TaxTMI 
TaxTMI 
TaxTMI 
2006 (10) TMI 395
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....s 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 31st August 2001) to provide for levy of a tax in the State of Gujarat on the entry of ce....
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....s 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 12. (1) No tax shall be levied and collected in respect of motor vehicles mentioned at serial number 1 in the Schedule if such motor vehicles are registered in any other State or Union Territory of India under the Motor Vehicles Act, 1988 for a period exceed....
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.... 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 business. The petitioner purchased one Volvo luxury bus from one Jaico Automobile Engineering Co. Pvt. Ltd., and the said bus coach was brought by road to Gujarat. The petitioner received a notice dated 24th March 2004 in Form No. 45 under Section 59 of the Gujarat Sales-tax Act to attend the office of respondent No. 3 in regard to payment of entry tax and the said notice was followed by another notice dated 27.5.2004 calling ....
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....t 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 violates Article 304(a) of the Constitution. It is submitted that Article 304(a) permits levy of any tax on goods imported from other States 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. It is submitted that as the levy is only on imported goods and not on local goods entering into local area, the....
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....cle 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 fulfilled; (a) Restrictions are reasonable; (b) Restrictions are in public interest; (c) The Bill is moved with the previous sanction of the President. It is therefore submitted that the State is not correct in contending that even if there is no discrimination violative of Article 304(a) of the Constitution, it need not comply with Article 304(a) of the Constitution. It is submitted that it is too late in the field to contend that tax is....
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.... 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 dealt with the contention of sanction of the President under Article 304(b) of the Constitution, by observing that Entry Tax is a restriction which is not reasonable and not in public interest and no assent of the President was obtained, and therefore the Legislation was held to be violative of Article 304 of the Constitution. It is further submitted that it is also held by the Allahabad High Court that being not a compensatory tax, it was not saved by Article 301 of the Constitution. Relying upo....
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....s 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 goods imported from other States on one hand and the similar goods manufactured within the State, on the other, is protected from the vice of unconstitutionality. (iii) A legislation, which seeks to recover tax of discriminatory character, will be immune from the vice of unconstitutionality if the following 3 conditions are satisfied; (a) if should be in public interest; (b) it should be reasonable; and (c) it must have a prior sanction of the President. In support of his above submission, Shri Trivedi h....
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....cified 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 within the State. It is submitted that what is to be seen is the ultimate incidence of tax, that is resultant tax burden on both the types of goods, which, in the present case, shows that there is no discrimination. In support of his above submission, he has relied upon the decision of the Hon'ble Supreme Court in the case of Video Electronics Pvt.Ltd. and Anr. v. State of Punjab and Anr. AIR 1990 SC 820 , and Anr. decision of the Hon'ble Supreme Court in the case of Guruviah Naidu v. State of Tamil Nadu [1977] 1 SCR 1065 . 4.3. It is further subm....
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....ule 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 Para 8; (3) State of Bihar and Ors. v. Bihar Chamber of Commerce and Ors. [1996] 2 SCR 184 ; (4) V. Guruviah Naidu and Sons and Ors. v. State of Tamil Nadu and Ors. [1977] 1 SCR 1065 ; (5) Syndicate Bank v. State of Karnataka and Ors. 119 STC 155 (Last Para); (6) Video Electronics Pvt. Ltd. and Anr. v. State of Punjab and Anr. AIR 1990 SC 820 . (7) G.K. Krishnan and Ors. v. State of Tamil Nadu and Ors. [1975] 2 SCR 715 . (8) State of Karnataka and Anr. v. Hansa Corporation [1981] 1 SCR 823 . (9) Sushil Kumar Sharma v. Union of India and Ors. 2005 CriLJ ....
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....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 the Constitution. It is the case on behalf of the petitioner that the only exception carved out by judicial interpretation is in respect of 'compensatory tax'. Relying upon the recent decision of the Hon'ble Supreme Court in the case of Jindal Stainless (supra), it is submitted that considering the aforesaid decision, the Entry Tax in question cannot be considered to be a 'compensatory tax'. The learned Counsel appearing on behalf of the petitioner has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Jindal Stainless (supra). It appears that, initially when the affidavit-in-reply was filed, the concept o....
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....ent 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 State of Gujarat, and with a view to compensate such loss of sales-tax revenue, it is considered necessary to levy a tax on entry of certain specified goods produced/manufactured outside the State and brought into the local areas of the State of Gujarat. Section 4 provides for reduction of tax liability and the Entry Tax is 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 and/or by an importer who had purchased the specified goods in another State and/or reduced to the extent of amount of tax paid if any under the Central Sales Tax, 1956. Considering the Schedul....
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....h 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 qua the local person. Not only that, such low tax would persuade local people to import specified goods from another State which shall adversely affect the local production. It is at this point we must see that in the name of free flow of trade the local economy of a State can't be sacrificed. The contention, therefore, on behalf of the petitioner, that the discrimination is required to be considered qua each Act and the tax separately, has no substance at all. Considering the provisions of the Act and the objects for which the Act is enacted, one is required to see whether there is any discrimination qua goods imported and payment of sales-tax/tax the....
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....n 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 manufactured or produced in a local area, then in such a case, on proof that imposition of such levy is in the public interest even if it is found to be 'discriminatory', the same will be valid if the same is imposed after obtaining previous sanction of the President. Thus, on fair reading of the provisions of Article 304(a) and 304(b), if the levy of tax is found to be non-discriminatory, in that case, previous sanction of the President is not required. If the contention on behalf of the petitioner is accepted, then there is no purpose in enacting Article 304(a) and 304(b) separately. If the argument is correct then what is mentioned in Article 304(b) co....
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....l 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 Hon'ble Supreme Court, in view of the specifical facts of the case struck down the said Notification being violative of Article 301 of the Constitution. In the case of West Bengal Hosiery Association v. State of Bihar [supra], the challenge was qua notification exempting sales-tax on hosiery goods manufactured within the State and the resultant effect was that sale of hosiery goods manufactured outside the State were liable to sales-tax at 5% which was infringing the freedom of trade, commerce and intercourse. The Hon'ble Supreme Court had struck down the same being violative of Article 301 of the Constitution. In the case of Andhra Steel Corporation v. Commis....
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.... 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 impugned is hit by Articles 301 and 303 of the Constitution. 15. In the case of V. Guruviah Naidu and Sons and Ors. v. State of Tamil Nadu and Ors. [supra], the Hon'ble Supreme Court has observed as under; Article 304(a) does not prevent levy of tax on goods; what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede....
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....ase 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 in favour of the constitutionality unless such construction is wholly untenable. However, where one has to look at a section not very well drafted but the object behind the legislation and the purpose of enacting the same is clearly discernible, the court cannot hold its hand and blame the draftsman and chart an easy course of striking down the statute. In such a situation the court should be guided by a creative approach to ascertain what was intended to be done by the legislature in enacting the legislation and so construe it as to give force and life to the intention of the legislature. This is not charting any hazardous course but is amply borne out by an observation worth reproducing in extenso in Seaford Court Estates Ltd. v. Asher....
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.... 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 taxing statute if it contravenes the provisions of Articles 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. It was also observed that legislature which is competent to levy a tax must inevitably be given full freedom to determine which articles should be taxed, in what manner and at what rate. It would, therefore, be idle to contend that a State must tax everything in order to tax something. In tax matters, 'the State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so ....