugned levy could not be proved to be compensatory in nature. One of the possible ways, therefore, of sustaining the impugned levy would be to ascertain if the levy, as contemplated under the impugned notifications, AET (Amendment) Ordinance, 2005, and the AET (Second) Amendment Act, 2005, fall under the protective umbrella of Article 304(b). 159. While considering the question as to whether the impugned levy falls within the protective umbrella of Article 304(b) or not, what needs to be noted is that the impugned levy, in order to withstand the tests of Article 304(b), must be shown to be not only reasonable and in public interest, but it must also be proved to have been enacted with the prior sanction of the President. 160. When Article 301 guarantees freedom of t....
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.... for compelling reasons, a State has to make an enactment levying a tax, which though restrictive of Article 301, is, nevertheless, indispensable in the interest of the State concerned. Since the Parliament, in exercise of its various legislative powers, such as, Article 286, has made various legislations in order to generate revenue and, at the same time, ensure growth of trade and commerce throughout India, President is required to apply his mind to ascertain if a tax, which is restrictive in nature and is sought to be imposed by a State, can be permitted in the national interest and in the interest of the State concerned. The power given to the President under Article 304(b) is, therefore, a special constituent power as protector and defender of the Constitution and as a person, who has the responsibility to safeguard fundamental rights of the citizens and federal structure of the country's polity as conceived in our Constitution. The concept of the role and powers of the President, as perceived by the proviso to Article 304(b), has been explained by a Constitution Bench, in Kaiser-i-Hind Put. Ltd. (supra), at paragraph 77, in these words: 77. ...The powers actually....
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....the provisions of any law made by the Parliament, must be reserved for consideration of the President and must have received his assent. If it has not been considered by the President and has not received his assent, the law will not be valid. Though in Kaiser-i-Hind (P.) Ltd. (supra), it was conflict between two enactments, which was an issue, the fact remains that the object and parameters of the powers, vested in the President under the proviso to Article 304(b), has been held to be same as the power under Article 254(2). The reference made by Mr. Shanti Bhusan to Kaiser-i-Hind (Put.) Ltd. (supra) cannot, therefore, be said to be misplaced. 164. Under the proviso to Clause (b) of Article 304, not only a Bill containing restrictive provisions, but even the amendments sought to be made thereto cannot be introduced in the Legislature of a State without the previous sanction of the President. 165. The power given to the President under Article 304(b), same as Article 254(2), is, in the light of the authoritative pronouncement in Kaiser-i-Hind (P.) Ltd. (supra), not a mere formal exercise of power, but a special constituent power, which the Constitution has vested in the Presid....
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...., a genuine, real and effective consideration would depend upon specific information having been provided to the President inviting his attention to every item, which is sought to be taxed. 167. In the present case, the original Bill, as already discussed above, had proposed textile, in its schedule, as an item for imposition of entry tax, but the President granted his assent to the Bill on condition that textile would be removed from the purview of the entry tax. Same as tobacco and tobacco products, textiles are goods of special importance under the Central Sales Tax Act, 1956. Hence, the goods, such as, tobacco and tobacco products, could not have been introduced into the Schedule of the impugned Act without the President's prior sanction having been obtained thereto in terms of Article 304(b). If the submissions, made on behalf of the State respondents, are taken to their logical conclusion, then, it would mean that in the Bill presented to the President in the case at hand, one was not even required to mention the goods on which entry tax was sought to be imposed. However, the State Legislature had to inform the President as to what were the items on which entry tax was....
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....ditional restriction from the special point of view of Article 304(b), which requires President's sanction. In other words, when an amendment does not bring any additional restriction, President's sanction, under the proviso to Article 304(b), is not necessary. Naturally, therefore, when an amendment imposes an additional restriction, the obtaining of the President's sanction would become indispensable. In the present case, there was no entry tax on any item except on those seven items in respect whereof, the President had granted sanction. Inclusion of any additional item within such a tax net would be nothing, but an additional restriction from the special point of Article 304(b) and any such inclusion without President's sanction would be impermissible. In Subodyya Chit Fund (supra), it was merely the form of security, which was sought to be amended, and it is in respect of such an imbecile amendment that the Apex Court held that President's fresh sanction was not required. Neither the decision in Syed Ahmed Aga (supra) nor the decision in Subodyya Chit Fund (supra), is, therefore, applicable to the facts of the present case. 171. Coming to Widia (India) L....
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.... or manufactured outside the State of Assam and, then, imported into the State of Assam, are liable to payment of entry tax, when these goods enter into any local area of Assam for use, consumption and sale therein. Section 5 is, thus, according to Mr. Shanti Bhushan, in clear violation of Article 304(a) of the Constitution, for, points out Mr. Shanti Bhusan, Article 304(a) prohibits the States from making, while imposing a tax, any discrimination between the goods, which are manufactured or produced within the State, and the goods, which are manufactured or produced outside the State. Such a discrimination is also, contends Mr. Shanti Bhusan, a violation of the guarantee of equality, which Article 14 of the Constitution provides. Mr. Shanti Bhusan further submits that even prior to the amendment of Section 5, this section granted exemption from payment of entry tax on those goods, which were liable to payment of levy under the Assam General Sales Tax Act, 1993, whereas import of the goods from outside the State of Assam was liable to payment of levy under the Assam General Sales Tax Act, 1993. Thus, even the unamended Section 5, contends Mr. Shanti Bhushan, was discriminatory in n....
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....ate General, has submitted that the challenge to the entry tax by the manufacturer of tobacco and tobacco products is not tenable, for, these items are not subject to sales tax or Value Added Tax in Assam. The tobacco products, points out Mr. K.N. Choudhury, suffer from no discrimination inasmuch as tobacco and tobacco products are not subject to local sales tax or Value Added Tax in Assam. 178. The impugned Act, according to Mr. Choudhury, makes no discrimination between imported goods and the locally manufactured goods. The exemption under Section 5 has been granted, contends Mr. K.N. Choudhury, solely with a view to avoiding double taxation. The levy of entry tax, on the specified goods, into a local area of the State and the sales tax levied, on the subsequent sale or purchase thereof inside the State, are, according to Mr. Choudhury, two distinct levies and independent of each other. In such circumstances, submits Mr. Choudhury, when the Legislature has chosen, in its wisdom, to exempt from payment of entry tax those goods, which are subject to local sales tax, such an exemption cannot be regarded as discriminatory, for, as far as charging Section, i.e., Section 3, is conce....
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....g violative of Article 301 does not arise at all. To buttress his argument, Mr. Choudhury relies on Andhra Sugar Mills v. State of Andhra Pradesh [1968] 1 SCR 705 . 181. Referring to Anand Commercial Agencies (supra), which Mr. Shanti Bhushan has relied upon, Mr. Choudhury submits that in Ananth Commercial Agencies (supra), the manufacturer of groundnut oil, within the State of Andhra Pradesh, were given the benefit of lower rate of tax than the importers of groundnut oil. Such levy being clearly discriminatory was, submits Mr. K.N. Choudhury, interfered with by the court as discriminatory. Similarly, contends Mr. Choudhury, in Shree Mahabir Oil Mills (supra), edible oil manufacturers of other States were required to pay tax, whereas local manufacturers were exempted from tax and it was for this reason that the levy was held to be discriminatory. The remaining authorities, relied upon, on behalf of the petitioners, are also similarly distinguishable on facts and not applicable to the facts of the present case; so contends Mr. Choudhury. 182. Countering the submissions made on behalf of the respondents, Mr. Shanti Bhushan has submitted that when a tax is imposed on the movemen....
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....Legislature cannot make law giving preference or making discrimination between one State and another. What is, now, extremely important to note is that the limitation, on the part of the State Legislatures, to impose tax, which interferes with the freedom of the trade, commerce and intercourse, is lifted by Article 304(a) by allowing the Legislature of a State to impose, on goods, imported from sister States or Union territories 'any tax' to which similar goods manufactured, in its own State, are subjected, but not so as to discriminate between the imported goods and the goods manufactured in the State. 184. Thus, Clause (a) of Article 304 authorizes a State Legislature to impose non-discriminatory tax on goods imported from sister States even if imposition of such tax interferes with the freedom of trade and commerce guaranteed by Article 301. The principle behind the making of the provisions of Article 304(a) is that no State shall impose a tax, which discriminates between inter-State trade and commerce by providing a direct commercial advantage to the local traders. A tax will be discriminatory if it operates as a disadvantage to the importers of a specified class of ....
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....ged in the light of the purpose for which the restriction is imposed, that is "as may be required in the public interest". Without entering upon an exhaustive categorization of what may be deemed "required in the public interest", it may be said that restrictions which may validly be imposed under Article 304(b) are those which seek to protect public health, safety, morals and property within the territory. Exercise of the power under Article 304(a) can only be effective if he tax or duty imposed on goods imported from other States and the tax or duty imposed on similar goods manufactured or produced in that State are such that there is no discrimination against imported goods. As no foreign liquor is produced or manufactured in the State of Orissa the power to legislate given by Article 304 is not available and the restriction which is declared on the freedom of trade, commerce or intercourse by Article 304 of the Constitution remains unfettered. 187. From the decision of Kalyani Stores (supra), what becomes transparent is that when a commodity is not manufactured or produced within a State, such a State cannot impose a tax on such a commodity, when the commodity is imported in....
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....uction of documentary proof, no tax under this Act shall be levied in respect of the specified goods which are also subject to levy of taxes under the provisions of the Assam Value Added Tax Act, 2003 Assam Act VIII of 2005. (iii) If the sale of such specified goods inside the State, made by an importer are sales within the meaning of Clauses (43) of Section 2 of the said Act, excepting sales falling under Sub-clauses (ii), (iii) and (iv) of the said clause and if he is liable to pay tax on such sales as a registered dealer under the Assam Value Added Tax Act, 2003 Assam Act No. VIII of 2005 (iv) If the sale of such specified goods are made by the importer in the course of inter-state trade or commerce or in the course of export out of the territory of India or such goods are otherwise dispatched outside the State by way of stock transfer and if he is registered dealer under the Central Sales Tax Act, 1956 Central Act 74 of 1956. 190. From a bare reading of Section 5, it is clear that when the goods, produced within the State, enter into a local area from another local area of the State and are sold there and if such sale amounts to a sale within the meaning of....
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....ch sale is subject to local sales tax, no entry tax is, eventually, payable. It is, thus, clear that in respect of goods, which are exempted from payment of sales tax, the levy of entry tax is on the entry of goods into a local area irrespective of the fact whether such entry is from outside the State into a local area or from one local area of the State to another local area of the State. Similar is the position of the goods, which are subject to local sales tax, for, the goods, which are produced outside the State but taxable under the local sales tax, suffer from no payment of entry tax, when such goods enter into a local area from outside the State. It is also not the pleaded case of the petitioners that goods, similar to the ones, the goods, which form the subject matter of the present set of writ petitions, are not produced or manufactured within the State of Assam. 193. From the discussions held above, it becomes abundantly clear that the State has not made any discrimination between the imported goods and the goods, manufactured or produced within the State, inasmuch as both the imported goods as well as the goods, produced or manufactured within the State, have been tre....
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....ing recorded as above, we stay the operation of the order under appeal. 198. On 5.1.2006, W.A. No. 412/05 aforementioned was disposed of along with W.A. No. 306/05 and W.A. No. 479/05. This order reads as follows: It is brought to our notice that the main writ petition itself is being heard and in fact learned Additional Advocate General has already completed his submission and what remains is the reply to be given by the learned senior counsel appearing on behalf of the writ petitioner. It is also brought to our notice that the matter is in the list for hearing before the learned Single Judge today. In such view of the matter no further order as such is required to be passed in this writ appeal. It is needless to reiterate that in case the writ petition is allowed all consequences in accordance with law including refund of the Entry tax stated to have been collected by the State from the writ petitioners shall follow including interest in accordance with law. With the above observations, the writ appeals are closed. 199. From the orders, dated 5.1.2006, what clearly emerges is that the State respondents had given an undertaking, in the appeal, that....