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2014 (10) TMI 379
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.... (in short the U.P. Act of 2007) on the grounds of lack of the legislative competence of the State of U.P. of enactment, as also violative of freedom of trade, commerce and intercourse guaranteed under Art.301 and not saved by Art.304 (b) of the Constitution of India. The petitioners have also challenged the retrospectivity of the Act. w.e.f. 1.11.1999, when the U.P. Tax on Entry of Goods Ordinance, 1999, replaced by U.P. Tax on Entry of Goods Act, 2000, was promulgated and which was struck down by this Court in Indian Oil Corporation Ltd. v. State of U.P., AIR 2004 Alld. 277. 2. The substance of challenge in all these writ petitions to the constitutional validity of the U.P. Act of 2007 is that the entry tax is levied under the Act is by way of payment of compensatory tax of which the quantifiable/ measurable benefits are not provided either facially or patently to its payers, in view of the tests laid down in Jindal Stainless Ltd. (2) and Anr. v. State of Haryana and Anr., (2006) 7 SCC 241. The expenditure of the entry tax as compensatory tax collected is not broadly in proportion to defray the cost of regulation, or to meet the outley incurred for some special benefit to the tr....
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....nance Commission. The volume of transfers to the Urban Local Bodies substantively improved under the new system. In 1995-96 total non-planned grants to Urban Local Bodies in U.P. amounted to Rs. 285 crores. In the year 2001-02 this amount exceeded to Rs. 700 crores. 5. The 11th Finance Commission in its report presented to the Lok Sabha on 27th July, 2000 considered in para 8.13 the assessment about the manner and extent of augmentation of the Consolidated Funds of the State, keeping in view of 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, authorities and responsibilities transferred to local bodies. In para 8.14 to para 8.18 of the report, the 11th Finance Commission submitted the study of the report on panchayats and municipalities; measures to augment the consolidated funds of the State, reforms in local tax and rates and maintenance of civil services. In para 8.16 on the issue of reforms in local tax and rates, the 11th Finance Commission reported as follows:- "8.16. In addition to the measures mentioned above, we would li....
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.... with the representatives of the local bodies, we were told that though the grant in lieu of octroi given to the local bodies was raised by certain percentage from year to year, it does not have as much buoyancy as the octroi had. There have also been numerous complaints of delay in release of the compensatory grants. While we do not advocate reintroduction of octroi, we do feel that there is a need for replacing it with a suitable tax that is buoyant and can be collected by the local bodies." 6. The State of U.P. promulgated the U.P. Tax on Entry of Goods Ordinance, 1999 w.e.f. 1.11.1999, which was later on enacted as U.P. Tax on Entry of Goods Act, 2000. The Prefatory Note of the Act of 2000 read as follows:- "Prefatory Note-Statement of Objects and Reasons:- With a view to augmenting the revenue of the State, it was decided to make law to provide for the levy and collection of tax on entry of certain goods into a local area from any place outside that local area including a place outside Uttar Pradesh for consumption, use or sale therein, at such rates, not exceeding five per cent of the value of the goods, as may be specified by the State Government by notification. It was a....
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.... of a cess because it generates revenue which is not used for general public purpose but for the specific purpose of facilitating trade and commerce. Paragraph no.66:- In fact in the Statement of Objects and Reasons of the impugned Act (U.P. Act no.12 of 2000) it is specifically mentioned:- "Preferatory Note-Statement of Objects and Reasons:- With a view to augmenting the revenue of the State it was decided to make law to provide for levy and collection of tax on entry of certain goods into a local area from any place outside that local area including a place outside U.P........." Paragraph no.67:- Thus the Statement of objects and Reasons of the impugned Act clearly discloses that the impugned Act was enacted to augment the general revenue of the State and not for facilitating trade and commerce. Paragraph no.68:- In the supplementary counter affidavit of Shri B.P. Sonkar dated 7th January, 2004 the respondents have annexed copy of a letter of the Director (Judicial), Government of India, Ministry of Home Affairs, dated 19th January, 2000 addressed to the Principal Secretary, Legislative Section, Government of U.P. this letter states:- "With reference to your letter no.2....
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....ommerce's case and concluded as follows:- "49. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case 1995 Supp. (1) SCC 673 followed by the judgment in the case of Bihar Chamber of Commerce (1996) 9 SCC 136 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 the judgment in Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. 1995 Supp. (1) SCC 673 and followed in the case of State of Bihar v. Bihar Chamber of Commerce (1996) 9 SCC 136, is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the....
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.... 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 apex court in Jindal Stainless Ltd. observed:- "40. In the context of Article 301, therefore, 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." 29. It is clear from the perusal of documents annexed with the affidavit of Amitabh Mishra that the amount of revenue earned from "entry tax" under the Act is pooled in the "consolidated fund"--which is utilised under budgetary-allocation to the States, which is ....
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.... Appeal No.3453 of 2003 and connected cases. It is stated that some other High Court have also decided the matter afresh. The High Court's orders, wherever it has been passed in favour of the tax payers, shall operate so far as the concerned writ petitioner's are concerned. A list has been filed indicating that seven of the High Courts have already decided the writ petitions and the judgments are awaited in respect of five other High Courts. The concerned High Courts, i.e. Karnataka, Rajasthan, Andhra Pradesh, Orissa and Tamil Nadu are requsted to dispose of the matter pursuanct to the direcgtion of this Court dated 14th July, 2006 within a period of three months." 13. M/s Indian Oil Corporation demanded refund of the entry tax of Rs. 3022 crores on the basis of the order dated 8.1.2007 passed by the High Court and the interim order dated 17.4.2007 passed by the Supreme Court. The State of U.P. decided to enact a new law to remove the defects pointed out by the Division Bench of this Court and to bring it in conformity with the parameters of the compensatory tax as laid down by the Supreme Court in Jindal Sainless Ltd. (2) v. State of Rajasthan (Supra). The U.P. Tax on Ent....
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.... with retrospective effect by removing the shortcomings pointed out in the judgment of the High Court of Judicature at Allahabad and in the light of the observations with respect to the compensatory tax made by the Constiuttion Bench of the Supreme Court and on the basis of the provision of the Bihar Entry Tax Act, which has been held valid by the Patna High Court. Since the State Legislature was not in session and immediate legislative action was necessary to implement the aforesaid decision, 'The Uttrar Pradesh Tax on Entry of Goods into Local Areas Ordinance, 2007' U.P. Ordinance No.35 of 2007 was promulgated by the Governor on September 24, 2007. This Bill is introduced to replace the aforesaid Ordinance." 15. The Act was amended by the Amendment Act No.8 of 2009 to make it single point levy on the entry of the scheduled goods in the State of U.P. The statement of objects and reasons of the Amendment Act No.8 of 2009 are quoted as below:- "Amendment Act No.8 of 2009 Statement of Objects and Reasons The Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007 (U.P. Act no.30 of 2007) has been enacted to provide for levy and collection of tax on entry of go....
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....gly. (2) The tax under sub-section (1) shall be continued to be levied till such time as is required to improve infrastructure within the State such as power, road, market condition etc. with a view to facilitate better market conditions for trade, commerce and industry. (3) The tax levied under sub-section (1) shall be payable by a dealer who brings or causes to be brought into the local area such goods, whether on his account or on the account of his principal or takes delivery or is entitled to take delivery of such goods on its entry into a local area:- Provided that the State Government may by notification, permit any Power Project Industrial Unit engaged in generation, transmission and distribution, having aggregate capital investment of rupees one thousand crore or more to own the liability of payment of tax of other dealers on the entry of such goods into a local area from any place out side that local area as are used and consumed by the said unit subject to such conditions as may be specified in the notification. Explanation:- Where the goods are taken delivery of on its entry into a local area or brought into a local area by a person other than a dealer, the deal....
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....1956 shall apply for the purpose of determining whether or not any goods has been sold by a dealer in the course of inter-State trade or commerce or in the course of export out of the territory of India:- Provided that where at the time of entry of goods into a local area, the quantity or value of goods to be sold within such local area for the purpose of being taken outside the State without consumption, use or sale in such local area, is not ascertainable, the dealer shall pay the amount of tax on the value of total quantity of goods and after the goods are consigned or sold outside the State or int he course of export, the dealer may claim refund or adjustment of the amount so paid as tax in the month in which such goods area transferred outside the State or sold in the course of inter-State trade or commerce or in the course of export, in respect of such goods. (7) Deleted. (8) Where tax, in respect of entry of any goods into a local area, is payable and has been so paid by the agent, the principal shall not be liable for payment of tax and likewise where tax, in respect of entry of any goods into a local area, is payable and has been so paid by the principal, the agent s....
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....by whom without using them in the local area such goods are consigned to any other place outside the State or are sold either in the course of inter- State trade or commerce or in the course of export outside the territory of India. 12. Realization of tax through manufacturer:- (1) Notwithstanding anything contained in any other provision of this Ordinance, any person who intends to bring into a local area from any manufacturer within the State, such goods specified in the Schedule as may be notified by the State Government, shall, at the time of taking delivery of the goods from the manufacturer, pay to the manufacturer the tax payable on entry of such goods into the local area and the manufacturer shall receive the tax so paid. The manufacturer shall not give such goods to the purchaser unless the amount of such tax has been paid by the purchaser. (2) The manufacturer receiving the tax under sub-section (1) shall submit to the assessing authority a return in respect of the goods supplied, and the tax received, by him under sub-section (1) and deposit the tax so received, in such manner and within such time as may be prescribed. (3) Where any manufacturer fails to deposit,....
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....lution free environment in the concerned areas; (f) any other purpose connected with the development of trade, commerce and industry or for facilities relating thereto which the State Government may specify by notification; (g) providing finance, aids, grants and subsidies to local bodies and government agencies for the purposes specified in clauses (a), (c), (d), (e) and (f); (2) The entry tax levied and collected under this Ordinance shall be credited to the Uttar Pradesh Trade Development Fund and shall exclusively be used for facilitating trade, commerce and industry. The amount realised as entry tax shall not be used for the purposes other than those specified in sub-section (1). (3) The State Government shall, by notification, specify the manner of deposit of tax under appropriate Heads of Accounts and the manner in which the proceeds of the levy shall be utilized exclusively for the development of trade and commerce in the State of Uttar Pradesh. 17. Validation:- (1) Notwithstanding any judgement, decree or order of any Court, Tribunal or Authority, all actions taken, things done, rules made, notifications issued or purported to have been taken, done, made or iss....
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...., lap top-computer system and peripherals; marbles stones and tiles; and refrigerator, air conditioner and conditioning plants. On high speed diesel and other petroleum products, excluding kerosene oil for public distribution system, a notification was issued on 04.3.2008 providing rebate and a notification was issued on 30.6.2008, providing exemptions. At present only 08 items out of 20 are left in the Schedule for levy of entry tax. Section 5 of the Act of 2007 provides for reversal of levy of tax. Where any dealer has paid entry tax in respect of entry of such goods in such local area or purchased such goods, on which entry tax has already been paid, such tax shall be refunded or adjusted to such dealer by whom without using them in the local area, such goods are assigned to any other place outside the State or are sold either in the course of inter-state trade or commerce or in the course of export outside the territory of India. Section 6 provides for powers to the State Government to give rebate by a notification upto the full amount of tax leviable under the Act. Where the tax is payable in respect of a sale or purchase of such goods under the UP Value Added Tax Act, 2008 by....
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....dment Act, 2001; Bihar Amendment Act, 2003; Bihar (Amendment and Validation) Act, 2003; Bihar Amendment Act 7 of 2006 and Bihar Amendment Act (9) of 2006 and held the Validation Act to be constitutionally valid. It held that the collection of entry tax is compensatory tax, which has been diverted to Urban Local Bodies, to provide various services and infrastructure facilities to traders community to carry on their business activity. The Patna High Court further found that since the State had not produced any data to show that levy of entry tax under the Act of 1993 was a reimbursement/recompense, for the quantifiable/ measurable benefit provided or to be provided to its payer, the levy was not compensatory in nature under the Parent Act of 1993, and in any event till the amendment of the Act on 29th August, 2006, and therefore levy under the Parent Act of 1993, was violative of Art.301 of the Constitution of India. It struck down the Amendment and Validating Act of 2003, as bad both on account of giving retrospective effect to the amendment, and for want of previous sanction by the President. 23. The Karnataka High Court in Manipal Academy of Higher Education, Manipal v. State of ....
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....red creating facilities for trade, commerce and industry; the tax imposed was single point tax and was provisional to the benefits without which the trading facilities could not have been availed of. 26. The Guwahati High Court in Indian Oil Corporation Ltd. (Guwahati Refinery) v. State of Assam and Ors. decided on 9.1.2009 reported in (2009) 21 VST 76 (Guwahati) upheld the validity of the Assam Entry of Tax Act, 2008 as well as the retrospectivity of the Act w.e.f. 1.10.2001. The Assam High Court held that the persons bringing specified goods transported through pipelines is an importer within the meaning of the Act. The services provided by the State, i.e. security of the pipelines would benefit the petitioner, who receive crude oil within the refinery owned by it, thus showing a discernible relationship between tax paid and the services to be provided. The Court further held that validity situate more often than not being retrospective operation. The services provided to the entry tax payers as recompense may be existing or intended, creation of special fund by the name of Assam Trade Development Fund, for exclusive utilization for development of infrastructure and amenities to....
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....ads and bridges. Similarly, State Financial Corporation, constituted under the State Financial Corporation Act for providing incentive and financial aids functions as a statutory body. The supply of electrical energy and waters to the industries, marketing and commercial complexes, cannot be held to be special benefits to the trades men. The trade development fund was created by notification dated 29.3.2008 with retrospective effect from 1.4.2006. Nothing was brought on record to show that the entry tax collected from 1.4.2006 till the date of notification was utilised. The entry tax was thus found by the Jharkhand High Court as discriminatory being violative of Article 304 (a) of the Constitution of India. 28. The Kerala High Court, in Thressiamma L. Chirayil v. State of Kerala and another (2007) 7 VST 293 (Ker), held that the levy of entry tax imposed by the Kerala Tax on Entry of Goods into Local Areas Act, 1994 on goods imported from other States to the State of Kerala and from abroad, is not compensatory in nature. The State Government could not discharge its burden by placing the materials before the Court that the payment of levy of entry tax is reimbursement/recompense for....
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....atn), allowed the writ petitions holding the Karnataka Special Tax on Entry of Certain Goods Act, (29 of 2004) as violative of Articles 301, 304 (a), (b) and 255 of Constitution of India; followed its earlier Division Bench decision in Avinyl Polymers Pvt. Ltd v. State of Karnataka (1998) 109 STC 26 (Karn) and held that the State was not able to demonstrate any exclusive or special service provided to the class of taxpayers who bear the entry tax under the Act. The Karnataka High Court found that there was absolutely no co-relation to the revenue generated under the specific Act to the so-called expenditure incurred by the local authorities for services sought to be provided such as provision for roads, water, lighting, drainage, etc. There are other levies imposed under other enactments by the State and local authorities. There is no link or co-relation at all on facts in respect of the revenue from the levies under the enactment and the revenue and expenditure under other enactments. The levy of entry tax was only in respect of the goods brought into a local area by an importer from outside the State and not on other persons who bring similar goods to the very local area, thus th....
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....e owners of motor vehicles under the Tamil Nadu Motor Vehicles Taxation Act, 1974 wherein the parameters of levy are based on the laden weight of the motor vehicle. The Madras High Court also held that the levies of entry tax only on goods which are imported into the State of Tamil Nadu as against those which are produced or obtained within the State of Tamilnadu causes discrimination. The price structure of the imported goods vis-a-vis the locally manufactured goods or the economics of the importer, need not be gone into, to examine the discrimination. 32. The Gauhati High Court in ITC Limited v. State of Assam and others delivered by Hon'ble I.A. Ansari, J sitting singly on 17.11.2006 (2007) 9 VST 250 (Gauhati) declared the notifications issued under sub-section (4) of Section 3 of Assam Entry Tax Act, 2001 dated January 8, 2002, August 21, 2003, August 26, 2003, September 29, 2004 and February 28, 2005 and the Ordinance of 2005 as well as the Assam Entry Tax (Second Amendment) Act, 2005 as ultra vires, unconstitutional, null and void. While examining the true nature and character of the levy it was held that if an entry tax, imposed by a State by recourse to Entry 52 of the....
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....tate of Arunachal Pradesh and others decided on 5.3.2009 (2009) 22 VST 310 (Gauhati) held that the levy of tax on the entry of goods, other than non-taxable import, under the Arunachal Pradesh Goods Tax Act, 2005, for consumption use or sale thereof into the local area of State of Arunachal Pradesh is violative of Articles 301 and 304 of the Constitution of India. The High Court held that a conjoint reading of the Articles 301 to 304 would show that the State legislature has no power to impose a discriminatory tax. The word "and" as mentioned in Article 304 (1) is read as "or" then either compliance of Articles 304 (a) or Article 304 (b) would be sufficient in which event a situation may develop, where a State legislature would impose a discriminatory tax, by taking prior sanction of the President. The scheme of Articles 301 to 304 makes it clear that where the tax is discriminatory, the same shall be violative of Article 304 (a) of the Constitution and is liable to be struck down. No further enquiry is required to be made in such a case and the Presidential assent, if obtained, would not validate such a fiscal legislation. The Court further held that the basis of compensatory tax ....
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....c., levying compensatory taxes to cover the cost of services. The burden of proof on the State that the payment of levy of entry tax is reimbursement/recompense for the quantifiable/measurable benefits provided or to be provided to the petitioners was not discharged and thus the levy under the act was not found to be compensatory in nature. It thus amounted to restriction on free-flow of trade and commerce and is hit by Article 301 of the Constitution of India. 36. The judgment, in Jindal Strips Limited vs. State of Haryana (supra) declaring the levy of entry tax as not compensatory in character and amounting to restriction on the free flow of trade and commerce and hence violative of Articles 301 and 304 of the Constitution, led the State of Haryana to repeal the Act of 2000 and to enact on 16.4.2008 the Haryana Tax on Entry of Goods into Local Areas Act, 2008. The new Act sought to facilitate the tax already collected under the Act of 2000 by treating it to have been collected under the Act of 2008. 37. In Punjab and Haryana High Court in Indian Oil Corporation Limited v. State of Haryana and another decided on 01.10.2008 (2009) 21 VST 10 (PandH) allowed the writ petition chall....
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.... or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. Article 303. Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce:- (1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. (2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. Article 304. Restriction on trade, commerce and intercourse among States:- Notwithstanding anything in article 301, the Legislature of a State may by law:- (a) impose on goods impor....
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....Wanchoo and Das Gupta, JJ.) stated their conclusion in the following words:- "52. ...Our conclusion, therefore, is that when Article 301 provides that trade shall be free throughout the territory of India it means that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or the transport of goods from one part of the country to the other that is intended to be saved, and if any Act imposes any direct restrictions on the very movement of such goods it attracts the provisions of Article 301, and its validity can be sustained only if it satisfies the requirements of Article 302 or Article 304 of Part XIII. At this stage we think it is necessary to repeat that when it is said that the freedom of the movement of trade cannot be subject to any restrictions in the form of taxes imposed on the carriage of goods or their movement all that is meant is that the said restrictions can be imposed by the State Legislatures only after satisfying the requirements of Article 304(b). It is not as if no restrictions at all can be imposed on the free movement of trade. (....
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....axes which would otherwise interfere with the unfettered freedom under Article 301 will be protected from the vice of unconstitutionality if they are compensatory." 42. In Automobile Transport AIR 1962 SC 1406 it was said, vide (AIR page.1425, para 19), that:- "a working test for deciding whether a tax is compensatory or not is to enquire whether the trade is having the use of certain facilities for the better conduct of its business and paying not patently much more than what is required for providing the facilities." 43. In G.K. Krishnan vs. State of Tamil Nadu, (1975) 1 SCC 375 K.K. Mathew, J. summarised the scope of Articles 301 to 304 and stated that Article 301 imposes a general limitation on all legislative power in order to secure that trade, commerce and intercourse throughout the territory of India shall be free. Article 302 gave power to Parliament to impose general restrictions upon that freedom. But a restriction is put on this relaxation by Article 303(1) which prohibits Parliament from giving preference to one State over another or discriminating between one State and another by virtue of the entries relating to trade and commerce in Lists I and III of Seventh Sc....
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....eference and held in paragraphs 36 to 53 as follows:- "36. We have examined and analyzed the relevant provisions of Part-XIII and particularly Article 301 as we are required to lay down the parameters of compensatory tax vis-a-vis Article 301, as indicated vide para 27 (of SCC) of the referral order. Generic Concept of Compensatory Tax:- Introduction:- 37. The concept of compensatory tax is not there in the Constitution but is judicially evolved in Automobile Transport as a part of regulatory charge. Consequently, we have to go into concepts and doctrines of taxing powers vis-a-vis regulatory powers, particularly when the concept of compensatory tax was judicially crafted as an exception to Article 301 in Automobile Transport. Difference between exercise of Taxing and Regulatory Power:- 38. In the generic sense, tax, toll, subsidies etc. are manifestations of the exercise of the taxing power. The primary purpose of a taxing statute is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a wor....
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....converted into common burden. 41. 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. 42. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities. Compe....
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....ompensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters. 45. 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 then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of eimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then Article 301 is ....
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....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 Article 303(1) unless Parliament makes the declaration under Article 303(2), the State power contained in Article 304(b) is made expressly free from the prohibition contained in Article 303(1) because the opening words of Article 304 contains a non-obstante clause both to Article 301 and Article 303. (b) While the Parliament's power to impose restrictions under Article 302 is not subject to the requirement of reasonableness, the power of the State to impose restrictions under Articl....
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.... followed by the judgment in the case of Bihar Chamber of Commerce was well-founded. 53. 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 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan 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 the judgment in Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P.1 and followed in the case of State of Bihar v. Bihar Chamber of Commerce, is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment." 46. The Special Leave to Appeals arising from various States deciding questions arising out of levy of entry tax on the basis of Bhagatram Rajeev kumar v. CST (supra); State of Bihar v. Bihar Chamber of Commerce (supra) and State of Karnataka v. Hansa Corpor....
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....ench of Supreme Court, it was found that some of the High Courts before which the State entry tax stood challenged had taken the view that clause (a) and (b) of Art.304 of the Constitution of India are independent of each other and that if the impugned law stood saved under Art.304 (A), then it need not be tested with reference to clause (b) for determining its validity. The Supreme Court recalled that on 18.12.2008 a Division Bench of the Court had referred to the Constitution 10 questions, the most important of which being-whether the State enactments relating to levy of entry tax have to be tasted with reference to both Art.304 (a) and Art.304 (b) of the Constitution and whether Art.304 (a) is conjunctive with or separate from Art.304 (b). Referring to Atiabari T. Company Ltd. decided on 26.9.1960 and Automobile Transport (Rajasthan) Ltd. decided on 9.4.1962, the Supreme Court found that on a number of aspects the Supreme Court needs to revisit the interpretation of Part XIII of the Constitution of India including various tests propounded in the judgement of the Constitution Bench of the Court in Atiabari T. Company and Automobile Transport (Rajasthan) Ltd. The Constitution Benc....
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.... would come under Article 304(b) and "external goods" under Article 304(a)? Whether "per se test" propounded in Atiabari's case (supra) should or should not be rejected? Whether tax simpliciter constitutes a restriction under Part XIII of the Constitution? Whether the word "restriction" in Article 304(b) includes tax laws? Is taxation justiciable? Whether the "working test" laid down in Atiabari makes a tax law per se violative of Article 301? Interrelationship between Article 19(1)(g) and Article 301 of the Constitution? These are some of the questions which warrant reconsideration of the judgments in Atiabari Tea Co. Ltd and Automobile Transport (Rajasthan) Ltd. (supra) by a larger Bench of this Court." The Submissions:- 50. Shri S.P. Gupta, Senior Advocate assisted by Shri Yashwant Verma appearing in Writ Petition No. 1484 of 2007 (I.T.C. Limited vs. State of UP and others) has challenged the levy of entry tax by the Act of 2007 on the ground that the entry tax levied on the value of the scheduled goods does not either facially or on the basis of data provided by the State satisfies the test of compensatory tax as laid down in Jindal Stainless Limited (2) case (supra) by t....
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....d broadly with no definite meaning. He submits that the words "in general" in clause (d); "in concerned area" in clause (e) and "any other purpose" in clause (f) make the utilisation of the funds for general purposes. The U.P. Trade Development Fund provided in sub-section (2) of Section 14 and exclusively use of the entry tax levied and collected and credited to the fund for facilitating trade, commerce and industry does not ensure that the amount will be utilised for the purposes of development of the trade, from which it is collected. The entire fund and its utilisation is designed in a manner to be spent as a tax and not as a facility. 53. Shri Gupta submits that the Act of 2000 was declared unconstitutional. Any Act declared unconstitutional is a dead letter. It has to be treated as 'still born' and thus it cannot be validated. The provisions of Section 17 trying to validate the levy retrospectively is not possible as the amount under the old Act has been appropriated and spent as general revenue. He relies upon the judgment of Supreme Court in Khyerbari Tea Co. Ltd v. State of Assam AIR 1964 SC 925 and Rai Ramkrishna vs. State of Bihar AIR 1963 SC 1667. 54. Shri Bha....
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....tioner's counsel that the levy was compensatory in nature. The Court thereafter observed that even 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 stand of the State that the revenue earned was made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide municipal services more efficiently, which would help or ease free flow of trade and commerce. The Division Bench held that seven-Judges Constitution Bench decision of the Supreme Court in Automobile Transport Limited vs. State of Rajasthan (supra) in which it was held that paying not patently much more than what is required for providing the facilities, prevailed at that time and thus not much reliance could be placed upon Bhagatram Rajeev Kumar v. Commissioner of Sales Tax (supra). 56. Shri Bharat Ji Agrawal submits that on remand in the second judgment of this Court on 8.1.2007 in Indian Oil Corporation Limited v. State of Uttar Pradesh and others reported in (2007) 10 VST 282 (All) this court c....
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....none of the benefits intended in Section 14 taking individually or collectively give any benefit to the development of trade and commerce. The Act of 2007 does not mention in any of its provision that the entry tax can be utilised for the payers. There is no special benefit intended to the payers. 58. Shri Bharat Ji Agrawal submits that Indian Oil Corporation is challenging levy of entry fees only on crude oil and not on petroleum products, which have been added to the Schedule by Notification dated 15.1.2004. He submits that the refinery of IOC is situated at Mathura. It purchases crude oil from different countries from abroad as well as indigenous crude oil from Bombay High and Panna Fields through underground pipe lines laid by the petitioner. The crude oil is directly unloaded through SBM located near Vedinar and is transported by underground pipeline from Vadinar in Gujrat directly into Mathura Refinery. The pipeline and associated facilities have been constructed entirely by and at the cost of petitioner no.1 on the land acquired by petitioner no.1, the compensation for which has been entirely paid and borne by petitioner no.1. Petitioner no.1 exclusively owns, operates, con....
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....visory and telecommunication instruments and facilities along the pipeline so that the pipeline can be remotely operated, controlled and monitored from control stations located at vital points along the pipeline. Tele-supervisory control and telecommunication systems for the Salaya-Mathura Pipeline have been installed at total costs of Rs. 55.85 crores incurred by the petitioner Corporation. 61. The petitioner Corporation provides security to the pipeline in addition to the tele-supervisory instrumentation and controls by means of manual patrolling of the pipeline route, for which it engages approximately 42 perosns out of which 10 persons are engaged for patrolling the Chaksu Mathura Section of the pipeline. In the year 2005-06 the Corporation incurred expenses of Rs. 1.56 crores out of which Rs. 36.62 lacs was on Chaksu Section in Mathura. The Corporation also insures the pipelines. In the last 5 years the Corporation paid insurance premium of Rs. 20.75 crores. 62. Shri Bharat Ji Agrawal further submits thta the only user and importer of the crude oil in the State of U.P. is Mathura Refinery of the petitioner Corporation. The crude oil is exclusively transported and delivered t....
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....nd on the test laid out in Automobile Transport case that the tax should not be patently much more than the facilities provided to the tax payer, the impugned tax is indefensible." 65. It is submitted that in Kamaljit Singh v. Municipal Board, Pilkhwa and Ors., AIR 1987 SC 56 it was held that mere rendering by a municipal or local body of certain services which constitute its statutory duty and responsibility cannot have the effect or consequence of rendering the tax levied by the local body compensatory in nature. 66. It was held in Government of A.P. v. Hindustine Machine Tools, (1975) 2 SCC 274 in para 23 that the the laying of roads and drainage or the supply of street-lights are a statutory function of public authorities and it is difficult to hold in the absence of any material, that any of such services as have been mentioned to us have in fact been rendered to the respondent. 67. In Municipal Council Madurai v. R. Narayanan and Ors., (1975) 2 SCC 497 it was held that the authority to justify the levy qua fee, must render some special services to the category from whom the amount is exacted and the total sum so collected must have a reasonable correlation to the cost of s....
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....been incorporated in the definition clause of the new Act of 2007. In Section 2 (h) defines value of goods to mean the value of any goods as ascertained from original purchaser/invoice or bill and includes value of packing material, packing and forwarding charges, insurance charges etc. The explanation provides that for the purpose of ascertaining wholesale price of any goods the wholesale price shall include any amount paid, or payable by the purchaser as excise duty or any other duty but shall not include any amount charged for anything done to the goods after entry of goods into the local area or any amount of fees or tax including tax under the Act payable in respect of sale of goods of the like kind or like quantity. The petitioner had paid entry tax on purchase price. Shri Agrawal submits that the entire transportation of the natural Gas by the GAIL is by underground pipeline on which the State does not spend any amount. The entire maintenance and security of the underground pipelines of GAIL is made by the company. No facilities are provided by the State which can be treated as quantifiable benefits. 71. Shri Bharat Ji Agrawal submits that Gas Authority of India Ltd. has be....
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....07 (M/s UAL Uttar Pradesh Proprietor-UAL Ind. Ltd. vs. State of UP and others) manufacturing and trade in cement and in Writ Petition No. 1722 of 2007 (M/s Vikram Cement and ors vs. State of UP and others). 75. Shri Dhruv Agrawal, Senior Advocate assisted by Shri Nikhil Agrawal appearing in Writ Petition No. 1482 of 2007(Moser Baer India Limited and another vs. State of UP and others) submits that the petitioner is a 100% export oriented unit. It has got certificates from Ministry of Commerce, Government of India dated 25.9.1997 and the certificate dated 24.7.2000 for commercial production. The unit has 100% exemptions from payment of trade tax. The petitioner had earlier filed a Writ Petition No. 486 of 2001 (Moser Baer India Limited vs. State of UP and others) which was connected with the Writ Petition filed by the Indian Oil Corporation and was decided by this Court on 27.1.2004, holding the levy of entry fee to be violative of Article 301. The Civil Appeal Nos. 997-1998 of 2004 were filed in which the Supreme Court passed orders on 9.2.2004 staying realisation and to keep the amount in separate interest bearing account. On 19.3.2004 the Supreme Court directed that old stay to ....
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....judgment which has become final and as a consequence of such finding the validation of such collection is impermissible. Therefore, Section 7 of the Amending Act so far as it validates collection of property tax made by the BDA prior to the introduction of Section 28B has to be declared as invalid and beyond the legislative power. This declaration of ours in regard to the illegality of the validation of the property tax collected prior to the Amendment, however, does not apply to the collection made by the BDA of the cesses required to be collected by it under Section 28C of the Act. The collection contemplated under Section 28C is not a levy under the BDA Act. It is a levy imposed underthe Acts mentioned in that Section, namely, the Karnataka Compulsory Primary Education Act, 1961; Karnataka Health Cess Act, 1962; Karnataka Public Libraries Act, 1965; and the Karnataka Prohibition of Beggary Act, 1975. The cess in question is not for the benefit of the BDA but the same is collected by the BDA only as an agent. It is for this purpose that under Section 28A the BDA was deemed to be a local authority so that it could collect the cess under the said respective Acts. These collection....
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....ry tax in Jindal Stainless Limited (2) is the last word. He submits that unless it is shown that the benefit is to be given to the trade in the State, the levy of entry fee will be violative of Article 301 of Constitution. Shri Upadhyay submits that Hindalco Industries Limited imports coal for its captive power plant in Renu Sagar at Renukoot and also imports cement and machinery parts. The area, in which the scheduled goods are brought, is not local area. He submits that an industrial township of Renukoot is not an industrial development area under the U.P. Industrial Area Development Act, 1976 nor is a local area defined under Section 2 (d) (i) to (viii). The notification dated 7.4.2000 under Section 243 (a) declaring industrial State of Renukoot as industrial township does not make it an industrial area as defined under the Act. He relies upon Diamond Sugar Mills vs. State of UP AIR 1961 SC 652 (paragraphs 21 and 25) to support his submission. 79. Shri V.K. Upadhyay, Senior Advocate assisted by Shri Ritvik Upadhyay has appeared in Writ Petition No. 1489 of 2007 (Hindalco Industries Limited and another vs. State of UP and others). He submits that Hindalco Industries Limited brin....
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.... on entry of goods specified in the schedule into a local area for consumption, use or sale thereof from any place outside that local area. The "local area" is defined under Section 2 (d) of the Act of 2007, as the territory area of a Municipal Corporation under the Uttar Pradesh Municipal Corporations Act, 1959; a Municipality under the Uttar Pradesh Municipalities Act, 1916; a Zila Panchayat or a Kshetra Panchayat under the Uttar Pradesh Kshettra Panchayats and Zila Panchayats Adhiniyam, 1961; a Gram Panchayat under the United Provinces Panchayat Raj Act, 1947; a Cantonment under the Cantonements Act, 1924; any Industrial Development Area under the Uttar pradesh Industrial Area Development Act, 1976; an Industrial Township by whatever name called; and any other local authority by whatever name called under an Act of the Parliament of the State Legislature. 82. Relying upon Diamond Sugar Mill vs. State of UP AIR 1961 SC 652 Shri Upadhyay submits that the local area as defined under Section 2 (d) of the Act of 2008 means an area, which is a local authority and has local self governance. Section 2 (31) of the General Clauses Act, 1987 defines "local authority" to mean a municipal c....
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....ndia and is carrying on business activities in the export process zone in terms of the Export- Import Policy imposed at the relevant time. Notices were issued to the company raising a demand to pay entry tax in the year 2003-04 on tendu patta, coal, diesel, lakari and cement, which are brought by the petitioner from outside the State. The State Government vide Notification dated 22.10.2001 has granted exemption to cent percent export oriented units under Section 4-B of the Act of 2007 and in view of the notification the impugned demand notice was wholly uncalled for. The demand notice was issued without giving show cause notice or opportunity of hearing to the petitioner. 84. Shri Manish Goyal, appearing for the petitioners in some of the writ petitions, submits that all the activities under Section 14 for which the entry tax to be credited to U.P. Trade Development Fund, shown to be exclusively used for the development or facilitating the trade, commerce and industry in the State of UP namely construction, development and maintenance of roads; providing financial grants and subsidies to industries and commercial units; creating infrastructure for supply of electricity and water t....
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....lway administration to be liable to pay the tax specified in such notification. He submits that the demand of entry tax on the railway administration to provide finance, aids, grants and subsidies to the local bodies and the Government agencies under Section 14 (g) of the Act of 2007 for the purposes specified in Clauses (a), (c), (d), (e) and (f), is violative of Sections 184 and 185 of the Railways Act. Even otherwise he submits that under Article 285, the State shall not tax on property of the Union Government. The railways bring cables for its use. The cables are not brought for sale. The property in cables belongs to railway and in which no transaction takes place. He submits that new Act of 2007 cannot raise demand on the transactions completed prior to its commencement. 86. Shri R.R. Agarwal assisted by Shri Suyash Agarwal appears in Writ Petition Nos. 745 of 2006, 913 of 2006, 1357 of 2006, 1425 of 2006, 1599 of 2009, 1600 of 2009, 34 of 2009 and 39 of 2011. He had adopted the arguments of Shri S.P. Gupta and Shri Bharat Ji Agrawal and submits that so long the Constitution Bench judgment of Supreme Court in Jindal Stainless Limited (2) holds the field, all the Courts of th....
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....0 was challenged in the High Court In Writ Petition No.251 of 2003, Indian Oil Corporation Ltd. v. State of U.P. and Ors. by judgment dated 27.1.2004 the Act was declared to be violative of Art.301 and 304 of the Constitution of India. Aggrieved the State of U.P. preferred Special Appeal No.2757-2758 of 2004 in the Supreme Court. On 9.2.2004 the Supreme Court passed an order to the following effect:- "Leave granted. The operation of the impugned judgment is stayed subject to the appellant's depositing all the taxes that may be realized by the appellant from the respondents after 27.1.2004 in a separate account. This amount and the interest accrued thereon shall be held subject to the further orders of this Court". 89. The question of constitutional validity of the entry tax was referred to the Constitution Bench of the Supreme Court in Jindal Stainless Steel and Anr. v. State of Haryana and Anr., JT 2006 (4) SC 611. When the Special Appeal No.2757-2758 of 2004 were again taken by the Division Bench of the Supreme Court, an order was passed on 14.7.2006 to the following effect:- "Paragraph no.5:- Since relevant date do not appear to have been placed before the High Courts....
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....rted demanding refund of the alleged amount of Rs. 3022 crores on the basis of the order dated 8.1.2007 passed by the Supreme Court. The State of U.P. considered it expedient to remove the basis of the judgment of the High Court and to enact new law in conformity with the parameters of the compensatory tax as enunciated by the Hon'ble Supreme Court in Jindal Stainless Ltd. (2) (Supra). Consequently U.P. Tax on Entry of Goods into Local Areas Ordinance, 2007 was promulgated with retrospective effect from 1.11.1999. The U.P. Ordinance No.35 of 2007 was replaced by the U.P. Tax on Entry of Goods into Local Areas Act, 2007. Shri Kesarwani submits that the Act of 2007 read with U.P. Tax on Entry of Goods into Local Areas (Fund) Rules, 2007 notified on 11.10.2007, has completely altered the basis of the judgment of this Court dated 27th January, 2004 and the observations made by this Court dated 8.1.2007 (in pursuance to the remand order). He submits that the entire money collected as entry tax under the U.P. Act of 2007 read with U.P. Tax on Entry of Goods into Local Area (Fund) Rules, 2007 has to be spent on development or facilitating trade and commerce of the goods mentioned in t....
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....inds of paper is almost nil. After reducing the entry tax on these items the net collections of entry tax from October, 2007 to 31st March, 2008 was Rs. 279.91 crores. A number of importers have obtained interim orders of realisation of entry tax. The collection, therefore, reflect from only those persons, who have not obtained interim orders. 95. The Committee, thereafter, in view of Jindal Stainless Ltd. v. State of Haryana decided by Constitution Bench oft he Supreme Court considered the allocation of the amount under Section 14 of the Act of 2007 and decided as follows:- (i) The maximum realises of entry tax of crude oil are from Indian Oil Corporation, which is used in Mathura Refinery for petroleum products namely kerosene, petrol, furnace oil etc., which is thereafter sent to its various depots and outlays for supply in different areas. After giving benefit on rebate the realisation of entry tax of diesel and furnace oil are nil. The expenditure on roads, electricity, water, and law and order is made by the State in the development of trade, commerce and industry of the goods of cement, coal, sugar, machinery, imported timber, clinker and other scheduled commodities. The ....
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....1999-2000 to 2003-04 (January 2004) is as under:- Year Amount received from Entry Tax (correct figures Rs. In Crores) 1999-2000 70.41 2000-01 245.87 2001-02 290.89 2002-03 375.52 2003-04 (January 2004) 252.35 26. That in pursuance to the order dated 9.2.2004 passed by Hon'ble Supreme Court the year wise amount collected as entry tax in a separate interest bearing account being the account no."8342-Other deposit-120- Miscellaneous deposit-01-receipts of entry tax" is as under:- Year Amount of Entry Tax in Crores (Interest Included) Interest deposited by the State Government in Crores 2003-04 (From Feb 04) 90.19 2004-05 358.95 4.51 2005-06 562.13 6.31 2006-07 801.04 19.33 2007-08 (Upto Sep.-07) 43.93 - 27. That the money collected or to be collected under the new Act as entry tax has to be appropriated to the fund and has to be utilized in the manner provided in the Act and Rules and shall exclusively be spent for facilitating the trade and commerce of goods mentioned in the schedule as class. However, the money deposited in the separate interest bearing account no.9342-Other deposit-120 Miscellaneous deposit-01-receipts of ent....
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....Union of India, AIR 1960 SC 554; Superintendent and Remembrancer of Legal Affairs, West Bengal v. Girish Kumar Lavalakha and Ors., (1975) 4 SCC 754 and in State of Bihar v. Bihar Distillery Ltd., AIR 1997 SC 1511, it was held that an act is presumed to be enacted within the forecorners of the provisions of the Constitution. There is presumption against the constitutionality of the legislature. The burden of proof that the legislature is unconstitutional is heavily upon the person, who challenges it. The endeavour of the Court is to sustain the constitutionality of legislature. The Court should take into consideration all existing circumstances that matter of common knowledge, matter of common report, and history of times. The approach of judicial restraints and presumption of constitutionality requires that the legislature is given the benefit of doubt about its purpose. He further relies upon Union of India v. Elphinstone Spinning and Weaving Co. Ltd., AIR 2001 SC 724; State of A.P. and Ors. v. MCDOWELL and Co. and others, (1996) 3 SCC 709; Consumer Action Group and Anr. v. State of Tamil Nadu, (2000) 7 SCC 425 and State of Karnataka and Ors. v. Drive-in-Enterprises, (2001) 4 SCC ....
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....untant General to audit the accounts, ensures and guarantees that the entire proceeds of the levy of entry tax is to be used exclusively for development and for facilitating trade and commerce of the scheduled goods. There is nothing to show nor it has been suggested that the Committee has not allocated the receipts for the purposes of development of trade and commerce of the scheduled goods. The amount allocated from the fund has to be utilised for the purposes approved by the Committee commensurate with the objects and purpose set out in Section 14 of the Act. The Committee also ensures that the tax payers are not required to pay much more than what is collected as entry tax. He submits that the State Government has from time to time exercised by various notifications, the powers to amend the schedule and has granted rebates and adjustments form the sales tax to be paid by the manufacturer/traders of the goods. The State Government is conscious of its obligations of development of trade and commerce of the scheduled goods and has been acting on the refunds received from the trade from time to time. If there is any allegations that the Committee has not allocated the funds, the Co....
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....U.P., AIR 1961 SC 1534 the Supreme Court held that in exercise of the power of legislature to enact a law with reference to a topic, it will be competent for the legislature to enact a law, which is either prospective or retrospective. In para 15 the Supreme Court held:- "15. The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective. In Union of India v. Madan Gopal, 1954 SCR 541: (AIR 1954 SC 158), it was held by this court that the power to impose tax on income under entry 82 of List I in Schedule VII to the Constitution, comprehended the power to impose income-tax with retrospective operation even for a period prior to the Constitution. The position will be the same as regards laws imposing tax on sale of goods, In M. P. V. Sundararamier and Co. v. State of Andhra Pradesh, 1958 SCR 1422: (AIR 1958 SC 468), this court had occasion to consider the validity of a law enacted by Parliament giving retrospectively operation to laws....
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....spective operation of Section 23(a) and (b) covers respectively cases of payments actually made under the provisions of the earlier Act, and cases pending inquiry, and the retrospective operation of Section 3(3) read with Section 1(3) only applies to cases of persons who did not pay the tax during the whole of the period, or whose cases were not pending; and it is this limited class of persons whose interests are represented by the appellants before us. Having regard to the somewhat unusual circumstances which furnish the background for the enactment of the impugned statute, we do not think that we could accept Mr. Setalvad's argument that the retrospective operation of the Act imposes restriction on the appellants which contravene the provisions of Article 19(1) (f) and (g). In our opinion, having regard to all the relevant facts of this case, the restrictions imposed by the said retrospective operation must be held to be reasonable and in the public interest under Article 19(5) and (6) and also reasonable under Article 304(b)." 105. In Khyerbari Tea Co. Ltd. and Anr. v. State of Assam and Ors., AIR 1964 SC 925, the Supreme Court held in paragraphs 29 and 30 as follows:- "2....
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....they are carried, whereas such a provision did not exist in the past and in that sense, the retrospective operation changes the character of the tax. We have already noticed that the proviso in question is not retrospective in operation, and so, this argument has to be tested by reference to the remaining portion of S. 3(2). Thus tested, it is difficult to accept it as sound. In this connection, we may refer to the recent decision of this Court in Rai Ram Krishna v. State of Bihar. AIR 1963 SC 1667 where a similar plea was rejected and it was pointed out that this Court has consistently held that the mere fact that a validating statute operates retrospectively does not justify the contention that the character of the tax sought to be recovered by such retrospective operation is necessarily changed." 106. In Epari Chinna Krishna Moorthy v. State of Orissa, AIR 1964 SC 1581 the Supreme Court while dealing with the retrospective operation of the Orissa Sales Tax Validation Act of 1961 held in para 7 as follows:- "7. The first argument which has been urged before us by Mr. Sastri is that since the exemption was granted by the State Government by virtue of the powers conferred on it ....
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....ctively. In Tilock Chandra Prasan Kumar the High Court of Allahabad had struck down the levy of sales tax on split or process food grains and 'Dal' holding that 'Dal' purchased by the petitioner before it could be said to be a commodity, essentially different form the 'Arhar', 'Dal' purchased by 'Dal' mills and accordingly the purchases effected by the petitioner could not be regarded as first purchase. The Government of U.P. issued an Ordinance (U.P. Sales Tax Amendment and Validation Ordinance, 1970) adding Explanation-II to Section 3 (D) as well as Section 7 of the Act. The Ordinance was later enacted as an Act. The Amendment Act removing the defects by the Explanation to Section 3 (D) and providing for a deeming clause that the split or processed food grains such as in the form of 'Dal' shall be deemed to be different from unsplit or unprocessed food grains, at validating provisions to the Principal Act vide Section 7. The challenge to the retrospective levy on the ground that it was validation of Art.19 (1) (f) and (g) was repealed. 108. In Empire Industries Ltd. v. Union of India, AIR 1986 SC 662, after noticing that the petiti....
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.... Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283, the Supreme Court held in para 65 and 66 as follows:- "65. There is really no substance in the grievance that the retroactivity imparted to the amendments is violative of Article 19(1)(g). A competent legislature can always validate a law which has been declared by Courts to be invalid, provided the infirmities and vitiating infactors noticed in the declaratory-judgment are removed or cured. Such a validating law can also be made retrospective. If in the light of such validating and curative exercise made by the Legislature - granting legislative competence - the earlier judgment becomes irrelevant and unenforceable, that cannot be called an impermissible legislative overruling of the judicial decision. All that the legislature does is to usher in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant. (See Sri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1970) 1 SCR 388 : (AIR 1970 SC 192). 66. Such legislative expedience of validation of laws is of particular significance and utility and is quite often applied, in taxing statutes. It is necessary....
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....lidation can be said to take place effectively. The most important condition, of course, is that the Legislature must possess the power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. The Constitution Bench held:- AIR 1970 SC 192 At P. 195, Para 4 of AIR 1970 SC 192 " ....Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A Court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a Court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometimes this is done by providing for jurisdiction where jurisdiction had ....
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....ent) with the provisions of Part III of the Constitution. If these tests are satisfied, the Act can with retrospective effect validate the past transactions which were declared to be unconstitutional. The Legislature cannot assume power of adjudicating a case by virtue of its enactment of the law without leaving it to the judiciary to decide it with reference to the law in force. The Legislature also is incompetent to overrule the decision of a Court without properly removing the base on which the judgment is founded. The Court on a review of judicial opinion, proceeded to lay down the following principles among others so as to maintain the delicate balance in the exercise of the sovereign powers by the Legislature, Executive and Judiciary:- AIR 1996 SC 1431 : 1996 AIR SCW 1051 "(i) in order that rule of law permeates to fulfil constitutional objectives of establishing an egalitarian social order, the respective sovereign functionaries need free play in their joints so that the march of social progress and order remains unimpeded; (ii) in its anxiety to safeguard judicial power, it is unnecessary to be overzealous and conjure up incursion into the judicial preserve invalidati....
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....d are so fundamentally altered that under altered circumstances such decisions could not have been given. This will include removal of the defect in a statute pointed out in the judgment in question, as well as alteration or substitution of provisions of the enactment on which such judgment is based, with retrospective effect." 111. In Widia (India) Ltd. v. State of Karnataka, AIR 2003 SC 3094 the Supreme Court held that if the levy is not discriminatory, no consent is required for the validating act for giving retrospectivity of the validity to the levy. On the aforesaid principles settled by the Supreme Court, we do not find that the provisions of Section 17 of the Act validating levy of the entry tax w.e.f. 1.11.1999 suffers from vice of lack of legislative competence or violation of any of the fundamental rights. The tax has already been levied and collected and has been deposited in a separate interest bearing account under the orders of the Supreme Court by the State Government. The amount will be spent for the development of the trade. The challenge to Section 17 retrospectively validating the levy thus fails. We also do not find any substance in the argument of Shri S.P. ....
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.... the Parliament or the State Legislature." 113. Reference order made by learned counsel appearing for the petitioners to the provisions of Art.243 (w), 243 (x) and 243 (y), 243 (z) inserted by Constitution (74th) Amendment Act, 1992 (w.e.f. 1.6.1993) in submitting that the Legislature of a State may by law endow the municipalities that such powers and authorities as may be necessary to enable them to function as institution of self-governance; and for devolution of powers and responsibilities upon municipalities subject to such conditions as may be specified therein, for preparation of plans for economic development and social justice and performance of functions and implementation of schemes as may be entrusted to them including those in relation to the matters listed in the 12th Schedule. Art.243 (x) gives powers to the municipalities to impose tax. The legislature may by law authorise any municipality to levy, collect and appropriate such tax out of tolls and fees in accordance with such procedure and subject to such limits to assign to a municipality such tax, duties, tolls and fees levied and collected by the State Government for such purpose and subject to such conditions an....
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....ompetence of the State legislature. 115. In M/s Widia (India) Ltd. v. State of Karnataka, AIR 2003 SC 3095, the Supreme Court while considering the provisions of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act of 1979 held:- "33. Last contention only requires to be narrated for being rejected, as it cannot be disputed that 'industrial area' is either within the area of Municipal Corporation, or within the area of municipal limits or panchayat limits. The establishment of industrial area is for limited purpose and Section 3 of the Karnataka Industrial Areas Development Act, 1966 specifically provides that the State Government may by notification declare any area to be an industrial area for the purposes of the said Act. But it is nowhere provided that the said area would cease to be part and parcel of either Municipal Corporation or the area of Municipality or Panchayat. Therefore, the High Court rightly rejected this contention". 116. The notification establishing the industrial area, for a limited purpose, therefore, does not take it out or carve out a separate area for which there may be no Municipal Corporation, Municipal....
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....ion is similar to Article 301 of our Constitution, whereas Section 99 of the Australian Constitution is similar to Article 303(1) of our Constitution. 91. The decisions of the Australian High Court in this connection are hence apposite. They have been referred to in Chapter 5 of the Book 'Australian Federal Constitutional Law' by Colin Howard and Chapter 9 of the book on Australian Constitutional Law by Fajgenbaum and Hanks." 118. The provision of the U.S. Constitution that gives the Congress exclusive powers over trade activities amongst the state and with foreign countries and Indian tribes is contained in Art.1 Section 8, Clause (3), empowering the Congress 'to regulate Commerce with foreign Nations, and among several States, and with the Indian Tribes'. The term commerce as used in the Constitution means business or commercial exchanges in any and all of its forms between citizens of different states, including purely social communications between citizens of different states by telegraph, telephone, or radio, and the mere passage of persons from one state to another for either business or pleasure. The commerce clause was designed to eliminate an intense riv....
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....ght train, or 14 cars in a passenger train, was unconstitutional. The purpose of the legislation, deemed a safety measure, was to minimize accidents by reducing the lengths of trains passing through the State. Practically speaking, however, the statute created an unreasonable burden on interstate commerce, as trains entering and leaving the state had to stop at the borders to break up a 100-car freight train into two trains and to put on additional crews, thus increasing their operating costs. The U.S. Supreme Court held that the means used to achieve safety was unrealistic and that the increase in the number of trains and train operators actually enhanced the likelihood of accidents. It balanced the national interest in the free flow of interstate commerce by a national railway system, against the state interest of a dubious safety measure. it decided that the value of the operation of a uniform, efficient railway system significantly outweighed that of a state law that has minimal effect. 122. In United States v. Lopez, 514 U.S. 549, 115 S. Ct.1624, 131 L.Ed.2d 626 (1995) the Supreme Court ruled that the Congress had exceeded its Commerce Clause power in enacting the Gun-Free Sc....
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.... reasonable qualifications made by States do not violate commerce clause. A State statute affected interstate commerce is not upheld merely because it applies equally to and does not discriminate between residents and non-residents of the State, as it can otherwise unduly burden interstate commerce. The Interstate Commerce Act of 1987 enacted by the Congress to promote and facilitate commerce by ensuring equitable interaction between carriers and the public provided for creation of the Interstate Commerce Commission, which has jurisdiction and supervision of such carriers and modes of transportation as rail, roads, express delivery companies and heading car companies. The Commission had the power to enforce the statutory requirements with a certificate of public convenience and necessity be obtained. The Discussion:- 124. The Indian Oil Corporation brings the entire crude oil from abroad or produced offshore, through bulk tankers or carriers. It has its own infrastructure and offshore unloading SBM facilities in the Gulf of Kutch for unloading tanker vessels carrying crude oil from Bombay High and other offshore fields, and by unloading carriers from Middle East and other regions....
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....v. State of Punjab, (1989) 1 SCC 335, another nine Judge Bench affirmed the decision in Sea Customs Act case. 126. The reference to Art.285 of the Constitution of India by Shri K.N. Kumar, learned counsel for the railway, thus is made to be rejected as it applies to the property of Union and not to the notified goods brought into a local area by railways for its consumption, attracting entry tax under the Act of 2007. Similarly we find that the reference to Sections 184 and 185 of the Indian Railways Act is also not of help in challenging the levy of entry tax as these sections have no application to entry tax levied by the State Government on the entry of goods into local area under the Act made with reference to Entry 52 in List- II of the 7th Schedule. 127. We may make reference here to the objections taken by Shri S.P. Kesarwani appearing for the State of U.P that tobacco being res extra commercium, the argument that imposition of entry tax under the Act of 2007 violates 301 is not available to ITC as manufacturer of tobacco. In Godawat Pan Masala Products I.P. Ltd. and Anr. v. Union of India and Ors., (2004) 7 SCC 68, while dealing with challenge to the validity of the notif....
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..... Section 14 (2) read with the U.P. Tax on Entry of Goods into Local Areas (Fund) Rules, 2007, provides for utilisation of money of the fund and the manner of utilisation of the fund to be determined by the Committee constituted under Rule 4 to be known as the U.P. Trade Development Fund Management Committee headed by the Chief Secretary, Government of India with the provisions under Rule 5, of the accounts of the fund to be maintained by the Accountant General, UP and the Finance Department under sub-rule (4); the surrender of the amount with intimation to Accountant General-I (Lekha Hakdari), if the amount is not spent by the end of the financial year under sub-rule (5); the receipts and expenditure to be ledgerised by the Accountant General, UP under sub-rule (6), and the audit of the accounts of the fund to be made by the Accountant General (Lekha Parikshak) UP. Sub-rule (7) ensures that the funds shall not be utilised for the purposes other than specified exclusively for the development or facilitating the trade, commerce and industry in the State of UP. 128. The statement of objects and reasons, the manner and method levy and collection of the entry tax, and its utilisation ....
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....bserved by us, the objects and reasons and the provisions of the Act of 2007 clearly provide that the entire collection of the entry tax has to be credited to the U.P. Trade Development Fund, to be used exclusively for facilitating trade, commerce and industry and that the amount realised shall not be used for the purposes other than those specified in sub-section (1) of Section 14 of the Act. The distribution of entry tax so collected and credited to the UP Trade Development Fund by the UP Trade Development Fund Management Committee, to the local bodies and its expenditure through the local bodies is also not seriously in dispute. The argument, that the funds should be utilised only for the purpose of the benefits, which must directly be given to the trades of the scheduled goods on the entry of which in the local areas, the entry tax is collected, does not carry much weight. The tests of a valid compensatory tax as laid down in Jindal Stainless Limited (2) do not provide for any such strict conditions of utilisation. In paragraph-43 in Jindal Stainless Limited (2) the Constitution Bench of Supreme Court observed that in the context of Article 301 compensatory tax is a compulsory ....
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....l has been placed by the petitioners to contradict the factual and legal position under the Act nor there is any tangible material to demonstrate that the entry tax causes any discrimination, is unreasonable or is against public interest. 134. The levy and collection of entry tax in the State of UP under the old Act of 2000 was successfully challenged by the companies manufacturing and trading in scheduled goods. The Act was declared as ultra vires to Articles 301 and 304 of Constitution by Division Bench of this Court by judgment dated 27.1.2004. While staying the operation of the judgment the Supreme Court directed that subject to appellants depositing all taxes that may be realised by the appellant from the respondents after 27.1.2004 in a separate interest bearing account, the amount and the interest accrued will be held subject to further orders of the Court. On remand a Division Bench of this Court, despite the data produced by the State of expenditure of the amount of entry tax by its distribution to the local bodies in paragraph-9 of the judgment in the tables, held that there was not an iota of evidence/material on record to give required data/statistics to establish that....
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....ate of UP and others) and Writ Petition No. 1284 of 2008 (Gail (India) Pvt. Limited vs. State of UP and others the year-wise amount collected as entry tax from 1999 to 2000, to January 2004 is given in paragraph 25 and the amount of interest deposited by the State Government of the amount of entry tax collected upto September, 2007 has been given in the charts. From these deposits and interest, held by the State Government in pursuance to the interim orders passed by the Supreme Court and the stay of realisation entry tax in almost all the writ petitions, the insistence of burden of proof of expenditure of the amount is totally uncalled for. The State has to first collect the entry tax, only then it can prove the utilisation and the expenditure on trade and commerce to justify the levy as compensatory tax. The argument of proof of expenditure on trades is like putting the cart before the horse. We, therefore, do not find that in this batch of writ petitions the State could have shown by way of discharging its burden, the proof of expenditure of the entry tax collected to justify the tax as compensatory tax. The provisions in the Act of 2007, and the guarantees given by legislation,....
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....nsaid to say, it is valid, if it is compensatory as it provides measurable and quantifiable benefits to the trade and commerce. 141. In Video Electronics Pvt. Ltd. v. State of Punjab and Ors., AIR 1990 SC 820 Justice Sabyasachi Mukherjee, the then Chief Justice speaking for the three Judge Bench, referred to Atiabari T. Company Ltd. (Supra), Automobile Transport Rajasthan Ltd. (Supra); Firm ATB Mehtab Mazid and Company v. State of Madras, AIR 1963 SC 928; A. Hazee Abdul Shakoor and Co. v. State of madras, AIR 1964 SC 1729; Andhra Sugars Ltd. v. State of Andhra Pradesh, AIR 1968 SC 599 and State of Madras v. N.K. Natraja Mudliar, AIR 1969 SC 147 and observing with approval Mr. Justice Subba Rao as the learned Chief Justice then was (at page 1430 of Automobile Transport Ltd., AIR 1962 SC 1406) that if a law directly and immediately impose tax for general revenue purposes on the movement of trade, it would be violating the freedom. The Court will have to ascertain whether the impugned law in a given case affects directly the said movement, or indirectly and remotely affects it. 142. The Supreme Court in M/s Video Electronics Pvt. Ltd. (para 20) further observed that the question is ....
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....rt then held in paras 21, 22 and 28 as follows:- "21. The taxes, which do not directly or immediately restrict or interfere with trade, commerce and intercourse throughout the territory of India, would therefore be excluded from the ambit of Art. 301 of the Constitution. It has to be borne in mind that sales tax has only an indirect effect on trade and commerce. Reference may be made to the Constitution bench judgment of this Court in Andhra Sugar Ltd. v. State of A. P., (1968) 1 SCR 705 : (AIR 1968 SC 599) where this Court observed that normally a tax on sale of goods does not directly impede the free movement of transport. See also the observations in Mudaliar's case where at p. 851 (of 1968 (3) SCR 829: at p. 161 of AIR 1969 SC 147) (supra) it was observed that a tax on sale would not normally offend Art. 301. That article made no distinction between movement from one part of State to another part of the same State and movement from one State to another. In this connection, reference may also be made to the observations in Bengal Immunity's case (AIR 1955 SC 661) (supra). Both the preceding cases clearly establish that if a taxing provision in respect of intra-State sa....
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.... II of the 7th Schedule of the Constitution. In a federal polity, all the States having powers to grant exemption to specified class for limited period, such granting of exemption cannot be held to be contrary to the concept of economic unity. The contents of economic unity by the people of India would necessarily include the power to grant exemption or to reduce the rate of tax in special cases for achieving the industrial development or to provide tax incentives to attain economic equality in growth and development. When all the States have such provisions to exempt or reduce rates the question of economic war between the States inter se or economic disintegration of the country as such does not arise. It is not open to any party to say that this should be done and this should not be done by either one way or the other. It cannot be disputed that it is open to the States to realise tax and thereafter remit the same or pay back to the local manufacturers in the shape of subsidies and that would neither discriminate nor be hit by Art. 304(a) of the Constitution. In this case and as in all constitutional adjudications the substance of the matter has to be looked into to find out whe....
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....ion of India is a living, dynamic and organic document. It protects rights and enforces duties on the people living in a democratic, socialist republic and sets out the framework of governance with central object of achieving the freedoms and human development. The powers of the States to legislate, and tax by legislation may not be interpreted to give benefits of such levies to only those trades, who pay such tax, deviating from the very purpose of economic development and constitutional governance. The tax even if it is compensatory cannot be justified, if it is levied for benefit of only those, who pay it. The disbursement of a part of it, without defining its percentage or ratio, for the benefit of general public, will not take away or destroy its character. It will still remain a compensatory tax, which may not be levied to discriminate, or be contributed to general revenue without any specific benefit to trades. 147. We may also observe that unless it is shown by the payers of the tax that the motive of levy is to cause discrimination in trade and commerce, to put a barrier on trade and commerce, or has been levied with an oblique purpose, such as political or to give advant....
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.... Act of 2007 is to be provided by local bodies, under Art.243W of the Constitution of India in implementation of the schemes in the 12th Schedule. He, however, does not appreciate that the development of these schemes require funds. The implementation of these schemes have not been taken away from the local bodies. The U.P. State Development Fund constituted under sub-section (2) of Section 14 in which entire collection of entry tax is credited, will be spent in these local areas, through the local bodies, to be spent by them for development of trade and commerce. The Act of 2007 and the Rules of 2009 provide for sufficient guidelines for utilisation of such fund by and through the local bodies. Conclusion:- 150. For the reasons given as above, we hold that the State of U.P. did not lack legislative competence in enacting U.P. Tax on Entry of Goods into Local Areas Act, 2007, imposing entry tax on the entry of scheduled goods into the local areas for consumption, use or sale thereunder. The provisions of the Act patently and facially indicate and that there are sufficient guidelines and guarantees under the Act for ensuring that the entire amount of entry tax collected and credit....