TaxTMI 
TaxTMI 
2008 (5) TMI 638
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...., 14367, 14631, 14818, 15173, 15338, 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 vir....
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....dation 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.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 part....
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....estion whether the amount taxed has been established to be 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 ....
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....r of Commerce were overruled. In conclusion it was reiterated that 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 sh....
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....rt has held the entry tax to be compensatory in nature and, therefore, the same 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 ....
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....nd of the Preamble to the Constitution and Article 39(c) of the Directive Principles of 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', ....
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....on that once the parameters change there can be a fresh challenge and fresh adjudication. 21. 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 lo....
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....notification that as from the date specified in the notification and in the manner as may be prescribed, 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 s....
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.... 301 of the Constitution. It is highlighted that the rate of tax only in respect of the commodities specified 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 tha....
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....ct states that it is enacted to levy tax on the entry of goods in lieu of octroi tax collected by the municipalities 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 sm....
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....of Jindal Stainless. Nothing has been stated in the reply to show that the services have been rendered to the traders 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 T....
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....he same is distributed amongst the local bodies for providing facilities/services to the trade and industries. The facilities 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 ....
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....the dealers to make it compensatory and further as the tax being levied is ad valorem on the value of the goods imported, it 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 fa....
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....return and counter-affidavit were also filed after translation in English, as the said data was in Hindi. At that stage the learned 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 U....
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.... apart from the above, Mr. V.K. Shukla, learned Deputy Advocate-General has undertaken that the affidavit reconciliation shall be made with regard 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....
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....ment Department from the budget provision for the last five years for the periods 2001-02 to 2006-07. The said amount has been shown in crores. The chart-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 i....
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....en filed consolidating all the details of quantified and measurable data regarding the facilities/services provided by the State. In the said affidavit the 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, n....
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....s imposed it partakes the character of a tax and a tax alone can never be construed as compensatory or assume the character of regulatory measures, (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 o....
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....se circumstances, if the State Government levies an entry tax on cotton/silk for recouping the cost of the grant of such special facilities, there is no doubt that such an entry tax would 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....
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....nt allowed to certain municipalities/corporations really indicates that the levy of entry tax is not on the entry of goods into the local area but is indicative of the gross receipts distributed all over 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. ....
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.... on the decisions rendered in Corporation of Calcutta v. Liberty Cinema, Vasantlal Maganbhai Sanjanwala v. State of Bombay and Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi. The data given 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 a....
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....ed as follows: (i) The levy under the 1976 Act by no stretch of imagination can be regarded as compensatory in nature inasmuch as the State has miserably failed to establish that the tax is being levied in lieu of some 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 ....
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.... Shrivastava, learned senior counsel, has submitted that the acid test is the restriction on the free flow of trade and if the anatomy of the Act is x-rayed it would be clear as day that it is nothing but restriction. The learned senior counsel further submitted 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 sub....
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....h was laid down by Atiabari Tea Co. as such restrictions offend Article 301 of the Constitution and the working-test concept that was evolved in Automobile Transport (Rajasthan) and hence, there is a distinction between the restriction and facilitating of trade and 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. ....
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....fiable persons who pay the entry tax and they should not be burdened is not correct as the facilities and services are provided to the industries and trade as a conceptual whole and not to any particular industry or particular type of industry. (h) The assertion 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....
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.... industrial. The State has produced the data in respect of commercial and industrial scctors in certain urban local bodies, like Gwalior, Bhopal, Ujjain, Sagar, Rewa and Indore divisions. In Indore division the fire-fighting vehicles have been specifically provided between 2001-02 to 2004-05 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 busines....
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....rovision contained in Article 301 guaranteeing the freedom of trade, commerce and intercourse is not a declaration of a mere platitude, or the expression of a pious hope of a declaratory character ; it is not also a mere statement of a directive principle of State policy ; it embodies and enshrines a 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 b....
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....bsp; "17. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co.'s case is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 301 and such measures need not comply with the requirements of the proviso to Article 304(b) of the Constitution." 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 ....
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....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 or 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." (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 unimpa....
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....he said freedom. (6) This ban is lifted in the case of Parliament for the purpose of dealing with situations arising out of scarcity of goods in any part of the territory of India and also in the case of a State under Article 304(b), subject to the conditions mentioned therein. and (7) The State can impose a non-discriminatory tax 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 relatio....
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....cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and intercourse. In this connection it would be useful to recall the observations of this Court in Khyerbari Tea Co. Ltd. that the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Article 14, 19 or 301 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....
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....Whether levy of a tax computed according to sitting capacity of a transport vehicle used for carriage of passengers by itself without anything more restricts or thwarts freedom of trade, commerce and intercourse throughout the territory of India guaranteed by Article 301 is no more res integra. It was in fact conceded that revenue collected by such tax if employed 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 rev....
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....es both inter-State and intra-State movements of goods and passengers. Every local body from Municipal Corporation to Gram Panchayat in every State enjoys the power to levy octroi. A goods vehicle or a passenger vehicle will have to pass through different areas under the jurisdiction of various local authorities. If at every octroi station, the goods vehicles or the passenger vehicle is stopped and enquiry made or octroi either collected or deposit insisted upon with 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....
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....ble width, hardness and durability ; the maintenance of such roads will cost the Government money. But, because the users of vehicles generally, and of public motor vehicles in particular, stand in a special and direct relation to such roads, and may be said to derive a special and direct benefit from them, it seems not unreasonable that they should be called upon to make a special contribution 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 ....
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.... the expenditure incurred. What is necessary to uphold a regulatory and compensatory tax is the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy.If the object behind the levy is identifiable and 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 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....
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....hich is contemplated by the proviso to Sub-section (3) of Section 3 and to which reference will be made separately. In our opinion, the levy of tax cannot be said to offend Articles 301 and 304 of the Constitution." 78. I have referred to the aforesaid decisions only to appreciate what is meant by the working test and certain facilities provided to meet the requirement of the said test. As is manifest from 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 effe....
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....earned Counsel for the petitioners to pyramid the edifice that entry tax is not compensatory. The learned Counsel for the petitioners have commended to the decisions rendered by various High Courts as to how the entry tax levied in the respective State enactments does not fulfil the requirement of Article 304(a) of the Constitution despite the stance of the State that the tax collected is transferred to the local 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 qu....
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.... constitute 30 per cent of such members of the trading community for whose benefit the expenditure is incurred. The Bench further came to hold that no material at all was placed by the State with regard to the revenue allotted to the local authorities under the other enactments, which have a link or nexus to the kind of the facilities sought to be provided such as provision for roads, water, lighting, drainage, etc. It 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 5....
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....on ? If yes, the next question is : What is the effect of operation of the law on the freedom guaranteed under Article 301 ? If the effect is to facilitate free flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature. Clause (b) of Article 304 confers a power upon the State Legislature similar to that conferred upon Parliament by Article 302 subject to the following differences: (a) While the power of Parliament under Article 302 is subject to the prohibition of preference and discrimination decreed by Article 303(1) unless Parliament makes the declaration under Article 303(2), the State power contained in Article 304(b) is made expressly free from the prohibition contained in Article 303(1) because the opening words of Article 304 contains a non obstante clause both to Article 301 and Article 303. (b) While the Parliament's power to impose restrictions under Article 302 is no....
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....fits and is levied on an individual as a member of a class. A compensatory tax is different from fee as a fee is levied on an individual. (viii) 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. (ix) For a tax to be 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. ....
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.... or affirms the truth of the statements made in the presehce of a person who in law is authorised either to administer oath or to accept the affirmation. The responsibility for making precise and accurate statements in affidavit were emphasised by this Court in Krishan Chander Nayar v. Chairman, Central Tractor Organisation". . ." 94. On a perusal of the aforesaid decisions, it is discernible that affidavit has to be sacrosanct and contradictions are not welcome features. But, a pregnant 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....
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....atory and service charges and is utilised for providing facilities which are used by the trades people. In support of the contention the respondents have also given details of the total amount spent by the local bodies in providing facilities and have submitted that a perusal of these figures demonstrates that octroi compensation forms only a small part of the actual amount spent by the local bodies in providing facilities within the local area and, therefore, the amount received as octroi 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 theref....
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....sly. It has also been clarified that in Chart No. II given at page 2 of the affidavit dated December 27, 2007 the words "column 3 with column 8" mentioned in column No.10 be read as "column No.3 with column No.6". 100. In their affidavit dated December 27, 2007, the respondent/State had furnished the following figures relating to the amount of octroi compensation released to the urban and local bodies, the other amounts released to the urban and local bodies under various other heads and the amount spent by the urban and local bodies in commercial and industrial scctors and has also furnished the percentage-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 ....
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....ate amount spent out of MPs and MLAs funds Total 1 2 3 4 5 6 7 Indore 47 32327.58 49263.10 22647.39 1673.58 104911.65 Bhopal 52 31987.50 33002.39 21788.79 1590.14 88368.81 Ujjain 57 21743.83 25177.78 7391.15 1119.72 55432.48 Gwalior 48 25917.10 27739.15 3805.34 0 57461.59 Jabalpur 43 14337.67 15304.72 4183.76 462.96 34289.11 Kewa 42 23064.89 30876.18 15391.36 1025.79 70358.22 Sagar 49 13802.09 16237.68 2637.78 0 32677.55 Grant total 338 162180.66 197601.00 77845.56 5872.19 4434499.41 102. A conjoint reading of the aforesaid two charts indicates that the total amount of revenue of the urban and local bodies in the State for the period 2002-03 to 2006-07 was Rs. 4,43,499.41 lacs out of which a sum of Rs. 1,97,601 lacs constituted the amount received by them as octroi compensation from levy of entry tax which approximately constitutes 45 per cent of the total revenue. It is also apparent from a perusal of the total amount indicated at column 8 of Chart II reproduced above that the ....
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....he traders, the sellers, the goods importers do not gain any special advantage. That apart, what is to be seen is whether there is any positive aspect for the smooth flow of trade. In the scheme of things, the incidental use by the community cannot obliterate the main positive spectrum. The main or prifnary use stays and is not destroyed. Quite apart from the above, the statutory obligations and the duties of a welfare State are to be studied vis-a-vis the tax collected by way of entry tax. To give an extreme example, if it is held that it is the duty of the welfare State to construct roads and if entry tax is levied it cannot be compensatory, then the said broad proposition would run counter to the decision in Automobile Transport case which has been reiterated in Jindal Stainless. Therefore, neither extreme proposition nor microscopic concepts are to be introduced. As for the balance, as the Constitution Bench has held, I am humbly disposed to think that the eventual "some link" and "broad proportionality to the special and quantifiable benefits" strike the balance. Their Lordships have not held that it should be in arithmetical exactitude. Neither have their Lordships held that ....
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....lition of octroi and the said grant or allotment to the local bodies is not general in nature. To elaborate : the data has been furnished how the allocated entry tax is spent by the local bodies. The State has been able to show that considerable amount of the entry tax that is allotted to the local bodies is spent in the commercial or industrial scctors. (e) The provisions made for fire extinction measures do facilitate trade. (f) The State has given data about the money received from other sources and given to the local bodies and the amount collected from the entry tax and given to the local authorities. It is not a case where municipal functions, as ascribed to the municipal corporations or the municipalities or other local bodies are done from the funds allotted by the State or the Central Governments by way of grants. (g) Measures have been taken to provide trading facilities and markets have been established and specific data have been given as the chart would indicate. (h) The data provided meet the test of proportionality between the quantum of tax and the facilities/services provided in....
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....r of goods specified in Schedule II, into each local area for consumption, use or sale therein ; and (b) on the entry in the course of business of a dealer of goods specified in Schedule III, into each local area for consumption or use of such goods but not for sale therein; and such tax shall be paid by ever)' dealer liable to tax under the Vanijyik Kar Adhiniyam who has effected entry of such goods: Provided that no tax under this Sub-section shall be levied,- (i) in respect of goods specified in Schedule II other than the local goods, purchased from a registered dealer on which entry tax is payable or paid by the selling registered dealer; (ii) in respect of goods specified in Schedule II which after entry into a local area are sold outside the State or in the course of inter-State trade or commerce or in the course of export out of the territory of India; (iii) in respect of goods specified in Schedule III imported from outside the State for consumption or use but which have been disposed of in any other manner; (iv) in respect of goods exem....
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.... is proved to the satisfaction of the assessing authority that such goods have already been subjected to entry tax or that the entry tax is liable to be paid by any other person or dealer under this Act. (b) Copy of every such notification shall be laid on the table of the Legislative Assembly. (3) The entry tax levied under sub-section (1) and sub-section (2) shall be paid on the value of such goods. (4) No entry tax shall be payable on the goods specified in Schedule I. (5) The State Government may, by notification, amend Schedule 1, so as to include therein any goods not already specified therein and may, by a like notification, amend Schedule II or Schedule III to exclude therefrom the goods so included in Schedule I and thereupon Schedule II or Schedule III, as the case may be, shall stand amended accordingly. 110. Section 4 deals with the rate at which entry tax is to be charged. Section 4A which is the ground of attack is as under: "4A. Provision for entry tax at enhanced rate on certain goods consumed or used in manufacture of other goods.- (1) The State Government may, by notification, specify the local area or areas and the goods which....
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....er this Act: Provided that the assessing authority may call for or use such additional information for the purpose of assessment under this Act as it may deem necessary. 112. It is submitted by the learned Counsel for the petitioners who have assailed the notifications that the rate has been enhanced as a consequence of which the entry tax has lost its character of compensatory nature and fallen into the compartment of imposition of tax simpliciter. It is also canvassed that it is totally discriminatory. On a perusal of the Schedule, it is noticed that the rate of tax has not been enhanced in respect of all the items. It is restricted to a few. Be it noted, the notifications had come under assail on two occasions before this Court in Associated Cement Companies Ltd. [1996] 29 VKN 32 and My sore Cement Ltd. [2006] 143 STC 432 (MP) : [2003] 2 ST] 615 (MP). The Division Bench of this Court in Associated Cement Companies Ltd. [1996] 29 VKN 32 has held as under: "26. The provisions of the Act clearly reveal two legislative schemes in the matter of imposition of entry tax. One scheme which may ....
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.... to Section 9(1) has no application to the notifications contemplated under Section 4A or 12. We, therefore, reject the contention that the impugned notifications being violative of the first proviso to Section 9(1) of the Act are beyond the competence of the State Government. The point is answered accordingly." 113. In Mysore Cement Ltd. where the nofifications were under challenge, this Court, after referring to Section 4A, the Schedules and the rate of tax, has expressed the opinion on the following terms (at page 443 of STC): "18. We may notice another contention raised by the learned Counsel for the petitioners that the Presidential assent was necessary. It is urged that the Government could not have empowered to notify. It was submitted that for the same Presidential assent is necessary and it could not have been delegated. In this context we may profitably refer to the Constitution Bench decision rendered in the case of Shree Digvijay Cement wherein the decisions rendered in the cases of Indian Cement Ltd. and Shri Digvijay Cement Co. v. State of Rajasthan were overruled and their Lordships while dealing with the notification issued under Section 8(5....
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....has been issued. Taking note of the aforesaid stand we are of the considered opinion that the notification does not suffer from the vice of arbitrariness and we unhesitatingly give the stamp of approval to the same." 114. At this juncture, I may state with profit that on a query being made whether by virtue of the enhancement of the rate of entry tax, the prices have gone up in any particular area, learned Counsel for the petitioners, I must say conceded with all fairness that prices have not increased and there has been no change in the tax effect or impact. In view of the aforesaid, it is difficult to accept the submissions that the tax has become discriminatory or disproportionate so as to lose its compensatory nature. That apart, they do not offend Article 14 of the Constitution of India. Therefore, I hold the notification to be valid in law. 115. Though I have recorded my findirigs and conclusions at various stages of the judgment, it is condign to record my conclusions seriatim: (a) The plea raised by the learned Advocate-General for the State that the constitutional validity of the 1976 Act having been upheld in the cases of Bhagatram Rajeev Kumar....
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....given quietus as a result of subsequent events and changes in law giving fresh cause of action. In these petitions the petitioners have challenged the constitutional validity of the provisions of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (hereinafter referred to as, "the Act") under which entry tax is levied on entry of goods for consumption, use or sale within the area of local bodies in the State of Madhya Pradesh on rates prescribed under the Schedule. The petitioners have also challenged the constitutional validity of certain notifications issued under the provisions of the Act enhancing the rate of entry tax of certain goods. The validity of the Act has been challenged pursuant to and relying upon the judgment of the Supreme Court in Jindal Stainless Ltd. v. State of Haryana. Background events leading to the filing of the present petitions: 119. Before I advert to the issues involved in the petitions it would be apposite to take into consideration certain events leading to the filing of the present petitions which have specific reference to the State of Madhya Pradesh. The constitutional validity of the provisions of the Act was challe....
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....validity of the Act is no longer good law, the Act in its entirety deserves to be declared ultra vires as previous sanction of the President was not obtained while introducing the Act in the Legislahire of the State. (B) The provisions of the impugned Act are rendered violative of Article 301 of the Constitution of India as the tax is not compensatory in nature as per the judgment in the case of Jindal Stainless. (C) That the provisions of the Act are hit by the doctrine of "direct and immediate effect" on trade, commerce and intercourse throughout the territory of India as propounded in the case of Atiabari Tea Co. Ltd. v. State of Assam and also because it does not satisfy the working test prescribed for a compensatory tax to save it from violating the provisions of Article 301 of the Constitution of India as enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 and is, therefore, unconstitutional. (D) That the tax levied under the impugned Act is purely for generating revenue without providing any facilities in return to the tax-payers commensurate to the quantum of tax and, th....
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....am Rajeev Kumar and Geo Miller and Co. be treated as precedents, it would be incumbent upon this Court to reconsider the constitutional validity of the Act by reopening the question regarding its compensatory nature in the light of the legal principles laid down by the subsequent Constitution Bench of the Supreme Court in the case of Jindal Stainless and readjudge the compensatory nature of the tax in view of the changed circumstances and has contended that a law which was initially valid, may subsequently become invalid with the lapse of time in view of changed circumstances and subsequent events and for this proposition has relied upon the judgments in the cases of Motor General Traders v. State of Andhra Pradesh, Rattan Arya v. State of Tamil Nadu and K. Rajan v. C.K. Rajan. It is also contended by them that in a case like the present one where this Court is confronted with two judgments of the Supreme Court, the High Court is bound to follow the law laid down by the larger Bench notwithstanding the fact that the judgment of the smaller Bench has not been specifically overruled by placing reliance upon the decision of the Supreme Court in the case of Union of India v. K.S. Subra....
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....y has been demonstrated to be compensatory and this finding of fact has not been disturbed by the Constitution Bench in the case of jindal Stainless and, therefore, the present Act does not violate the provisions of Articles 301 and 304(b) of the Constitution of India. (C) The Act was enacted to levy entry tax which is distributed among the local bodies to compensate them for the loss of revenue from octroi which was abolished with a view to facilitate trade and intercourse and by its very nature does not violate the doctrine of "direct and immediate effect" on trade and commerce under Article 301 and also satisfied the working test laid down in paragraph 19 of Automobile Transport case and, therefore, the contentions to the contrary deserve to be rejected. (D) That without prejudice to or diluting the submissions made in respect of the validity of the impugned Act on the basis of the judgment in the case of Bhagatram Rajeev Kumar the State has furnished more than sufficient statistics and data to establish without doubt the fact that direct facilities far in excess of the proportion of the tax levied on the tax-payers is made available t....
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....abolished octroi which is a multi-point imposition and at the same time, legislated on single-point entry tax for the purpose of compensating the local authorities who suffered loss of revenue on account of abolition of octroi. 13. Single-point entry tax is a substitute for multi-point octroi and falls within the ambit of entry 52 of List II. It is a tax on entry and does not restrict freedom of trade or commerce, as is made clear in Transport Corporation of India v. Chairman, Municipal Council, Municipal Corporation, Indore and City Municipality v. Mahado Seetha Ram AIR 1967 AP 363. It is true that State Legislature is competent to levy entry tax only in respect of goods brought into a local area for the purposes of consumption, use or sale. Even where words of wide and general import are used, it has to be presumed that the Legislature was using the words in regard to activity in respect of its competence to legislate and to no other. (See Jothi Timber Mart v. Corporation of Calicut). 14. We have adverted to the scheme of the provisions of the Entry Tax Act. The Act is intended to levy entry tax on entry of specified goods into local ar....
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.... 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. This is a provision enabling the State Legislatures to introduce certain restrictions on trade, commerce and intercourse amongst States. There may be State tax imposed on goods imported from other States or Union territories to which similar goods manufactured in that State are subject so as not to discriminate between the goods so imported and goods manufactured. What is contemplated is a tax imposed on goods imported from outside the State. Entry tax is not a tax on goods, but a tax on entry of goods into a local area for particular purposes. Entry tax would be levied on specified goods either manufactured or produced within the State or imported from outside on their entry into a local area. The tax doe....
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....these decisions, it appears well-settled that if a tax is compensatory in character, it would be immune from the challenge under Article 301. If on the other hand, the tax is not shown to be compensatory in character, it would be necessary for the party seeking to sustain the validity of the tax liability, to show that the requirements of Article 304 have been satisfied.' In that case, the State did not attempt in the High Court to sustain the validity of the law on the ground that it is compensatory in character. 21. In the present case, the State has taken the stand that the levy of entry tax is compensatory in character, i.e., to compensate the municipalities for loss of income by way of octroi which has been abolished in the State. This contention is met by learned Counsel for the petitioners by pointing out that the legislative provisions indicative of the compensatory nature of the levy, have been deleted and, therefore, it is no longer open to the State to contend that the levy is compensatory in character. 22. Section 17 of the Act, as it originally stood, required that the tax collected shall be credited to the consolidate....
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....nd that the tax was upheld without applying the "some connection" theory. When this matter travelled up to the Supreme Court in the case of Bhagatram Rajeev Kumar, the Supreme Court, while dismissing the appeal, held the following in paragraph 8 (at page 658 in 96 STC): "8. Even the submission on Article 301 of the Constitution is not well-founded. The article came up for interpretation by this Court in Atiabari Tea Co. Ltd. v. State of Assam and Automobile Transport (Rajasthan) Ltd. v. State of Rajas-than. A combined reading of the two decisions indicates that so long as a tax is regulatory and compensatory it is not within the mischief of Article 301. In the counter-affidavit filed on behalf of the State which was not disputed, the nature of levy has been demonstrated to be compensatory. The appellants did not dispute the figure furnished by the State. It is settled by now that if the tax is compensatory then it is immune from challenge under Article 301 (see Khyerbari Tea Co. Ltd. v. State of Assam and State of Karnataka v. Hansa Corporation). The submission of Shri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade onl....
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...., 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 Corporation's case.' 22. The dicta in Bhagatram's case was relied on by a Bench of two judges in the case of State of Bihar v. Bihar Chamber of Commerce, which reiterated the position that 'some connection' between the tax and the trading facilities is sufficient to characterise it as compensatory tax. The court went further and took judicial notice of the fact that the State provides several facilities to the trade such as laying and maintenance of roads, waterways, markets, etc., and on this premise, held that the entry tax was compensatory in nature. The learned judges did not consider it necessary to insist on the State coming forward with the details of facilities provided to the traders and the expenditure incurred or incurrable thereafter. Even though the Act was upheld on an independent ground, i.....
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....ng the judgment in case of Bhagatram Rajeev Kumar as well as the subsequent judgment of the Supreme Court in the case of Jindal Stripe Ltd., wherein the "some connection" test propounded in the case of Bhagatram Rajeev Kumar was referred to the larger Bench, segregated the issue of the validity of the Act on the basis of the figures and data furnished by the State from the additional observations regarding "some link" made in paragraph 8 of Bhagatram Rajeev Kumar which was referred to a larger Bench and again held that the Act did not violate Article 301 of the Constitution of India as it was compensatory in nature. Paragraphs 3 to 13 of the judgment in the case of Geo Miller and Co. which are relevant for the purposes of the present case, are reproduced hereunder (at page 243 in 136 STC): 3. The questions that arise for consideration herein are: (i) Whether the M.P. Entry Tax Act, 1976, is unconstitutional as it is hit by Article 301 of the Constitution for not satisfying the conditions laid down in Article 304(b)? (ii) Whether in any event the goods used by the appellants are subject to entry tax by virtue of Section 3 of the M.P. En....
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.... compensatory in nature as the revenue earned therefrom passes over to the local bodies to compensate them for the loss incurred due to abolition of octroi. 11. Augmentation of their finance would enable them to promote municipal services more efficiently helping in the free-flow of trade and commerce. 12. The Act being compensatory in nature it is not open to challenge under Article 301 and there is no need to venture into the argument based on Article 304(b). Accordingly, the constitutionality of the Act is upheld. 13. In the case of Jindal Stripe Ltd. v. State of Haryana, a division Bench of this Court, raised doubts over the legal proposition laid down in the aforementioned Bhagatram case (which upheld the validity of the M.P. Entry Tax Act, 1976) and refers the matter to a Constitution Bench over the interpretation of Article 301 vis-a-vis compensatory tax. In Bhagatram case, although it was demonstrated by the appellant-State and not disputed by the respondents that the levy was compensatory, the court goes on to make an observation that compensation need not be that which facilitates the trade only. It observes that 'the concept of compensatory nature of tax has....
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....ate Legislature. However, the referral order is confined to the abovementioned first question." . . . 10. In Automobile Transport, it was said, vide AIR para 19, (SCR page 536) that 'a working test for deciding whether a tax is compensatory or not is to enquire whether the trade is having the use of certain facilities for the better conduct of its business and paying not patently much more than what is required for providing the facilities'. . . . 12. According to the referral order, after 1995, some of the principles set out stood deviated from when the principle of compensatory tax was applied to the entry tax in Bhagatram's case, which was decided by a Bench of three judges. 13. In Bhagatram's case, the challenge was to M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976. In that case, although it was demonstrated by the State and not disputed by the assessee that the levy was compensatory, nevertheless, the court went on to say, vide (page 658, para 8 of 96 STC) SCC p. 678. para 8, 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 exte....
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....145 STC. According to the referral order, since the concept of compensatory tax has been judicially evolved as an exception to the provisions of Article 301 and as the parameters of this judicially evolved concept are blurred, particularly, by reason of the decisions in Bhagatram case and Bihar Chamber of Commerce, the court felt that the interpretation of Article 301 vis-a-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench under Article 145(3). 133. Again while dealing with the arguments of the appellants the Supreme Court in paragraphs 18 and 23 has only referred to the sccond part of paragraph 8 in the case of Bhagatmm Rajeev Kumar wherein the observations regarding "some link" or "some connection" have been made. In paragraph 19 See para 17 at page 554 of [2006] 145 STC, of the judgment, the case of Sanjay Trading Co. [1994] 93 STC 589 (MP) was also brought to the notice of the court and it was specifically argued that in the case of Sanjay Trading Co. [1994] 93 STC 589 (MP) the Act was held to be compensatory on the basis of the figures furnished by the State which was not the case in respect of the Haryana Act which was subjec....
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....gly, the constitutional validity of various local enactments which are the subject-matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment." 134. From a perusal of the above, it is clear that in the case of Jindal Stainless the observations made in the latter part of paragraph 8 in Bhagatram Rajeev Kumar regarding "some link" or "some connection" were declared to be no longer a good law "to that extent" only and the validity of the Haryana Act and the other similar Acts pending adjudication were directed to be adjudged on the basis of the working test enunciated in the case of Automobile Transport. In other words, there appears to be some substance in the submissions of the Advocate-General that the Supreme Court in the case of Jindal Stainless has not set aside or declared bad law the finding recorded by the Supreme Court in Bhagatram Rajeev Kumar [1995] 96 STC 654 : [1995] Suppl 1 SCC 673 to the effect that the Act was not violative of Article 301 of the Constitution of India as it was demonstrated to be compensatory in nature on the basis of the facts and figures submitted therein and for th....
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....herefore, apparently not applicable to the present case. 1 am fortified in taking this view as the Supreme Court in the subsequent case of Geo Miller has itself taken note of the limited and restricted reference to the larger Bench and again upheld the validity of the Act by referring to Bhagatram as well as the fact that the Act was demonstrated to be compensatory on the basis of the figures produced by the State, and this Court is bound by the law laid down by the Supreme Court. It is pertinent to note that these are the background facts which place the Madhya Pradesh Act on a different footing than the Haryana and other State Acts. 137. The learned Counsel for the petitioners have submitted that even otherwise, the Constitutional validity of an Act can be challenged subsequently, if, with the passage of time provisions which were previously intra vires have been rendered ultra vires due to subsequent events and change in circumstances. It is submitted by Shri H.S. Shrivastava, learned Senior Counsel and Shri Kevin Gulati, learned Counsel for the petitioners, that though initially the Act purported to levy entry tax in lieu of abolition of octroi and that there was specific me....
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....tainless this Court is required to re-examine the issue raised by the petitioners as to whether with the passage of time and subsequent events that have taken place since the year 1995 onwards the tax has lost its compensatory character and having become a pure revenue-earning measure, violates Article 301 of the Constitution of India in the absence of prior approval by the President under proviso to Article 304(b) of the Constitution of India. 140. On behalf of the petitioners it has been vehemently contended that in view of the judgment in the case of Jindal Stainless, the validity of the Act has. to be re-examined by making a limited enquiry into the fact as to whether the tax is compensatory and has been levied and utilised only for providing some special benefit to traders. However, I find no substance in this submission as the Supreme Court in the case of Jindal Stainless, after declaring the "some connection" test to be no longer good law, has held that the validity of the Act must be judged on the basis of the law as laid down in the cases of Atiabari Tea Co. and Automobile Transport. In view of the above, I think it apposite to quote and refer to relevant portions of th....
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....becomes complex and difficult. However, in interpreting the provisions of the Constitution we must always bear in mind that the relevant provision 'has to be read not in vacuo but as occurring in a single complex instrument in which one part may throw light on another', (vide : James v. Commonwealth of Australia [1936] AC 578 at p. 613). In construing Article 301 we must, therefore, have regard to the general scheme of our Constitution as well as the particular provisions in regard to taxing laws. The construction of Article 301 should not be determined on a purely academic or doctrinaire considerations; in construing the said article we must adopt a realistic approach and bear in mind the essential features of the separation of powers on which our Constitution rests. It is a federal constitution which we are interpreting, and so the impact of Article 301 must be judged accordingly. Besides, it is not irrelevant to remember in this connection that the article we are construing imposes a constitutional limitation on the power of the Parliament and State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would be presumed to be for publi....
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.... Automobile Transport by the majority. However, while doing so, further exception to Article 301 was carved out by stating that regulatory measures and compensatory taxes would not come within the purview or the restrictions contemplated by Article 301 and such measures need not comply with the provisions of the proviso to Article 304(b) of the Constitution. Relevant parts of the judgment in the case of Automobile Transport are quoted below: "10. . . . If the word 'free' in Article 301 means 'freedom to do whatever one wants to do', then chaos may be the result; for example, one owner of a motor vehicle may wish to drive on the left of the road while another may wish to drive on the right of the road. If they come from opposite directions, there will be an inevitable clash. Another class of examples relates to making 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 compen....
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....tration and there are several items relating to the imposition of taxes in List II. The Constitution-makers must have intended that under those items the States will be entitled to raise revenue for their own purposes. If the widest view is accepted, then there would be for all practical purposes, an end of State autonomy even within the fields allotted to them under the distribution of powers envisaged by our Constitution. An examination of the entries in the lists of the Seventh Schedule to the Constitution would show that there are a large number of entries in the State list (List II) and the Concurrent list (List III) under which a State Legislature has power to make laws. Under some of these entries the State Legislature may impose different kinds of taxes and duties, such as property tax, profession tax, sales tax, excise duty, etc., and legislation in respect of any one of these items may have an indirect effect on trade and commerce. Even laws other than taxation laws, made under different entries in the Lists referred to above, may indirectly or remotely affect trade and commerce. If it be held that every law made by the Legislature of a State which has repercussion on tar....
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....If the Act and the Schedules appended thereto are examined in this manner, it will be noticed that the tax imposed is really a tax for the use of the roads in Rajasthan and it cannot be said that it hinders the free movement of trade, commerce and intercourse. The taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in a good state of repairs. Whether a tax is compensatory or not cannot be made to depend on the preamble of the statute imposing it. Nor do we think that it would be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used in providing any facilities. It is obvious that if the preamble decided the matter, then the mercantile community would be helpless and it would be the easiest thing for the Legislature to defeat the freedom assured by Article 301 by stating in the preamble that it is meant to provide facilities to the tradesmen. Likewise actual user would often be unknown to tradesmen and such user may at some time he compensatory and at others not so. It seems to us that a working test for deciding whether a tax is....
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....ngs at a standard by which they may continue. However it may be stated, the ultimate ground why the exaction of the payments for using the instruments of commerce that have been 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.' The learned Chief Justice reiterated the same view in Commonwealth Freighters Property Ltd. v. Sneddon [1959] 102 C.L.R. 280 at page 291. 22. We have, therefore, come to the conclusion that the Act does not violate the provisions of Article 301 of the Constitution and the taxes imposed under the Act are compensatory taxes which do not hinder the freedom of trade, commerce and intercourse assured by that article. The taxes imposed were, therefore, legal and the High Court rightly dismissed the writ petitions filed by the appellants. In the result the appeals fail and are dismissed with costs ; one hearing....
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....39; applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the Government action and even if such benefit results from the Government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable. 42. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services which costs in turn become the basis of reimbursement/recompense for the provide of the services/facilities. Compensatory tax is based on the principle of 'pay for the value'. It is a sub-class of 'a fee'. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to....
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.... 45. To sum up, the basis of every levy is the controlling factor. In the case of 'a tax', the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of 'a fee', the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of 'burden' to the concept of measurable/quantifiable benefit and then it becomes 'a compensatory tax' and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then Article 301 is violated. 145. Thereafter holding that the working test propounded i....
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....ate of Rajasthan/or deciding whether a tax is compensatory or not vide paragraph 19 of the report (AIR), will continue to apply and the test of 'some connection' indicated in paragraph 8 (of SCC) the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax and followed in the case of State of Bihar v. Bihar Chamber of Commerce is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject-matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment." 146. From a careful reading of the above, I am of the considered opinion that the broad criteria for determining whether the impugned Act and the entry tax imposed thereunder violates Article 301 and to determine the nature of a tax to be compensatory that have to be addressed in the present batch of petitions in the light of the judgments in the cases of Atiabari Tea Co. Ltd., Automobile Transport and Jindal Stainless may be generally stated to be: (A) The rational and workable test propounded in paragraph 51 in the case of Atiabari Tea Co. Ltd. for deter....
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....be appropriate to first address an argument raised by the learned Counsel for the petitioners that the entry tax levied under the Act cannot be tested and adjudged on the basis of the judgments in the cases of Atiabari Tea Co. Ltd. and Automobile Transport and other cases as the tax in all those cases was a tax on motor vehicles whereas the tax in question in the present case is an entry tax. 148. In my considered opinion the contention of the learned Counsel for the petitioners is misconceived. For the purposes of judging whether a tax falls within the purview of Article 301 of the Constitution of India, it has to be seen whether the tax directly and immediately affects the movement part of trade, commerce and intercourse throughout the territory of India as has been held by the Supreme Court in the cases of Atiabari Tea Co. Ltd. and Automobile Transport wherein it has been held that any tax on movement of goods which directly and immediately affects trade and its movement, irrespective of the nature of the tax would be hit by Article 301. 149. In view of the above, it is apparent that for the purposes of Article 301 any tax, whether it is a motor vehicle tax or any other ta....
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.... was imposed by abolishing octroi, the apex court has categorically held that such a tax by its very nature acquires the character of being compensatory as it facilitates the movement of goods rather than impeding it. 152. The State has taken a specific plea that entry tax under the Act has been imposed only to facilitate trade by doing away with octroi which impeded trade and to compensate the loss of revenue to the local bodies in lieu of abolition of octroi and the entire tax so collected is disbursed to the local bodies as "octroi compensation" after deducting two per cent therefrom as regulatory charges and is utilised only for the purposes of providing conveniences, facilities, amenities and other benefits by the local authorities as agencies of the State, like, roads, their maintenance, markets, shops, etc., which facilities are utilised by the trades people and, therefore, the tax by its very nature is compensatory. 153. To appreciate the rival contentions in the proper perspective it is proper to take note of the relevant provisions of the Constitution of India, i.e., Articles 301, 304 and entry 52 of Schedule VII, List II, which are reproduced as under: &nb....
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....and intercourse but rather facilitate them." and paragraph 10 wherein it has been stated that a tax that facilitates trade and its movement does not fall within the purview of Article 301. 155. To properly appreciate what constitutes a restriction on the freedom of trade and its movement it is necessary to take into consideration paragraphs 35, 36, and 39 of the concurring judgment of Subba Rao, J. in the case of Automobile Transport which are to the following effect: "35. The next question is, what is the content of the concept of freedom ? The word 'freedom' is not capable of precise definition, but it can be stated what would infringe or detract from the said freedom. Before a particular law can be said to infringe the said freedom, it must be ascertained whether the impugned provision operates as a restriction impeding the free movement of trade or only as a regulation facilitating the same. Restrictions obstruct the freedom, whereas regulations promote it. Police regulations, though they may superficially appear to restrict the freedom of movement, in fact provide the necessary conditions for the free movement. Regulations such as provision ....
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....ature with the consent of the Central Executive Government. By so construing, we would be making the Legislature of a State elected on adult franchise the handmaid of the Central executive. We would be re-writing the Constitution and introducing by side-wind autocracy in the field of legislation allotted to the States while our Constitution has provided meticulously for democracy. Therefore, any construction which may bring about such an unexpected result shall be avoided unless the Constitution compels us by express words to do so. There are admittedly no such words of compulsion. At the same time it is also difficult to accept the argument advanced by the States that only the laws made under entry 42 of List I, entry 26 of List II and entry 33 of List III, of the Seventh Schedule to the Constitution are subject to that freedom ; for firstly, the article does not restrict the freedom to the area covered by those entries, and, sccondly, laws made under the other entries may more effectively and directly affect the movement of trade. If a law directly and immediately imposes a tax for general revenue purposes on the movement of trade, it would be violating the freedom. On the other ....
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....ns of a particular statute to ascertain whether the tax is on the movement. If the provisions disclose a tax on the movement, it will be a restriction within the meaning of Article 302. In the latter case, if the provisions show that the tax is on property, the reasonableness of the tax may have to be tested against the provisions of Article 19 of the Constitution. The question whether a law imposes a restriction or not depends on the question whether the said law imposes directly and immediately a limitation on the freedom of movement of trade. If it does, the extent of the impediment relates to the question of degree rather than to the nature of it. If it is a restriction, it must satisfy the conditions laid down in Article 302 of the Constitution. 156. The Entry Tax Act falls within entry 52 of List II of the Seventh Schedule to the Constitution of India, which empowers the State Legislature to make laws imposing taxes on entry of goods into local areas for consumption, use or sale therein. Section 3 of the Act, which is the charging Section, provides for levy of tax on entry of goods into local areas for consumption, use or sale therein. While Section 3(1) provides for levy ....
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.... and figures to the effect that they have suffered any loss in their business or trade as a result of imposition of entry tax. In fact, there is no allegation in the petitions that the tax has directly and immediately affected their trade or business adversely. 157. I may hasten to add that I have taken into consideration the above mentioned aspects of entry tax only to take note of the fact that entry tax is not a general tax imposed on all or any movement or transport part of trade and that the imposition is not restricted to trades people alone but also encompasses non-traders who cause entry of specified goods within a local area for consumption, use or sale therein. The aforesaid aspects are necessary to be kept in mind while adjudging as to whether the tax as imposed by the State of Madhya Pradesh directly and immediately hampers or restricts the freedom and movement of trade and whether' it satisfies the rational and workable test propounded in the case of Atiabari Tea Co. Ltd., as directed by the Supreme Court in the case of Jindal Stainless. 158. To properly appreciate the submissions made by the learned Counsel for the parties regarding the nature of the tax, I ....
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....llegedly the trades people were ruthlessly harassed and, therefore, there was a general demand for abolition of octroi. Consequently, the State, while abolishing octroi which was levied by the concerned local body, enacted the provisions of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam 1976, i.e., the Entry Tax Act taking over the responsibility of levy and collection of the tax from the local bodies by converting it into a one point tax and thereafter distributing the proceeds therefrom to the local bodies as "octroi compensation" in lieu of the loss of revenue resulting from the abolition of octroi. 160. The Statement of Objects and Reasons of the Act has been published in the M.P. Rajpatra dated September 9, 1976 and is as follows making the aforesaid position clear: "The Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (No.6 of 1976) was promulgated with a view to raising financial resources to compensate the local bodies consequent upon the abolition of octroi. It is now proposed to replace the Ordinance by an Act of the Legislature with modifications as below taking into account the representations of....
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....tate the movement of goods. That apart, as undoubtedly, octroi was the most important and major source of revenue of the municipalities and as its abolition caused a tremendous reduction and dent in municipal finances, the Act sought to compensate the loss to some extent by providing a system of distributing the revenue from collection of entry tax to various municipalities as octroi compensation. Thus, the Act sought to replace octroi which was being levied under the municipal laws after due approval of the President, by the regulated and simplified entry tax which also provided for compensating the loss of revenue of the municipalities by making provisions for distributing the revenue collected from the tax to the municipalities as octroi compensation. To put it differently the Act was enacted with the object of regulating the imposition of tax on entry of goods for consumption, use or sale within a local area by doing away with the alleged objections that were being voiced against octroi which it replaced. 163. The situation in respect of levy of octroi under various Municipality Acts in the country wherever levied was similar and for this purpose I may profitably refer to th....
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.... selecting the goods set out in the Schedule, the entry of which in a local area would provide the taxing event . . ." 164. It was further observed in paras 34 and 35 that such a levy does not impose an unreasonable restriction on trade and commerce and is in fact, in public interest in the following terms: "34. . . . Even apart from this, 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 abolition of octroi cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and intercourse. In this connection it would be useful to recall the observations of this Court in Khyerbari Tea Co. Ltd. case that the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Articles 14, 19 or 301 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....
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.... facilitated and the abolition of octroi was welcomed in trade and business circles and that such a tax acquires the character of being compensatory after duly considering and referring to the judgments in the case of Atiabari Tea Co. and Automobile Transport in the following terms: "7. If tax was enhanced to meet the loss suffered on account of abolition of octroi, one can say without the fear of contradiction that the abolition of octroi facilitates both inter-State and intra-State movements of goods and passengers. Every local body from Municipal Corporation to Gram Panchayat in every State enjoys the power to levy octroi. A goods vehicle or a passenger vehicle will have to pass through different areas under the jurisdiction of various local authorities. If at every octroi station, the goods vehicle or the passenger vehicle is stopped and enquiry made or octroi either collected or deposit insisted upon with a right to claim refund, one has to experience through this agonising journey to appreciate what a pernicious influence octroi had on transport of goods and passengers. Karnataka took the lead and abolished octroi. One can take judicial notice of a unive....
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....ent from a perusal of the law relating to municipalities that the provisions for levy of octroi in the name of a local-body tax already exists therein but the operation of these provisions has been stayed as entry tax is being levied under the Act and if entry tax under the Act is withdrawn or prohibited, the provisions of the municipalities and Municipal Corporation Act providing for levy of octroi as a local-body tax in the State of M.P., would come into operation enabling and empowering the local bodies to levy and recover octroi and for that purpose to take all regulatory measures including establishment of Nakas/barriers, etc., and thereby revive the alleged objectionable features of octroi which had previously been opposed and objected to by the trades people themselves alleging that they impeded the movement part of trade. To put it differently, the fact of levy of entry tax under the Act and its continuance as a one-point levy by the State has resulted in abolition and prohibition of imposition of the much opposed octroi by local bodies and has thereby resulted in directly and immediately facilitating trade and the very movement of trade. Therefore, this fact in itself goes....
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...., levy, assessment, recovery, set-off, penalty, etc., in respect of the tax and also converted it into a single-point tax and sought to remove all the impediments and barriers in the free flow of trade and, therefore, the impugned Act is also a regulatory measure enacted with a view to smoothen the entire process of levy of entry tax by removing all the obnoxious features of octroi which were alleged to impeded and hamper freedom of trade and its movement. 170. While ascertaining as to whether the tax is compensatory or not, in the light of the parameters and guidelines laid down by the Supreme Court, it is necessary to deal with the arguments of the learned Counsel for the petitioners based upon paragraphs 39 to 45 See, of the judgment in the case of findal Stainless at this stage itself, that the Supreme Court in the case of jindal Stainless has now held that a tax can be held to be compensatory only in case where the revenue derived from the tax is used for providing some quantifiable and measurable special benefits and special advantages "exclusively" to the persons paying the tax in direct proportion to the quantum of tax by applying the principal of equivalence and "pay fo....
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....t". In paragraph 42 See para 39 at page 571 of [2006] 145 STC, it has been observed that "a fee or compensatory tax has to be broadly proportional and not progressive" and that "in the principle of equivalence which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services, which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities. Compensatory tax is based on the principle of pay for the value. It is a sub-class of a fee. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities" and again that "the theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individuals, a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it". It has further been stated that "for a tax to be compensator, there must be some link between the quantum of tax and the facility/services. Every benefit is measured in terms of cost which has to be reimbursed by compensatory tax or ....
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....ld render the plenary power of the State to legislate meaningless and thereafter in paragraph 14 has held that "regulatory measures that do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by Article 301 and are excluded from the purview of the provisions of Part XIII of the Constitution. In paragraph 19 it has been specifically stated that a tax imposed for the use of roads in Rajasthan cannot be said to hinder or prohibit the movement part of trade and commerce and that such a tax is compensatory. It has also been held that determination of the nature of tax cannot be made to depend upon the preamble of the statute and that it cannot be said that a tax is not compensatory because the precise or specific amount is not actually used in providing any facility. Importantly, it has further been clarified that actual user would often be unknown to traders and that such user may at times he compensatory and at others not so and that by the very nature of things it would be impossible to judge the compensatory nature of a tax by a meticulous test. In paragraph 19 it has been held that th....
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....y earmarked for being utilised for providing the facility would not detract from or change its compensatory character. 175. Quite apart from the above even from a conjoint reading of the judgments in the case of findal Stainless parts of which where the words special benefit and special advantage have been used have been heavily relied upon by the petitioners, along with the judgment in the case of Automobile Transport. I am unable to agree with the learned Counsel for the petitioners that the Supreme Court, in the case of Jindal Stainless, has held that a tax can be said to be a compensatory tax only when it is levied for providing some measurable and quantifiable special benefit or facility exclusively to the traders in direct proportion to the quantum of tax. I am constrained to say so as in the case of Jindal Stainless the Supreme Court was specifically dealing with the correctness or otherwise of the "some connection" or "some link" theory as propounded in the case of Bhagat-ram according to which even if only some portion or part of the tax is utilised for providing some facility to the trades people the tax would be compensatory. This theory has been held to be no longer ....
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....ly to and exclusively for the use of trades people as a special advantage or benefit in lieu of the tax paid by them, that only then the tax would be compensatory as contended by the petitioners, and 1 believe, deliberately so, as the proposition of providing roads, bridges, aerodromes, etc., for the exclusive use of only the trades people as a condition precedent for levying a compensatory tax, itself borders on absurdity. I am further fortified in my view from the fact that the Supreme Court, in the case of Jindal Stainless in the ultimate analysis has directed such taxes to be tested only on the basis of the working test propounded in the case of Automobile Transport according to which it has to be adjudged as to whether the trades people are having the use of certain facilities for the better conduct of their business. This test does not lay down that the facility must be a special or an exclusive facility only for the use of the trades people as a special quantifiable benefit or advantage in lieu of the levy of tax but only prescribes that the facility must be provided by the State and that the trades people must have the use of the facility for better conduct of their busines....
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....traders but is treated as general revenue and is utilised for other purposes, the tax would be a mere revenue-raising measure and would not be compensatory in nature. 179. It is also pertinent to take note of the fact that the most important source of revenue of the local bodies was from imposition of octroi which was abolished and as submitted by the respondents in their return, the entry tax was introduced in its place. The entire money collected from imposition of the entry tax under the impugned Act which was introduced in its place is being distributed amongst the local bodies after deducting 2% (two per cent) therefrom towards collection and regulation charges to compensate them for the loss of revenue caused due to abolition of octroi and, therefore, the sole purpose and object of levy of entry tax under the Act is to compensate the loss of revenue of the local bodies and to fill in the dent in their revenue resulting from abolition of octroi and the State is simply collecting and thereafter distributing the tax collected under the Act to the local bodies and is not keeping or retaining it with itself as general revenue generated from imposition of a tax as is being done ....
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....try of goods within the municipal areas for consumption, use or sale therein, for the residents of the local area and the larger and more developed the local area, more the entry of goods for consumption, use or sale therein. Here, I may profitably rely upon the Constitution Bench judgment of the Supreme Court rendered in the case of State of Madras v. N.K. Nataraja Mudaliar that: ". . . The flow of trade does not necessarily depend upon the rates of sales tax : it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. Instances can easily be imagined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part, where a higher rate of tax prevails. Supposing in a particular State in respect of a commodity, the rate of tax is two per cent, but if the benefit of that low rate is offset by the freight which a merchant in another State may have to pay for carrying that commodity over a long distance, the merchant ....
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....und or that the levy should be proportionate to the expenditure . . ." by relying upon the judgment in the case of Automobile Transport. 184. In the case of Automobile Transport the Supreme Court has specifically held that if the money collected from the imposition of tax is utilised for providing services and amenities which facilitate the movement of goods and the trades people have the use of these facilities for better conduct of their business, then the tax is compensatory in nature. While coming to this conclusion the Supreme Court has specifically dealt with amenities like roads, bridges, aerodromes, etc. Additionally, it has also been held in paragraph 21 that if a statute fixes a charge for the convenience of the services provided by the State or an agency of the State and imposes it upon those who choose to avail themselves of the services and conveniences, freedom of trade and commerce may well be considered unimpaired as the imposition assumes the character of remuneration and consideration in respect of the advantage sought and received ; and in this respect quoted with approval Dixon C.J., from Armstrong v. State of Victoria [1957] 99 CLR 28 wherein it has been hel....
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....In his detailed judgment it has been concluded that the entire amount collected from levy of the tax is distributed by the State to the urban and local bodies as octroi compensation after deducting two per cent therefrom, that the tax is utilised by the local bodies for providing facilities which are for use of the trades people in the industrial and commercial sectors, that the urban and local bodies have other sources of revenue including revenue from levy of local taxes, that octroi compensation distributed to the urban and local bodies from the collection of the impugned tax constitutes only 45 per cent of the amount spent by the urban and local bodies on the commercial and industrial sectors within the area. To avoid prolixity, I respectfully adopt and agree with the analysis and conclusion recorded by brother, Dipak Misra, J. in his judgment. 188. In addition to the aforesaid aspects, it is submitted by the respondent/State that in reply to the allegations of the petitioners they have specifically given the break-up of the amount spent by the local bodies in the commercial and industrial sectors under 10 specific heads which, according to them, facilitate trade and are use....
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....he amount collected as entry tax under the Act by the State is not directly and specifically utilised for the specific head, the facts and figures furnished by the State, on the contrary, establish that the tax is not compensatory. It is also submitted by the petitioners that the entire stand of the State is per se misconceived as the nine heads in respect of which details of expenditure have been submitted by the State do not facilitate trade nor can they be said to be special benefits for the trades people. 190. The aforesaid submissions have to be scrutinised keeping in view the law laid down by the Supreme Court. For the purposes of clarity 1 recapitulate the law as laid down by the Supreme Court in the cases of Atiabari Tea Co. Ltd., Automobile Transport, Jindal Stainless and Nataraja Mudaliar which is relevant to analyse the facts and figures furnished by the respondent/State, wherein it has been stated that: (A) The compensatory nature of the tax does not depend upon the preamble of the statute; (B) It cannot be said that the tax is not compensatory because the precise or specific amount collected from levy of the tax is not use....
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.... commercial and industrial sectors, providing street lights, sanitation, solid waste management facility, fire fighting and environment in parks, etc., are provided by the urban and local bodies, are made available for use of the trades people, are utilised by the trades people for better conduct of their trade and business and are factors that affect and have an impact on trade and business as stated in the case of Nataraja Mudaliar [1968] 22 STC 376 (SC) : AIR 1969 SC 147 even if in some cases actual use by the trades people may be unknown. That apart, the objections raised by the petitioners also deserve to be rejected as it has been clearly established by the State that the expenditure has been incurred by the State or its agency in providing these facilities from whatever source it may be. I am also of the considered opinion that the tax is compensatory as only 45 per cent of the cost incurred in providing the facilities is charged from the trades people whereas rest of the expenditure is borne from other sources including statutory taxes levied and recovered by the urban and local bodies under the provisions of the Act relating to municipalities and other grants. While record....
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....ial sectors within their areas for providing facilities and making available factors which facilitate and effect trade. Had the local bodies been permitted to levy octroi or a local-body tax as prescribed under Section 127(1)(f) of the Municipalities Act and Section 132(1)(f) of the Municipal Corporation Act, the revenue generated by them from levy of octroi/local body tax would have been utilised by them for discharging their statutory obligations and performing their statutory duties as required by the law relating to Municipalities. However, as the urban and local bodies have been deprived of the revenue from levy of octroi/local body tax and in its place they are paid some amount from the collection of entry tax under the provisions of the Act as octroi compensation, it goes without saying that the tax levied under the impugned Act has been imposed only to fill up the dent or compensate the loss of revenue resulting from the abolition of octroi/local-body tax and, therefore, if the urban local bodies utilise the octroi compensation disbursed to them in discharging their statutory duties, especially those which facilitate trade or provide factors, which affect trade in the indus....
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....ies which are of use to the trades people. Though the petitioners have alleged that in a few cases the rate of tax has been increased several folds and have also challenged the validity of the notifications increasing the rate of tax in that respect, I am of the considered opinion that the increase of tax in respect of a few commodities would not render the imposition of the entry tax non-compensatory as a whole, specifically, when in general the rate of tax under the Act continues to be between half per cent to two per cent. In this respect I may profitably rely upon the judgments of the Supreme Court in the cases of Hansa Corporation and Meennakshi Alias Rama Bai [1984] Supp. SCC 326. 197. I am also of the opinion that the validity of the entry tax or the rate of tax in respect of a particular goods cannot be adjudged on the basis of the tax impact or the services rendered in lieu thereof qua an individual tax-payer for the purposes of Article 301 of the Constitution of India as alleged by the petitioners. For the purpose of adjudging as to whether a tax directly and immediately impedes the free flow of trade or whether it is compensatory in nature it is the general rate of ta....
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....eld to be valid. 200. Though the petitioners have also challenged the notifications on the ground that they violate Article 301 as well as Articles 14 and 19 of Constitution of India on the ground that the rates of tax have been increased to such an extent that it has become an impediment and hindrance to trade with the passage of time, as noted in the preceding paragraph, the petitioners have neither alleged nor given figures to demonstrate and establish that there has been any decline or loss in the business income of the trade or earning of the petitioners as a result of increase in the rate of entry tax, nor have they, in any manner, stated or demonstrated that the impugned levy has adversely affected their trade and, therefore, constitutes a direct and immediate impediment on trade and is non-compensatory. I am also bound to take note of the fact that the learned Counsel for the petitioners, during arguments, have fairly conceded that in spite of the increase in the rate of tax by the impugned notifications the actual and total tax impact on the goods, imported within the local area in comparison to local goods, still remains practically the same. This statement also indica....