TaxTMI 
TaxTMI 
2008 (5) TMI 638
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....38, 15496, 15668, 15767, 15783, 15784, 15883, 15884, 16483, 16485, 16992, 17385, 17510, 17634 and 17702 of 2007 and 232, 233, 459, 1696, 2447, 4115, 4116 and 4278 of 2008 Dipak Misra and R.S. Jha, JJ S. Ganesh, H.S. Shrivastava, A.M. Mathur, G.N. Purohit, Kishore Shrivastava, P.M. Choudhary, Alok Aradhe and Kevin Gulati, Senior Counsel and A.K. Shrivastava, Sumit Nema, O.P. Namdeo, Shashank Verma, Shekhar Sharma, Atul Choudhary, Abijit Shrivastava, Sanjay Agrawal, Prem Francis, K.K. Pandey, Mukesh Agrawal, Abhishek Arjariya and Sajid Akhtar, Adv., for the Petitioners R.N. Singh, Adv. General with Vijay Kumar Shukla, Deputy Adv. General for the Respondents ORDER Regard being had to the similitude and interconnectivity of the controversy that is involved in this batch of writ petitions it is disposed of by a singular order. It is condign to state at the outset that in some of the writ petitions, the constitutional validity of the provisions contained in the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (for brevity, "the 1976 Act") is called in question and prayer has been made to declare the entire enactment ultra vires Articles 301 and 304(b) of the Constitut....
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....ot compensatory in character. 23. The Statement of Objects and Reasons of the Act states that it is enacted to levy a tax on entry of goods in lieu of octroi tax collected by the municipalities and municipal corporations and to make transportation of goods trouble-free by abolishing octroi check-posts. A copy of the Statement of Objects and Reasons is found in annexure A.R-1 appended to the additional submissions made on behalf of the respondents in M.P. No.2289 of 1989. It indicates that the statute had the view of raising financial resources to compensate local bodies consequent upon abolition of octroi with a view to simplifying the taxation structure. Annexure A.R-3 gives summary in respect of levy and details of allotment made to local bodies. The document shows that during the period 1976-77 till 1988-89, provision was made in the budget to compensate the municipalities and the amount budgeted was made over. It also shows that with effect from the year 1983-84, there has been a regular annual increase of 10 per cent in total compensation amount. Considering the Statement of Objects and Reasons and the particulars given in annexure A.R-3, the statutory chan....
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....e compensatory or whether it can be called a regulatory measure. Dealing with the said facet in the backdrop of Article 301 and clause (b) of Article 304 their Lordships opined that the tax was compensatory in nature. 5. In the aforesaid case their Lordships placed reliance on Bhagatram Rajeev Kumar. 6. At this stage it is apposite to mention that a two-judge Bench See Jindal Stripe Ltd. v. State of Haryana while dealing with the constitutional validity of the Haryana Local Area Development Tax Act, 2000 referred to the guarantee given in Article 301 of the Constitution, the decisions rendered in Atiabari Tea Co. Ltd. v. State of Assam, Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, G.K. Krishnan v. State of Tamil Nadu, Shaik Madar Saheb v. State of Andhra Pradesh, International Tourism Corporation v. State of Haryana, Malwa Bus Service (Pvt.) Ltd. v. State of Punjab, B.A. Jayaram v. Union of India and State of Maharashtra v. Madhukar Balkrishna Badiya and opined that since the concept of compensatory tax has been judicially evolved as an exception to the provisions of Article 301 and as the parameters of the said judicial concept are blurred particularly by the rea....
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....t the doctrine of direct and immediate effect on trade and commerce under Article 301 as propounded in Atiabari Tea Co. and the working test enunciated in Automobile Transport for deciding the tax as compensatory would continue to apply and the test of "some connection" indicated in the decision in Bhagatram and followed in Bihar Chamber of Commerce is not good law. I think it is condign to mention here that in the course of our judgment I shall refer to the dictum in detail and cull out the principles to be guided while dealing with the constitutional validity of the Act. 9. After the decision was rendered by the Constitution Bench in Jindal Stainless Ltd. a two-judge Bench of the apex court in Jindal Stainless Limited noted the basic issues pertaining to the nature of compensatory tax and referred to the paragraphs 45 to 48 of the judgment and eventually in paragraph 5 expressed the view as under: "5. Since relevant data do not appear to have been placed before the High Courts, we permit the parties to place them in the concerned writ petitions within two months. The concerned High Courts shall deal with the basic issue as to whether the impugned levy was com....
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....me does not require reconsideration. The learned Counsel has also commended to Jindal Stainless Ltd. wherein it has been stated that in Bhagatram the challenge was to the M. P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 and in that case although it was demonstrated by the State and not disputed by the assessee that the levy was compensatory, nevertheless the court proceeded to say about the broad co-relation and some-connection theory. It is highlighted by Mr. Singh that once the levy has been accepted to be compensatory it should not be allowed to be re-opened. 14. In essentiality, submission of the learned Advocate-General is that the validity of the Act having been determined twice the same is not available for fresh attack. In this context I may refer with profit to the decision rendered in Mathura Prasad Sarjoo faiswal v. Dossibai N.B. Jeejeebhoy wherein it has been held that the doctrine of res judicata belongs to the domain of procedure. It cannot be exalted to the status of a legislative direction between the parties so as to determine the question relating to the interpretation of the enactment. Further, a decision on an issue of law will operate as res ju....
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.... State Policy. In that context their Lordships expressed the opinion as under: ". . . Whether it is the Constitution that is expounded or the constitutional validity of a statute that is considered, a cardinal rule is to look to the Preamble to the Constitution as the guiding light and to the Directive Principles of State Policy as the Book of Interpretation. The Preamble embodies and expresses the hopes and aspirations of the people. The Directive Principles set out proximate goals. When we go about the task of examining statutes against the Constitution, it is through these glasses that we must look, 'distant vision' or 'near vision'. The Constitution being suigeneris, where Constitutional issues are under consideration, narrow interpretative rules which may have relevance when legislative enactments are interpreted may be misplaced. Originally the Preamble to the Constitution proclaimed the resolution of the people of India to constitute India into 'a Sovereign Democratic Republic' and set forth 'Justice, Liberty, Equality and Fraternity', the very rights mentioned in the French Declarations of the Rights of Man as our hopes an....
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..... In view of the aforesaid I aim unable to accept the submission of the learned Advocate-General that the writ petitions are barred by res judicata or constructive res judicata and accordingly it is repelled. 22. At this juncture it is seemly to refer to the factual base which formed the foundation of assail. I would like to state here that the counter-affidavits, rejoinder, additional affidavits, additional return, counter to the same and clarificatory affidavits and affidavits providing data have been filed before this Court. They require detailed scrutiny on the touchstone of law laid down in Jindal Stainless Ltd. First I shall refer to the initial challenge as put forth by the writ petitioners, counter-affidavit and the rejoinder and the additional affidavit, as I am disposed to think that the same would fall in one compartment to understand the essentiality of the attack. 23. The petitioner is a public limited company incorporated and registered under the provisions of the Companies Act, 1956 having its registered office at Mumbai. It manufactures cigarettes at its factories located outside the State of Madhya Pradesh. It was a dealer under the Madhya Pradesh Vanijyik Kar Ad....
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...., the entry tax is payable by the dealer on its taxable quantum relating to such goods. The rate as has been fixed shall be charged not exceeding 10 per cent as specified in the notification. Section 4A confers a power on the State Government to enhance the rate of tax in respect of local area or areas and the goods used or consumed for the manufacture of other goods. Reference has been made to Section 9 and other provisions to highlight that the rate of tax which could not have exceeded twice the rate specified in the Schedule now has been enhanced to a rate which is three times the scheduled rate. 26. It is averred in the petition how it had assailed the constitutional validity of the Act in M.P. No.1720 of 1991 and how this Court upheld the validity following the decision rendered in Sanjay Trading Co. [1994] 93 STC 589. At that juncture, as pleaded, the State had provided details regarding allotments made to local bodies and the provisions made in the budget during the period 1976-77 till 1988-89 to compensate the municipalities for the loss of octroi revenue. It has been setforth how eventually the matter was put to rest in Bhagatram Rajeev Kumar and how their Lordships refer....
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....ed in entry 10(a), i.e., cigarettes, chiroots, cigars, etc., has been enhanced and the said enhancement of the rate of tax, by no stretch of imagination, should be said to be a compensatory levy in the absence of any additional or special facilities to the trade of cigarettes, etc., falling in entry No.10(a). It is set forth that it is required to be seen whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax can be levied. The stand of the petitioner is that when there is a levy of tax on the entry of goods into the local area it cannot be said that it is not a direct impediment in the free movement of the goods. The scheme of the Act when scrutinised properly leaves no room of doubt that it has the purpose of general augmentation of revenue. It is also averred that the impugned levy is on the value of goods which has no nexus with the cost of rendering the services and hence, it offends Article 301 and also transforms it to the realm of non-compensatory nature of tax and an edifice has been built to show that the impugned levy fails the working test as evolved by the apex court and, therefore, the entire enactmen....
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....ities and municipal corporation and to make transportation of goods trouble-free by abolishing octroi check-posts. The statute has the purpose of raising financial resources to compensate the local bodies consequent upon abolition of octroi with a view to simplify the taxation structure. A document has been brought on record which gives summary in respect of the levy and details of allotment made to local bodies. The document shows that during the period 1976-77 till 1988-89, provision was made in the budget to compensate the municipalities and the amount budgeted was made over to the said local bodies with effect from 1983-84 and there has been regular annual increase of 10 per cent in total compensation amount. It is contended that if the Statement of Objects and Reasons and the particulars given in annexure R-3 are appropriately understood it would be quite clear that entry tax remains compensatory in its basic nature and, therefore, it is immune from challenge. It is put forth that the traders are provided with facilities for conducting their business operation in a smooth and better manner and the entry tax so imposed does not hinder the free flow of trade. The same is non-dis....
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....rs and the tax is proportionate to the cost of providing the facilities because there is not a single service that the State has shown to have been provided to the dealers as a separate class who are liable to pay the tax or on whom the tax is imposed. There is no quantifiable or measurable benefit that has been provided to the traders or shown to have been provided. The levy is not a recompense or a reimbursement of the cost of providing the services. Nothing has been mentioned in the affidavit to show that the services have been provided to the dealers who in the absence of such services have to avail less efficient or more expensive services. The tax levied has a direct and immediate impact on the free movement of goods and hence, a restraint on freedom of trade and commerce. The said levy is not reasonable in the public interest. It is put forth that the Act could have been held valid if the State would have been in a position to show that the impugned Act meets the parameters of compensatory tax as laid down in Jindal Stainless and the working test in Automobile Transport. The facilities provided by the respondents are general facilities that the State is duty-bound to provide....
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....lities that are provided by the local bodies are for construction and maintenance of roads for the trade and industries, drinking water, maintenance and supply of electricity, expenses incurred on the maintenance of vehicles carrying drinking water, sanitation, maintenance of vehicles and the expenses incurred on maintenance relating to streets and roads, lighting, maintenance of park and the expenses incurred on services relating thereto, expenses relating to planting of trees as compensation for tree felling for the aforesaid activities and maintenance thereof, maintenance of public building and shops, community halls, sulabh complex, public toilet, etc. 34. It is highlighted that the above facilities are provided by the local bodies from the amount received by them from the amount collected by way of entry tax. The said facilities are made available for facilitation of trade, commerce and industries. Services are utilised by the officers, employees and labourers who serve in industries which are situated in the boundaries of the local bodies. A chart showing budget of the receipts in certain Municipal Corporations and Municipal Councils and utilisation of the same within their ....
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....can never be compensatory in nature. It is asserted that the affidavit does not show that any services are being rendered to the traders and the tax is proportionate to the cost of providing facilities. It is set forth that in the additional return the State has not stated a single service provided by it in addition to the general service which it is duty-bound to provide as a welfare State and there is no quantifiable and measurable benefit that has been provided to the traders. The concept of "working test" has not been met within the assertions made in the additional return except making repetitions. The Act does not provide any specific facility in any local area and hence, it directly impedes the free flow of trade and commerce. 37. The petitioner has reiterated that the tax is not compensatory in nature as the entry tax does not ex facie indicate that the levy is for the purpose of providing services to the traders who are liable to pay the tax and further the proceeds of the tax are not meant for the same or even otherwise are not used to provide facilities to the traders who are liable to pay the tax. The stand in the additional return is absolutely misconceived as the sam....
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....ed Counsel for the petitioners filed a note stating, inter alia, that the figures given by the State Government as regards collection of entry tax to the local bodies are not correct. A stand was put forth that they had obtained the figures under the Right to Information Act and from the officers of the Commercial Tax Department which is different from the figures shown by the respondent-State in various documents filed along with the additional return. 39. An affidavit was filed on October 5, 2007 giving the details of the budget of the Urban and Industrial Development Department under the different heads, viz., non-planned, planned and tribal and special plan to show the amount received from the entry tax and from other sources. The details relate to the years 2004-05 and 2006-07. I shall refer to the said chart at the relevant point of time. 40. Regard being had to the cavil this Court on October 11, 2007 had passed the following order: "It is noteworthy to mention that an affidavit has been filed indicating the details of Urban Administration and Development Budget. It is contended by Mr. Shukla that the said affidavit has been filed to highlight that the ....
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....egard to the figures brought on record by some of the petitioners. Mr. Shrivastava, learned Senior Counsel has put forth that it is not clear whether the entry tax has been spent on other heads or not. That aspect also should be clarified. Ordinarily so saying, we would have fixed another date for hearing but we are inclined to think the State Government has to provide the detail in special particularity by putting forth a caption so that advertence can be made to each facet in the light of the decision rendered in the case of Jindal Stainless Ltd. v. State of Haryana. We reiterate, the entire onus is on the State to satisfy that the tax is compensatory." 41. In pursuance of the aforesaid order an additional affidavit has been filed. It is put forth that the petitioners had stated that they had obtained figures under the Right to Information Act from the office of Commercial Tax Department which are different from the figures stated by the respondent-State in various documents filed along with the addifional return. It is put forth that the figures have been obtained from the website and not under the Right to Information Act. It is contended that the entry tax....
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....hart-document No.2 has been filed showing the amount released out of budget allocation to different local bodies as illustration of the last six years, i.e., from 2001-02 to 2006-07. As the affidavit dated December 27, 2007 has been filed mentioning about all the urban local bodies of seven divisions of the State of Madhya Pradesh the said document No.2 has become inconsequential and the same is to be ignored. There are two other documents, namely, document Nos. 3 and 4 which were filed along with the counter-affidavit to show the quantified data regarding facilities/services provided by the Urban Administration and Development Department to the local bodies of Madhya Pradesh for the periods 2002-03 to 2006-07 in respect of trade, commerce and industrial establishment. 44. Certain variations have occurred mainly because the data in respect of all urban local bodies were not incorporated in the said chart but that of the data of 49 urban local bodies. The data of urban local bodies whose figures have already been furnished were not incorporated. In the affidavit dated December 27, 2007 the data regarding facilities/services provided by all the urban local bodies under different hea....
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.... details were consolidated and were translated in English. Another affidavit dated November 3, 2007 was filed in view of certain discrepancies noted in the order dated October 11, 2007. In para 6 of the said affidavit it has been clarified that the amount shown from the website was in fact the figures of the collection year and not the figures of the disbursement year. The objections raised have been clarified in paragraphs 6 to 10 of the affidavit dated November 3, 2007. The contents of paragraphs 11 and 12 have been clarified and have been made accurate in the affidavit dated December 27, 2007 and hence, two paras namely 11 and 12 of the affidavit dated November 3, 2007 be ignored. The variations in calculations and data would not change the compensatory nature of the tax as from various data furnished by the State of M.P. it is crystal clear that the nature of entry tax in Madhya Pradesh fulfils all the parameters laid down in Jindal Stainless Steel and Automobile Transport (Rajasthan). 47. Having exposited the pleadings, now I shall proceed to enumerate the submissions raised by the learned Counsel appearing for the petitioners and the learned Advocate-General for the State. B....
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....f) When the entry tax is levied ad valorem it can only be considered as a tax and not as a fee and when compensatory tax is treated as a subclass of fees the basic imposition of tax on ad valorem effaces the character of compensatory tax, (g) The data furnished by the State Government do not show that there is any specific identified service which is rendered either by the State Government or the local authorities to the assessees as a collective body from whom entry tax is collected and hence, the same does not improve the scenario. (h) In the absence of any specific and identified service rendered by the State or the local bodies the stand and stance of the State that the amount collected is allocated to local bodies and spent on various items is only indicative of the fact that it is a stand which can be equated with some indirect benefit given to the assessees as a collective body and hence, the said stance again reiterates a broad correlation theory which has been overruled by the Constitution Bench. (i) The entire amount collected does not meet the working test as laid down in Automobile Transport case inasmuch as fo....
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....ld have to be granted as compensatory, provided of course that the total quantum of the tax or levy corresponds broadly with the total expenditure incurred by the State in granting special facilities. (iv) If a State Government sets up a power plant to provide supply of electricity exclusively to industrial units in a local area and recovers the costs incurred or to be incurred for setting up and/or operating such power plant by levying entry tax on the raw and other materials being brought into the local for use and consumption of those factories, the said levy of tax would be in the nature of a compensatory tax. (v) If a State Government sets up cold storage units in a remote area to ensure steady supply of raw materials to the industrial units set up therein and charges entry tax on traders/factory owners causing entry of those raw materials situated within a local area for sale, use and consumption thereof, the levy of entry tax towards recovery of cost incurred for setting up and/or operating those cold storage would also be in the nature of a compensatory tax. (vi) If a State Government constructs an aerodrome or oth....
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.... the State, unrelated to the specific quantifiable service to the commercial concern and industries. (iv) The tax imposed is to garner the revenue without any reference to the service provided in respect of the class of dealers dealing in goods as a consequence of which high rate of tax has been levied. (v) The high rate of entry tax has been imposed to compensate the loss of sales tax because of introduction of VAT Act providing for levy of entry tax throughout the country and not as compensatory of octroi or for providing specific service or facility. (vi) The expenses incurred for providing different facilities from the entry tax amount received by the local bodies would show that substantial expenses have been incurred on capital projects which are meant for common usage for all citizens under the statutory provisions providing for basic amenities to the citizens and are unrelated to the commerce and industries. (vii) The facilities and the services provided by the local bodies are meant for being used by the community which of course comprise of trade, commerce and industries and the trade, commerc....
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....ven by the State Government is totally misconceived and misleading and an adroit effort has been made to show that the levy is compensatory in nature and fundamentally the figures are contradictory and hence, unreliable. 51. Mr. Choudhary, learned Counsel appearing in some of the petitions has canvassed as follows: (a) In the absence of any claim put forth by the State that a special advantage is given to the traders as taxpayers, the question of treating the entry tax as compensatory does not arise. (b) The stance of the State that there is annual increase of 10 per cent every year in the allocation of funds to the local bodies and hence, it is compensatory in nature does not withstand scrutiny inasmuch as the same does not meet the concept of "working test" but is actually in the realm of "some connection" theory. (c) The data furnished by the State do not show any nexus between the tax levied and the quantifiable or measurable benefit provided to the taxpayers. (d) Allocation of funds to the local authorities, who are under obligation to provide various civil and other amenities to the society as a ....
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....special benefit given to the class of traders. A bare look at the provisions of the Act and the notifications made therein would clearly reveal that neither the Act nor the notifications issued thereunder have anything to do with the provision of service but is a pure and simple revenue-raising measure and, in fact, is being used in letter and spirit for recovering the loss of revenue of sales tax and hence, impedes the free flow of trade. (ii) A reading of Sections 3(1)(b) and 3A would clearly show that the entry tax has been introduced to plug in the loss which is manifestly clear from the notification dated April 28, 1999 by which the entry tax is enhanced to 10 per cent. (iii) In respect of the goods brought inside the State for being consumed as raw material for the manufacture of other goods, there shall be one per cent entry tax on such goods even though the Schedule II and Schedule III provide for a higher rate of tax' as a consequence of which a different rate of tax emerges on the basis of use of goods though it has nothing to do with the special services rendered to the traders. (iv) In case of compensatory ....
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....bmitted that general benefits provided to all citizens can never constitute identified class. The learned Counsel has seriously criticised the way the State has filed the affidavits, additional affidavits and tried to clarify the same. It is contended by him that certain documents have been sought to be withdrawn in the clarificatory affidavit as a result of which the whole factual scenario has changed. It is urged by him that the affidavits are contradictory in nature and they actually demolish the case put forth by the State. It is further submitted by him that any compensation cannot be compensatory and octroi compensation can never be compensatory as it is fundamentally a revenue measure. To bolster his submissions, he has placed reliance on the decisions rendered in B. Pmbhakar Rao v. State of Andhra Pradesh [1985] Supp SCC 432 and M. Veerabhadm Rao v. Tek Chand. 55. Mr. Alok Aradhe, learned senior counsel, adopting the submissions raised by the learned Counsel for the petitioners who have challenged the Act and the notification, additionally submitted that the notifications are discriminatory and the enhancement of the rate of tax offends Article 304(a) of the Constitution o....
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.... commerce. A restrictive tax or levy creates a direct impediment on the free movement of goods and hampers trade and commerce. The tax to be treated as restrictive or prohibitory having direct or immediate impact so as to hinder the movement of trade, has to be simply in the nature of tax but if a tax is imposed as a charge for the facilities provided and is not deterrent to the trade then it remains in the realm of compensatory or regulatory tax. The hindrance as complained by the petitioners is on the foundation of a prior aprioring notion and not real and clear inasmuch as the provisions of the 1976 Act meet the working test inasmuch as they do not create prohibition or deterrence or restrictions but the amount collected as entry tax is spent for facilitating trade. The same is luminescent from the data furnished in the additional return filed on December 27, 2005 and the clarificatory affidavit dated January 9, 2008. (c) The stance that the respondent-State has not discharged the onus in terms of the requirement of Jindal Stainless Ltd. and has filed affidavits of different nature from fime to time is neither acceptable nor sound. In fact, the State has file....
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....sertion that Section 4A of the Act hinders the free flow of trade is unsustainable and unacceptable inasmuch as the said controversy has been put to rest in Mysore Cement Ltd. v. State of Madhya Pradesh and Associated Cement Companies Ltd. v. State of M.P. [1996] 29 VKN 32 (MP) and the said decisions have not been overturned and they specifically relate to the notifications. (i) The submission by the petitioner that the key test laid down in Jindal Stainless that the tax should be proportional and industry or individual oriented is sans substance inasmuch as when it is stated that tax should be proportional it relates to the providing of facilities and services in proportion to the amount collected and if the amount collected is exorbitant and the facilities provided is meagre then the concept of working test disappears and the tax collected loses its character from both the realm, namely, compensatory or regulatory. The measurable and quantifiable data which have been highlighted by the learned Counsel for the petitioner are founded on an erroneous notion as if it is pro rata concept but actually it is on proportionality qua the facilities provided to the tradi....
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....-05 keeping in view the need. The affidavit dated December 27, 2007 would clearly show that in 23 local bodies JCB machines have been made available for rendering specific facilities/ services to the industrial and business establishments. (o) In the case relating to the State of Madhya Pradesh it cannot be said that the amount is spent on the mere discharge of municipal functions which is obligatory to be performed because the purpose of expenditure as well as the amount expended has to be taken note of. (p) The contention to the effect that only a small portion of the amount allotted to the local bodies is spent on extending the direct benefit to the business or industries and all the residents in the locality are entitled to the use of the same is not correct since the State has furnished the data showing the figures spent on the industrial and business class as a whole. The State has given the data with regard to the amount spent areawise for residential, commercial and industrial scctors and hence, it is in the nature of special service provided to the business/commercial scctor. (q) The examples given by one of the l....
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.... principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country . . ." 60. Thereafter, the majority came to hold as follows: "51. . . . Thus considered we think it would be reasonable and proper to hold that restrictions, freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions ; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301. The argument that all taxes should be governed by Article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. We are, therefore, satisfi....
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....tory 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." 63. Thereafter their Lordships adverted to the relevant provisions of the Act read with the Schedules and opined that they come within the category of compensatory taxes which cause no hindrance to the freedom of trade, commerce and intercourse, being taxes for the use of trading facilities in the shape of roads, bridges, etc. After analysing the scheme of the Act it was held that the taxes imposed are really taxes on motor vehicles which use the roads in Rajasthan or are kept for use therein. Their Lordships expressed that the High Court had taken note of the fact that expenditure on new roads and maintenance of old roads was in the neighbourhood of Rs. 60 lakhs. In 1954-55, the estimated income from the tax was Rs. 35 lakhs, while the estimated expenditure was over Rs. 65 lakhs. It is obvious from these figures that the State is charging from the users of motor vehicles something in the neighbourhood of 50....
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.... of goods vehicles ; both have some relation to the wear and tear caused to the roads used by the buses. In basing the taxes on passenger capacity or loading capacity, the Legislature has merely evolved a method and measure of compensation demanded by the State, but the taxes are still compensation and charge for regulation." (emphasis supplied) 64. Thereafter their Lordships proceeded to state as under: "21. . . . We must consider the substance of the matter and so considered, there can be no doubt that the taxes imposed are no hindrance to the freedom of trade, commerce and intercourse. If a statute fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well he considered unimpaired. In such a case the imposition assumes the character of remuneration or consideration charged in respect of an advantage sought and received. In Armstrong v. State of Victoria [1957] 99 CLR 28, Dixion, C.J. said: 'The reason, as I venture to suggest, simply is that, witho....
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....on goods imported from other States or the Union territory to which similar goods manufactured or produced in that State are subject." (emphasis supplied) 66. In Khyerbari Tea Co. Ltd. v. State of Assam the constitutional validity of the Assam Taxation (On Goods Carried by Road or on Inland Waterways) Act, 1961 was challenged on the ground that it was violative of Article 301 and was not saved by Article 304. Their Lordships analysed the majority view in Atiabari Tea Co. Ltd. and Automobile Transport (Rajasthan) Ltd. and expressed the view as under: "It would immediately be noticed that though the majority view in the Automobile Transport (Rajasthan) case AIR 1962 SC 1406, substantially agreed with the majority decision in the case of Atiabari Tea Co. Ltd., there would be a clear difference between the said two views in relation to the scope and effect of the provisions of Article 304(b). According to the majority view in the case of Atiabari Tea Co. Ltd., if an Act is passed under Article 304(b) and its validity is impeached, then the State may seek to justify the Act on the ground that the restrictions imposed by it are reasonable and in the public interest,....
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.... has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. It is, therefore, idle to contend that the levy imposed an unreasonable restriction on the freedom of trade and commerce." (emphasis supplied) 69. In the aforesaid case it was also held as follows: "To the extent the impugned tax is levied on the entry of goods in a local area its immediate impact would be on movement of goods and the measure would fall within the inhibition of Article 301, it is not a single-point tax and, therefore, if some Scheduled goods successively enter different local areas for consumption, use or sale therein, there would be multiple levy. But if the goods are taken for consumption or use, there is no question of taking the Scheduled goods from one local area to another local area. Further a levy which appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting municipal finances which suffered a dent on account of ....
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....for purposes which would not only not restrict or impede but facilitate smooth and unhampered trade, commerce and intercourse throughout the territory of India, such tax would not be violative of Article 301 of the Constitution. Thus regulatory measures or measures imposing compensatory taxes for the use of trading facility are outside the purview of Article 301 of the Constitution. This in fact was not disputed and could not be disputed in view of the decisions of this Court in Atiabari Tea Co. Ltd. v. State of Assam, Sainik Motors, Jodhpur v. State of Rajasthan, Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan and Malwa Bus Service (Pvt.) Ltd. v. State of Punjab. Expanding the concept of what are called compensatory taxes as to be outside the purview of Article 301, it can be said that the augmentation of revenue by such taxes which would be available for laying of new roads and maintenance of existing roads in proper shape and form, setting up of terminal facility for passengers, bus stand, other facility which make travel more comfortable and enjoyable, encourage and facilitate travel in its various elements, easy and unimpeded transport of goods by road transport wo....
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....vehicle is stopped and enquiry made or octroi either collected or deposit insisted upon with right to claim refund, one has to experience through this agonising journey. To appreciate what a pernicious influence octroi had on transport of goods and passengers, Karnataka took the lead and abolished octroi. One can take judicial notice of a universal demand for abolition of octroi as an evil. Therefore, if tax was enhanced on passenger vehicles to fill in the dent made in the revenues of the State by the abolition of octroi, it can be said without fear of contradiction that thereby trade, commerce and intercourse received a fillip and free, smooth, unimpeded flow of goods and passenger vehicles was considerably facilitated and the abolition of octroi was welcome in trade and business circles. Therefore, not only the enhanced tax does not lose the character of being compensatory on the ground that it was enhanced to compensate the loss suffered by the State in its revenues on account of abolition of octroi, but as a matter of fact on this very ground, it acquires the character of being compensatory." 73. In this context I may refer with profit to the decision rendered in G.K. Krishna....
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....ntribution to their maintenance over and above their general contribution as tax-payers of the State. If, however, a charge is imposed, not for the purpose of obtaining a proper contribution to the maintenance and upkeep of the road, but for the purpose of adversely affecting trade or commerce, then it would be a restriction on the freedom of trade, commerce or intercourse." (See Freightlines and Constructions Holding Ltd. v. State of New South Wales [1968] AC 625) (emphasis supplied) 74. Thereafter their Lordships took note of the fact that the Government had taken a stand that it had incurred an expenditure of Rs. 19.51 crores in the year 1970-71 in the maintenance and construction of roads while the receipts out of vehicle tax was only Rs. 16.38 crores. It was also the stand of the Government that the amount of Rs. 19.51 crores did not include the grants made to local bodies like municipalities and panchayats for repair and maintenance of roads within their jurisdiction. Road costs, as put forth by the Government, not only included the cost of construction and maintenance of roads but also the costs relating to the erection and maintenance of traffic control devices, safety me....
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....evy should be put into a separate fund or that the levy should be proportionate to the expenditure. There can be no bar to an intermingling of the revenue realised from regulatory and compensatory taxes and from other taxes of a general nature nor can there be any objection to more or less expenditure being incurred on the object behind the compensatory and regulatory levy than the realisation from the levy . . ." (Emphasis supplied) 76. After so stating their Lordships proceeded to state as follows: ". . . That part of the highway which is within a municipal area is excluded from the definition of a national highway and therefore, the responsibility for the development and maintenance of that part of the highway is certainly on the State Government and the Municipal Committee concerned. Since the development and maintenance of that part of the highway which is within a municipal area is equally important for the smooth flow of passengers and goods along the national highway it has to be said that in developing and maintaining the highway which is within a municipal area, the State Government is surely facilitating the flow of passengers and goods along the na....
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....rom the said decisions if certain conveniences are available to the freedom of trade and commerce, the same can be considered to be unimpaired. Similarly, Police Regulations, provisions for services, maintenance of roads do facilitate the trade. That apart, if a levy appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting the revenue on account of abolition of octroi it cannot be said to have imposed unreasonable restrictions on the freedom of inter-State trade, commerce and intercourse. If the taxing laws cast restrictions it hampers the free flow of trade. Laying of roads, maintenance of inter-State roads in proper shape and form, setting up of terminal facilities and the facilities of travel in its various elements effectuate transport of goods ; they can be put in the realm of compensatory tax. It has also been held that if there is sufficient nexus between the subject and the object of the levy, it is not necessary that the money realised by the levy should be proportionate to the expenditure. By some enhancement of tax, the character of compensatory tax is not erased. If the charge is imposed, not affecting the trade ....
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....bodies. 82. In Dinesh Pouches Ltd. v. State of Rajasthan decided on August 21, 2007 See [2008] 16 VST (Raj) by the High Court of Rajasthan the Bench after referring to various spectrum of the law eventually came to hold that apart from mentioning that the amount was spent on cleaning and sanitation, fire extinction, street light and development work, no data had been provided in detail as regards the expenses for which entry tax was alleged to have been spent. The Bench also observed that no such details about the expenses incurred in respect of various functions discharged by the Panchayat have been furnished which could be related to providing of facilities and benefits to the trade and commerce or imposing regulatory measures for its benefits in an identifiable or quantifiable measure. Be it noted, the Bench has also observed that the municipality is under statutory obligation to provide facilities or benefits to trade or commerce and that is not the object of the levy which is collected. On reading of the judgment in entirety, I am of the considered opinion that the same is basically based on two principles, namely, carrying out the functions of the municipalities and that bei....
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....is further pointed out that in absence of any link or correlation at all on the facts in respect of the revenue from the levies under the present enactment, the defence of the State that the levy imposed under the Act is compensatory is not acceptable. Thus, on a perusal of the said decision, it is manifest that data was inadequate and further there was no stance that the amount was allocated to the local bodies in lieu of octroi compensation. Judged singularly, the whole decision rests on the analysis of the data. 85. In Tata Iron and Steel Company Ltd. v. State of Jharkhand [2007] 6 VST 587 0harkh), the Bench declared the statute as ultra vires as no material was placed before it. 86. In ITC limited v. State of Assam [2007] 9 VST 250 (Gauhati): [2006] 1 GLR 584, in absence of data, the Bench came to the conclusion that the tax was not compensatory. 87. In Thressiamma L Chirayil v. State of Kerala [2007] 7 VST 293 (Ker), the Bench dealt with the data relating to various expenditure incurred by the State for maintenance of roads, bridges, water transport, development of industries and allied matters and came to hold that the tax was not compensatory and declared the enactment as....
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....se (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 Article 304 is subject to the condition that they are reasonable. (c) An additional requisite for the exercise of the power under Article 304(b) by the State Legislature is that previous Presidential sanction is required for such legislation. 90. Thereafter in the concluding paragraph their Lord....
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....compensatory, there must be some link between the quantum of tax and the facility/services. (x) Every benefit is measured in terms of cost which has to be reimbursed by recompense in the form of compensatory tax. In other words, compensatory tax is a recompense/reimbursement. (xi) In the context of Article 301 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. (xii) When the tax imposed as a part of regulation or a part of regulator)' measure, the 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. (xiii) If the effect of the operation of an enactment is to impede trade and commerce, then Article 301 is vio....
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....egnant one, in the case at hand the affidavits filed by the State from time to time contain the lis of sacrosanctity. There is no such contradiction which can raise eyebrow or put the same in the realm of obnoxiousness. On the contrary, a clarificatory affidavit brings out a picture from which one can find out the truth. It is apt to note that justice is wedded to truth and the duty of the court to find out the truth, in a way. Thus, I am not inclined to accept the submission of Mr. Shrivastava, learned senior counsel, that the affidavits being contradictory and there being incurable veracity the affidavits are to be ignored. Therefore, I will consider the furnished data on the parameters of law. 95. Having regard to the law laid down in Jindal Stainless Steel, the factual matrix has to be tested. I have, in my humble way, culled out the principles. It is to be seen whether the factual data provided by the State meet the said requirements. As is perceivable, their Lordships have clearly held that the doctrine of direct and immediate effect of the impugned law on trade and commerce as propounded by Atiabari Tea Co. and the working test enunciated in Automobile Transport (Rajasthan)....
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....i compensation is not utilised for providing civil amenities and facilities to the residents of the local area at large which are statutorily required to be provided by the local bodies. To further buttress these submissions, the respondent/State has also furnished figures of the revenue generated by the local bodies by levying local taxes and have also given figures of the various grants, etc., given to the local bodies by the State from the consolidated fund for carrying out this statutory obligation. 97. It is apparent from a perusal of the figures submitted by the respondents that they have given details of the amount of entry tax collected and the amount disbursed to the local bodies therefrom as octroi compensation after deducting two per cent for the years 2001-02 to 2006-07 in Document No.2 filed by them along with their additional affidavit dated November 3, 2007 after clarifying discrepancies which is reproduced below for ready reference: Year Total amount of entry tax collected by State Budgetary allocation for ULBS after deducting 2% collection charges Actual amount released to ULBS as octroi compensation Difference 2001-02 333.85 327.17 295.32 &nb....
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....ge-wise calculation to demonstrate that the amount disbursed as octroi compensation forms only a part of the total amount spent by the urban and local bodies in commercial and industrial scctors within the local area. It is pertinent to note that the said figures do not show the revenue earned by the urban and local bodies from collection of municipal taxes, which have been shown separately and the said figures have been given in lacs and have been divided division-wise and are the consolidated figures of five years from 2002-03 to 2006-07 and are as follows: Chart No. II Division-Wise Information Regarding Grants Released and Expenses Incurred By Urban Local Bodies For Providing Facilities/ Services To Commercial and Industrial Sectors Since 2002-03 To 2006-07 Amount in lacs S. No. Division Amount released against octroi compen- sation Amount released to ULBS other heads Total of (3+4) Expenses incurred by ULBS in commercial sector Expenses incurred by ULBS in industrial sector Total(6+7) Percentage of total amount released against to-tal expenses (col. 5 with col. 8) Percentage of amount of octroi compen- sation against commercial s....
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.... total revenue. It is also apparent from a perusal of the total amount indicated at column 8 of Chart II reproduced above that the urban and local bodies have spent an amount of Rs. 1,90,179 lacs on commercial and industrial scctors which constitutes almost 44 per cent of the total revenue of the urban and local bodies in the State and which is roughly equal to the total amount of Rs. 1,97,601 lacs distributed to them as octroi compensation during 2002-03 to 2006-07 shown in column No.4 of Chart No. III or in column No.4 of Chart No. I after deducting the amount of octroi compensation released in the year 2001-02. 103. At this juncture, it is imperative to note that the learned Counsel for the petitioners have submitted that the facilities that have been given by the local bodies do come within their statutory obligations and hence, they cannot be treated as special advantages. The aforesaid submission, at a first flush, appears quite convincing but on a keener scrutiny loses its structural solidity. A Municipal Corporation or a Municipality or a Nagar Panchayat has an obligation to do certain things but to say that the entry tax collected and spent for certain aspects which have ....
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....he balance. Their Lordships have not held that it should be in arithmetical exactitude. Neither have their Lordships held that it has to be individualistic. What has been stated is that if by a positive action a particular measurable advantage is conferred, it is only fair to the community that the beneficiary shall pay for it. Studied in this perspective, the argument that the benefit should be only and exclusively for the traders does not withstand scrutiny. 105. I would be failing in my duty if I do not refer to the illustrations given by Mr. S. Ganesh, learned Senior Counsel appearing for some of the petitioners. On a scrutiny of the said illustrations except illustration No.8 (as the same has been taken from Jindal Stainless), there can be no trace of doubt that the said examples at their very foundation are relatable to the fundamental and inherent concept of fee-keeping in view the conception of quid pro quo in stricto sensu. The said illustrations can be appreciated from another angle. In my considered opinion they exemplify a range of hypothesis which makes an endeavour to fresco a picture of compensatory tax keeping in view the inflexible, rigid and strait-jacket arena w....
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....rovided meet the test of proportionality between the quantum of tax and the facilities/services provided inasmuch as the entire entry tax which is collected and allocated to the local bodies constitutes 44 per cent of the amount that is spent by them and such expenditure includes creating facilities for trade, commerce and industries. (i) The tax imposed is a single-point tax and hence, the stance is in contradistinction to the one where the tax is imposed upon the entry by different local bodies in a successive manner. The levy is identifiable and there is nexus between the subject and the object of the levy. (j) The data, as scrutinised, clearly show that the tax collected is proportional to the benefits and without which the trading facilities could not have been availed of. It is worth noting that in Jindal Stainless Ltd., the apex court has held that the theory of compensatory tax rests upon the principle that if the Government by some positive action confers upon the individual (s) a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it. Thus, the stand that it has to be totally....
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....of in any other manner; (iv) in respect of goods exempted from entry tax under Section 10; and if tax on the entry of any goods specified in Schedule II or Schedule III effected during any period has been deposited by a dealer into the Government treasury and subsequent to such entry the goods are disposed of in the manner described in clause (ii) of this proviso, such dealer shall be entitled to a set-off of the tax already paid by him in respect of such goods and such set-off shall be adjusted towards the tax payable by him in such manner as may be prescribed: Provided further that notwithstanding anything contained in this Act, where a dealer in the course of his business, purchases goods from a person or a dealer other than a registered dealer who has effected entry of such goods into a local area prior to such purchase, the entry tax shall be paid by the dealer who has purchased such goods: Provided also that notwithstanding anything contained in this Act, where a dealer liable to pay tax under the Vanijyik Kar Adhiniyam in the course of his business into a local area, purchases goods specifie....
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....y the local area or areas and the goods which are used or consumed in such local area or areas mainly for the manufacture of other goods and may direct that, as from the date specified in the notification and in such manner as may be prescribed, the entry tax payable by a dealer under this Act shall be charged on his taxable quantum relating to such goods at a rate not exceeding ten per centum as may be specified in such notification notwithstanding anything to the contrary contained in Section 4. (2) On the issue of the notification under sub-section (1), entry tax shall not be chargeable and payable on such goods at any other rate mentioned in any other provisions of this Act." 111. Section 6 of the 1976 Act lays down the principles governing the levy of entry tax on dealers or persons and the same reads as under: "6. Principles governing levy of entry tax on dealer or person.- The entry tax payable by a dealer under sub-section (1) of Section 3 or by a person notified under sub-section (2) of that Section shall be levied in accordance with the principles stated below: (a) entry tax shall not be ....
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..... One scheme which may be regarded as the normal scheme is comprised in Sections3, 4, 9 and related sections. The second scheme is the one comprised in Section 3, 4A and 12. The normal scheme deals with goods specified in Schedules II and III subject to the exactions and concessions provided under the statutory provisions for which rates of tax are prescribed in Schedules 11 and III subject to power of the State Government under Section 9 to modify the rates which is subject to the limitation contained in the proviso. Section 4A takes certain local areas and certain goods from outside the purview of the rates specified in Schedules II and III subject to the amendatory power of the State Government. Section 12 takes certain categories of persons dealt with under Section 3(2) outside the purview of the rate of tax specified in Schedules II and III, subject to the mandatory power of the State Government. The limitation introduced on the power of the State Government under first proviso to Section 9(1) relates only to the rates of tax specified in Schedules II and III which in turn are applicable only in cases not governed by Sections4A and 12. By the alternative scheme contemplated un....
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....d under Section 8(5) of the Central Sales Tax Act upheld the same. In the said case the law laid down in the case of Video Electronics Pvt. Ltd. v. State of Punjab was approved. It is worth noting here as the entry tax has a different colour and does not create a free flow in trade and the notification has been issued under the statute, in our considered view, the conception enshrined under Articles 301 to 304 of the Constitution of India is not attracted. Thus, we do not find any error in issue of the said notification. 19. . . . 20. Another facet which requires to be dealt with is that the rate fixed in the notification is exorbitant and portrays arbitrariness. It is worth noting here that the stand of the petitioner that he is liable to pay entry tax on diesel at the rate of one per cent on the goods brought from outside the State or purchased from of l companies is incorrect. It is also canvassed that there is no petroleum refinery in the State of Madhya Pradesh and all refineries are located outside the State of M.P. When a dealer is registered under the M. P. Commercial Tax Act as well as under the Central Sales Tax Act and purchases di....
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....eev Kumar, Sanjay Trading Co. [1994] 93 STC 589 and Geo Miller and Co. that they operate as res judicata, is not acceptable. (b) The petitioners have the right to challenge the constitutional validity of the 1976 Act on the parameters laid down by the Constitution Bench in Jindal Stainless Ltd. (c) The 1976 Act has been enacted to compensate the local bodies, as they have suffered loss due to abolition of octroi. (d) The provisions of the 1976 Act cannot facially or patently show imposition of entry tax in the very nature of things to be compensatory but the State has produced adequate data to discharge the onus that the tax is compensatory. (e) The judgments of various High Courts that have been placed reliance upon by the petitioners are distinguishable. (f) The data furnished by the respondent-State meet the requisite parameters as postulated in Jindal Stainless. (g) The notifications issued by the State from time to time are in consonance with the provisions of the 1976 Act. (h) By virtue of the enhancement of the rate of tax, the effect of....
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....urt in a bunch of petitions which were ultimately dismissed vide order dated February 10, 1994 passed in the case of Sanjay Trading Co. v. Commissioner of Sales Tax [1994] 93 STC 589 (MP). Some of the petitioners whose petitions were dismissed by this common order assailed the legal validity of the order passed by this Court in the case of Sanjay Trading Co. [1994] 93 STC 589 (MP) before the Supreme Court and these petitions were also dismissed by order dated November 25, 1994 in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M.P. While dismissing the petitions the Supreme Court made observations in paragraph 8 to the effect that "the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid." Rasing doubts over this legal proposition the issue was referred to a Constitution Bench by the Supreme Court in the case of Jindal Stripe Ltd. v. State of Haryana and vide the Constitution Bench judgment rendered in the case of Jindal Stainless the apex court has held the "some connection" test laid down in the ....
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.... to satisfy the test of compensatory tax as enunciated in Automobile Transport and elaborated in Jindal Stainless and, therefore, in the absence of prior approval of the President as required by Article 304(b) proviso the Act being violative of Article 301 of the Constitution of India, deserves to be struck down as ultra vires the powers of the State Legislature. 122. The learned Counsel for the petitioners has strenuously urged that in view of the judgment in the case of Jindal Stainless overruling the whole judgment, including both the reasoning and operative portion, in the case of Bhagatram Rajeev Kumar, the entry tax levied by the impugned Act has been rendered unconstitutional as it is noncompensatory. It is further submitted that as the Act had been upheld in the case of Bhagatram Rajeev Kumar by applying the "some connection" test which has specifically been overruled in the case of Jindal Stainless, therefore, the impugned Act deserves to be declared unconstitutional. The learned Counsel has relied upon the judgment in the case of Ramdas Bhikaji Chaudhari v. Sadanand to submit that on a previous decision being overruled by a larger Bench the previous decision is completel....
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....General, appearing on behalf of the respondent-State, on the other hand, submits that the Supreme Court in the case of Bhagatram Rajeev Kumar has clearly upheld the validity of the Act on the basis of the facts and statistics placed on record by the State to establish the compensatory nature of the tax and thereafter made certain additional observations in paragraph 8 of the judgment regarding "some link" between the tax and the facilities and it is these additional observations that have been overruled by the Supreme Court in the judgment of Jindal Stainless and not the finding recorded on facts that the tax was compensatory on the basis of the facts and statistics placed on record and in support of his submissions, the learned Advocate-General has meticulously taken us through paragraphs 15 to 19, See paras 14 to 17 at pages 553-556 of [2006] 145 STC, 37 to 45 See paras 34 to 42 at pages 570-573 of [2006] 145 STC and 50 to 53 See paras 47 to 55 at pages 574 and 575 of [2006] 145 STC of the judgment in the case of Jindal Stainless. 125. The learned Advocate-General has also heavily relied upon the judgment in the case of Geo Miller and Co. in support of his contention that it is ....
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.... nature and satisfies the test as laid down in the case of Automobile Transport and Jindal Stainless. 127. These submissions have been elaborated by the learned Advocate-General by submitting that the validity of the Act has previously been upheld on as many as five occasions in the cases of Sanjay Trading Co. [1994] 93 STC 589 (MP), Associated Cement Companies Ltd. v. State of M.P. Mysore Cement v. State of Madhya Pradesh, Bhagatram Rajeev Kumar and Geo Miller and Co. and, therefore, the issue of the validity of the Act is no longer res Integra and the petitions filed by the petitioners deserve to be dismissed on the principle of res judicata. 128. To appreciate the rival submissions made by the learned Counsel for the parties on the question as to whether the entire judgment in the case of Bhagatram Rajeev Kumar has been overruled, it would be profitable to refer to the judgments relied upon by the parties. In this respect, the decision in the case of Sanjay Trading Co. [1994] 93 STC 589 (MP), wherein the constitutional validity of the Act was upheld by this Court, specifically, paragraphs 12, 13, 14, 15, 18, 19, 20, 21, 22 and 23 which are reproduced below, need to be consider....
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....pt that in pith and substance, the Act levies entry tax on entry of all goods, irrespective of the purpos e of entry. That the purpose of the entry is fundamental to the levy is made clear by the presumption laid down in Section 6 as if goods are consumed, used or sold in local area by the dealer or other person, it shall be presumed, until the contrary is proved by him, that such goods are entered into local area for consumption, use or sale therein. Where the dealer purchases specified goods in a local area from a person or dealer who is not a registered dealer, it shall be presumed, until the contrary is proved by him, that the entry of goods had been effected by him into the local area. Section 11 deals with burden of proof of certain aspects and makes the matter clearer. The burden of proving that a dealer or a notified person has not effected entry of specified goods in the local area for consumption, use or sale therein, lies on him. The Rules framed under the Act provide among other things, for furnishing of returns, payment of tax or penalty imposed on him, order of assessment and form thereof, authority and manner for assessment of tax and appeal or revision against the o....
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....hin the State or those imported from outside. The differential treatment accorded to goods produced within the area and those imported from outside the area is microscopic and irrelevant for the purpose of Article 304(a). (See State of Karnataka v. Hansa Corporation). Therefore, Article 304(a) of the Constitution is not attracted. 19. It is contended that Article 304(b) enables the State Legislature to impose reasonable restrictions on the freedom of trade, commerce and intercourse with or within the State as may be required in public interest, provided no bill or amendment for the said purpose shall be introduced or moved in the Legislature without the previous sanction of the President. According to the petitioners, there is no public interest involved in this restriction and the bill did not have the previous sanction of the President. Both sides have referred in this connection to the decision in State of Karnataka v. Hansa Corporation. 20. The above decision dealt with the challenge against the validity of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act (27 of 1979). Reference has been made t....
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....pensation Fund under Section 7B of the Sales Tax Act. By Act No.24 of 1978, this provision was omitted with effect from April 1, 1978. Section 7B was introduced in the Sales Tax Act with effect from October 1, 1978, specifically providing for grant-in-aid for loss of octroi to the municipality. This provision was deleted in 1990. This is the foundation for the contention that the entry tax is not compensatory in character. 23. The Statement of Objects and Reasons of the Act states that it is enacted to levy a tax on entry of goods in lieu of octroi tax collected by the municipalities and municipal corporations and to make transportation of goods trouble-free by abolishing octroi check-posts. A copy of the Statement of Objects and Reasons is found in annexure A. R-1 appended to the additional submissions made on behalf of the respondents in M.P. No.2289 of 1989. It indicates that the statute had the view of raising financial resources to compensate local bodies consequent upon abolition of octroi with a view to simplifying the taxation structure. Annexure A. R3 gives summary in respect of levy and details of allotment made to local bodies. The document shows that....
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....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 is being 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, because of which the impost has to be regarded as compensatory in nature, in view of what has been stated in the aforesaid decisions, more particularly in Hansa Corpn.'s case". 130. In the case of Jindal Stripe Ltd. the Supreme Court expressed doubts in respect of the "some connection" test propounded in paragraph 8 of the case of Bhagatram Rajeev Kumar and referred the matter to a larger Bench for deciding whether the "some connection" test was in consonance with the working test laid down in the case of Automobile Transport in the following terms: "19. See para 16 at page 310 of [2004] 134 STC. In 1995, some of the principles set out supra appear to have been deviated from when ....
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....ompensatory and the reasoning adopted for that conclusion cannot he brushed aside as mere obiter dicta. . . . 25. See para 23 at page 313 of [2004] 134 STC. To sum up : the pre-1995 decisions held that an exaction to reimburse/recompense the State the cost of an existing facility made available to the traders or the cost of a specific facility planned to be provided to the traders is compensatory tax and that it is implicit in such a levy that it must, more or less, be commensurate with the cost of the service or facility. The decisions emphasised that the imposition of tax must be with the definite purpose of meeting the expenses on account of providing or adding to the trading facilities either immediately or in future provided the quantum of tax sought to be generated is based on a reasonable relation to the actual or projected expenditure on the cost of the service or facility. 26. See para 24 at page 313 of [2004] 134 STC. The decisions in Bhagatram's case and Bihar Chamber of Commerce now say that even if the purpose of imposition of the tax is not merely to confer a special advantage on the traders but to benefit the public in general including the traders, that levy ....
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....ffends Article 301 owing to noncompliance of the conditions laid down in Article 304(b). 5. The appellants relied on the cases of Atiabari Tea Co. Ltd. v. State of Assam and Automobile Transport (Rajas-than) Ltd. v. State of Rajasthan, to state that taxation may impede the movement of goods from one barrier to the other and would accordingly bring Article 301 into play. They then contend that the conditions of Article 304(b) have not been complied with thereby rendering the M.P. Entry Tax Act, 1976 unconstitutional. 6. This argument of the appellants does not seem to be correct. It is well-settled by the decision in Atiabari Tea Co., that only such restrictions or impediments which directly or immediately impede the free-flow of trade, commerce and intercourse fall within the prohibition imposed by Article 301. This Court did not accept the argument that all taxes whether or not their impact on trade is immediate or mediate, direct or remote should be governed by Article 301. This view was further upheld in the Automobile Transport case and in State of Kerala v. A.B. Abdul Kadir. Hence, the mere fact that a tax is imposed does not automatically bring Article 301 into play. 7. In....
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....the levy cannot be impugned as invalid'. In the Jindal Stripe case, the division Bench noted that the above observation would mean that : 'An indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be legitimately brought within the concept of compensatory tax'. . . . Accordingly it refers the matter to a Constitution Bench to decide what exactly would fall under the ambit of 'compensatory tax', and thereby falls outside the purview of Article 301. Inasmuch as the Act in question has been upheld on the basis that it had been demonstrated by the State and not disputed by the dealers that the levy was compensatory it may not be necessary for us to dilate on this aspect any further. 132. It is pertinent to note that in the case of Geo Miller, the validity of the Act was upheld specifically on the ground that it was demonstrated to be compensatory in nature in the case of Bhagatram Rajeev Kumar and, therefore, not violative of Article 301 of the Constitution of India and was not upheld simply by applying the "some connection" test or theory as alleged by the petitioners after specifical....
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....atram's case was relied on by a Bench of two judges in the case of Bihar Chamber of Commerce, which reiterated the position that 'some connection' between the tax and the trading facilities extended to dealers directly or indirectly is sufficient to characterise it as compensatory tax. The court went further to hold that the State provides several facilities to the trade, such as, laying and maintenance of roads, waterways, markets, etc., and on this premise, it was held that the entry tax was compensatory in nature. The learned judges did not consider it necessary to put the burden on the State to furnish the details of facilities provided to the traders and the expenditure incurred or incurrable thereafter. 16. See para 15 at page 553 of [2006] 145 STC.See para 16 at page 553 of [2006] 145 STC. To sum up : the pre-1995 decisions held that an exaction to reimburse/recompense the State the cost of an existing facility made available to the traders or the cost of a specific facility planned to be provided to the traders is compensatory tax and that it is implicit in such a levy that it must, more or less, be commensurate with the cost of the service or facility. Those d....
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....2006] 145 STC. which are also reproduced as under: "50. See para 47 at page 574 of [2006] 145 STC. As stated above, in the post 1995 era, the said working test propounded in the Automobile Transport, stood disrupted when in Bhagatram's case, a Bench of three judges enunciated the test of 'some connection' saying that even if there is some link between the tax and the facilities extended to the trade directly or indirectly, the levy cannot be impugned as invalid. In our view, this test of 'some connection' enunciated in Bhagatram's case is not only contrary to the working test propounded in Automobile Transport's case, but it obliterates the very basis of compensatory tax. We may reiterate that when a tax is imposed in the regulation or as a part of regulatory measure the controlling factor of the levy shifts from burden to reimbursement/recompense. The working test propounded by a Bench of seven judges in the case of Automobile Transport and the test of 'some connection' enunciated by a Bench of three judges in Bhagatram's case cannot stand together. Therefore, in our view, the test of 'some connection' as propound....
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....relied upon by the learned Counsel for the petitioners regarding implied overruling and total wiping out of an overruled judgment have no applicability to the present case, specifically, in view of the fact that the Constitution Bench in the case of Jindal Stainless has, in so many words, only overruled that part of the judgment in the case of Bhagatram Rajeev Kumar wherein the "some connection" test was propounded in para 8 by specifically declaring it to be no longer good law "to that extent" while apparently not disturbing the finding recorded by the Supreme Court in the case of Bhagatram Rajeev Kumar to the effect that the impugned tax was not violative of Article 301 of the Constitution as it was compensatory in nature in view of the facts and figures furnished by the State and in the case of Geo Miller and Co., this distinction has been clearly brought out and clarified, while reaffirming the validity of the Act. This is further evident from the fact that the finding regarding constitutionality of the Act was neither referred to the Larger Bench in the case of Jindal Stripe Ltd. nor did the Constitutional Bench in Jindal Stainless hold or decide that the finding of fact regar....
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....rovided for creation of an Octroi Compensation Fund from the taxes collected under the Act and also statutorily provided for withdrawal and distribution from this octroi compensation fund to the local bodies as octroi compensation, the provisions of Sections 4A and 17 have been substituted in 1976 itself and thereafter the Act does not facially indicate that the tax collected thereunder is by way of compensation for the loss of revenue to the local bodies in lieu of abolition of octroi. 138. The learned Counsel for the petitioners have relied upon the Budget speech of the year 1999 and 2005 to contend that with the passage of time the tax collected under the Act has become more in the nature of a substitute of sales tax and as a measure to compensate loss of revenue from sales tax rather than octroi and, therefore, is a mere revenue-making measure and cannot be said to be compensatory in nature. It is further submitted that with the passage of time increase in the rate of tax has also rendered it non-compensatory and as no specific quantifiable equivalent benefit is extended to the trade community as a recompense for the tax levied under the Act, it does not satisfy the test as pr....
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....or the majority, has held in paragraphs 50 and 51 that: "50. Let us now revert to Article 301 and ascertain the width and amplitude of its scope. On a careful examination of the relevant provisions of Part XIII as a whole as well as the principle of economic unity which it is intended to safeguard by making the said provisions, the conclusion appears to us to be inevitable that the content of freedom provided for by Article 301 was larger than the freedom contemplated by Section 297 of the Constitution Act of 1935, and whatever else it may or may not include, it certainly includes movement of trade which is of the very essence of all trade and is its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported, that, in our opinion, directly affects the freedom of trade as contemplated by Article 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII the freedom of trade on which so much emphasis is laid by Article 301 would turn to be illusory. When Article 301 provides that trade....
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.... 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301. The argument that all taxes should be governed by Article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Article 301 a rational and workable test to apply would be: Does the impugned restriction operate directly or immediately on trade or its movement ? It is in the light of this test that we propose to examine the validity of the Act under scrutiny in the present proceedings." 142. Fr....
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.... really wanted to hamper anybody's trade, they could easily raise the amount of tax or toll to an amount which would be prohibitive or deterrent or create other impediments which instead of facilitating trade and commerce would hamper them. It is here that the contrast, between 'freedom' (article 301) and 'restrictions' (articles 302 and 304) clearly appears : that which in reality facilitates trade and commerce is not a restriction, and that which in reality hampers or burdens trade and commerce is a restriction. It is the reality or substance of the matter that has to be determined. It is not possible a priori to draw a dividing line between that which would really be a charge for a facility provided and that which would really be a deterrent to a trade ; but the distinction, if it has to be drawn, is real and clear. For the tax to become a prohibited tax it has to be a direct tax the effect of which is to hinder the movement part of trade. So long as a tax remains compensatory or regulatory it cannot operate as a hindrance. 11. . . . This in actual practice will mean that if the State Legislature wishes to control or regulate trade, commerce and intercourse ....
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....s in the fields allocated to them would be meaningless. In our view the concept of freedom of trade, commerce and intercourse postulated by Article 301 must be understood in the context of an orderly society and as part of a Constitution which envisages a distribution of powers between the States and the Union, and if so understood, the concept must recognise the need and the legitimacy of some degree of regulatory control, whether by the Union or the States : this is irrespective of the restrictions imposed by the other articles in Part XIII of the Constitution. We are, therefore, unable to accept the widest view as the correct interpretation of the relevant articles in Part XIII of the Constitution. . . . 14. After carefully considering the arguments advanced before us we have come to the conclusion that the narrow interpretation canvassed for on behalf of the majority of the State cannot be accepted, namely, that the relevant articles in Part XIII apply only to legislation in respect of the entries relating to trade and commerce in any of the Lists of the Seventh Schedule. But we must advert here to one exception which we have already indicated in an earlier part of this judgm....
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....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. 20. Nor do we think that it will make any difference that the money collected from the tax is not put into a separate fund so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may be. In the cases under our consideration the tax is based on passenger capacity of commercial buses and loading capacity of goods vehicles ; both have some relation to the wear and tear caused to the roads used by the buses. In basing the taxes on passenger capacity or loading capacity, the Legislature has merely evolved a method and measure of compensation demanded by the State but the taxes are still compensation and charge for regulation. 21. We were addressed at some length on the distinction between a tax, a fee and an excise duty. It was also pointed out to us that the taxes raised under the Act were not specially ear-marked for the building or maintenance of roads. We do not think that these considerations necessarily determine whether ....
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....ether the tax is compensatory or not, that is, by making an enquiry as to whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently more than what is required for providing the facilities but while doing so it was also observed that it would be impossible to judge the compensatory nature of a tax by a meticulous or rigid test as by the very nature of things that cannot be done. Both these judgments were extensively considered in the case of Jindal Stainless and on the basis of these judgments the "some connection" test propounded in the case of Bhagatram Rajeev Kumar was held to be no longer good law. Relevant parts of the judgment in the case of Jindal Stainless may profitably be referred to hereunder. 144. In the case of Jindal Stainless the parameters of compensatory tax were dealt with in paragraphs 39 to 45 See, which are reproduced below for ready reference: "39. As stated above, in order to lay down the parameters of a compensatory tax, we must know the concept of taxing power. 40. Ta is levied as a part of common burden. The basis of a tax is the ability or the....
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....e progressive rather than proportional. Compensatory taxes, like fees, are always proportional to benefits. They are based on the principle of equivalence. However, a compensatory tax is levied on an individual as a member of a class, whereas a fee is levied on an individual as such. If one keeps in mind the 'principle of ability' vis-a-vis the 'principle of equivalence', then the difference between a tax on the one hand and a fee or a compensatory tax on the other hand can be easily spelt out. Ability or capacity to pay is measurable by property or rental value. Local rates are often charged according to ability to pay. Reimbursement or recompense are the closest equivalence to the cost incurred by the provider of the services/facilities. The theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individual(s), a particular measurable advantage, it is only fair to the community at large that the beneficiary-shall pay for it. The basic difference between a tax on one hand and a fee/compensatory tax on the other hand is that the former is based on the concept of burden whereas com....
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....he concept of compensatory taxes was propounded in the case of Automobile Transport, in which compensatory taxes were equated with regulatory taxes. In that case, a working test for deciding whether a tax is compensatory or not was laid down. In that judgment, it was observed that one has to enquire whether the trade as a class is having the use of certain facilities for the better conduct of the trade/business. This working test remains unaltered even today. 50. As stated above, in the post 1995 era, the said working test propounded in the Automobile Transport, stood disrupted when in Bhagatram's case, a Bench of three judges enunciated the test of 'some connection' saying that even if there is some link between the tax and the facilities extended to the trade directly or indirectly, the levy cannot be impugned as invalid. In our view, this test of 'some connection' enunciated in Bhagatram's case is not only contrary to the working test propounded in Automobile Transport's case, but it obliterates the very basis of compensatory tax. We may reiterate that when a tax is imposed in the regulation or as a part of regulatory measure the c....
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....to the effect that if the tax facilitates trade, commerce and intercourse and does not directly and immediately restrict trade or its movement it would not fall foul of Article 301 of the Constitution of India. (B) The working test propounded in paragraph 19 of the case of Automobile Transport is in the following terms: 19. . . . 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. (C) While doing so, it is also to be seen that from whatever source, broadly in proportion of the tax collected, money is utilised for the purpose of providing certain facilities which are of use to the trades people or are being used for better conduct of business by the trades people. In other words there must be a direct nexus between trade and the nature and type of facilities provided. (D) It is also to be borne in mind that substantial part of the tax collected....
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....rticle 301 all taxes that directly and immediately restrict the free movement of trade belong to the same genus and have to be judged by applying the same parameters. This view has also been expressed in the concurring judgment of Subba Rao, J. in Automobile Transport wherein it has been held in paragraph 39 that: ". . . If a law, whatever may have been its source, directly and immediately affects the free movement of trade, it would be restriction on the said freedom . . ." Parameter A: 150. Relying on the judgment in Atiabari Tea Co. Ltd. the learned Counsel for the petitioners submits that entry tax directly impedes the movement and free flow of trade and commerce throughout the territory of India and, therefore per se violates Article 301 of the Constitution of India and as the State has not obtained prior approval of the President under the proviso to Article 304(b) nor is the tax compensatory in nature as per the criteria laid down by the Supreme Court in the case of Automobile Transport, Jindal Stainless as well as the judgment in the case of State of Karnataka v. Hansa Corporation AIR 1981 SC 463. 151. Per contra, it is submitted by the learned Advoca....
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....tanding anything in Article 301 or Article 303, the Legislature of a State may by law,- (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced ; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. Seventh Schedule, List II, entry 52. Taxes on the entry of goods into a local area for consumption, use or sale therein. 154. The interpretation and import of these articles need not detain us as the Supreme Court in the case of Atiabari Tea Co. Ltd. and Automobile Transport has extensively delved into the said issues and held that only such taxes which result....
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....unication, such as roads, waterways and airways cannot effectively be maintained and the freedom declared may in practice turn out to be an empty one. So too, regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom. To say all these is not to say that every provision couched in the form of regulation but in effect and substance a restriction can pass off as a permissible regulation. It is for the court in a given case to decide whether a provision purporting to regulate trade is in fact a restriction on freedom. If it be a colourable exercise of power and the regulatory provision in fact is a restriction, unless the said provision is one of the permissible restrictions under the succeeding articles, it would be struck down. This view is consistent with the principles laid down by the Australian High Court and the Privy Council in the context of interpretation of the words 'absolutely free' in Section 92 of the Commonwealth of Australia Constitution Act, which is more emphatic than the word 'free' in Article 301 of our Constitution. 3....
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....what does the word 'restrictions' mean in Article 302? The dictionary meaning of the word 'restrict' is 'to confine, bound, limit'. Therefore, any limitations placed upon the freedom is a restriction on that freedom. But the limitation must be real, direct and immediate, but not fanciful, indirect or remote. In this context, the principles evolved by American and Australian decisions in their attempt to reconcile the commerce power and the State police power or the freedom of commerce and the Commonwealth power to make laws affecting that freedom can usefully be invoked with suitable modifications and adjustments. of all the doctrines evolved in my view, the doctrine of 'direct and immediate effect' on the freedom would be a reasonable solvent to the difficult situation that might arise under our Constitution. If a law, whatever may have been its source, directly and immediately affects the free movement of trade, it would be restriction on the said freedom. But a law which may have only indirect and remote repercussions on the said freedom cannot be considered to be a restriction on it. Taking the illustration from taxation law, a law may impose a t....
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....eas for consumption, use or sale therein whether the entry is in the course of business or otherwise and, therefore, three things become immediately clear on a perusal of entry 52 of List II and the provisions of Section 3 of the Act and they are-firstly, that the charge of entry tax is per se not directly on the movement or the transport of goods as the charging event is not the movement but the entry of goods in a local area for consumption, use or sale therein ; sccondly, the entry tax can be charged and levied only in case where entry of goods is made within a local area for consumption, use or sale of goods within the local area and thirdly, that the charge is not restricted to dealers or traders alone. It is also apparent from a perusal of the Act that no entry tax is charged or levied on inter-State trade or transport of goods ; for example, if goods are transported by traders from Maharashtra to Chhattisgarh and on their way move across the State of M.P., no entry tax would be charged or levied on such movement of trade or goods as the entry of such goods is not caused within any local area of M.P. for consumption, use or sale therein. Similarly, even if the movement of goo....
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....ion under Section 66(e) of the Central Provinces and Berar Municipalities Act, 1922. Subsequently, octroi continued to be levied under the provisions of Section 132 of the Madhya Bharat Municipal Corporation Act, 1956. Thereafter, on formation of the State of Madhya Pradesh, the provisions of this Act were extended to the entire State of Madhya Pradesh by the provisions of the Municipal Corporation Law (Extension) Act, 1960 (Act No.13 of 1961) after receiving Presidential assent on March 18, 1961 which was first published in the M.P. Gazette (extraordinary) on April 12, 1961. Thus, the octroi which was imposed under Section 132(e) of the M.P. Municipal Corporation Act, 1956, as extended to the entire State of M. P. by Act No.13 of 1961, was imposed after having received Presidential assent on March 18, 1961. The provisions of Section 132(e) of the M.P. Municipal Corporation Act empowering the levy of octroi were deleted vide M. P. Municipal Laws (Amendment) Ordinance, 1976 (No.4 of 1976) with effect from May 1, 1976 and in its place Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, that is, entry tax under the Act was introduced. Though octroi was sought to....
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.... (c) fixing concessional rate for raw materials; (d) provisions for ensuring that tax on local goods is not evaded. Hence this Bill." 161. However, prior approval of the President under Article 304(b) proviso was not obtained while enacting the Entry Tax Act. It is in the backdrop of the aforesaid history that the validity of the impugned Act as far as it relates to the State of M.P. was challenged and upheld on the ground that it was compensatory in the cases of Sanjay Trading Co. [1994] 93 STC 589 (MP), Bhagatram Rajeev Kumar, Geo Miller and Co., etc., and has to be again adjudged. 162. A perusal of the provisions of the Act makes it apparent that the Act sought to do away with all the offending features of the octroi tax levied by municipalities which were said to impede the movement and development of trade and commerce and in its place made adequate provisions to regulate the levy of entry tax with a view to ensure that the impediments in the movement and free flow of trade and commerce were removed and the movement of goods was facilitated. It is also evident from a reading of the provisions of the Ac....
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....or sale therein. This tax in common parlance is known as 'octroi'. Octroi was leviable by the municipality under the power delegated to it under various laws providing for setting up of and administration of municipal corporations and municipalities. Octroi thus understood was being levied by various municipalities and municipal corporations in Karnataka State. Since some time a feeling had grown that octroi was obnoxious in character and impeded the development of trade and commerce and there was a clamour for its abolition. Taking note of the resentment of the business community, Karnataka State abolished octroi with effect from April 1, 1979. However, no one was in doubt that octroi was a major source of revenue to municipalities and its abolition would cause such a dent on municipal finances that compensation for the loss would be inevitable. Accordingly, the State Government undertook a policy of compensating the municipalities year by year. For generating funds for this compensation, rates of sales tax were raised and in some cases a surcharge was levied. The amount so collected was not sufficient to bridge the gap in municipal budget. To further augment the finances ....
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....ithout a demur. After removing the obnoxious features of octroi a very modest impact levied on entry of goods in a local area and that too not for further augmenting finances of the municipalities but for compensating the loss suffered by the abolition of octroi is certainly a levy in public interest. As has been repeatedly observed by this Court, the taxes generally are imposed for raising public revenue for better governance of the country and for carrying out welfare activities of our welfare State envisaged in the Constitution and, therefore, even if a tax to some extent imposes an economic impediment to the activity taxed, that by itself is not sufficient either to stigmatise the levy as unreasonable or not in public interest." 165. As is evident from a perusal of paragraphs 34 and 35 of the judgment in the case of Hansa Corporation as quoted above the Supreme Court has observed that an entry tax which is imposed by replacing octroi after doing away with the obnoxious features of octroi does not impose an unreasonable restriction on the freedom of trade and commerce nor does it result in further augmentation of revenue or finance but only results in compensating the loss suff....
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....hicles was considerably facilitated and the abolition of octroi was welcome in trade and business circles. Therefore, not only the enhanced tax does not lose the character of being compensatory on the ground that it was enhanced to compensate the loss suffered by the State in its revenues on account of abolition of octroi, but as a matter of fact on this very ground it acquires the character of being compensatory. 166. In the present case also the impugned tax imposed in the State of M.P. by the Act has been imposed on abolition of octroi in view of a similar situation prevailing and existing in the State of M.P. wherein the system of stopping, checking and levying tax at each barrier erected by all the local areas within the State of M.P. along with all its accompanying obnoxious features, causing hardship as well as slow movement of goods was abolished by imposing a one-point entry tax as a measure to remove the impediment in freedom of trade, commerce and intercourse and with the specific object of facilitating trade and the movement of goods. Consequently, I have no hesitation in holding that in view of the aforesaid past history of the tax as prevailing in the State of Madhya....
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....n the contention of the learned Counsel for the petitioner in respect of the aforesaid issue. Parameter B: 168. Before I take up the issue as to whether the tax is compensatory or not, I think it appropriate to state that once I have held that the entry tax imposed in the State of Madhya Pradesh as a replacement of and by abolishing octroi, in fact, results in facilitating trade and its movement in view of the past history as enumerated above and as it does not directly and immediately hamper or impede trade and its movement, it is not in violation of Article 301 of the Constitution of India, the present issue, i.e., as to whether the tax is compensatory or not, becomes sccondary and loses significance as the requirement that a tax must be compensatory is only necessary to be established in cases where it hampers free flow of trade and acts as a direct and immediate impediment to trade, thereby falling foul of Article 301 of the Constitution of India. As I have held that the impugned tax is not hit by Article 301 of the Constitution of India, the question as to whether the tax is compensatory or non-compensatory would have no impact on its constitutional validity vis-a-vis Articl....
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....pearing for the State has seriously refuted the contentions of the petitioners and has taken us through several paragraphs of the judgment in the cases of Atiabari Tea Co., Automobile Transport and Jindal Stainless in support of his contention. Additionally, the learned Advocate-General has submitted that the contention of the petitioners is misconceived in view of paragraphs 42 to 45 See, of the judgment of the Supreme Court in the case of Jindal Stainless itself as the Supreme Court in the said paragraphs has stated that a compensatory tax is like a fee and if that be so, then the concept of quid pro quo as interpreted by the Supreme Court itself postulates that if the person paying the fees receives general benefit in return, the element of service is satisfied and it is not necessary that the person paying the fee must receive some special benefit or advantage for payment of the fee and for this proposition has placed reliance on the judgments of the Supreme Court in the cases of City Corporation of Calicut v. Thachambalath Sadasivan, State of H.P. v. Shivalik Agro Poly Products, Sona Chandi Oal Committee v. State of Maharashtra. The learned Advocate-General has placed heavy re....
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....ial advantage to trade, commerce and intercourse". In paragraph 53 See para 50 at page 575 of [2006] 145 STC, in conclusion, the Supreme Court has held 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 AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide para 19 of the report (AIR), will continue to apply." 173. In the case of Automobile Transport the Supreme Court in paragraph 10 has specifically stated that "a charge for the use of trading facilities, such as, roads, bridges, aerodromes, etc., the collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome, is no barrier or burden or deterrent to traders who in their absence may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to anybody's freedom so long as they remain reasonable" and further "that which in reality facilitates trade and commerce is not a restriction and that which in realit....
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.... the tax need not be put into a separate fund as long as the facilities for the trades people who bear the burden are provided and the expenses incurred in providing the facilities are borne by the State out of whatever source it may be. In paragraph 21 it has further been clarified that even if the taxes collected are not specifically earmarked for the building or maintenance of roads that would not necessarily determine whether the tax is compensatory or not if in substance the tax is no hindrance to the freedom of trade, commerce or intercourse and further that "if a statute fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be considered unimpaired. In such a case the imposition assumes the character of remuneration or consideration charged in respect of an advantage sought and received". The Supreme court has thereafter gone on to quote with approval a paragraph of Dixon C.J. from Armstrong v. State of Victoria [1957] 99 C.L.R. 28, wherein it has been stated that without roads, bridges, aerodromes, airways,....
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.... Transport, the law laid down therein has been specifically reaffirmed in the case of jindal Stainless wherein the Supreme Court has held a tax imposed for construction and maintenance of roads, bridges and aerodromes which are basically for the convenience of the public at large but which are also used as facilities by the trades people and which specifically benefits trade, to be a compensatory tax. A similar example has been given by the Supreme Court in paragraph 38 See paragraph 35 at page 570 of [2006] 145 STC, in the case of Jindal Stainless to the following effect: "38. See paragrapg 35 at page 570 of [2006] 145 STC. . . . . For example, for installation of pipeline carrying gas from Gujarat to Rajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come in the category of manifestation of regulatory power. However, a tax levied on sale or purchase of gas which flows from that very pipe is a manifestation of exercise of the taxing power. . ." 176. To expand the same example in accordance with the test laid down in Automobile Transport further, if a charge or a tax would be levied on trades people who are also given t....
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....ople. 177. Shri Kishore Shrivastava, learned senior counsel for the petitioner, relying on paragraph 14 of the judgment of the Supreme Court in the case of Burmah-Shell Oil Storage and Distributing Co. of India Ltd., Belgaum v. Belgaum Borough Municipality, Belgaum, submits that octroi which was being levied prior to the levy of the present entry tax was by its very nature a tax levied for the purposes of earning revenue and the present entry tax which has replaced octroi, is also a revenue-earning tax and, therefore, cannot be said to be compensatory in view of the judgment in the case of Jindal Stainless. 178. In my considered opinion, the said argument suffers from two basic infirmities. Firstly, levy and imposition of tax in all cases results in raising revenue and, therefore, the mere fact that money is received on imposition of a tax is not the determining factor for the purposes of adjudging the nature of a tax as compensatory or otherwise. Secondly, the Supreme Court in the case of Automobile Transport or in the case of Jindal Stainless has nowhere held that the mere fact of revenue being earned from imposition of a tax would per se render the tax as non-compensatory. Wha....
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.... earned therefrom was utilised, and whether the revenue earned from collection of the impugned entry tax and distributed as octroi compensation under the Act continues to be utilised for the same purposes and whether the utilisation of this revenue results in providing facilities to the trades people who are having use of these facilities for better conduct of their business as also for regulating the levy collection, assessment, etc., of the entry tax. 181. From a perusal of the provisions of the M.P. Municipalities Corporation Act, 1956 and the M.P. Municipalities Act, it is apparent that the municipality is required to construct and maintain roads within the municipal area, provide for market areas and shops, provide for all essential civic amenities like drainage, lighting, water, fire fighting, etc., for maintenance and proper functioning of market areas and also undertake development activities by creating commercial and industrial zones, etc. 182. As is evident from the averments made by the respondents, the entry tax collected and distributed to the various municipalities as octroi compensation subsequent to abolition of octroi is also utilised for the same purpose, like ....
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....erely because in a particular State the rate of tax on Sales is higher than the rates prevailing in other States." 183. The aforesaid observations clearly establish that the place of consumption, existence of trade channels, availability of a good consumer market and all the host of other factors and amenities that are provided by the local bodies are also necessary for proper conduct of trade and therefore if the amount collected by the levy of entry tax is utilised for providing such facilities which are of use to the trades people and ultimately facilitate the free flow and movement of trade, the tax and the nature of such a tax can be said to be compensatory. As taken note of by the Supreme Court in the case of Automobile Transport, a tax or charge for providing trading facilities like roads, bridges, aerodromes, is a compensatory tax. It is also admitted and can be taken note of that the trades people have full use of these facilities within the municipal areas for the better conduct of their business and, therefore, there is a definite object and purpose for which the entry tax levied under the Act is utilised and there is also an established connection between the object an....
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....n mentioned is no violation of the freedom of inter-State trade lies in the relation to inter-State trade which their nature and purpose give them. The reason why public authority must maintain them is in order that the commerce may use them, and so for the commerce to bear or contribute to the cost of their upkeep can involve no detraction from the freedom of commercial intercourse between States." 185. In view of the above, if the tax is mainly utilised in providing any service, convenience or amenity or the host of other factors, some of which have been taken note of by the Supreme Court in the case of Nataraja Mudaliar [1968] 22 STC 376 AIR 1969 SC 147 which facilitate trade as well as the movement part of trade and without which inter-State trade, commerce and intercourse would either be restricted, hampered or would not be smooth, the tax would by its very nature be a compensatory tax falling outside the purview of Article 301. It is for the aforesaid reasons that I have no hesitation in holding that the tax collected under the Act is compensatory in nature and does not fall within the purview of Article 301 of the Constitution of India. Parameter D: 186. The respondent/St....
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.... waste management, and (10) others. 189. The submission of the learned Counsel appearing for the petitioners in respect of the facts and figures furnished by the respondent/State in the aforementioned charts and other documents is that the amount spent by the urban and local bodies in respect of abovementioned 10 heads clearly establishes that the entry tax collected under the Act forms part of the general revenue. It is further submitted that the amount of octroi compensation disbursed to the urban and local bodies is not utilised for providing any specific and special benefit to the trades people. As far as the facts and figures regarding expenditure furnished by the State are concerned, the petitioners submit that they do not render any assistance to the respondent/State in respect of the issues involved in the present petition as allegedly the amount disbursed as octroi compensation is being utilised for the purposes of discharging statutory obligations of the urban and local bodies as prescribed by the various laws relating to municipalities and in respect of which the urban and local bodies levy and recover taxes under the laws relating to municipalities and, therefore, the ....
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.... purposes of demonstrating that the tax is compensatory it is not necessary or compulsory to put the amount collected from levy of the tax into a separate fund as long as the facilities of proportionate value are provided to the trades people who bear the burden; (F) The expenses incurred in providing the facilities are borne by the State out of whatever source it may be ; and (G) The facilities, convenience or service may be provided by the State or an agency of the State. 191. It is also significant to note at this stage that the tax which was subject-matter of challenge in the case of Automobile Transport, though levied as a road tax was not specifically earmarked for the building and maintenance of the roads as taken note of in paragraph 21 of the judgment in the case of Automobile Transport in spite of which it was held to be compensatory simply by taking into consideration the fact that the income from the motor vehicle in the year 1952-53 was Rs. 34 lacs while the expenditure on new roads and maintenance of old roads was about Rs. 60 lacs and that in the year 1954-55 the estimated income from the motor vehicle tax was Rs. 35 lacs whil....
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....lisation of the tax it is significant to reiterate that the object and purpose of imposition of the entry tax was and is to do away with and prevent the urban and local bodies from imposing octroi which, had it continued to impose or reimpose, would reintroduce its alleged obnoxious features which the traders have themselves consistently opposed on the ground that they restrict and impede trade and its movement and as these urban and local bodies have suffered considerable loss of income due to abolishing of octroi, which was the main source of their revenue and as the entire revenue collected from imposition of entry tax is undisputedly distributed amongst the urban and local bodies, after deducting two per cent therefrom towards collection charges, therefore, as far as the State is concerned, the entire revenue from the tax is utilised solely for fulfilling the object of the Act, of removing the impediments in trade, to facilitate trade and its movement and to compensate the urban local bodies for the loss of revenue caused due to abolishing octroi. In other words, there is a definite connection between the object and the subject of the levy of entry tax. Admittedly, as the reven....
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....ners in respect of the facts and figures submitted by the State deserve to be rejected. Consequently, I also have no hesitation in holding that the State has been successful in demonstrating that the impugned tax is compensatory in nature. The next contention of the petitioners is that the respondents have' increased the rate of the tax to such an extent that it has become an impediment and hindrance to trade with the passage of time. Before I advert to the factual aspect of this issue, I think it proper to take note of the fact that none of the petitioners has either alleged or given figures in respect of the decline or loss in business income, trade or earnings as a result of the increase in the rate of entry tax to demonstrate that the impugned levy has adversely affected trade and therefore is discriminatory and also constitutes a direct and immediate impediment to trade and is non-compensatory. In fact, there is no averment in the petitions to the effect that the increase in the rate of tax has in any manner adversely affected trade. 196. From a perusal of Schedules II and III of the Act it is evident that the rate of entry tax on various goods generally still continues ....
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....ant factors to be considered are as to whether the increase in the rate of tax has directly and immediately hindered or impeded trade and its movement and whether the total revenue earned and collected as a result of the increase in the rate of tax has far exceeded the budget or money required for providing facilities to the trades people and when the increase in respect of a few goods is judged from this perspective, the contention of the petitioners loses significance as in spite of the impugned increase in the rate of tax the petitioners do not contend that trade or business has suffered a loss and as the revenue generated from collection of the tax continues to constitute only 45 per cent of the amount spent by the local bodies in providing facilities in the commercial and industrial sectors which are of use to the trades people. 198. Therefore, I have no hesitation in holding that there is no material change in the nature and character of the impugned tax with the passage of time nor can it be said that the rate of tax has been, with the passage of time, increased to such an extent as to render the tax confiscatory and noncompensatory. I am also of the considered opinion that....