TaxTMI 
TaxTMI 
2006 (8) TMI 549
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....mmercial Taxes, Jamshedpur Urban Circle, Jamshedpur, whereby and whereunder, the petitioner has been asked as to why penalty be not imposed on it since pursuant to Notification No. S. O. 88 dated March 23, 2002 it has not deposited entry tax on "imported coal"; (iv) For declaration that the State Government is not empowered to impose any tax whatsoever on the goods, including "imported coal", imported from outside the country, as the trade and commerce with foreign countries is covered by entry 41, List I of the Eighth Schedule to the Constitution of India. Further declaration has been sought for that the imposition of entry tax on "imported coal" from outside the country is violative of articles 286 and 301 of the Constitution of India; (v) for a declaration that "Entry Tax Act" is not compensatory in character, falling under article 304 of the Constitution of India, and, as such, the said provision is violative of article 304 of the Constitution of India; and (vi) For a declaration that in view of Notification No. S. O. 105 dated November 1, 2002, the petitioner is not liable to pay any entry tax on the "imported coal", which is used as raw mat....
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....hat in case of such goods which are liable to tax under section 12(1) of the Bihar Finance Act, 1981, entry of goods shall mean entry of goods into local area from any place outside the State for consumption, use or sale therein. (d) 'Importer' means a dealer or any other person who in any capacity brings or causes to be brought any scheduled goods into a local area for consumption, use or sale therein." 5. Section 3 of the Entry Tax Act, 1993 is the charging section, which is the relevant one and reads as follows: "3. Charge of tax.-(1) There shall be levied and collected a tax on entry of scheduled goods into a local area for consumption, use or sale therein at such rate not exceeding 5 per centum of the import value of such goods as may be specified by the State Government in a notification published in an official gazette subject to such conditions as may be prescribed: Provided different rates for different scheduled goods and different local areas may be specified by the State Government. (2) The tax leviable under this Act shall be paid by every dealer liable to pay tax under the Bihar Finance Act, 1981 or any other perso....
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....ous of the distinction between the import of goods from outside the State within the country and import of goods from outside the country. Had it been the intention of the Legislature to impose entry tax on imported goods from outside the country, there was no reason as to why for ascertaining the import value, custom duties and all other charges relating to import of goods from outside the country was not included, but only those duties and charges, which are levied inside the State from which goods are imported, are taken into account. 8. According to the counsel for the State, the definition of "import value" makes it clear that the import duty or custom duty and other charges, paid by the petitioner for clearing the goods for home consumption under section 47 of the Customs Act, will be included in the import value of coal under the expression "all other charges incidental to the import of scheduled goods" used in the definition clause of the "import value" under section 2(e) of the Entry Tax Act. In the alternative, the assessing officer can determine the import value under proviso to section 2(e), if he is not satisfied with the value shown in the invoice. 9. It was als....
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....nd the provisions in the Act, it seeks to provide for the levy of tax on the entry of goods into local areas of the State from outside, that does not include entry from across the borders of the country. This seems to us to be clear from the several provisions we shall presently advert to. Clause (d) defines 'entry of goods into a local area', which means entry of goods from any place outside the State. Obviously the Legislature was aware when it used the words 'from any place outside the State' they did not mean to convey outside the country from abroad since the distinction between them is so obvious as not to have escaped notice. Again in clause (n) of section 2, while defining the purchase value, what has been directed to be taken into account is the value of goods as ascertained from the original invoice, which includes insurance, excise duties, countervailing duties, sales tax, transport fee, freight charges and all other charges incidentally levied on the purchase of the goods and in the case of a motor vehicle includes the value of accessories fitted to the vehicle. Here again no reference is made to the customs and other duties that an importer has....
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....thers, of those which may retain their dominance, individual identity and character throughout the process and also in the end-product those which as a result of interaction with other chemicals and/or ingredients might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end-product; those which like catalytic agent, while influencing and accelerating the chemical reaction, however, may themselves remain uninfluenced and unaltered and remain independent of and outside the end-product; and those, which may be burnt up or consumed in the chemical reactions. 15. Admittedly, coal is used as a fuel in manufacture of the steel and is burnt up or consumed as fuel in manufacture. There is no material on record to support the claim of the petitioner that the coal is being used as raw material for manufacture of steel. In absence of any material on record to establish that the end-product retains dominance and individual identity and character of coal or though it works as catalytic agent influencing and accelerating the chemical reaction, but remains uninfluenced and unaltered, it cannot be accepted that the coal is being consumed as raw mat....
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....to be resorted only in a specified situation indicated in article 303(2) of the Constitution. (d) Each clause of article 304 of the Constitution operates as a proviso to the provisions under articles 301 and 303 of the Constitution in the following way: (i) Article 304(a) of the Constitution authorises imposition of tax on the goods imported from the neighbouring State at par in such a manner as not to create any discrimination between similar goods manufactured and produced inside the State with regard to State taxation within the allocated field. (ii) Article 304(b) of the Constitution is analogous to article 302 for it makes the State power contained in article 304(b) of the Constitution free from the prohibition contained under article 301 of the Constitution in view of the opening words of article 304 of the Constitution. But there is also a difference between the powers under article 302 and those under article 304. (e) The difference is that under article 302 of the Constitution restrictions are not subject to the test of reasonableness nor is it coupled with the requirement of a previous sanction from the President as is introduced in the....
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....6 of the Act, 1993 were held to be intra vires. 23. Initially when the case was heard, it was brought to the notice of the court that the judgments rendered by the Supreme Court in the cases of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax reported in [1995] 96 STC 654; [1995] Suppl (1) SCC 673 and State of Bihar v. Bihar Chamber of Commerce reported in [1996] 103 STC 1; [1996] 9 SCC 136 having been doubted by the Supreme Court, were referred to a Constitution Bench in the case of Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC) (Civil Appeal No. 3453 of 2002). The judgment in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC), has now been rendered by the Supreme Court recently on April 13, 2006. 24. According to the petitioner, subject to other provisions of Part XIII of the Constitution of India, as per article 301 trade, commerce and inter-course throughout India should be free. It is not the freedom from all laws but freedom from such laws which restrict or affect activities of trade and commerce amongst the States. Although article 301 is positively worded, in effect, it is negative as freedom correspondingly creates general limitation on a....
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....iding whether a tax is a compensatory or not is to enquire whether the trade is having the use of certain facilities for the better conduct of its business and paying not patently much more than what is required for providing the facilities". In the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC) the working test, enunciated by the Seven-Judge Bench in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 was not applied and the court went on to say that "the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to dealers directly or indirectly, the levy cannot be impugned as invalid". The judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC) was rendered by a Bench of three Judges. The proposition, laid down in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC), was applied by a Bench of two Judges in the case of Bihar Chamber of Commerce [1996] 103 STC 1, which reiterated the position that "some connection" between the tax and the trading facilities extended to dealers directly or indirectly is sufficient to characterise it as compensatory tax. ....
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.... the State Legislatures, but Parliament can get rid of the limitation imposed by article 301 by enacting a law under article 302. Similarly, a law made by the State Legislature in compliance with the conditions imposed by article 304 shall not be hit by article 301. Article 301 thus provides for freedom of inter-State as well as intra-State trade and commerce subject to other provisions of Part XIII and correspondingly it imposes a general limitation on the legislative powers which limitation is relaxed under the following circumstances: (a) Limitation is relaxed in favour of the Parliament under article 302, in which case Parliament can impose restrictions in public interest. Although the fetter is limited enabling the Parliament to impose by law restrictions on the freedom of trade in public interest under article 302, none the less, it is clarified in clause (1) of article 303 that notwithstanding anything contained in article 302, the Parliament is not authorised even in public interest, in the making of any law, to give preference to one State over another. However, the said clarification is subject to one exception and that too only in favour of the Parliament, where....
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....axing powers and regulatory power and held that in generic sense, tax, toll, subsidies, etc., are manifestations of the exercise of the taxing power. The preliminary 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. 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 under which an activity like trade is to take place, then such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or non-taxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of operation of such law is to impede the activity, then law is a restriction under article 301. 33. However, if the law enacted is to enforce discipline or conduct under which the trade has to perform or if the payment is for regulation of conditions or incidents of trade or manufacture, then the levy is regulatory. 34. This is....
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....ay be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to the benefits. The compensatory tax is levied on an individual as a member of class, whereas a fee is levied on an individual as such. If one keeps in mind the "principle of ability" vis-a-vis the "principle of equivalence", then the difference between a tax, on one hand, and a fee or a compensatory tax, on the other hand, can be easily spelt out. The basic difference between a tax on one hand and a fee/ compensatory tax on the other hand is that the former is based on the concept of burden whereas compensatory tax/fee is based on the concept of recompense/reimbursement. For a tax to be compensatory, there must be some link between the quantum of tax and the facilities/services. While overruling part of the judgment in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M. P. reported in [1995] 96 STC 654; [1995] Suppl 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce reported in [1996] 103 STC 1 (SC) , the Constitution Bench in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC) made the following observations: "Burden on the State: Appl....
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....the judgments rendered by the Supreme Court in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M. P. reported in [1995] 96 STC 654 and in the case of State of Bihar v. Bihar Chamber of Commerce reported in [1996] 103 STC 1 (SC), have been overruled by the Constitution Bench of the Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544. On the other hand, according to the counsel for the State, the judgment rendered in the case of State of Bihar v. Bihar Chamber of Commerce reported in [1996] 103 STC 1 (SC) has not been overruled in entirety but part of it has been held to be not a good law. It has been further submitted on behalf of the State that the judgment rendered in the case of Bihar Chamber of Commerce [1996] 103 STC 1 (SC) has been overruled to the extent it relates to compensatory tax and part of the judgment, i.e., the finding that Bihar Entry Tax has been issued in public interest has not been overruled by the Supreme Court. 40. In the case of Bihar Chamber of Commerce reported in [1996] 103 STC 1 the Supreme Court formulated two questions, as quoted hereunder: "Question No. 1: Whether the impugned tax has been established to b....
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....d by a Bench of three Judges in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 cannot stand together. Therefore, in our view, the test of 'some connection' as propounded in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M. P. [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136, stand overruled." 42. So far as Question No. 1, as was framed by the Supreme Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1, is concerned, this much has not been controverted by the counsel for the respondents that in view of the judgment of Constitution Bench, rendered in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC), the decision in the case of Bihar Chamber of Commerce [1996] 103 STC 1 (SC), to that extent, has been overruled. In fact, the Supreme Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1, answered the first question on the basis of the test of "some conne....
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....bly with the previous sanction of the President, as required by article 304(b), it was assented to by the President, as contemplated by article 255 of the Constitution, and thereby, satisfied the required test. With regard to question No. 2(c), i.e., "whether the said levy (entry tax) is in public interest", counsel for the petitioner has not disputed that the view of the Supreme Court's decision in this regard in the case of Bihar Chamber of Commerce [1996] 103 STC 1 has not been overruled by the Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544. 45. The only question, which is to be looked into, is whether the decision of the Supreme Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1 with regard to question No. 2(b), i.e., "whether the levy of entry tax constitutes a reasonable restriction" stands overruled by the Supreme Court's decision in the case of Jindal Stainless Ltd. [2006] 145 STC 544. 46. The Supreme Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1, while deciding the question of reasonableness, referred to the observations, made by the Supreme Court in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC....
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....and the services offered by the State has been completely overruled by the Constitution Bench in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC). If the Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC) for the purpose of applying the test of reasonableness, i.e., the principle of "some connection" is relied upon to find out the reasonableness, such basic principle having been overruled by the Constitution Bench of the Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC), the decision rendered in the case of Bihar 1. Here italicised. 7Chamber of Commerce [1996] 103 STC 1, so far as the question of reasonable restriction of Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 is concerned, stands impliedly overruled. Thus, it will be evident that question No. 2(b), i.e., "whether the levy of Bihar entry tax constitutes a reasonable restriction or not, as decided by the Supreme Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1 stands impliedly overruled by the Supreme Court's decision in the case of Jindal Stainless Ltd. [2006] 145 STC 544. 48. In this connection one may refer to a Supr....
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....financial condition, taxation being highly essential in the said case, it was also pleaded by the State of Bihar that with a view to fulfil the above object and to make the provision of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 more workable, it was essential to levy and collect tax on certain goods entering the local areas of the State for consumption, use or sale. The Deputy Commissioner, Commercial Taxes, Bihar in his affidavit made specific averments that the Entry Tax Ordinance was thought to be promulgated in view of the loss of revenue on cess, due to the decision rendered by the Supreme Court in the case of India Cement Ltd. AIR 1990 SC 85, as well as other decisions of the Patna High Court. 52. It has not been brought to the notice of the court that the State of Jharkhand adopted Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, vide notification dated December 15, 2000 and/or amendment made vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001, on the "principle of equivalence". There is nothing on the ....
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....us, not based on the principle of equivalence and is not compensatory in nature. 54. So far as the other question "whether it is saved by virtue of the provisions, contained in article 304(b) of the Constitution of India" is concerned, the respondents have neither made any statement in their affidavit nor have brought on record any data to suggest that the entry tax, imposed under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted and amended by the State of Jharkhand by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002), constitutes reasonable restriction. 55. From the judgment, rendered by the Supreme Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1, though it will be evident that the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 was assented to by the President and the said entry tax was levied in public interest, there is nothing on the record to suggest that Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinan....