AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2007 (7) TMI 600
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....er of Sales Tax [1995] 96 STC 654; [1995] Supp. 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1; AIR 1996 SC 2344, wherein it was held that in order to establish the tax as compensatory, some connection between the tax and the trading facilities extended to the dealers directly or indirectly is sufficient to characterise it as compensatory tax. The judgment of the Division Bench is R. Gundhi v. Union of India reported in [1997] 3 CTC 255. Special leave petitions were filed in the Supreme Court against the Division Bench judgment and those special leave petitions and certain connected matters were referred to a Larger Bench by order dated September 26, 2003 as the Bench hearing the matters doubted the correctness of the view expressed in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and Bihar Chamber of Commerce [1996] 103 STC 1 (SC); AIR 1996 SC 2344. The matters were dealt with by the Constitution Bench in Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and the Bench concluded that the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram case [19....
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....e provided to the payers. It was submitted that the essence of compensatory tax is that the services rendered or facilities provided should be more or less commensurate with the tax levied and tax should not be patently more than what was required to provide trading facilities. It was submitted that the tax imposed for augmenting general revenue of the State is not compensatory; that any tax law, which is designed or which has the effect of disrupting the trade movement in inter-State trade and commerce between States is contrary to the concept of freedom of trade embodied in article 301 of the Constitution. It was urged that as seen from the Statement of Objects and Reasons of the Act, the Act has been enacted to curb the evasion of sales tax on the sale of motor vehicles which are purchased outside the State and brought into this State and the State has not discharged the burden to prove that the tax levied and collected under the impugned Act is for the purpose of providing trade facilities. It was submitted that entry 52, List II, indicates that the levy contemplated therein is on the entry of goods into the local area for consumption, use or sale therein. Therefore, if levy of....
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....yana [2006] 145 STC 544 (SC); [2006] 7 SCC 241 concluded as follows (paras 49 and 50 in STC; paras 52 and 53 in SCC): "Conclusion: 49. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 followed by the judgment in the case of Bihar Chamber of Commerce case [1996] 103 STC 1 (SC); AIR 1996 SC 2344 was well founded. 50. 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 AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide para 19 of the report, will continue to apply and the test of 'some connection' indicated in para 8 (of SCC) (page 658 of STC) of the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and followed in State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 is, in our opinion, not good la....
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....tory 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/recompense for the quantifiable/measurable benefit provided or to be provided to its payer(s). As soon as it is shown that the Act invades freedom of trade it is necessary 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: para 35 of (AIR) the decision in 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 princ....
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.... down in Jindal's case [2006] 145 STC 544 (SC); [2006] 7 SCC 241, we shall now proceed to examine whether the tax levied under the impugned Act is compensatory or not. The preamble of the Act states that the Act is to provide for the levy of tax on entry of motor vehicles into local areas either for use or sale therein. The Statement of Objects and Reasons attached to the Bill introduced in the Legislative Assembly in respect of the Act was as under: "In order to curb the evasion of sales tax on the sale of motor vehicles which are purchased outside the State and brought into this State, the Government have decided to levy tax on entry of motor vehicles into local areas of this State either for use or sale therein which is liable for registration in the State under the Motor Vehicles Act, 1988 (Central Act 59 of 1988). It has also been decided not to levy the tax in respect of vehicles registered in the Union Territory or in other States fifteen months prior to registration in the State and necessary provision has been provided for. In the case of dealers, entry tax shall be leviable on the entry of motor vehicles and the tax paid by them shall be adjusted with the tax payable....
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.... 272.52 2002-03 324.01 700 1024.01 539.19 484.82 2003-04 388.91 1000 1388.91 657.44 731.47 2004-05 519.21 1028 1541.21 1196.51 350. 7 2005-06 655.67 1131 1786.67 1825.48 -38.81 It was stated that apart from the overall expenditure made, certain significant and important expenditure incurred by the State is in respect of special repairs programme, coastal road improvement programme, east coast road and sugarcane road development programme and various other works of improvement of road undertaken under the flood relief works and the tribal area development programme. It was stated that the cost of maintenance of roads is increasing every year in view of (a) high cost of materials, (b) increase in wage structures and (c) allowances for mazdoors working on road maintenance. It was stated that substantial amounts have been spent on the construction and maintenance of roads and bridges. It is stated that part II schemes framed by the State Government relate to construction of bridges. Apart from that, there are several other schemes under which the State has incurred substantial expenses for the construction and maintenance of roads. The short question is....
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....extracted below: " 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." As per the Statement of Objects and Reasons, the Act has been enacted with a view to curb the tax evasion and the tax recovered under the impugned enactment is liable to be adjusted with the general sales tax payable under the Tamil Nadu General Sales Tax Act, 1959. The additional counter of the State merely gives the statistics with regard to the total cost of building of roads and bridges and on the maintenance of roads that is incurred from year to year by the State. This expenditure only represents the expen....