TaxTMI 
TaxTMI 
2007 (8) TMI 667
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.... such local area. He has challenged the constitutional validity of the Act of 1999 and the aforesaid notification issued thereunder. Amongst other grounds, the petitioner has challenged the levy being ultra vires article 301 under Chapter XIII of the Constitution of India. It is submitted by learned counsel for the petitioner that the impugned tax on the entry of goods into local area has direct impact on movement of trade from any place to a local area within the State of Rajasthan as it is a levy on entry of its product or movement of its product from any place outside the local area to within the local area where it is to be used, sold or consumed. That being so, it is hit by article 301 of the Constitution. In view of the fact that before enacting the impugned Act the Bill has not been laid before the President for his assent as envisaged under proviso to article 304(b) of the Constitution. Hence, it is not saved from restriction imposed under article 301. He has pressed into service the principle enunciated in (1) Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232. (2) Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406. (3) Jindal ....
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....ke various welfare activities, whereby, trades and businesses are directly and immediately benefited. This petition was first listed for hearing on February 27, 2002 and the matter was dismissed by referring to an earlier decision of this court in Godfrey Philips India Ltd. v. State of Rajasthan [2001] 121 STC 54; [2000] 7 STT 50, which has upheld the validity of the Act of 1999. However, both the decisions of this court in Godfrey Philips India's case [2001] 121 STC 54; [2000] 7 STT 50 as well as in this case, which was dismissed by following the Godfrey India's case [2001] 121 STC 54 (Raj); [2000] 7 STT 50 were challenged before the Supreme Court by way of appeal. Backdrop in which case was remitted back to High Court: It may be noticed here that in the meantime another matter has reached before the apex court arising from the Punjab and Haryana High Court relating to "Haryana Local Area Development Tax Act, 2000": challenge has been laid to the validity of the said Haryana Act on two grounds: firstly, that the Act is violative of article 301 of the Constitution and is not saved by article 304 of Constitution and the Act, in fact, seeks to levy sales tax on inter-St....
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....d dealer or a dealer liable to get himself registered under this Act who brings or causes to be brought into a local area, the goods whether on his own account or on account of his principal or any other person or who takes delivery or is entitled to take delivery of such goods on its entry into a local area." In its order dated September 26, 2004 in the first Jindal case [Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC)], the Supreme Court referred to the principle enunciated in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 that all taxing laws are not excluded from the operation of article 301. The tax laws can and do amount to restrictions on the freedoms guaranteed to trade under Part XIII of the Constitution. Statutes of State Legislature, restrictive of trade can avoid invalidation if they comply with article 304(a) and (b). It was further held that only such taxes as directly and immediately restrict trade would fall within the purview of article 301. However, the prohibition of restrictions on free trade is not an absolute one and that, any restriction in the form of taxes imposed on the carriage of goods or passengers on their movement by the Sta....
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....or providing facilities to the trade and in such event it cannot be considered a law impeding the free movement of trade, commerce or intercourse to fall within article 301 of the Constitution. The working test was approved and applied by the Supreme Court in large number of cases referred to in first Jindal's case [2004] 134 STC 303 (SC). However, the court noticed the discordant note struck on the true scope of aforesaid working test devised in Automobile Transport's case AIR 1962 SC 1406 justifying the compensatory tax to fall beyond the scope of article 301 of the Constitution in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 in which the court had opined that 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 such dealers directly or indirectly the levy cannot be impugned as invalid. The principle stated in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 was reiterated by the Bench of two judges in State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996....
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....s: "Since relevant data do not appear to have been placed before the High Courts, we permit the parties to place them in the concerned writ petitions within two months. The concerned High Courts 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. The judgment in the respective cases shall be placed on record by the concerned parties within a month from the date of the decision in each case pursuant to our direction." Thereafter, another order was made by the Supreme Court on January 23, 2007, which is as under: "So far as the High Courts of Allahabad, Patna, Guwahati and Kerala are concerned, the impugned provisions have been held to be ultra vires by the Allahabad, Guwahati and Kerala High Courts and there has been partial striking down by the Patna High Court. Notwithstanding the pendency of these matters before this court, it shall be open for any concerned State/aggrieved party to question the correctness of the order passed by the High Court in an appropriate proceeding."; and extended the period for decidi....
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....sary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of article 304(b) (see paragraph 35 of the decision in the case of Khyerbari Tea Co. Ltd. v. State of Assam reported in AIR 1964 SC 925). Scope of articles 301, 302 and 304 vis-a-vis compensatory tax: 44.. As stated above, taxing laws are not excluded from the operation of article 301, which means that tax laws can and do amount to restrictions on the freedom guaranteed to trade under Part XIII of the Constitution. This principle is well-settled in the case of Atiabari Tea Co. AIR 1961 SC 232. It is equally important to note that in Atiabari Tea Co. AIR 1961 SC 232, the Supreme Court propounded the doctrine of 'direct and immediate effect'. Therefore, whenever a law is challenged on the ground of violation of article 301, the court has not only to examine the pith and substance of the levy but in addition thereto, the court has to see the effect and the operation of the impugned law on inter-State trade and commerce as well as intraState trade and commerce. 45. When any legislation, whether it would be a ta....
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....n local area for use, sale or consumption and not for mere further transmission to other places. The activity chosen for levy of tax is movement of goods from outside local limits of given local area to within limits of local area. Thus, the octroi directly concerns the free movement of goods and falls within specie of taxes which, if otherwise not shown to be saved from the field of article 301, is impermissible. The levy being subject of State Legislature can fall outside the indiction under article 301 on two grounds. Firstly, if it is compensatory tax in the sense that it is levied to provide certain facilities to the trade to impose regulatory provisions for its better development and growth and the tax collected through such levy is in approximate proportion to cost incurred in providing such services or in implementing regulatory measures, benefit from which is a quantifiable measure, it can be termed as a compensatory tax for facilitating the trade, commerce or intercourse and not for its impediment. In such event it falls outside the purview of article 301. Secondly, if the tax cannot be considered compensatory or regulatory in nature but is part of general revenue amounti....
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....ment of Constitution and even before the Government of India Act, 1935 was enacted, or by erstwhile Indian States where Government of India Act was not in force. When Government of India Act, 1935, a precursor of Indian independence and Constitution, was enacted in 1935, the legislative fields were divided into three categories under Schedule Seven appended thereto. Like legislation scheme under the Constitution, the legislative fields were reserved for Federal Legislature, provincial Legislature and for both commonly called as Federal List, Provincial List and Concurrent List. Entry 49 of List II of Provincial List reads as under: "Cesses on the entry of goods into a local area for consumption, use or sale therein." Said entry 49 of Provincial List under the Act of 1935 corresponds to entry 52 of State List in the Seventh Schedule of the Constitution. Post Constitution, when laws were enacted for constituting institution of local self-governance, like provisions were made in such enactments authorising such authorities to levy and collect taxes on entry of goods in such local areas for which such authorities were constituted. Provision for levy of octroi as compulsory tax....
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....ment for such purposes and subject to such conditions and limits; (c) . . . (d) . . ." From the aforesaid, it is apparent that the State Legislature may either authorise the panchayat or municipality, as the case may, itself to levy, collect and appropriate such taxes for its purposes, or the State Government by itself may levy and collect such taxes, duties, tolls and fees as referred to in respective clause (1) of each articles for the purpose of panchayat or municipalities, as the case may be, and assign the same to them for the purpose for which levy has been made and collected. It is significant to notice that tax authorised under entry 52 of List II of the Seventh Schedule is limited to specified activity on entry of goods into the local area, i.e., for use, consumption or sale therein, which is clearly indicative of the fact that wherever the movement of goods from outside the limit of local area terminates within the local area for the purpose of utilisation of such goods within that local area by way of use, consumption or sale therein, there is direct nexus with the activity of movement of goods and levy of tax on the entry of goods which moves into the local lim....
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....the law framed by the State Government and appropriated by the institution of self-governance or is levied and collected by the State Government and assigned to the concerned institution of selfgovernance of the concerned local area it would not alter the nature of such tax nor the status of the tax vis-a-vis article 301. Some decisions: There is a high authority pronouncing that effect of levy of tax on entry of goods into local area for its use, consumption or sale therein, the duty known as octroi has a pernicious evil influence on the free movement of trade, commerce or intercourse and falls within the ambit of article 301. Punjab Flour and General Mills Co. Ltd., Lahore v. Chief Officer, Corporation of the City of Lahore and the Province of the Punjab AIR 1947 FC 14: A contention was raised in Punjab Flour and General Mills Co. Ltd., Lahore v. Chief Officer, Corporation of the City of Lahore and the Province of the Punjab AIR 1947 FC 14, that imposition of octroi (without refunds) on import of wheat among other grains within municipal limits as notified by municipality of Lahore vide Punjab Government Gazette dated February 6, 1940 was beyond jurisdiction of provincia....
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....atures of the cesses referred to in entry No. 49 of List II are, on the other hand, simply (a) the entry of goods into a definite local area and (b) the requirement that the goods should enter for the purpose of consumption, use or sale therein. It is to be noted that there is no limitation on the manner by which the goods to be subjected to such cesses may enter . . ." The taxes leviable under entry 49 of List II, now under entry 52 of the Seventh Schedule of the Constitution, is subject of local taxation for the purpose of local governance. Before noticing decisions of the Supreme Court, we may refer to two vintage Bench decisions of the Rajasthan High Court on the issue. Gauri Shanker v. Municipal Board, Jhunjhunu AIR 1958 Raj 192: Levy of tax on entry of goods within local area for use, sale or consumption under section 59 of the Rajasthan Town Municipalities Act, 1951, had been subject-matter of challenge before this court in Gauri Shanker v. Municipal Board, Jhunjhunu AIR 1958 Raj 192, inter alia, on the ground that it being a duty on movement of goods within municipal limits results in impediment on free movement of trade and impinges upon article 301 of the ....
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....uthority was not applicable. From the two-Bench decisions of this court, it is apparent that levy of taxes in terms of entry 52 of the State List of the Seventh Schedule of the Constitution or for that matter entry 49 of List II of the Seventh Schedule of the Government of India Act, 1935 is a restriction on movement of goods which directly impedes the freedom of trade, commerce or intercourse throughout the territory of India and falls within the mischief of article 301 of the Constitution. It was also found that levy of octroi can be saved from being violative of article 301 if it can be found to be reasonable restriction on such freedom. But, the law by the State Legislature must be framed in accordance with the provisions of article 304. Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906: In this connection, we may notice Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906. In this case, the court had occasion to examine the nature of octroi in connection with issue raised about the validity of charging octroi from the appellant before the ....
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..... At first octrois were collected at ports but being highly productive, towns began to collect them by creating octroi limits. They came to be known as "town duties". These were collected not only on "imports" but also on "exports". The court referred to Beuhler's: Public Finance (3rd Edition) and Grice's National and Local Finance to point out that these duties were known as "ingate tolls" because they were collected at toll gates or barriers. Normally, they were levied on goods meant for consumption but in Seligman's Encyclopaedia of Social Sciences "octrois" are described without any reference to consumption or use as under: "As compared with the facilities of the National Government the possibilities of raising revenue by local bodies are quite limited. All forms of indirect taxation are practically closed to local authorities. They are unable to levy customs duties, although they may collect the so-called octrois, that is, duties levied on goods entering town." In the aforesaid light, the court found that until the Government of India Act, 1935 came into force terminal tax, which was also a tax on entry of goods but without reference to its use, consumptio....
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....thin the legislative field of Federal Government, which reads as under: "Terminal taxes goods or passengers carried by railway or air." Corresponding entry in Constitution is to be found at entry 89 in List I of the Seventh Schedule. Whereas, the tax on entry of goods within the local area for use, consumption or sale therein was reserved for provincial Legislature under entry 49, List II of the Seventh Schedule appended to Government of India Act, 1935, which read: "Cesses on the entry of goods into a local area for consumption, use or sale." The another important factor which was noticed by the court was that octroi to be collected by the authority governing the local area to appropriate the same for its own purpose and terminal tax collected were to be distributed amongst the provinces. In other words, revenue by tax collection as octroi on entry of goods into a local area for use, consumption or sale therein remains the part of the fund of institution governing the local area, the terminal tax which was levied and collected under the Central enactment became a revenue of the State. Summary of principles culled out in first Jindal's case [2004] 134 S....
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.... tax, is not compensatory. However, motor vehicles tax is a typical instance of compensatory tax because, in substance, it is a tax imposed for the use of roads in the State and the tax enables the State to provide and maintain roads. (5) It is of the essence of compensatory tax that the service rendered or facility provided should be more or less commensurate with the tax levied. (6) A tax does not cease to be compensatory in nature merely because the precise or specific amount collected is not actually used in providing the facilities. However, the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy is necessary to uphold a regulatory and compensatory tax. (7) The expenditure for providing the facilities may be met from other sources. (8) The actual use of the facility by the tradesmen who are subject to the tax is immaterial." It needs hardly to be reminded that the view opposite to above in relation to paras 5 and 6, as propounded in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136 had been spec....
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....e of Karnataka AIR 1983 SC 1283; [1984] Supp. SCC 326-Entry tax has pernicious effect on free movement of trade: With this background, it is apposite to notice that while considering the levy of enhanced tax on passenger transport vehicle levied by State of Karnataka under entry No. 56 of the Seventh Schedule of the State List to compensate the loss of revenue on account of abolition of octroi, the principle was stated by the Supreme Court in Mrs. Meennakshi Alias Rama Bai v. State of Karnataka AIR 1983 SC 1283; [1984] Supp. SCC 326: ". . . Every local body from municipal corporation to gram panchayat in every State enjoys the power to levy octroi. A goods vehicle or a passenger vehicle will have to pass through different areas under the jurisdiction of various local authorities. If at every octroi station, the goods vehicles or the passenger vehicle is stopped and enquiry made or octroi either collected or deposit insisted upon with a right to claim refund, one has to experience through this agonising journey to appreciate what a pernicious influence octroi had on transport of goods and passengers . . . One can take judicial notice of a universal demand for abolition of octr....
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.... tax on passenger transport vehicle after abolition of octroi for compensating the loss of revenue through different type of tax. Levy of different type of tax to recoup the loss of revenue due to abolition of octroi, and assignment of funds to institutions of local governance for discharging the function as local authority was held to be compensatory in nature because the basic evil of tax on entry of goods in local area for consumption, use or sale therein under entry 52 of the State List, which was found impeding free movement of trade, commerce or intercourse throughout the territory of India had been abolished and the new tax was not of the same nature under same authority. But in the present case instead of abolishing the levy of octroi only the agency of levying the tax and collecting the same has been substituted, i.e., instead of institution of local self-Government, municipality or panchayats, etc., the State Government itself has become the charging and collecting agent for the purpose of assigning funds amongst the various local authorities from the respective area of which the taxes under the Act has been levied and collected. Whether the distribution amongst the....
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....itution. The fact remains that nature of tax on entry of goods within the local area for consumption, use or sale was found to be having no element of quid pro quo having any nexus with any identifiable services rendered by the municipal council, but was considered to be part of the general revenue generated as municipal fund for its own purpose with no corresponding duty to be provided to the tax-payer. Before proceeding to examine the principles laid down by the Supreme Court while laying down the test to find out whether the impugned law falls within the ambit of restriction on the limits of the law-making authority, particularly vis-a-vis the taxing statute, it has to be kept in view that the scheme of levy in each case is the determinate factor, to find an answer and in determining the true nature of the levy in question and nature of levy/ levies under statutes falling in different legislative fields which have come under judicial scrutiny may not afford in every case a comparable parallel, but do provide light. Atiabari's case AIR 1961 SC 232: In Atiabari Tea Co.'s case AIR 1961 SC 232, the court was considering the imposition of tax by the Assam Legi....
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....f taxation per se is outside the purview of any Constitutional limitations. The power of Parliament and the Legislatures of the States to make laws including laws imposing taxes is subject to the provisions of the Constitution and that must bring in the application of the provisions of Part XIII. Therefore, the argument based on the theory that tax laws are governed by the provisions of Part XII alone cannot be accepted." It was further said that: "Article 301, read in its proper context and subject to the limitations prescribed by the other relevant articles in Part XIII, must be regarded as imposing a Constitutional limitation on the legislative power of Parliament and the Legislatures of the States. Wherever, it is held that article 301 applies the legislative competence of the Legislature in question will have to be judged in the light of the relevant articles of Part XIII. Article 301 applies not only to inter-State trade, commerce and intercourse but also to intra-State trade, commerce and intercourse." The court while accepting that the freedom of trade guaranteed under article 301 is freedom from all restrictions except those which are provided by the other a....
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....in the ambit of article 301 of the Constitution, is reasonable or not? The other condition, which is also necessary in case a tax imposed is on import of goods from outside the State to within the State that it must be a non-discriminatory tax in the sense that like goods manufactured in the State must also suffer the same tax in terms of clause (a) of article 304. This part of the above consideration is not germane for the present purposes inasmuch as the levy in question is not the levy on import of goods from outside the State within the State but is on the movement of goods into the local area. Whether through intra-State movement of goods or through inter-State movement of goods is immaterial, but levy is directly on the movement of the goods within the local limits of the local area for the purpose of goods staying in the local area either for consumption or sale or use. Therefore, the activity which is chosen for the levy of tax in the present case is directly the movement of goods and has direct nexus with the restrictions imposed by way of imposing tax. The working test that levy of tax must have a direct and immediate nexus on the impediment on free movement of the goo....
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....d free movement of trade, commerce or intercourse instead of impeding the same. Such taxation is outside the purview of article 301. For the purpose of determining whether the tax is compensatory in nature in the sense stated above, the object of levy of tax has to provide facilities and to regulate trade and commerce and levy with that object must also satisfy that tax is collected for such object and the amount that is spent by the State for providing such facilities for the development of trade, commerce or intercourse must have proportionality on the principle of quid pro quo. Otherwise, it would be hit by article 301 of the Constitution. In case by providing facilities for betterment of trade, commerce or intercourse cost is recovered, it is no impediment so as to invite attention of article 301 or Part XIII at all. But, if the levy is by way of imposition for raising general revenue and has a direct impact on the free movement of trade, commerce or intercourse, it falls within the ambit of article 301 and can be saved only if it is made in accordance with the provisions of article 304(b), where the enactment is made by the State Legislature. Referring to the Traffic Reg....
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....ercourse. The court said: ". . . 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 . . ." With this conclusion, the court said: ". . . The taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in a good state of repairs . . ." Thus, working test of proportionality of tax collected with the money spent in providing facilities for betterment of trade which could be availed by the traders was accepted as a touchstone on the anvil of which the tax could be considered compensatory falling outside the purview of article 301 or regulatory, burdening the trade falling within the ambit of article 301 of the Constitution requiring an inquiry into the reasonableness of restriction in terms of article 304 to be saved from being ultra vires. The question that comes to forefront is what tax can be called as compensatory or regulatory in nature....
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....ning of the trade or commerce. It is in the latter class of the cases, where the levy is with a purpose that question of compensatory nature of tax arises in the sense that whether there is a proportionality between tax collected and the amount spent for the purpose for which the tax is levied vis-a-vis providing facilities to trade and commerce. If the income and outgoing are approximately in proportion to each other the working test of quid pro quo is satisfied. If that ratio is not maintained, the tax cannot be considered to be compensatory for benefit of trade and commerce. Obviously, this proposition as working test is applied in cases where taxes are directly imposed for the purpose of providing specific or general services directed to the trade or commerce. But in case such tax is imposed for augmenting general revenue, which may be called generally in public interest, as noticed above, cannot be termed compensatory tax. It will here be apposite to refer to the following principle stated in the majority judgment delivered by Justice S.K. Das: ". . . It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades peo....
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....de by Chief Justice in Armstrong v. State of Victoria [1957] 99 CLR 28 and in Common Wealth Freighters Proprietory Limited v. Sneddon [1959] 102 CLR 280. The two cases directly considered the imposition of tax on trade vis-a-vis hindrance on the freedom of trade, commerce and intercourse, under laws framed under Constitution of State of Victoria and New South Wales, respectively. In Armstrong's case [1957] 99 CLR 28, the High Court of Australia was concerned with the provisions imposing a charge at the rate prescribed in the Schedule on owners of certain vehicles having more than a specified load capacity to pay towards compensation for wear and tear caused to public highways in Victoria. Section 92 of the Constitution of Australia is couched in somewhat same terms as article 301 of Indian Constitution. The contention has been raised that levy at the aforesaid rate impaired the freedom of trade, commerce and intercourse violating section 92 of the Constitution of Victoria, hence law imposing aforesaid rate under the Commercial Goods Vehicles Act, 1955 was beyond the legislative competence of the Parliament. In other words, the tax was imposed directly towards wear and ....
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.... 301 merely on the general principle that a tax is levied for the benefit of public good or in public interest. If that were so, all taxes would fall beyond the ambit of article 301. Such taxes imposed to augment general revenue of the State, which does not have direct nexus with free movement of trade and commerce, but burden all in equal measure are beyond the pale of article 301. However, the court has simultaneously rejected as a general proposition that taxing statute within legislative field of a legislating authority in terms of division of legislative fields in the Seventh Schedule by competent Legislature are outside the purview of article 301. It is only where the levy is directly on activity affecting movement of trade and commerce that it can be considered as burden or restriction on freedom of trade, commerce or intercourse. But the same is for the purpose of providing facilities for the smooth movement of trade and commerce or for the development of trade and commerce and only when the tax is by way of reimbursement of expenses incurred for providing such facilities that the tax can be said to be compensatory in nature, will still be away from the province of ar....
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....fits 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." Thus, it must now be taken to be firmly settled that in order to qualify for the classification under category of compensatory or regulatory tax it must be levied as a recompense or reimbursement of special identifiable benefit provided or making specific regulatory provision benefit from which can be gauged in quantifiable measure for some special advantage to trade, commerce and intercourse and not merely an incidental advantage flowing to trade and commerce as a result of general activity of governance by a welfare government without reference to extension of some special advantage or benefit extended to trade, commerce or intercourse for reimbursing itself of the cost defrayed. The impugned Act: Therefore, the first question to be addressed in this regard is whether the tax sought to be imposed is for the purpose of providing certain facilities or benefits to the trade or commerce or for regulati....
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....goods will be notified. However, a provision has been incorporated vide clause (3) of the Bill that the rate of entry tax shall not exceed ten per cent of the value of goods. (6) All the dealers with a turnover in taxable goods exceeding Rs. one lac shall be required to be registered as dealer. They shall be required to file returns indicating details of the taxable goods brought in or caused to be brought in a particular local area. The assessing authorities as notified by the State Government will assess the dealers and the latter will be required to deposit entry tax on a regular basis. Provisions are also being incorporated for summary assessment and payment of tax in advance. The State Government will have powers to exempt or reduce tax along with interest in cases where it seems appropriate. It will be mandatory on the part of the dealers to maintain accounts and issue sale bill, memo or invoices. The officers of the Commercial Taxes Department will have powers to enter the premises and inspect and seize the documents, if required, in connection with the provisions of the Act. (7) This Bill seeks to achieve the aforesaid objectives. Hence, the Bill." If the afores....
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....local area and who brings or causes to be brought such goods liable to tax into a local area or takes delivery or is entitled to take delivery of such goods, the aggregate value of which is not less than one lac rupees in a year, is required to get himself registered under the Act on payment of such fee and within such period as may be prescribed and such registration shall remain in force until the same is cancelled. Apart from a dealer regularly doing business within the local area, every dealer undertaking execution of works contract involving the use or consumption of goods entering into a local area; or every dealer not ordinarily resident of a local area; or every manager or agent of a dealer not ordinarily resident of a local area; other than a dealer dealing exclusively in the goods as may be specified; or every lessor or lessee, who brings or causes to be brought goods into a local area is required to get himself registered irrespective of the value of his annual turnover of goods brought into a local area. On the perusal of the aforesaid, it is apparent that notwithstanding what is said in section 3, levy is on the entry of goods in each local area for use, consumpt....
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....ts. While rule 10 speaks of one annual return, rule 11 requires a dealer to submit consolidated returns of all business in different local areas. He is not only required to submit return of aggregate turnover of the business from the principal place of business, but he is also required to submit annual return of the total turnover of the business to various assessing authorities of the areas in which his business is situated. The fact that Commissioner has been given the discretion to give exemption from the operation of this provision for filing return of each branch separately does not detract from the fact that, but for exemption from Commissioner in his discretion, a dealer is not only required to furnish multiple returns in respect of entry of goods in different local areas on the basis of happening of taxing events but is required to file a consolidated return at principal place of business, even if no taxable event takes place thereon and he may not be liable to pay tax in respect of any transaction happening at the principal place of business. Multiple returns is the rule. These provisions taken together make it abundantly clear that notwithstanding above provision ma....
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....the Bill, we find nothing supportive of the contention that the tax is levied and collected for reimbursing the State Government for specific identifiable benefits conferred on trade and commerce for the smooth running of business or for implementing regulatory measures in quantifiable measure for development and growth of trade and commerce as a primary concern. In this connection it will not be out of place to mention here that it has been argued that octroi has been abolished and replaced by entry tax making procedure of levy and collection of tax less cumbersome, which otherwise was found to be so on account of various check-posts through which the goods were entering into the local area and the vehicles to be kept stationary. However, this contention is also not well founded in view of the clear provision made under section 31 of the Act, which reads as under: "With a view to prevent or check evasion of tax under this Act, check-posts or barriers or both, as the case may be, established or erected under the provisions of the Rajasthan Sales Tax Act, 1994 shall be recognised for the purpose of this Act." Thus, section 78 of the Rajasthan Sales Tax Act, 1994 has been in....
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.... who, in the course of occasional transactions of business nature falls in the category of "dealer" as aforesaid, in the matter of taking delivery of the goods on its entry into local area. "Local area" under section 2(j) means the area within the limits of a Panchayat established under the Rajasthan Panchayati Raj Act, 1994 or a Municipality established under the Rajasthan Municipalities Act, 1959 or a notified area committee or a cantonment board constituted or established under any law for the time being in force. Thus, every area delimited by notification under the administration of panchayat, municipality, notified area committee or cantonment board has been defined as an independent local area and entry of goods therein for use, consumption or sale therein has been subjected to tax in the hands of dealer, who becomes entitled to take delivery of such goods on entry of such goods in the concerned local area in the course of his business. Apparently, levy is on the movement of goods into a local area. The charge becomes eminent on entry when a "dealer", as defined under the Act, becomes entitled to take delivery of the goods within the local area and unless the goods are ....
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....still holds the field. We are unable to accept this contention, firstly on appeal against the aforesaid judgment, the matter has been remanded to this court for redetermining the issue whether the tax in question is regulatory or compensatory. Therefore, the judgment cannot now be held as a binding precedent any more. Moreover, the decision of this court in Godfrey India's case [2001] 121 STC 54; [2000] 7 STT 50 for the purpose of holding the impugned enactment to be compensatory and regulatory in nature is founded on the widened principle enunciated by the Supreme Court in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136, which have been overruled by the Supreme Court in Jindal's case [2006] 145 STC 544 (SC). In view of the aforesaid, the very foundation of the decision having been upset by the Supreme Court, the said decision as such cannot be considered to be binding precedent for holding the impugned enactment as a taxing statute levying compensatory tax. The Division Bench has specifically applied the test for holding the impugned tax to be compensato....
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....gh the challenge was to the levy of entry tax in the case of Hansa Corporation [1980] 4 SCC 697, the issue whether the tax was compensatory in nature was expressly left open. It was observed in Hansa Corporation's case [1980] 4 SCC 697 that: "The State did not attempt in the High Court to sustain the validity of the impugned tax law on the submission that it was compensatory in character. No attempt was made to establish that the dealers in Scheduled goods in a local area would be availing of municipal services and municipal services can be efficiently rendered if the municipality, charged with a duty to render services, has enough and adequate funds and that the impugned tax was a measure for compensating the municipalities for the loss of revenue or for augmenting its finances. As such a stand was not taken, it is not necessary for us to examine whether the tax is compensatory in character." The apex court found that there is nothing in Hansa Corporation's case [1980] 4 SCC 697 which seems to support the proposition enunciated in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 or for that matter Bihar Chamber of Commerce's case ....
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....for deciding the matter before it in light of the Constitutional Bench decision, the State Government has taken the stand in its written submission along with additional affidavit that: "5. That in the State of Rajasthan levy of octroi has already been abolished which occasioned financial crunch, and compelled the State Legislature, to pass Act No. 13 of 1999, to compensate the loss suffered by State Government, authorising it under section 3 of the said Act, to collect tax on entry of any goods brought into a local area, for consumption, use or sale therein." Thus, the compensatory nature of tax as per the respondent-State is founded not for the purpose of providing any specific facility by the State or through its agency to trade, commerce or intercourse and to reimburse itself of the expenses incurred in that behalf but to fund the municipalities or the other local authorities on account of abolition of octroi to be levied and collected by such authorities in terms of various enactments to which we have alluded to above but has decided itself to levy and collect the octroi in the condensed name of tax on entry of goods into local area for use, sale or consumption therein. ....
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.... However, without going into the details of the amount spent, it is enough to notice that the amount spent on maintaining the street lights, cleanliness and sanitation within local area and works of general development (construction and maintenance), which is otherwise done by the P.W.D. of the State Department or town planning and urban improvement authorities like JDA or UIT set up under Urban Improvement Act or by Municipalities, is an essential discharge of function by the State Government and can hardly be said to be a tax levied for the purpose of providing any specific facility provided to trade and commerce or imposing regulatory measures for the smooth running of trade, commerce or intercourse within the local area or within the State of Rajasthan. So also, the amount spent for upkeeping and maintaining fire brigade is the function of the local authority and is a part of general administrative function of the local area directly for being prepared to meet the challenges of unforeseen accidents due to fire and not for the purpose of providing such facilities primarily to trade and commerce. But is part of ordinary obligation of local administration. Incidental benefit flowi....
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.... roads, drainage, underground sewerage lines, etc. To illustrate, section 98 of the Rajasthan Municipalities Act, 1959 refers to primary and secondary functions of Municipality, defined as one of the local areas under the Act. All functions attributed to Municipality are of general character for every citizen by way of keeping the city clean and free from nuisance. It delineates its primary functions as under: "Section 98. Duties of the Board.-It shall be the duty of every Board to make reasonable provision for the following matters within the municipality under its authority, namely: (a) lighting public streets, places and buildings; (b) watering public streets and places; (c) cleaning public streets, places and sewers, and all spaces, not being private property, which are open to the enjoyment of the public, whether such spaces are vested in the Board or not, removing noxious vegetation and abating all public nuisances; (d) removing filth, rubbish, night-soil, odour, or any other noxious or offensive matter from privies, latrines, urinals, cesspools or other common receptacles for such matters in or pertaining to a building or buildings; (e) extinguishing fires ....
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....ovisions shows that no part of the functions to be discharged by the municipality is to provide facilities or benefit to trade or commerce and that is not the object for which the levy is collected. Even clause (f) is in furtherance of Municipality's function generally mentioned in clause (c) in removing noxious vegetation and abating all public nuisances. Regulation of offensive and dangerous trade is also in furtherance of the same object, viz., to provide safety for citizens from public nuisance. Moreover, nothing has been stated or suggested that levy of tax in question is only or mainly with reference to above object and that money collected through the impugned levy is spent in providing regulatory services to that effect only or mainly. Nothing has been stated in the additional affidavit or written submissions or in statistics furnished by respondents to link the imposition and collection of tax under the Act of 1999 with anyone or more objects specified in Schedule XII of the Constitution nor there is a whisper in the entire submissions about spending any sum for providing specified benefit or facility to trade or commerce in any quantifiable measure with refer....
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....providing specific identifiable benefit to the trade, commerce or intercourse upon whom the tax is to be levied is lacking. The levy is also not for implementing regulations or imposing regulations for the general development of trade, commerce or intercourse, so as to further invoke and probe into the question of equivalence of money spent and collection of tax. From the material submitted by the respondents, there is no connection with the collection of tax under the impugned Act and the assignment of the funds to the various local authorities and even to sustain the contention that the tax in the field governed by entry 52 of the State List was levied for compensating the different local areas for loss of their revenue on account of abolition of octroi. In fact imposition of tax under the Act of 1999 belies the statement that octroi has been abolished. The impact of the notification dated July 31, 1998 was not to abrogate the provisions of the Municipalities Act or the Panchayat Act, to which we have made reference earlier, and which authorises levy and collection of octroi by such local authorities but only the notification prescribing rates at which the municipal corporatio....
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....) of article 304 has no operation in the present case. Admittedly, law has not been enacted after complying with the directive of article 304(b). Therefore, it is in breach of article 301 and not saved. We find from the judgment of the Supreme Court that other High Courts, namely: (i) Allahabad High Court in Indian Oil Corporation Limited v. State of Uttar Pradesh [2007] 10 VST 282 (All), (ii) Patna High Court in Harinagar Sugar Mills Limited v. State of Bihar [2007] 10 VST 140 (Patna), (iii) Guwahati High Court in ITC Limited v. State of Assam [2007] 9 VST 250 (Gauhati) and (iv) Kerala High Court in India Gateway Terminal (Pvt.) Ltd. v. Intelligence Officer(1) and Jharkhand High Court in Tata Iron & Steel Company Ltd. v. State of Jharkhand [W.P. (T) No. 5354 of 2004(2)] have also taken same view on examining the tax on entry of goods into local area for consumption, use or sale therein to be levied and collected on account of abolition of octroi by the respective local authorities in terms of legislative enactments made by the respective States. Since the Supreme Court has directed to reach independent conclusions irrespective of those judgments, we are refraining ourselves fro....
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....an be saved only if State legislation is enacted under article 304 of the Constitution. Since, it is not a tax on import of goods from outside the State, the question of considering levy of tax, which does not discriminate between the goods imported from outside the State and locally produced goods within State, does not aptly apply to the tax in question and, therefore, it cannot be invoked for the purpose of saving on its own force from the purview of article 301 of the Constitution. As a matter of fact clause (a) of article 304 cannot be read in isolation but is a part of scheme envisaged under article 303 which places restriction on legislative power of both, Parliament and State Legislature, to enact laws authorising the giving of any preference to one State over another or making or authorising making of any discrimination between one State over another by virtue of any entry relating to trade or commerce in any of the List in the Seventh Schedule. Having imposed such absolute restriction on legislative powers of Parliament and State Legislatures, the clause (a) of article 304, saves such taxes on import of goods to one State from another where tax imposed on ....
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.... consumption, use or sale therein is a tax on movement of goods directly from outside to within the local limits and it has a pernicious influence on the free movement of trade, commerce or intercourse and the tax being not regulatory or compensatory in nature, results in restriction on free movement of trade, commerce or intercourse. Consequently, the restriction imposed by the taxing statute can be considered reasonable restriction on such freedom in terms of article 304(b). However, for examining the reasonableness of restriction imposed on freedom of trade, commerce or intercourse throughout the India by State legislation, the Bill must have received the assent of the President before it is introduced for being enacted. That procedure having not been followed, apparently it was incompetent for the State Legislature to impose such tax, which has resulted aforesaid in view of article 301 read with article 304 of the Constitution. We have noticed above such limitations on legislative competence flows not from want of a legislative field reserved for State Legislature under the Seventh Schedule, but because of provisions contained in Part XIII of the Constitution. We are, ....