TaxTMI 
TaxTMI 
2006 (10) TMI 395
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.... of entry tax. 2. The Statement and Objects of the Act, the Preamble, and the relevant provisions of the Act are as under; Statement of Objects and Reasons (Bill No. 36 of 2001): This Bill seeks to introduce the entry tax on the specified goods with a view to giving effect to the proposal contained in the Budget Speech of the Finance Minister in the Legislative Assembly on the 26th July, 2001. During the recent past, it has been observed that due to the difference in the rate of sales tax between the State of Gujarat and neighbouring States, diversion of trade has taken place and in some cases sales tax payments are avoided or evaded by various methods. This results in the loss of sales tax revenue legitimately due to the State of Gujarat. With a view to compensating such loss of sales tax revenue, it is considered necessary to levy a tax on entry of certain specified goods purchased outside the State and brought into the local areas of the State of Gujarat for use, consumption or sale therein. Preamble. AN ACT (First published, after having received the assent of the Governor in the 'Gujarat Government Gazette' on 31....
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.... Municipal Corporations Act, 1949 or any other local authority, as the case may be, within its local area. 4. Reduction in tax liability. (1) The amount of tax leviable under this Act shall, subject to such conditions as may be prescribed, be reduced to the extent of the amount of tax paid, if any, under the law relating to Sales Tax as may be in force in any other state or Union Territory by an importer who had purchased the specified goods in that State. (2) The amount of tax leviable under this Act shall, subject to such conditions as may be prescribed be reduced to the extent of the amount of tax paid, if any, under the Central Sales Tax, 1956 on the purchase of the specified goods in the course of inter-State trade or commerce. (3) Where an importer of specified goods liable to pay tax under this Act, being a dealer in the specified goods, becomes liable to pay tax under the Gujarat Sales Tax Act, 1996 or the Bombay Sales of Motor Spirit Taxation Act, 1958 by virtue of the sale of such specified goods, then his liability under the Gujarat Sales Tax Act, 1958 shall be reduced to the extent of tax paid under this Act. Exemptions ....
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....ax payable, under the law relating to Sales Tax in the State or the Union Territory or as the case may be, the Central Sales Tax, was charged by the vendor who is a dealer registered under such law and who had sold the specified goods to the importer from that State or, as the case may be, the Union Territory, or (b) a declaration, along with a copy thereof, from such vendor, declaring inter-alia that he had included the amount of such tax in the price charged by him in the purchase invoice. (ii)The importer shall furnish to the Assessing Authority the copy of the purchase invoice mentioned in Clause (a) or as the case may be, the copy of the declaration mentioned in Clause (b). 3. Case on behalf of the Petitioner: It is the case of the petitioner that the petitioner is engaged in the business of transportation and travel services to passengers in the State of Gujarat. The petitioner s registered under the Gujarat Sales Act as well as Central Sales-tax Act. The petitioner for the purposes of its travel and transportation business purchases Volvo luxury bus coaches from Bangalore and the same are brought into Gujarat for the purpose of its travel busine....
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....asurable benefits to the class of persons who are made liable to pay such a tax. It is submitted that the earlier view of some Benches of the Supreme Court, taking a liberal view of the expression 'compensatory tax', is overruled. It is submitted that to compensate the loss of sales tax revenue to the State, an entry tax cannot be justified on the ground that it is compensatory tax. It is submitted by Shri Kazi that though the State in its first affidavit-in-reply tried to justify the levy on the ground that it is a compensatory tax, in view of the decision of the Hon'ble Supreme Court in the case of Jindal Stainless Ltd. and Anr. (supra) but the State has given up the case of compensatory tax and have now sought to justify the same under Article 304 of the Constitution. 3.2. It is the contention on behalf of the petitioner that levy of entry tax which is only on importer of specified goods from other States into a local area in the State of Gujarat is discriminatory as there is no such tax on local dealers bringing specified goods from one local area to another local area in the State. It is submitted that as the discrimination is patent on the face of it, the levy ....
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....erent laws and having different taxing events ultimately imposing same amount of tax on both the importer and the local dealer. It is submitted that if discrimination is found in the entry tax itself it cannot be justified by submitting that other dealers are paying sales-tax under the sales-tax law or that when sales-tax is not payable by local dealers, entry tax also will not be payable. 3.5. It is further submitted that Article 304 of the Constitution overrides restrictions under Article 301 of the Constitution in respect of two types of legislations; (i) imposing tax on imported goods to which similar goods manufactured in the State are subject so as not to discriminate between goods so imported and so manufactured; (ii) the State can impose reasonable restrictions on freedom of trade etc., in public interest provided bill is introduced in the Legislature with the previous sanction of the President. 3.6. It is further submitted that two clauses of Articles 304 of the Constitution are disjunctive and not in the alternative. Under Article 304(b) of the Constitution, restriction on the freedom of trade can only be justified provided following conditions are....
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....nt by way of taxation and the course of flow of trade gets regulated either adversely or favourably. It is therefore submitted that if the scheme which Part XIII guarantees has to be preserved in national interest, it is necessary that provisions in the Constitution must be strictly complied with. Relying upon the aforesaid decision, it is submitted that Article 304(b) of the Constitution has also to be complied with by a tax legislation and the State must establish that restrictions are reasonable, the same are in the public interest and that previous sanction of the President was obtained. Shri Kazi, has also relied upon the following decisions of the Hon'ble Supreme Court; (1) Weston Electronics v. State of Gujarat 70 STC 52. (2) West Bengal Hosiery Association v. State of Bihar 71 STC 298(WB). (3) Andhra Steel Corporation v. Commissioner of Commercial Taxes 78 STC 243. 3.8. Shri Kazi has also relied upon a decision of the Allahabad High Court in the case of Indian Oil Corporation v. State of Uttar Pradesh reported in AIR 2004 All 277 . It is submitted that the tax in issue in that Judgment was also Entry Tax and the Allahabad High Court has dea....
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.... Trivedi, learned Advocate General, while opposing the present Special Civil Application, has submitted that imposition of Entry Tax is neither discriminatory as alleged nor is in violation of Article 301 and/or Article 304 of the Constitution. It is submitted that, Article 301 of the Constitution ensures freedom of trade and commerce throughout the country and imposes a limitation upon the exercise of legislative power whether by the Union or by a State, and in view of this, any law which interferes with the freedom of trade, commerce, etc., as ensured under Article 301, will be attracted by the vice of unconstitutionality. However, there are three exceptions to the aforesaid proposition, i.e., regarding vice of unconstitutionality flowing from Article 301 viz., (i) A taxation legislation which otherwise interferes with the freedom of trade, commerce, etc., under Article 301 will be protected from the vice of unconstitutionality, if it is compensatory or regulatory in character as per its judicially evolved concept; (ii) A taxation legislation, which seeks to levy tax of non-discriminatory nature in the matter of its ultimate incidence and effect as between the g....
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....t Entry Tax read with Explanation 1 below Parts I and II of the Schedule to the Gujarat Entry Tax Act, 2001, provides for adjustment as observed by the Karnataka High Court in the last para of the Judgment. 4.2. Meeting with the contention on behalf of the petitioner that the provisions of Entry Tax Act are discriminatory and discrimination is to be considered qua only one Act and that there is discrimination between the importers of the specified goods from other States into a local area into the State of Gujarat and the local dealers bringing specified goods from one local area to another local area in the State, it is submitted by Shri Trivedi, learned Advocate General that 'discrimination' referred to in Article 304(a) of the Constitution is with reference to the goods imported from outside the State and similar goods manufactured within the State, which takes place because of imposition of 'any tax'. It is submitted that in view of the above it cannot be legally contended that in the present case discrimination has taken place because of imposition of 'Entry Tax' since the 'same tax' is not leviable in case of similar goods manufactured withi....
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....of goods are exempted from the payment of sales tax at both the places, i.e., within the State as well as outside the State, and if such goods are brought from outside the State into the State of Gujarat, the same would be subjected to 'entry tax' it is submitted that the said example is fatally misconceived inasmuch as the Schedule to the Gujarat Entry Tax Act specifies only those goods which are otherwise taxable under the Sales Tax Act in the State. It is further submitted that only specified goods mentioned in Part I and Part II of the Schedule to the Act are subjected to entry tax [7 in number] and all those items which are subjected to entry tax are subjected to sales-tax and/or local taxes in the relevant State. While relying upon Explanation to the said Schedule, it is submitted that there is no discrimination at all and on the contrary it is to be at par with sales-tax. Shri Trivedi has relied upon the following decisions of the Hon'ble Supreme Court; (1) Shaktikumar M. Sancheti and Anr. v. State of Maharashtra and Ors. reported in (1995) 1 SCC 351 ; (2) Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. and Ors. (1995) Suppl. 1 SCC 673 ....
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....estrictions on trade, commerce and intercourse among States.__ Notwithstanding anything in Article 301 or Article 303, the Legislature of a State may by law__ (a) impose on goods imported from other States [or the Union territories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of Clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. 6. It is the contention on behalf of the petitioner that provisions of the aforesaid Act and levy of entry tax are violative of Article 301 of the Constitution of India as tax is imposed on importer of specified goods from other States into local area in the State of Gujarat which hampers free flow of trade from one State to another State and therefore such a tax would clearly violate the mandate of Article 301 of ....
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....s no such tax on local dealers bringing specified goods from one local area to another local area in the State. It is further submitted that there is a clear discrimination between importers and local dealers and therefore it violates Article 304(a) of the Constitution. It is also the contention on behalf of the petitioner that it might be that as the entry tax is levied on an importer in Gujarat he is liable to pay the same, while the seller in another State enjoys sales-tax exemption which could deprive the importer of the exemption. It is his further contention that the discrimination is required to be considered qua each Act/tax differently and the payment of sales-tax cannot be considered at par or equated with payment of Entry Tax. At this stage, the Statement and Objects of the Act and the Preamble thereon are required to be considered. It appears from the Statement of Objects that, due to the difference in the rate of sales-tax applicable to the State of Gujarat and the neighbouring States, diversion of trade has taken place and in some cases sales-tax payments are affected or evaded by various methods and the same results in the loss of revenue legitimately due to the Stat....
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....eading of the provisions of the Act and the object of levy of Entry Tax, it cannot be said that such a levy is discriminatory between the importer of the specified goods from other States into a local area in the State of Gujarat, and the local dealers bringing specified goods from one local area into another local area in the State. The local dealers, bringing specified goods from one local area to another local area in the State, are, otherwise, paying the sales-tax at 12%. Thus, as stated hereinabove, on payment of Entry Tax by the importer, after deduction of sales-tax and/or C.S.T. already paid in another State, such an importer would be put at par with the local dealers. Thus, in sum and substance, the importers as well as the local dealers would be paying the tax at 12% in all. It can, therefore, be said that, on the contrary, the vice of discrimination would stand removed by payment of Entry Tax by an importer of specified goods. If the importer is not required to pay Tax on Entry he would stand on better footing because on one side the local person would be required to pay 12% Sales Tax while the o,porter would be paying 4% tax in other State, which would be discriminatory....
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....advantageous position, it is required to be noted, first of all, that there is no such foundation and/or pleading in the petition. The validity of an Act is required to be considered on an appropriate pleading and is not required to be considered on hypothesis. 10. So far as the next contention on behalf of the petitioner that two Clauses of Article 304 of the Constitution are conjunctive and not in the alternative and therefore even if the levy of tax is found to be non-discriminatory, in that case also the conditions imposed under Article 304(b) of the Constitution are also required to be complied with inasmuch as before levy of the said tax previous sanction of the President is required, is concerned, such a contention is required to be rejected outright. The provisions of Article 304(a) and 304(b) are to be construed and interpreted separately. If levy of a tax is found to be non-discriminatory between the goods so imported and the goods so manufactured or produced, in that case the conditions imposed under Article 304(b) of the Constitution are not required to be complied with. If it is found that levy of tax is discriminatory between the goods so imported and the goods so ....
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....the Hon'ble Supreme Court and it is not in dispute that similar provisions of the Act and the levy of Entry Tax have been upheld by the Hon'ble Supreme Court in the aforesaid Judgment. Under the circumstances, this Court cannot take a different view and is bound by the decision of the Hon'ble Supreme Court. 12. So far as the decision relied upon by the learned Counsel appearing on behalf of the petitioner in the case of Indian Cement v. State of Andhra Pradesh [supra] is concerned, in the said case the challenge was to the notification reducing rate of State sales-tax on cement sold to local manufacturers of cement products with a view to help the local cement industry and the Hon'ble Supreme Court after dealing with the rival contentions of the parties struck down the said notification by holding that the same is discriminatory and violative of Article 301 of the Constitution. Similarly, in the case of Weston Electronics v. State of Gujarat [supra], also the challenge was against the notification reducing rate of tax on sale of goods manufactured within the State and the resultant effect of higher rate of Sales Tax on goods imported from outside the State. The H....
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....rovision of adjustment, therefore, the judgment in the case of Syndicate Bank v. State of Karnataka and Ors. [supra], would not be of any assistance to the petitioner, rather the aforesaid observation will give a dent to the petitioner's case and would go in favour of the State of Gujarat. 14. In Video Electronics Pvt.Ltd. and Anr. v. State of Punjab and Anr. the Hon'ble Supreme Court has observed as under; It has to be examined whether difference in rates per se discriminates so as to come within Articles 301 and 304(a) of the Constitution. It is manifest that free flow of trade between two States does not necessarily and generally depend upon rate of tax alone. Many factors including the cost of goods play an important role in the movement of goods from one State to another. Hence the mere fact that there is a difference in the rate of tax on goods locally manufactured and those imported would not amount to hampering of trade between the two States within the meaning of Article 301 of the Constitution. As is manifest, Article 304 is an exception to Article 301 of the Constitution. The need of taking resort to exception will arise only if the tax impug....
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....tise and the familiarity with local problems so necessary to the making of wise decisions with respect to the raising and disposition of public revenues. Yet, we are urged to direct the States either to alter drastically the present system or to throw out the property tax altogether in favour of some other form of taxation. No scheme of taxation, whether the tax is imposed on property, income, or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the Court does well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under the Equal Protection Clause. 17. In the case of State of Karnataka and Anr. v. Hansa Corporation, reported in [1981] 1 SCR 823 , the Hon'ble Supreme Court, while considering the constitutional validity of a Statute, has observed as under; 15. There is always a presumption of constitutionality of a statute. If the language is rather not clear and precise as it ought to be, attempt of the court is to ascertain the intention of the legislature and put that construction which would lean....
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....tudd. Put into homely metaphor it is this: A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out ? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases. This view was reaffirmed in Norman v. Norman. 16. Let it be remembered that the impugned measure is a taxing statute and in the matter if taxing statute the legislature enjoys a larger discretion in the matter of classification so long as it adheres to the fundamental principle underlying the doctrine of classification. The power of the legislature to classify is of wide range and flexibility so that it can adjust its taxation in all proper and reasonable ways. In Khyerbari Tea Co. Ltd. v. State of Assam, this Court observed as under: It is, of course, true that the validity of tax laws can be questioned in the light of the provisions of Articles 14, 19 and Article 301 if the said tax directly and immediately imposes a restriction on the freedom of trade; but the power conferred on this Court to strike down a tax....