AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2007 (10) TMI 573
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....Ms. Vani, learned counsel for the appellant, filed a memo requesting this court to treat the application I.A. II/06, for production of additional documents, as having been filed in this appeal. The said application is opposed by the State Government by filing objections placing strong reliance upon the objects and reasons of the amended Act introduced by Act No. 27 of 1979 which has obtained the Presidential assent as required and is not hit by article 304(b) of the Constitution. On behalf of the appellant Sri Sarangan, learned Senior Counsel, invited our attention to various decisions including the Constitution Bench decision reported in Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 in support of his contention that the concept of "compensatory tax" is not there in the Constitution but is judicially evolved by the decision of the Supreme Court in the case of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 as part of regulatory charge and further tax is levied as a part of common burden. The basis for imposing a tax is the ability or capacity of the taxpayer to pay and further the principle laid down in the said case to the effect that p....
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....de solely intended to protect the local or regional interest the same would jeopardize the free movement and exchange of goods throughout the territory of India and therefore the same is hit by article 301 of the Constitution of India. He, further contended that there is nothing either in the provision of the Act or in the notifications to show that even remotely the impugned levy either viciously or patently indicate the benefits to the taxpayers which are measurable or quantifiable. Therefore the impugned levy is not "compensatory levy or compensatory tax". He has elaborated his submission contending that there is no nexus between service being provided, in any event it does not commensurate with the tax levied and further submitted that criteria for levy of entry tax being based on the value of the goods imported into the State is per se contrary to the concept of "compensatory levy". Such a levy ex facie impeded the interest of trade and commerce including the goods imported for use within the State and for the benefit of the residents of the State and therefore the impugned provisions of the Act to levy tax are patently violative of article 301 of the Constitution of India. W....
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.... KTEG Act, which is not only arbitrary but also unreasonable. He has further submitted that under the statutes referred to supra the levy of same tax is unreasonable and unjustifiable. Therefore it is contended that the materials produced by the appellant would establish that the compensatory tax is not utilised for the purpose for which it is collected on the basis of quid pro quo. Further the amount collected by the State Government under the provisions of section 3 of the Act and allocation of the same to various local bodies certainly is not in the ratio of the developmental works carried on for the betterment of neither the appellant nor the traders' community. Therefore, the levy of compensatory tax under section 3 upon the goods entered into the Karnataka State is arbitrary and unreasonable. In support of his contention additional documents are produced along with I.A. II/2006. Annexure A-2 is the statement of expenditure incurred on public utilities in Manipal town giving particulars of area of work, name of the work, etc. and the same is extracted hereunder to appreciate the factual and legal contention urged on behalf of the appellant: The learned Senior Cou....
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.... local bodies' salary payments and for other developmental charges. After receipt of the funds from the State Finance Commission the respective local bodies spend that amount for providing services/facilities to the public. The statement showing octroi and State Finance Commission grant received from the State Government by each of the local body, namely, Mangalore, Mahanagarapalike, the expenditure incurred therein on the development of water supply is at annexure R7. The statement of objects and reasons of the KTEG Act for inserting charging section 3 as compensatory tax is stated at para 9 of the statement filed by the State, which will be extracted in the reasoning portion of this judgment. It is submitted that the impugned levy was made to compensate the loss suffered by the local bodies by abolition of octroi. This modest impost is levied on entry of goods into local area for augmenting further finances to the municipalities to compensate the loss suffered by abolition of octroi in public interest. Further the learned Advocate-General placed strong reliance upon the memo filed by the State Government producing documents, annexure R8, statement of entry tax collection fo....
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....9; AIR 1961 SC 232 is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304(b) of the Constitution. . . . 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 impossible to judge the compensatory nature of a tax by a meticulous test and in the nature of things that cannot be done." On the basis of the statistics in annexures R1 to R14 and also the decision of the Supreme Court in Atiabari Tea Co. referred to AIR 1961 SC 232 and also Automobile Transport (Rajasthan) Ltd.'s case AIR 1962 SC 1406, which decisions are referred to in the Constitution Bench decision in Jindal Stainless Ltd.'s case [2006] 145 STC 544 the learned Advocate-General requested this court to answer the ....
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....e 301 of the Constitution of India. Further levy of tax by notification at the relevant time was not discriminatory in character as envisaged by article 304(a), the restrictions imposed were reasonable and in public interest. The Act subsequently having received the assent of the President, the provision to article 304(b) was complied with and therefore the Act was not violative of article 301 of the Constitution. In the light of the aforesaid decision of the Supreme Court, namely, Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406, Hansa Corporation AIR 1981 SC 463, Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC); [2003] 1 RC 728; [2003] 8 SCC 60 the learned Advocate-General rightly invited our attention to the statement of objects in enacting the KTEG Act after abolition of the octroi in the State which reads thus: "Octroi abolished in the State as it was causing great hardship to transport operators and trading community. The abolition of octroi which is being levied and collected by the local authorities will result in considerable loss of revenue to them. The State Government will have to make up the loss of revenue. It is therefore considered necessary to....
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.... period 1986-87 to 1997-98 in Mangalore District is Rs. 5,413.85 lakhs. Annexure R4 shows the total devolution of funds from the State Government to the Urban Local Bodies. Under the head of account budget, provisions are mentioned including the compensatory grants to municipalities, grant out of motor vehicle tax collection, development grants to municipalities, prize amount awarded to best local bodies, recommendation of the State Finance Commission of ULBs and surcharge on stamps and registration. The octroi compensation grants to municipalities for the period 1992-93 to 1996-97 is Rs. 14,219 lakhs. Annexure R5 is the proceedings of the Karnataka State Government regarding scheme of devolution of funds to Urban Local Bodies on the recommendations of the second State Finance Commission. The basis is the population, area, road length, illiteracy and normative gap of O&M and per capita property tax based on demand. The G.O. dated April 12, 2006 was passed following the scheme for devolution of SFC grants to ULBs budget allocation made in the budget for the year 2005-06 onwards. Various particulars on the basis of global level provisioning aspects are mentioned in the Government Or....
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....he ULBs in the year 2005-06 is Rs. 1,56,153.58 lakhs. Annexure R13 is the statement showing the details of expenditure for Udupi City Municipal Council, for the year 2005-06 for various purposes mentioned at Sl. Nos. 1 to 13 such as water supply, street light, storm water drainage, SWM, education public health, UGD, maintenance of roads, electricity charges, expenditure on discretionary, maintenance of parks, roadside plantation, etc., cess paid to Government, infrastructure, is Rs. 442.35 lakhs. Further, in the said statement it is stated at Note No. 1 that Manipal area water supply is maintained by CMC Udupi. Annexure R14 is the particulars of entry tax paid by M/s. Kasturba Hospital, Manipal, under KTEG Act, for the years 1996-97 to 2005-06. For the years 2003-04 to 2005-06 no entry tax is paid. The aforesaid particulars are furnished by the State Government regarding the receipt of tax under the KTEG Act, Motor Vehicles Tax Act, Sales Tax Act, Municipal Corporation Act, and Karnataka Stamp Act as compensatory tax in addition to the local taxes collected, the grants received from SFCs and the amount allocated to various Urban Local Bodies for the purpose of providing various s....