TaxTMI 
TaxTMI 
2007 (1) TMI 514
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....ia-bari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 (7 Judges) wherein apex court, dealing with the case of "motor vehicles", observed: ...it seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities.... 2. The respondents, on the other hand, contended that "tax" levied as "entry tax" under the Act, was not ultra vires of the Constitution, the traders (enumerated in the Schedule framed under Section 4 of the Act) were the beneficiaries and hence was compensatory in nature as explained by the apex court in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 ; [1995] Su 1 SCC 673 (3 Judges), later followed in the case of State of Bihar v. Bihar Chamber of Commerce : [1996]2SCR184 , wherein the apex court observed (page 8 of 103 STC): ...that for the purpose of establishing the compensatory character of the tax, it is not nec....
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.... It is assessed on certain elements of business, such as, manufacture, purchase, sale, consumption, use, capital, etc., but its payment is not a condition precedent. It is not a term or condition of a licence. A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden. 39. On the other hand, a fee is based on the 'principle of equivalence'. This principle is the converse of the 'principle of ability to pay. In the case of a fee or compensatory tax, the 'principle of equivalence' applies. The basis of a fee or a compensatory tax is the same. The main 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. 40. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and....
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.... compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net revenue to the Government but that circumstance is not an essential ingredient of compensatory tax. 42. Since compensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters. 43. To sum up, the basis of every levy is the controlling factor. In the case of 'a tax', the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of 'a fee', the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of 'burden' to the concept of measurable/quantifiable benefit and then it becomes 'a compensatory tax' and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is th....
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....peration of the impugned law on inter-State trade and commerce as well as intrastate trade and commerce. 46. When any legislation, whether it would be a taxation law or a non-taxation law, is challenged before the court as violating Article 301, the first question to be asked is : What is the scope of the operation of the law? Whether it has chosen an activity like movement of trade, commerce and intercourse throughout India, as the criterion of its operation? If yes, the next question is : What is the effect of operation of the law on the freedom guaranteed under Article 301? If the effect is to facilitate free-flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature. Clause (b) of Article 304 confers a power upon the State Legislature similar to that conferred upon Parliament by Article 302 subject to the following differences: (a) While the power of Parliament under Article 302 is subject to the prohibition of preference and discrimination decreed by ....
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....annot stand together. Therefore, in our view, the test of 'some connection' as propounded in Bhagatram's case 1994(4)SCALE1103 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. 1994(4)SCALE1103 and State of Bihar v. Bihar Chamber of Commerce : [1996]2SCR184 stand overruled. 49... Conclusion: 50. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case 1994(4)SCALE1103 followed by the judgment in the case of Bihar Chamber of Commerce : [1996]2SCR184 was well-founded. 51. We reiterate that the doctrine of 'direct and immediate effect' of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam [1961]1SCR809 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963]1SCR491 for deciding whether a tax is compensatory or not vide paragraph 19 of the report, will continue to apply and the test of 'some connection' indicated in paragraph 8 of t....
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....eputy Commissioner Assessment)-10, Trade Tax, Lucknow and has been authorised to file counter-affidavit on behalf of Government and is well acquainted with the facts of the case deposed to below. 2. That in the case of Jindal Stainless Ltd. v. State of Haryana [2006]283ITR1(SC) , Constitution Bench of the honourable Supreme Court vide judgment dated April 13, 2006 vide paragraph Nos. 44, 47, 49 and 51 (paragraph Nos. 43, 46, 48 and 50 of STC) held as under: Para 44. Applying the above tests/parameters, whenever a law is impugned as violative of Article 301 of the Constitution, the court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. If the provisions are ambiguous or even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/facility provider to show by placing the material before the court, that the payment of compensatory tax is a reimbursement/recompe....
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....levant data do not appear to have been placed before the High Courts, we permit the parties to place them in the writ petitions within two months. The High Court concerned shall deal with the basic issue as to whether the impugned levy was compensatory in nature. The High Courts are requested to decide the aforesaid issue within five months from the date of receipt of our order. 4. That the Constitution Bench of the honourable Supreme Court in the case of jindal Stainless Ltd. [2006]283ITR1(SC) , vide paragraph No. 51, has reiterated the principles of compensatory nature of a tax laid down in the earlier Constitution Bench judgment in the case of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963]1SCR491 . The relevant portion of paragraph 19 of the judgment in the case of Automobile Transport (Rajasthan) Ltd. [1963]1SCR491 is reproduced below: ...It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. It would be im....
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.... is a reimbursement/ recompense for the quantifiable or measurable benefit to the traders/ industrial units as a whole being a class. The facilities provided in the local area by the local authorities mainly out of the fund/grant-in-aid given by the State Government on the recommendation of the State Finance Commission or otherwise, are well defined under the constitutional mandate/constitutional provisions contained in Part IX and IX-A of the Constitution of India [substituted by the 73rd and 74th Constitution (Amendment) Act, 1992]. The provisions contained in Parts IX and IX-A read with 11th and 12th Schedule of the Constitution are well incorporated and reflected in the U.P. Municipalities Act, 1916, the Uttar Pradesh Municipal Corporations Adhiniyam, 1959, U.P. Kshetra Panchayats and Zila Panchayats Adhiniyam, 1961 and the U.P. Panchayat Raj, 1947. 11. Photostat copies of the documents filed as annexures 2, 3 and 4 along with the said affidavit are the same as were earlier filed along with counter-affidavit in the writ petition (i.e., before Division Bench judgment of this court) except that now figures for the years 2003-04, 2004-05, 2005-06 have now been added. 12. For....
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.... order requires us to make our own assessment about the manner and extent of augmentation of the Consolidated Funds of the States, keeping in view the provisions required to be made for the emoluments and terminal benefits of the local bodies including teachers, the existing powers of the local bodies to raise financial resources, and the powers, authority and responsibility transferred to local bodies. The States memoranda do not generally indicate the requirement of funds for the emoluments and terminal benefits for the employees including those of teachers. We had sought information on these points specifically through the subsidiary points, but most States have not given the information. States' memoranda to us do not give the position in regard to transfer of powers, authority and responsibility or financial powers devolved on the local bodies to raise resources. The powers of taxation mentioned in the legislation have been made subject not only to the rules, notification, and orders to be issued by the State Government, but also to the procedures and limits to be prescribed ; in quite a few States action is yet to be taken. Study reports on panchayats and municip....
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....y and recommend measures needed for the augmentation of the Consolidated Funds of the States for supplementing the resources of the local bodies. An assessment of the tax and non-tax revenue of the States has already been done earlier in the chapter on the assessment of States' resources. Additional efforts are needed--both at the local and State level--for raising the resources to meet the growing requirements of the local bodies. In our view, the States may take the measures indicated below for augmenting their Consolidated Funds to supplement the resources of panchayats and municipalities: a. Land taxes: In many States, land revenue has either been abolished or land holdings up to a certain size have been exempted. However, taxes on land/farm income in some form may be levied to strengthen the resource base of the local bodies. The rate structure should be fixed suitably keeping in view the present economic conditions. The revision should not be linked to or depend on survey and settlement operations. In the urban areas, similar measures should be taken for revision of the lease rents. The amounts so collected may be passed on to the local bodies for improving and s....
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....ermination of property tax rates and their revision. Indeed, West Bengal has experimented with the institution of Central valuation authority and some other States have initiated reforms in the system of property taxation with provisions for self-assessment, mandatory periodic revision, dispensing with the demand notice for the tax and putting the onus on property owners for timely tax payment, etc. Such measures have yielded good results and need to be pursued by all States in a rationalised manner. Most States have accorded a variety of tax concession/exemption leading to Revenue loss to the local bodies. Arrears of taxes are allowed to accumulate either due to sheer inefficiency or due to delay in assessments and in appeals. Yet another major impediment to the growth of revenue from the property/house tax has been the rent control laws. The property/house tax legislation should be suitably modified to overcome this impediment where the property has been let out, the property tax should be made recoverable from the occupier. b. Octroi/entry tax: Besides the property/house tax, octroi has been the major source of revenue for the municipalities and, in some States, even fo....
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....se grants would be untied except that they should not be used for payment of salaries and wages. We envisage that the measures recommended by us would encourage enhanced economic activities in the rural and urban areas leading to new sets of employment opportunity rather than direct Government employment. 13. Contents of the affidavit of Amitabh Mishra, and documents filed along with it (quoted above) utterly fail to show that amount of "entry tax" in any manner (as pointed out by the apex court in its judgment in the case of jindal Stainless Ltd. [2006]283ITR1(SC) "indicate the quantifiable benefit" to the "trades" scheduled under Section 4 of the Act. The State has failed to discharge the "burden" required for establishing that "levy" under the Act is compensatory--either directly or indirectly. The "data" brought on record by the respondents do not reflect the "levy" as entry tax to be proportionally measurable/quantifiable benefit which may be said to be specially extended to scheduled trades only. The documents filed by the respondents show that certain amount has been allocated for panchayats and local bodies by way of "grant-in-aid" to the local bodies/municipalities by t....
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....erground pipeline. I reiterate in this behalf the averments in paras 16 to 31, 43 and 50 of my affidavit filed on September 13, 2006 in this behalf. Without prejudice thereto, I specifically deny the allegations that crude oil is brought into the local area or into the State of Uttar Pradesh in tankers. As stated, crude oil is entirely brought into the State of Uttar Pradesh through underground pipeline. Without prejudice to the said denial, with regard to petroleum products transported through tankers within the State of Uttar Pradesh, I say that approximately 50 per cent of petroleum products manufactured at Mathura Refinery are exported outside the State of Uttar Pradesh primarily through underground pipeline constructed by the petitioner-corporation for the purpose. With regard to petroleum products transported within the State of Uttar Pradesh, I say that entry tax is separately levied and collected on such petroleum products. The figures in this connection are given in annexure 1 of the said affidavit filed by the State Government. 16. That the deponent states that the entry tax on petroleum products is not the subject-matter of the above writ petition which is confi....
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....es 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, Panchati Raj Institutions and Autonomous Councils. Contention of the petitioners: 16. Heard Sri Shanti Bhushan, Senior Advocate on behalf of the petitioner/ (IOC). S/Sri Ashok Kumar and S.D. Singh, Advocates, appearing for petitioners in some of the connected writ petitions, adopted arguments of Shri Shanti Bhushan. 17. Shri Shanti Bhushan, referred to the "aims and object" as well as the provisions of the Act and pointed out that one finds nothing to infer from that that "tax" under the Act is "compensatory" in nature. He contends that the scheme of the impugned Act reveals that the revenue realised 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 writ petitioners (including others in the Schedule under the Act) who are made to pay additionally--the impugned "tax" vis-a-vis other trades. The "entry tax", therefore, cannot be regarded as compensatory. 18. He also refers t....
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....lised 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 outside the State. The entry tax, in the present case, cannot, therefore, be regarded, according to Mr. Shanti Bhusan, as compensatory. 22. Learned Counsel for the petitioners submitted that entry tax under impugned Act 2000 is not compensatory. It is emphasised that "factual aspect" in the case of "IOC" (and like others), viz., no special/additional facility is provided in lieu of "entry tax". State has not controverted the facts mentioned in its affidavit, e.g. (i) No benefit or facility, whatsoever much less special benefit or facility is provided by the State of U.P. to IOC for transportation and delivery of crude oil on which the entry tax is levied. IOC transports crude oil by the underground pipeline, constructed by IOC at its own cost, after payment of compensation to the land owners. (ii) As against the payment of about Rs. 2,000 crores as entry tax no special facility, whatsoever, has been provided by the State for import of crude oil into ....
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.... i.e., whether the "tax" under the Act, is "compensatory" in nature. Undisputedly it is to be done on the parameters/touchstone laid down by the apex court in the case of Jindal Stainless Ltd. [2006]283ITR1(SC) holding: (a) That "tax" rests upon and has roots running on the lines of "principles of equivalence" (which is converse of the principle of ability to pay) applies to a case of compensatory tax (b) That benefits, under a compensatory tax, are quantifiable and measurable. (c) That it is broadly-proportional and not progressive ; (d) That it is based on the principle of "pay for the value"; (e) That it is based on the concept of recompense/reimbursement; and reimbursement/recompense is in close proximity to the cost incurred by the provider of the services/facilities; and (f) That compensatory tax, compulsorily charged is in proportion to the special benefits derived to defray the cost of regulation or facilities or special advantages provided to the trades in question; (g) That the burden of showing that the tax is compensatory in nature lies on the State. 28. Laying down parameters of compensatory tax, the ape....