TaxTMI 
TaxTMI 
2007 (3) TMI 680
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2005, 25433 of 2005, 26292 of 2005, 26317 of 2005, 26757 of 2005, 2863 of 2006, 4191 of 2006, 17739 of 2005, 2906 of 2006, 5692 of 2006, 5905 of 2006, 5925 of 2006, 6622 of 2006, 20675 of 2005, 6983 of 2006, 7831 of 2006, 4838 of 2005, 6879 of 2006, 7745 of 2006, 7891 of 2006, 9854 of 2006, 10104 of 2006, 10831 of 2006, 11373 of 2006, 11405 of 2006, 10305 of 2006, 11736 of 2006, 12015 of 2006, 12679 of 2006, 12088 of 2006, 17960 of 2006, 17961 of 2006, 17962 of 2006, 15943 of 2006, 15592 of 2006, 15590 of 2006, 15589 of 2006, 15347 of 2006, 15157 of 2006, 15156 of 2006, 15155 of 2006, 15154 of 2006, 15153 of 2006, 14885 of 2006, 14818 of 2006, 16051 of 2006, 12547 of 2006, 57 of 2007, 18790 of 2006, 384 of 2007, 385 of 2007, 19062 of 2006, 1635 of 2007, 1636 of 2007, 1644 of 2007, 394 of 2007, 416 of 2007, 848 of 2007, 1106 of 2007, 2184 of 2007, 2147 of 2007 and 3063 of 2007 Shylendra Kumar D.V., J. For the Appellant : K.P. Kumar, Sr. Counsel, T. Suryanarayana and D. Prashanth Kumar, Advs. for King & Partridge etc. etc. For the Respondents : Udaya Holla, Adv. General and Niloufer Akbar, AGA etc. etc. ORDER : D.V. SHYLENDRA KUMAR J.- 1. Writ petitioners are all p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bill leading to the Act having not been complied with in the present case. 3. It is on such premise a declaration is sought for declaring the provisions of the Act to be unconstitutional, unenforceable and for quashing the assessment orders, demand notices, show cause notices and all other proceedings initiated under the Act for the purpose of enforcing the liability in terms of section 3 of the Act. A prayer is also made for refund of tax already paid as a consequence to the granting of declaratory relief and quashing of the assessment orders, etc. 4. The writ petitions having been admitted, the State is put on notice and the respondent-State has sought to defend the validity of the provisions of the Act. The statement of objections, additional statement of objections, ffidavits are all filed. 5. The essential defence put forth on behalf of the State is that the levy is in the nature of a compensatory levy and therefore it is out of the purview of Part XIII of the Constitution of India itself. It is contended in this regard that the revenue raised from the levy of tax of this nature on the importers is broadly equivalent to the value of the facilities such as roads, light....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he levy is a non-discriminatory levy. 7. One another contention urged is that when once the State is able to show that the levy of tax by the State Legislature having competence to make a law is not a discriminatory levy, as indicated in article 304(a) of the Constitution of India and article 304(a) being in the nature of an exemption to article 301, so long as the requirements indicated in article 304(a) are complied with and the moment it is demonstrated by the State that the levy is a non-discriminatory levy and being a taxing statute, there cannot be any further examination of the validity of the Act or its provisions on the touchstone of article 304 of the Constitution of India. It is for this reason the State contends that when once the State is able to show that the levy of tax under section 3 of the Act is a non-discriminatory levy, there is no further requirement on the part of the State to still demonstrate that the effect of such levy is either regulatory or that the previous sanction of the President had been obtained prior to the introduction of the Bill in the State Legislature. It is on such premise, the State has sought to defend the provisions of the Act. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urging to accept their respective versions as the correct exposition of law, underlining the provisions of Part XIII and the principles interpreted, evolved and laid down, as the touchstone to examine the validity of the provisions of the Act. 14. The areas where there is consensus, where there is scope for divergent views or conflicting views, the areas which appear to be not covered by any authentic or emphatic judgment, areas which appear to be not touched upon but present for examination, can be on a broad conspectus demarcated as under: (i) Part XIII of the Constitution of India is a limitation/check on the Legislative power of the State Legislatures. The laws made by the State Legislatures have to necessarily answer and conform to the requirements of Part XIII of the Constitution of India. No absolute immunity can be claimed to any law made by Parliament from the applicability of the provisions of the Part XIII of the Constitution of India. (ii) While under article 301 of the Constitution of India, trade, commerce and intercourse is sought to be made free throughout the territory of India, certain exceptions are carved out under article 302, whereunder Pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pounded by Sri Navroz H. Seervai, learned Senior Counsel appearing for the petitioners, is that the two situations operate independently and even after satisfying the requirement of article 304(a) in respect of a levy which can result in a restriction on the movement of goods, it has to still answer the requirements of article 304(b) and by demonstrating that the restriction is a regulatory restriction in public interest and further that the Bill has also received the previous sanction of the President. (vi) Yet another area of controversy is as to the meaning of the compensatory levy. Here again, extreme positions have been taken by the learned Senior Counsel Sri Seervai on behalf of the petitioners and Sri Udaya Holla, learned Advocate-General appearing on behalf of the State. While the stand of the petitioner or the submission of the learned Senior Counsel appearing for the petitioners is that no exclusive or corresponding service is provided to the class of taxpayers who were assessees under the Act to the exclusion of other taxpayers and therefore the levy is not a compensatory levy, the contention urged by the learned Advocate-General is that realisation by levy unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(c) Even if it is shown that the levy is not discriminatory, it has to always necessarily comply with the requirements of article 304(b) of the Constitution, inclusive of the proviso to this article and in the present case, the State having not demonstrated that the levy is a regulatory levy and further the requirement of proviso to sub-article (b) of article 304 of the Constitution also being not satisfied, the provision is unconstitutional. (d) That the charging section having not authorised the State Government to issue notification notifying the goods in respect of which the levies can be imposed and collected, the Act is unworkable and the charging section fails. In support of this contention, reference is made to the provisions of section 5 of the Act and it is contended that while section 5 has expressly authorised the State Government to issue a notification exempting the levy of tax on any specified class of importers or any class of notified goods, there is no such express authorisation in favour of the State Government under section 3 of the Act and therefore the charging section fails. (e) Notwithstanding the judgment of the Supreme Court in the case o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Constitution of India, it has to still answer the test of article 304(b) and that if the imposition of a tax itself is a restriction on the movement (of goods) it has to always conform to the requirement of article 304(b) of the Constitution of India. On the basis of the law declared in this case, it is urged that extending a concession even for the purpose of protecting a locally manufactured goods vis-a-vis imported goods, results in discrimination and such discrimination is one which is clearly in the teeth of the article 304(a) of the Constitution of India and unless the levy of tax on the locally manufactured goods and the imported goods are at the same rate, there is discrimination. 21. The judgment of the Supreme Court in the case of Hansa Corporation AIR 1981 SC 463, is relied upon for the proposition that even if a taxing statute is not discriminatory, it has to still meet the requirement of satisfying the proviso to article 304(b), particularly when the taxing statute is an instance of a levy impeding the movement of goods, as in the present case. 22. Reliance on the decision of the Supreme Court in the case of Laxmi Paper Mart [1997] 105 STC 1, is also for the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....refore bad in law and in support of this submission, relied upon the decision of the Supreme Court in the case of Sri Krishna Das v. Town Area Committee, Chirgaon [1990] 77 STC 395. Sri Sarangan has also submitted that even on the authority of the Jindal Stripe Ltd. [2004] 134 STC 303, the activity in the nature of providing any public facilities cannot be termed as providing any special service to bring it within the scope of compensatory levy, as the service is not confined to a particular class of taxpayers but is a service rendered in general and therefore not a compensatory levy. 27. Sri R.V. Prasad, learned counsel appearing for some of the petitioners in this batch of writ petitions, has also submitted likewise. 28. Countering such submissions made on behalf of the petitioners, Sri Udaya Holla, learned Advocate-General, while has contended that the levy is a non-discriminatory levy; that it brings about parity in levying of tax on imported goods from outside the State into the local area and from within the State into the local area and therefore there is no discrimination, it is strongly urged that non-discriminatory aspect is made good by demonstrating that the impac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Doki China Guruvulu Son & Co. v. Government of Andhra Pradesh [1990] 76 STC 235 (SC); [1990] 1 SCC 221, Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 (SC); AIR 1990 SC 820 and Widia (India) Ltd. v. State of Karnataka [2003] 132 STC 360. 33. Learned Advocate-General has also drawn the attention of the court to the observations made by the Supreme Court in the case of Firm ATB Mehtab Majid & Co. [1963] 14 STC 355 (SC); AIR 1963 SC 928 and in the case of Jindal Stainless Ltd. [2006] 145 STC 544. 34. Learned Advocate-General has placed reliance on the following decisions also: (i) B.R. Limited v. V.P. Gupta [1978] 113 ITR 647 (SC); [1978] 3 SCC 70. 1. Reported in [2007] 6 VST 560. (ii) Collector of Central Excise, Shillong v. Woodcraft Products Ltd. [1995] 3 SCC 454. (iii) Sri Balaganesh Metals v. M.N. Shanmuga Chetty [1987] 2 SCC 707. 35. In support of the submission that under article 304 requirement is for compliance with either sub-article (a) or sub-article (b) of article 304 of the Constitution of India, it is urged that when once article 304(a) is complied with, there is no further need for compliance with the requirem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ong reliance on the observations made by the Supreme Court in para 11 of the judgment in Firm ATB Mehtab Majid & Co. [1963] 14 STC 355 (SC); AIR 1963 SC 928, learned Advocate-General submits that the argument that the State should demonstrate non-discrimination by the impact of levy under the same enactment is not made good and submits that while in fact there is no direct ruling of the Supreme Court to declare that for answering the requirement of article 304(a) of the Constitution of India, non-discrimination should be made good by levy of tax under the very enactment, on the other hand the decision of the Supreme Court in the case of Shaktikumar M. Sancheti [1995] 96 STC 659 (SC); [1995] 1 SCC 351, wherein the levy under the Maharashtra Motor Vehicles Taxation Act had been upheld, it has to be necessarily inferred that non-discrimination aspect can be achieved by demonstrating the impact of several levies under the State enactment on imported goods vis-a-vis goods produced or manufactured locally, and if the resultant effect is to bring about parity and such being the situation in the present cases, the allegation of discrimination is to be rejected. 39. One proposition on wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ew persons, so long as the taxing statute passes the test of legislative competence and the test of article 14 of the Constitution of India, it is sustained and there need not be any return or benefit on any of the taxpayers, the compensatory levy is one which burdens the beneficiary group or class and not others. 42. On the other hand, a fee is understood to be a compensation to be paid for specific service that is received by the individual seeking the service. It is only the person receiving the specific service or who seeks a specific permission or licence who is required to pay fee, whereas others who do not seek service or the permission may not pay a fee. In the background of such distinction between a tax and the fee, the concept of compensatory levy by way of tax is understood to be one as in the nature of a levy to meet the special service or benefits provided to a class of persons as a whole, who will be called upon to bear the burden of tax. An exclusive service or special service to the class of taxpayers who bear the burden is the sine qua non of a compensatory levy though not all members of the class of taxpayers may avail of the special service or special benefit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ho cause entry of goods into a local area in the course of their business. Under the Karnataka Special Tax on Entry of Goods Act, 2004, the tax is payable in respect of the goods brought into a local area by all persons (importers). The revenue from this levy collected by the State is made over to the local bodies. 7.. It is submitted that though the provisions of this law do not specify the proportionality of the quantifiable benefits that would accrue to the taxpayers, the respondents should demonstrate that collection of this compensatory tax is not reimbursement for the quantifiable benefit provided to the taxpayers by the local bodies. 45. Thus, the norms laid down by the honourable Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544 in respect of a compensatory tax has been met." The stand taken by the State is not one which answers the attack of allegation as urged on behalf of the petitioners in the context of article 304(a) of the Constitution of India. The type of discrimination frowned upon in article 304(a) of the Constitution of India in respect of taxing statutes, is making a distinction between goods imported from outside the State an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the argument of the learned Advocate-General is good in law, even then the State has miserably failed to make good the defence on facts. There is absolutely no correlation to the revenue generated under the specific Act to the so-called expenditure incurred by the local authorities for providing the services mentioned by the respondents. I say so for the reason that the local authorities have their own means of raising revenues and in respect of the expenditure for meeting such benefits, 30 per cent of the expenditure is sought to be collected from the assessees under the Act. 50. There are other levies imposed under the other enactments by the State and the local authorities and such revenue is not at all accounted for. In fact, there is no serious attempt at all on the part of the State to demonstrate either that the expenditure incurred towards the so-called services provided to the trading community in general is a particular amount and that the assessees under the Act constitute 30 per cent of such members of the trading community, for whose benefit the expenditure is incurred. 51. This apart no material at all is placed about the revenue to the State and the loca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the argument that the act of discrimination is removed even under the provisions of the very enactment and therefore the Act is not discriminatory, perhaps could have been a good defence if the complaint of discrimination had been avoided in all situations and to the full extent. Unfortunately, even after a combined operation of the provisions of sections 3 and 4, the complaint of discrimination is not answered in toto and therefore the argument that there is no discrimination cannot be accepted. 56. The alternative defence on behalf of the State as urged by the learned Advocate-General is that it is not necessary that the complaint of discrimination should be answered with reference to the provisions of the very enactment, but it can also be answered by demonstrating the net effect of levy of tax by the State Legislature on the particular goods or similar goods by a combined effect of several enactments and in the present case it is so achieved by a combined effect of levy of tax under the present Act and the KST Act. 57. It is urged that as goods which are imported from outside the State would not have suffered the local sales tax which would have been levied on goods purch....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to be urged that this judgment is per incuriam as the judgment does not spell out any reason as to why the allegation of discrimination cannot be defended by the State by a combined effect of levies under different enactments of the State Legislature. It is also urged that in the light of the observations made by the Supreme Court in the case of Firm ATB Mehtab Majid & Co. [1963] 14 STC 355; AIR 1963 SC 928, the Division Bench could not have taken this view and at any rate this judgment should be held to be sub silentio, etc. 61. I am unable to accept either of the contentions in this regard, as it is not as though the Division Bench of this court was unaware of the judgment of the Supreme Court on the subject. It is after referring to the judgments of the Supreme Court and purporting to be based on the law laid down by the Supreme Court, the argument advanced on behalf of the State was rejected and the Act in question was held to be a discriminatory Act. Even the argument that it is sub silentio cannot be accepted as the question of the provisions of the Act being discriminatory provision was the very issue in the case before the Division Bench, that question was examined by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Government, the Supreme Court having noticed the subsequent development, such as issue of notifications by the State Government on January 7, 1998 and September 23, 1998, superseding the earlier notifications and the latter notifications coming into effect retroactively and such notification being the subject-matter of challenge again before the High Court, in a fresh batch of petitions, the Supreme Court observed that the appeals filed by the State of Karnataka became academic and nothing more survives. It is after disposal of the State appeals in such a manner, the Supreme Court considered the appeals filed by the assessees and while disposing of such appeals of the assessees the observation which is relied upon by the learned AdvocateGeneral was made. The order passed by the Supreme Court reads as under: "CA Nos. 3948/1998 and 1819-42/2000 be delinked and listed separated. Leave granted in SLP (C) No. 134 of 1998. Counsel for the parties agree that the appeals filed by the State of Karnataka have become infructuous. These appeals arise out of the judgment of the Karnataka High Court before whom the respondents had challenged the notification dated Mar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eved or not recedes to the background. The attack of discrimination, which is sought to be dispelled by operation of the provisions of the very enactment, as noticed earlier on the first contention, remains and therefore it will have to be held that the provision is inevitably one in violation of the requirement of article 304(a) of the Constitution of India and has to be declared as unconstitutional. 66. Insofar as the argument of the learned Advocate-General placing reliance on the judgment of the Supreme Court in Shaktikumar M. Sancheti's case [1995] 96 STC 659; [1995] 1 SCC 351 case is concerned, the argument of the provisions of the Maharashtra Act being in violation of the provisions of article 304(a) of the Constitution of India was not even canvassed by the appellant before the Supreme Court and the Supreme Court did not examine this question. While it is a fact that the High Court had dispelled the argument of the Act being violative of article 304(a) at the best, the law as laid down by the Division Bench of the Bombay High Court can be accepted as a persuasive precedent. So also the position in respect of the judgment of the Gujarat High Court in Eagle Corporation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ferent. While subarticle (a) of article 304 of the Constitution of India deals with the levy of tax on goods imported from outside the State and condemns discriminatory levy in that context, sub-article (b) of article 304 of the Constitution of India provides for relaxation in respect of a regulatory restriction on the freedom of trade, commerce and intercourse, so long as it is a reasonable restriction required to be imposed in public interest and the Bill before introduction had received the previous sanction of the President. 71. When the two provisions operate in different areas, examination has to be independent under each provision and in the context of the impugned legislation. A taxing statute though may be a statute imposing a non-discriminatory tax on goods imported from other States, if the effect of such levy is one to impede or obstruct free movement of trade, commerce and intercourse, it does attract sub-article (b) of article 304 of the Constitution of India. The movement in the context of movement of trade can only be on the movement of goods and the effect of the levy of tax is one to discourage or curb such movement, it is necessarily one which is in the way of....