AI Drafter 
TaxTMI 
TaxTMI 
2018 (5) TMI 652
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....17 WRIT - C No. - 25948 of 2017 WRIT - C No. - 25970 of 2017 WRIT - C No. - 28615 of 2017 WRIT - C No. - 28617 of 2017 WRIT - C No. - 28619 of 2017 WRIT - C No. - 28622 of 2017 WRIT - C No. - 28660 of 2017 WRIT - C No. - 28677 of 2017 WRIT - C No. - 28644 of 2017 WRIT - C No. - 28643 of 2017 WRIT - C No. - 28639 of 2017 WRIT - C No. - 28825 of 2017 WRIT - C No. - 28823 of 2017 WRIT - C No. - 28805 of 2017 WRIT - C No. - 28826 of 2017 WRIT - C No. - 28824 of 2017 WRIT - C No. - 28818 of 2017 WRIT - C No. - 28817 of 2017 WRIT - C No. - 28625 of 2017 WRIT - C No. - 28147 of 2017 WRIT - C No. - 28924 of 2017 WRIT - C No. - 28922 of 2017 WRIT - C No. - 28932 of 2017 WRIT - C No. - 28929 of 2017 WRIT - C No. - 29010 of 2017 WRIT - C No. - 28992 of 2017 WRIT - C No. - 29227 of 2017 WRIT - C No. - 29249 of 2017 WRIT - C No. - 29285 of 2017 WRIT - C No. - 29286 of 2017 WRIT - C No. - 29306 of 2017 WRIT - C No. - 29642 of 2017 WRIT - C No. - 29574 of 2017 WRIT - C No. - 29572 of 2017 WRIT - C No. - 29589 of 2017 WRIT - C No. - 29588 of 2017 WRIT - C No. - 29606 of 2017 WRIT - C No. - 29586 of 2017 WRIT - C No. - 29621 of 2017 WRIT - C No. - 29620 of 2017 WRIT - C No. - 29768 of 2017 WRIT - C....
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....imited, Saharanpur , M/s Ballarpur Industries Limited, Saharanpur , M/s Shri Ram Constitution Company, Gorakhpur , Vodafone Mobile Services Limited, Mumbai , M/s Jaiswal Coal Suppliers And 2 Others , M/s Mahesh Cement Agency , M/s Sanjay And Sons And Another , M/s Rahul Enterprises And Another , M/s The Indure Private Ltd. , M/s Shri Rathi Limited , M/s Abhinav Steels Pvt. Ltd. , M/s Abhinav Steels Pvt. Ltd. , M/s Trinayani Cement Pvt. Ltd. , M/s Chunar Churk Cement Limited , M/s Eco Cement India Limited , M/s Chota Bhai Munnu Bhai , M/s Eastern Spinning And Textiles Mills Pvt. Ltd. , United Spirits Limited , M/s Sony India Pvt. Ltd., G.B. Nagar , Bharti Airtel Ltd. (Erstwhile Bharti Celluar Ltd.) , M/s Rohan Motors Limited, Ghaziabad , M/s Mirza International Limited , M/s P & J. Aromatics (A Unit Of Jeet India Ltd.) , M/s Ual U.P. Prop. M/s Ual Industries Ltd. Dilip B Bhosale, CJ And M K Gupta, JJ. For the Petitioner : Shubham Agrawal, Bharat Ji Agrawal For the Respondent : C.S.C. JUDGMENT ( Per Manoj Kumar Gupta, J. ) 1. These petitions filed under Article 226 of the Constitution call into question the vires of the Uttar Pradesh Tax on Entry of Goods into....
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....after, fresh interim orders were passed by this Court. By consent of learned counsel for the parties, the entire batch of petitions was taken up for final disposal and learned counsel for the parties were heard at length. Since the entire batch arises out of the common factual matrix involving same or similar questions, we dispose of the same by this common judgement. It would be advantageous to reproduce the following observations made by the Supreme Court so as to understand the exact scope of hearing of these petitions: "During the hearing of arguments, counsel for both sides submitted that since the main challenge in the writ petitions, which were filed by the writ petitioners before the High Court, was predicated on the law laid down by the Constitution Bench in 'Atiabari Tea Co. Ltd. (supra), the High Court essentially confined its discussion only on "compensatory tax theory", as propounded in the aforesaid judgment so the High Courts looked at the issue by only keeping in mind the principle propounded in the aforesaid judgment and decided as to whether the tax imposed by a particular statute is compensatory in nature or not. Thus, when other issues are to be dealt wit....
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....B. The respondent - State of Uttar Pradesh (for short, "State") promulgated the Uttar Pradesh Tax on Entry of Goods Ordinance, 1999, which was, later on, enacted as Uttar Pradesh Tax on Entry of Goods Act, 2000 (for short, "Act, 2000") with a view to augmenting the revenue of the State and decided to make law to provide for levy of tax on entry of goods. The State, in exercise of its powers under the proviso to sub-section (1) of Section 4 of the Act, 2000, issued a notification on 9 May 2003, amending the Schedule to the Act and inserting therein various entries including 'cement'. Another notification was issued on the very same date under the said provision prescribing the rate of entry tax on cement at the rate of 2 percent of the value of goods. 3C. The validity of levy of entry tax under the Act, 2000, on bringing cement within the local area of Uttar Pradesh, was challenged by the Company in a writ petition bearing Writ Petition No 1374 of 2003. Several writ petitions were filed raising the same challenge including Civil Misc Writ Petition No 251 of 2003 (Tax) by M/s Indian Oil Corporation & Ors Vs State of Uttar Pradesh and & Ors, and Civil Misc Writ Petition No ....
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....lisation of entry tax for the period between April 2007 and 24 September 2007 would not be made from the Company, provided they furnish security other than cash or bank guarantee, for the entire tax in respect of the transaction during this period. The interim order further provided that the entry tax for the future period, i.e. after 24 September 2007, which is the date of promulgation of Ordinance, would not be realised from the Company in respect of the transaction, subsequent to the promulgation, provided the Company furnishes bank guarantee for the entire dues. The writ petition filed by the Company (Writ Petition No 1515 of 2007) was dismissed by the judgment and order passed by this Court on 23 December 2011, holding that the State legislature did not lack legislative competence in enacting the Act, imposing entry tax on the entry of scheduled goods into local areas for consumption, use or sale therein. This Court also observed that the provisions of the Act patently and facially indicate that there are sufficient guidelines and guarantees under the Act for ensuring that the entire amount of entry tax collected and credited to the Uttar Pradesh State Development Fund is util....
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....wing reliefs: "(i) Issue a suitable writ, order or direction declaring the Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007 as invalid, void and unconstitutional being beyond the legislative competence of the State Legislature and ultra vires Articles 245, 246, 304 (a) read with Entry 52 of List-II of the Seventh Schedule to the Constitution, as the same do not fall within the scope of Entry 52 of List-II of the Seventh Schedule to the Constitution. (ii) Issue a suitable writ, order or direction in the nature of mandamus commanding the respondents not to give effect to the provisions of Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007. (iii) Issue a suitable writ, order or direction in the nature of certiorari be issued calling for the records and quashing the impugned notice dated 25th September, 2007; and 21.3.2017. (iv) Issue a suitable writ, order or direction in the nature of Prohibition be issued restraining the Respondents, their servants, agents or representatives from in any manner collecting any entry tax from petitioners pursuant to the Act No. 30 of 2007. (v) Issue a suitable writ order or directio....
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....esh had accordingly enacted the Uttar Pradesh Tax on Entry of Goods Act, 20002 (U P Act No 12 of 2000) to provide for the levy and collection of tax on entry of goods into a local area for consumption, use and sale therein. The said Act was declared ultra vires by this Court in Civil Misc Writ Petition No 251 of 2003 (M/s Indian Oil Corporation Limited Vs State of Uttar Pradesh & Ors), by its judgment dated 27 January 2004. That judgment was carried to the Supreme Court by the State Government in Special Leave Petition (Civil) No 2757-2758 of 2004. The Supreme Court in that SLP, had stayed the operation of the judgment of the High Court vide order dated 9 February 2004, subject to condition that the amount realized as entry tax shall be deposited in a separate interest bearing account. 5A. When this Court declared the provisions of previous Act 2000 as ultravirus, its vires was tested on the yardstick of compensatory theory propounded by the Supreme Court in two Constitution Bench judgments, in Atiabari Tea Company Ltd. Vs. State of Assam, AIR 1961 SC 232, and Automobile Transport (Rajasthan) Ltd vs. The State of Rajasthan, AIR 1962 SC 1406. 6. In Atiabari, the constitutional....
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.... which was held to be outside Part XIII of the Constitution. It was held that taxes which do not hinder trade and commerce but facilitate them by providing roads and bridges etc. are out of the purview of Article 301 and need not comply with the requirements of the proviso to Article 304 (b). The net effect of the decision in Automobile was that taxes, if compensatory in character, would not offend the guarantee of free trade, commerce and intercourse under Article 301 of the Constitution. 8. The above two Constitution Bench judgments of the Supreme Court thus laid down that if a tax is imposed for raising revenue and which is utilized for facilitating trade and commerce, instead of hampering it, it would be compensatory tax, beyond the reach of Article 301. However, if the tax is imposed solely because goods are transported into a certain region, without having any nexus, direct or indirect, with the facilities provided in upliftment of trade and commerce, it would come within the ambit of Article 301. Such a legislation, being a restriction on freedom of trade envisaged by Article 301, for being constitutionally valid, has to fall within one of the exception laid down under Ar....
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....t charges, fees, regulatory charges is "recompense/reimbursement" of the cost or expenses incurred or incurrable for providing services/facilities based on the principle of equivalence unlike taxes whose basis is the concept of "burden" based on the principle of ability to pay. At this stage, we may clarify that in the above case of Automobile Transport [(1963) 1 SCR 491 : AIR 1962 SC 1406], this Court has equated regulatory charges with compensatory taxes and since it is the view expressed by a Bench of seven Judges, we have to proceed on that basis. The fallout is that compensatory tax becomes a sub-class of fees". 11. After the reference was answered, the regular Division Bench, remitted to the High Court the issue as to whether entry tax imposed by the State of U.P. is of a compensatory nature or not. In pursuance thereof, the matter was again heard by this Court in the light of the law laid down by the Supreme Court in Jindal Stainless-I. This Court returned a finding on 8.1.2007 to the effect that the State failed to prove that the entry tax was compensatory in nature. 12. The State, having realised difficulty in its way in persuading the Court to uphold the validity of....
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....heir validity and whether clause (a) of Article 304 is conjunctive with or separate from clause (b) of Article 304? (2) Whether imposition of entry tax levied in terms of Entry 52 List II of the Schedule VII is violative of Article 301 of the Constitution? If the answer is in the affirmative whether such levy can be protected if entry tax is compensatory in character and if the answer to the aforesaid question is in the affirmative what are the yardsticks to be applied to determine the compensatory character of the entry tax? (3) Whether Entry 52 List II, Schedule VII of the Constitution like other taxing entries in the Schedule, merely provides a taxing field for exercising the power to levy and whether collection of entry tax which ordinarily would be credited to the Consolidated Fund of the State being a revenue received by the Government of the State and would have to be appropriated in accordance with law and for the purposes and in the manner provided in the Constitution as per Article 266 and there is nothing express or explicit in Entry 52 List II, Schedule VII which would compel the State to spend the tax collected within the local area in which it was co....
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.... have to be read disjunctively. 4. A levy that violates 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso there under is satisfied. 5. The compensatory tax theory evolved in Automobile Transport case and subsequently modified in Jindal's case has no juristic basis and is therefore rejected. 6. Decisions of this Court in Atiabari, Automobile Transport and Jindal cases (supra) and all other judgments that follow these pronouncements are to the extent of such reliance over ruled. 7. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state. 8. Article 304 (a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a). The question whether the levies in the present case indeed satisfy this test is left to be determined by the regular benches hear....
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....ce. 16B. Article 265 of the Constitution provides that no tax shall be levied or collected except by authority of law; and so, for deciding whether a tax has been validly levied or not, it would be necessary to enquire whether the legislature, which passes the Act, was competent to pass it or not. The Supreme Court in Commissioner of Income Tax, Udaipur, Rajasthan Vs MCdowell & Company Ltd, (2009) 10 SCC 755, stated that the "tax", "duty", "cess" or "fee" constituting a class denotes various kinds of imposts by State in its sovereign power of taxation to raise revenue for the State. The Supreme Court further observed, "within the expression of each specie, each expression denotes different kind of impost depending on the purpose for which they are levied." This power can be exercised in any of its manifestation, as observed by the Nine Judges' Bench, only under any law authorising levy and collection of tax as envisaged under Article 265 which uses only the expression that no tax "shall be levied and collected except by authorized of law. It coveys that to support a tax, legislative action is essential, it cannot be levied and collected in the absence of any legislative sanc....
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.... law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. 246. Subject-matter of laws made by Parliament and by the Legislatures of States.- (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the "Union List"). (2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the "Concurrent List"). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the 'State List'). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a ma....
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.... ...We would not like, however, to embark upon any theory of police power because the Indian Constitution does not recognise police power as such. But we must recognise the exercise of sovereign power which gives the State sufficient authority to enact any law subject to the limitations of the Constitution to discharge its functions. Hence, the Indian Constitution as a sovereign State has power to legislate on all branches except to the limitation as to the division of powers between the Centre and the States and also subject to the fundamental rights guaranteed under the Constitution. The Indian State, between the Centre and the States, has sovereign power. The sovereign power is plenary and inherent in every sovereign State to do all things which promote the health, peace, morals, education and good order of the people. Sovereignty is difficult to define. This power of sovereignty is, however, subject to Constitutional limitations. This power, according to some constitutional authorities, is to the public what necessity is to the individual. Right to tax or levy imposts must be in accordance with the provisions of the Constitution." 20. The Supreme Court in Jindal Stainless-II....
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....al Stainless-II. In this judgment, not only majority opinion deals with these provisions but even the other learned Judges, while concurring and differing with the opinion expressed by the majority, have considered these provisions extensively. 23. Part XIII of the Constitution has more than an abundant share of constitutional intricacies, as observed by Dr Justice Chandrachud in Jindal Stainless-II. His Lordship further observed that despite a judicial discourse of more than five decades, the debate on the true meaning of its provisions continues to bedevil academics, lawyers and judges who have had occasion to visit its provisions. The ambit of Part XIII is trade, commerce and intercourse within the territory of India. Article 301 of the Constitution reads thus: "301. Freedom of trade, commerce and intercourse.- Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free." 23A. A plain reading of the above Article would show that freedom of trade, commerce and intercourse is by no means absolute, the same being subject to the other provisions of Part XIII of the Constitution. Amongst those provisi....
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.... this Article, as observed in Jindal Stainless-II, would show that notwithstanding the power vested in Parliament under Article 302, it shall not make any law giving, or authorising the giving of any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. From clause (2) of Article 303, it is manifest that the restriction on the power vested in Parliament in terms of clause (1) of Article 303 shall not extend to Parliament from making any law with a view to giving or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising out of scarcity. 26. A joint reading of clauses (1) and (2) of Article 303 would, thus, make it clear that while Parliament/Legislature of a State shall have no power to make a law imposing restriction on trade, commerce and intercourse, by giving or authorizing the giving of any preference to one State over the other, such limitation on....
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....cally recognises the State legislature's power to impose the same on goods imported from other States or Union Territories. The expression "the legislature of a State may by law impose on goods imported from other States (or Union Territories) any tax" are much too clear and specific to be capable of any equivocation or confusion. It is true that the source of power available to the State legislature to levy a tax is found in Articles 245 and 246 of the Constitution but, the availability of such power for taxing goods imported from other States or Union Territories is clearly recognised by Article 304 (a). The expression ''may by law impose' is certainly not a restriction on the power to tax. That does not, however, mean that the power to tax goods imported from other States or Union Territories is unqualified or unrestricted. There are, in our opinion, two restrictions on that power. The words "to which similar goods manufactured or produced in that State are subject" impose the first restriction on the power of the State legislature to levy any such tax. These words would imply that a tax on import of goods from other States will be justified only if similar goods....
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....riction in public interest without imposing any tax whatsoever. It may also levy a tax and impose such reasonable restriction as may be considered necessary in public interest. All the three situations are fully covered and permissible under Article 304 in view of the phraseology used therein. The word ''and' can me an ''or' as well as ''and' depending upon the context in which the law enacted by the legislature uses the same. Suffice it to say that levy of taxes do not constitute a restriction under Part XIII except in cases where the same are discriminatory in nature. Once Article 304 (a) is understood in that fashion, Clause (b) dealing with reasonable restrictions must necessarily apply to restrictions other than those by way of taxes. It follows that for levy of taxes prior Presidential sanction in terms of the proviso under Article 304(b) will be wholly unnecessary. This view is reinforced on the plain language of proviso to Article 304(b), which is limited to law relating to reasonable restrictions referred to in clause (b)." (emphasis supplied) 28. The Supreme Court after dealing with Articles 301 to 304 extensively, in Jindal....
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....iew all important and significant features of the Constitutional scheme constantly reminding itself of the need for a harmonious construction lest interpretation placed on a given provision has the effect of diluting or whittling down the effect or the importance of any other provision or feature of the Constitution. So interpreted Article 301 appearing in Part XIII does not, in our opinion, work as an impediment on the States' taxing powers except in situations where such taxes fall foul of Article 304(a) of the Constitution. The contextual approach thus fully matches the textual interpretation which we have placed on Part XIII. 91. Suffice it to say that the use of the non-obstante clause in Article 304 has had its share of criticism from the very inception which criticism has to an extent been prophetic for the interpretation of Part XIII has indeed been a lawyer's paradise over the past fifty years or so. Seervai has in his treatise adverted to this anomaly arising from the use of the non-obstante clause and said that the same covers both the clauses (a) and (b) of Article 304. He argues with considerable forensic force that reference to Article 301 in the non-....
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....ti Vs State of Kerala, 1973 4 SCC 225 and so also the H M Seervai's Commentary on Constitutional Law of India to consider the textual interpretation of the provisions of Articles 301 to 304 and summed up the legal position in the following paragraph in Jindal Stainless-II: "The result of the authorities may thus be summed up: (1) A tax will be valid only if it is authorized by a law enacted by a competent legislature. That is Article 265. (2) A law which is authorized as aforesaid must further be not repugnant to any of the provisions of the Constitution. Thus, a law which contravenes Articles 14 will be bad, Moopil Nair's case. (3) A law which is made by a competent legislature and which is not otherwise invalid, is not open to attack under Article 31 (1). Ramjilal's case and Laxmanappa's case. (4) A law which is ultra vires either because the legislature has no competence over it or it contravenes, some constitutional inhibition, has no legal existence, and any action taken thereunder will be an infringement of Article 19 (1) (g) Himmatlal's case and Laxmanappa's case. The result will be the same when the law is....
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.... sustained even if it had gone through the process stipulated by Article 304 (b). That is because what is constitutionally impermissible in terms of Article 304 (a) cannot be validated and sanctioned through the medium of Article 304 (b). While concluding on the first part, it was further observed that a fiscal statute shall be open to challenge only under Article 304 (a) of the Constitution without being subjected to the test of Article 304 (b) either in terms of the existence of public interest or reasonableness of the levy. 32. That takes us to have a glance at the second part of the question that was dealt with by the Supreme Court, namely, whether the impugned State enactments violate Article 304 (a) of the Constitution. The contention that grant of exemptions and incentives in favour of locally manufactured goods is also a form of discrimination was repelled by reiterating the law laid down in Video Electronics Pvt. Ltd. and another Vs. State of Punjab, (1990) 3 SCC 87, that "all legislative differentiation is not discrimination." It was held that use of word 'discrimination' in Article 304 (a) would mean 'intentional and unfavourable bias'. So long as such....
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....7 in which notifications issued by the States of U.P and Punjab providing for exemptions to new units established in certain areas for a prescribed period of 3 to 7 years were assailed as discriminatory. The challenge to the exemption was in that case also based on the alleged violation of Articles 301 and 304. This Court however upheld the notifications in question on the ground that the same related to a specific class of industrial units and the benefit under the same was admissible for a limited period of time only. The Court observed that if an overwhelmingly large number of local manufacturers were subject to sales tax, it could not be said that the local manufactures were favored as a class against outsiders. Adverting to the decision in Video Electronics (supra) this Court in Mahavir (supra) held the same to be distinguishable on the ground that the Punjab and U.P. notifications were qualitatively different from the one issued by the Government of Jammu and Kashmir in as much as while the former benefitted only specified units and limited the benefit to a specified period, the latter was not subject to any such limitations. This declared the Court resulted in discr....
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....ust, of necessity, possess in making laws operating differently as regards different groups of persons in order to give effect to its policies... .. .." 133. Fazl Ali J. in his concurring judgment explained the concept in the following words: "19. I think that a distinction should be drawn between "discrimination without reason" and "discrimination with reason". The whole doctrine of classification is based on this distinction and on the well-known fact that the circumstances which govern one set of persons or objects may not necessarily be the same as those governing another set of persons or objects, so that the question of unequal treatment does not really arise as between persons governed by different conditions and different sets of circumstances. The main objection to the West Bengal Act was that it permitted discrimination "without reason" or without any rational basis." Any challenge to a fiscal enactment on the touchstone of Article 304 (a) must in our opinion be tested by the same standard as in Kathi's case (supra). The Court ought to examine whether the differentiation made is intended or inspired by an element of unfavourable bias in favo....
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....he approach to be adopted by the Courts while examining the validity of levies. So long as the differentiation made by the States is not intended to create an unfavourable bias and so long as the differentiation is intended to benefit a distinct class of industries and the life of the benefit is limited in terms of period, the benefit must be held to flow from a legitimate desire to promote industries within its territory. Grant of exemptions and incentives in such cases must be deemed to have been inspired by considerations which in the larger context help achieve the Constitutional goal of economic unity. 134. Seen in the above context the decision in Mahabir Oil's case is indeed distinguishable in as much as the manufactures of edible oil were exempt totally and unconditionally while other manufacturers from outside the State were not so exempt. Whether or not the impugned enactments in the present batch of cases satisfy the tests referred to above and elaborated in Video Electronics case is a matter on which we do not propose to express any opinion for that aspect is best left open to be considered by the regular benches hearing these matters after the reference is....
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....this provision is the paramount aim of Part XIII to establish and foster economic unity of the country. Non-discrimination, or parity of treatment is therefore at the core of its purpose, which Shri T.T Krishnamachari stressed, in his speech in the Constituent Assembly. He said that "restrictions by the State have to be prevented so that the particular idiosyncrasy of some people in power or narrow provincial policies of certain States should not be allowed to come into play and affect the general economy of the country." [Constituent Assembly Debates, 1139 (1949)]. 149(6). The Article, therefore, recognizes the power of a Legislature to a State to impose the tax on the imported goods so, however, as not to discriminate between goods so imported and goods so manufactured or produced. While there is no doubt that this Article recognizes the power to legislate on a State, it equally qualifies that power with the condition that such a law must comply with. That condition is that the law which imposes a tax on imported goods cannot "discriminate" between goods so imported and the goods so manufactured or produced. It also postulates that the tax on import is a "tax to which si....
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.... Stainless-II. It was vehemently submitted that the Nine Judges' Bench has settled all questions and while doing so, neither the said Bench nor the regular Two Judges Bench had set aside the judgment of this Court in ITC Limited and in view thereof, it is not open to this Court to re-consider the vires of the Act. On the other hand, learned counsel for the petitioners contended that the regular Bench of the Supreme Court having granted liberty to the petitioners to file substantive petitions before this Court, and further directing this Court to decide various questions formulated in the order, including other constitutional/ statutory issues, it was implicit therein that the judgement of this Court in ITC Limited stood overruled. 37. This Court in ITC Limited dealt with and disposed of large number of petitions preferred by traders, manufacturers and importers bringing scheduled goods into the local areas in the State of Uttar Pradesh for consumption, use or sale therein, challenging the validity of the Act on the ground of lack of the legislative competence of the State. It was contended that the Act was violative of freedom of trade, commerce and intercourse guaranteed un....
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....p the entire amount, for the purposes of its utilisation for facilitating trade, commerce and intercourse in the local areas of the State. 151. We may observe by way of clarification that in these writ petitions we have confined our enquiry to the constitutional validity of the U.P. Tax on Entry of Goods into Local Areas Act, 2007, and whether the entry tax is compensatory in nature, which does not violate the freedom of trade, commerce and intercourse under Article 301 of the Constitution of India. We have not examined the other issues namely the validity of the notices, assessments, rebates, exemption and the liability of the traders, and manufacturers of the scheduled goods to pay entry tax. All other questions, will remain open to be considered by the competent authorities under the Act in accordance with law." 38. The judgment of this Court in ITC Limited was then carried to the Supreme Court and all those petitions were also before the Nine Judges' Bench, which dealt with the five questions to which we have already made reference in this judgment. 39. It is not in dispute and also apparent from the judgment of Nine Judges' Bench in Jindal Stainless-II a....
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....e only on the grounds as reflected in the judgment of the regular Bench dated 21 March 2017, in the light of the judgment of Nine Judges' Bench in Jindal Stainless-II. Submissions of the Petitioners:- 41. We would now like to refer to the submissions advanced by learned counsel for the parties albeit, while examining the challenge, we will confine ourselves to the questions left open by the Supreme Court. 42. The first ground of challenge was that the impugned Act extends to areas in respect of which the State Legislature does not have power to legislate. It was urged that under List I Entry 3 of the 7th Schedule of the Constitution, it is only the Central Government which can make legislation for cantonment areas. The impugned legislation, particularly Section 2(d), in so far as it seeks to include cantonment areas governed by Cantonments Act, 1994 within the purview of the Act is beyond the legislative competence of the State Government. A strong reliance has been placed on Section 66 of the Cantonments Act 2006 in contending that the Union, while enacting the Cantonments Act 2006, has conferred the power to levy taxes on the Cantonment Boards, in the manner provided....
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....te and distinct from the general power of State to collect revenue for the development of the entire State as a whole. It was a source of revenue for the local bodies which collects it and appropriates it in carrying out the duties and obligations imposed upon it as an institution of self-government. It is urged that with insertion of Part IX and IXA of the Constitution by the Constitution Seventy Third Amendment, the Panchayats and Municipalities, in order to fulfill the responsibilities conferred upon them under Articles 243G and 243W, have been given power to impose taxes under Article 243 H and 243X. These provisions also envisage a local fund for crediting all moneys received, respectively, by or on behalf of the Municipality and prescribes the procedure for withdrawing money therefrom. The provisions of the impugned legislation in so far as it empowers the State to collect taxes on entry of goods in a local area itself, and to credit it not to the 'local fund', but to a separate Fund envisaged by Section 14, is beyond it's legislative competence. Likewise, the utilisation of the tax so collected for development of trade, commerce and industry in the entire State a....
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.... goods as raw material, as they do not get the benefit of exemption under the rebate notification, not being a sale. This, according to learned Senior Counsel, works to the benefit of a dealer who imports similar goods from outside State and then sells it within the local area inasmuch as he enjoys the rebate, whereas a manufacturer importing similar goods for his own consumption does not get the same. 48. In support of his submission that provisions of Section 4 (6) and Section 6 of the Act are discriminatory, he submitted that it is the ultimate amount of tax paid which has to be taken as a yardstick in determining the issue of discrimination and not the price inasmuch as a person may be compelled to sell the goods at the same price squeezing his profitability in order to compete with similar goods imported from outside State by a dealer which enjoy the rebate to the extent of the liability under the U.P. Vat Act. In support of the said submission, he has placed reliance on Firm A.T.B. Mehtab Majid and Co. Vs. State of Madras and another, 1963 Supp. (2) 435, H. Anraj Vs. Government of Tamil Nadu, 1986 (1) SCC 414, West Bengal Hosiery Association and others Vs. State of Bihar a....
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....d Fund of the State as contemplated by Article 266 for the benefit of the local bodies. The impugned legislation, in so far as it stipulates creation of a separate fund and for crediting the tax recovered under the Act, in the said account, is ultra vires the Constitution. He submitted, by referring to various provisions of Part XII of the Constitution, that financial discipline has to be maintained as per the constitutional scheme, otherwise, it will lead to anarchy. Likewise, the provisions of the Act setting out priority according to which the tax recovered is to be spent, without the approval and sanction of the State legislation, as in case of money drawn from the Consolidation Fund of the State, are unconstitutional. Scheme of the Act:- 52. Before we proceed to deal with the rival contentions, we would briefly refer to the scheme of the Act with specific reference to the provisions which are of relevance to answer the questions raised before us. 53. The Act as noticed earlier, was enacted to provide for levy and collection of tax on entry of goods into a local area for consumption, use and sale therein and for matters connected therewith or incidental thereto. We hav....
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.... sub-section (1) of Section 2 defines business, indicating the businesses which are covered by the Act, 2007. Clause (b) defines dealer, which simply means any person, who, in the course of business, brings or causes to be brought into a 'local area' any goods or takes delivery or is entitled to take delivery of goods on its entry into a local area. The definition is inclusive definition to which we need not make further reference since all the petitioners are registered dealers and no challenge raised in the petitions is based on this provision. 56. Clause (c) of sub-section (1) of Section 2 of the Act, 2007 defines entry of goods and clause (d) defines local area, which are relevant for our purpose. The said definitions read thus: "(c) "entry of goods", with all its grammatical variations and cognate expressions, means, entry of goods; (i) into a local area from any place outside such area; (ii) into a local area from any place outside the State; (iii) into a local area from any place outside the Territory of India for consumption, use or sale therein; (d) "local area" means the territorial area of,- (i) a Municipal....
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.... (2) The Tax under sub-section (1) shall be continued to be levied till such time as is required to improve infrastructure within the State such as power, road, market condition etc., with a view to facilitate better market conditions for trade, commerce and industry. (3) The tax levied under sub-section (1) shall be payable by a dealer who brings or causes to be brought into the local area such goods, whether on his account or on the account of his principal or takes delivery or is entitled to take delivery of such goods on its entry into a local area. PROVIDED that the State Government, may by notification, permit any Power Project Industrial Unit engaged in generation, transmission and distribution, having aggregate capital investment of Rs. One thousand crore or more to own the liability of payment of tax of other dealers on the entry of such goods into a local area from any place out side that local area as are used and consumed by the said unit subject to such conditions as may be specified in the notification. EXPLANATION-Where the goods are taken delivery of on its entry into a local area or brought into a local area by a person other tha....
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....e Central Sales Tax Act, 1956 shall apply for the purpose of determining whether or not any goods has been sold by a dealer in the course of inter-State trade or commerce or in the course of export out of the territory of India: PROVIDED that where at the time of entry of goods into a local area, the quantity or value of goods to be sold within such local area for the purpose of being taken outside the State without consumption, use or sale in such local area, is not ascertainable, the dealer shall pay the amount of tax on the value of total quantity of goods and after the goods are consigned or sold outside or in the course of, export, the dealer may claim refund or adjustment of the amount so paid as tax in the month in which such goods are transferred outside the State or sold in the course of inter-State trade or commerce or the course of export, in respect of such goods. (7) [.........] Deleted (8) Where tax, in respect of entry of any goods into a local area, is payable and has been so paid by the agent, the principal shall not be liable for payment of tax and likewise where tax, in respect of entry of any goods into a local area, is payable and has....
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.... for consumption, use or sale therein and pay tax in respect of entry of such goods into such local area, are entitled for refund or adjustment, when such goods are consigned to any other place outside the State or are sold either in the course of inter-State trade or commerce or in the course of export outside the territory of India. 61. Section 6 talks of rebate, Section 7 about exemption and Section 8 provides for registration of a dealer. Sections 6, 7 and 8 read thus: "6. Rebate - Where in respect of any scheduled goods notified under sub-section (1) of Section 4, tax is payable in respect of a sale or purchase of such goods under the Uttar Pradesh Value Added Tax Act, 2008 by a dealer registered under the said Act, the State Government may, by notification and subject to such conditions and restrictions, as may be specified therein, allow a rebate upto the full amount of tax leviable under the Act. 7. Exemption - Where the State Government is satisfied that it is expedient in the public interest so to do, it may, by notification, exempt subject to such conditions and restrictions as may be specified in the notification, any goods or class of goods from le....
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....) providing finance, aids, grants and subsidies to financial, industrial and commercial units; (c) creating infrastructure for supply of electricity and water to industries, marketing and other commercial complexes; (d) creation, development and maintenance of other infrastructure for the furtherance of trade, commerce and industry in general; (e) providing finance, aids, grants and subsidies for creating, developing and maintaining pollution free environment in the concerned areas; (f) any other purpose connected with the development of trade, commerce and industry or for facilities relating thereto which the State Government may specify by notification; (g) providing finance, aids, grants and subsidies to local bodies and government agencies for the purposes specified in Clauses (a), (c), (d), (e) and (f); (2) The entry tax levied and collected under this Act shall be credited to the Uttar Pradesh Trade Development Fund and shall exclusively be used for facilitating trade, commerce and industry. The amount realised as entry tax shall not be used for the purposes other than those specified in sub-section (1). (3) The S....
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....n, is no more res-integra. A regular Two Judge Bench of the Supreme Court, after judgement of Nine Judges' Bench in Jindal Stainless-II, while deciding a batch of petitions arising out of State of Orissa, Bihar, Kerala and Jharkhand dealt with a similar challenge in State of Kerala Vs. Fr. Williams Fernandez and other connected matters, 2017 (12) SCALE 463 (for short, hereinafter referred to as 'Fr. Williams'). Both their Lordships comprising the regular Bench (Hon'ble Justice A.K. Sikri and Hon'ble Justice Ashok Bhushan) were also members of the Nine Judges' Bench. The issue was formulated by the regular Bench in following terms:- "vii. Whether Entry Tax Legislations are not covered by Entry 52 List II since the Entry 52 is in essence entry of levying octroi which can be levied only by local authorities and the State has no legislative competence to impose entry tax under Entry 52 List II." 68. While examining the challenge, their Lordships noted that the word 'octroi' was not used in the Government of India Act, 1935 nor has been used in the Constitution. List II Entry 52 provides for levy of tax on the entry of goods in a local area fo....
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....to move away or forward from any kind of earlier levy. This Court in Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi and Anr, 1968 (3) SCR 251 has laid down the following: "To insist that the legislature should provide for every matter connected with municipal taxation would make municipalities mere tax collecting departments of Government and not selfgoverning bodies which they are intended to be. Government might as well collect the taxes and make them available to the municipalities. That is not a correct reading of the history of Municipal Corporations and other self governing institutions in our country." 134. Thus, taxes which are to be used by the local authorities can be collected by the local authorities as well as by the State Government. It is the matter of legislative policy as to how the tax is collected and distributed. Under List II Entry 5, the State has legislative power to lay down powers of the Municipal Corporation by legislation. It is again legislative policy that as what machinery is to be provided by the State legislature regarding collection of taxes on the entry of goods into a local area for consumption,....
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....t violates constitutional provision of Article 266. Section 4 deals with "utilization of the proceeds of the levy under the Act". Section 4 subsection (1) provides that the proceeds of the levy under the Act shall be appropriated to the fund and shall be utilised exclusively for the development of trade, commerce and industry in the State of Bihar. Presumably, the said amendment was brought by the State Legislature to support the State's claim that levy is compensatory in nature. The submission of the writ petitioners is that Section 4 indicates that the tax levied under the Act would be collected and kept in a separate fund which according to the writ petitioners is contrary to the constitutional mandate of Article 266 of the Constitution, which specifically mandates that all public money must be credited to the Consolidated Fund of respective States. There are two reasons due to which the above submissions cannot be accepted. Firstly, Section 4 relates to creation of fund and utilisation of funds received from the collection of entry tax. The creation of fund and its utilisation can in no manner effect the levy of the entry tax and the compensatory tax theory having already n....
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....vy of entry tax on imported goods." (emphasis supplied) 72. It is noteworthy that under the relevant provision of the enactment of the State of Bihar which was under consideration, the amount was to be utilized exclusively for the development of trade, commerce and industries in the entire State. The impugned legislation in the State of Uttar Pradesh contains exactly a similar provision. It was observed by the Supreme Court that such a provision was brought on the statute book to make it consistent with the doctrine of compensatory tax, prevalent at the relevant time. But once the compensatory tax theory was rejected by Nine Judges' Constitution Bench, further enquiry into the validity of the provision from the angle as to whether tax was compensatory or not was not considered germane. 73. Following the law laid down by the Supreme Court on the point, we have no hesitation in rejecting challenge to the levy on the ground that the proceeds thereof were required to be deposited in a separate fund and not the Consolidated Fund of the State in terms of Article 266 of the Constitution. Effect of inclusion of 'Cantonment' within the definition of local area:....
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....onment areas, local self-government in such areas, the constitution and powers within such areas of cantonment authorities and the regulation of house accommodation (including the control of rents) in such areas in favour of the Union. In a like manner, Entry 5 List II confers the State Government with the power to enact a law relating to local government, that is to say, the constitution and powers of municipal corporations, improvement trusts, district boards, mining settlement authorities and other local authorities for the purpose of local self-government or village administration. Thus, in respect of a cantonment area, it is the Union which can make law in respect of administration of such areas by a local self-government, constitution and powers of such authorities and matters connected therewith, whereas, in respect of other areas, it is the State which is invested with such power. 77. The statement of objects and reasons for enacting the Cantonments Act, 2006 states that the Act makes provisions relating to administration of cantonments as cantonments are central territories under the Constitution and the civil bodies functioning in these areas are not covered under the ....
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....n of a levy on entry of goods into a cantonment area, in no manner, infringes upon the field reserved for the Union legislature under Entry 3 of List I. A dealer, who in course of business, brings or causes to be brought into a local area any goods or takes delivery or is entitled to take delivery of goods on its entry into a local area, would equally be bound by the provisions of the Act and would be liable to payment of the levy. The same would, in no manner, be subversive of the power of the Union Government to legislate under Entry 3 List I nor that of the Cantonment Board to impose taxes under Section 66 of the Cantonments Act, 2006. We, therefore, repel the contention that by including a cantonment within the definition of local area, the State legislature has encroached upon the field reserved for the Union. Whether entire State treated as one local area:- 79. We now come to the next submission advanced by Sri Dhruv Agrawal and Sri Navin Sinha, learned senior counsel. It was urged that a law made by the State legislature under Entry 52 List II could only provide for levy of taxes on entry of goods into a local area and not the entire State. The use of word and expressi....
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....xamining the validity of Section 3 of the U.P. Sugarcane Cess Act, 1956 under which the State Government was empowered to impose a cess not exceeding a stipulated amount on the entry of sugarcane into the premises of a factory for use, consumption or sale therein. In pursuance thereof, several notifications were issued setting out the factories into which upon an entry of sugarcane, the cess was to be paid. The levy was challenged as beyond the legislative competence of the State legislature on the ground that under Entry 52, the levy could be only on entry of goods into a local area and not into a factory. It was urged that the word "local area" would mean an area administered by a local body and it could not be a factory. 80A. The Supreme Court, in order to find an answer to the question, examined the history of Constitutional legislation in the country on the subject of giving power to legislature to levy tax on the entry of goods. After examining the same, it was observed that in past, an octroi tax was being imposed on entry of goods into an area administered by a local body. Having regard to the history of the legislation, His Lordship Hon'ble K.C. Das Gupta, J deliver....
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....mposition was double burden on them and in the absence of any rational nexus between levy of tax and constitutional objective, it was violative of Articles 14 and 286 of the Constitution of India. The Supreme Court, after examining the provision of the impugned legislation ruled that thereunder, the entire State was not being treated as one local area, and accordingly upheld the validity of the legislation by observing thus:- "In Diamond Sugar Mills the question whether entire area of the State was an area administered by State Government and was covered in the phrase "local area", was not decided. The expression "local area" has been used in various articles of the Constitution, namely, 3(b), 12, 245(1), 246, 277, 321, 323-A, and 37 1 -D. They indicate that the constitutional intention was to understand the "local area" in the sense of any area which is administered by a local body, may be corporation, municipal board, district board etc. The High Court on this aspect held, and in our opinion rightly that the definition does not comprehend entire State as local area as the use of word 'a' before "local area" in the section is significant. The taxable event accordi....
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....connection between "the tax and the facilities provided" laid down in Bihar Chambers of Commerce was overruled in Jindal Stainless-I, but the said judgement was not overruled on other points on which reliance was placed on the said judgement by Hon'ble R. Banumathi, J. 85. Before we delve further on the issue, we would like to state that at the time when arguments were being advanced that entire State cannot be treated as one local area, we made specific query from learned counsel as to under which provision of the Act, the entire State is being treated as one local area. As according to us, the definition of local area given under Section 2 (d) does not treat the entire State as one local area, rather the local area has been defined as the territorial area of a local body namely a municipal corporation or a municipality or a zila panchayat or a kshetra panchayat or a gram panchayat or a cantonment or an industrial development area or any industrial township or any other local authority by whatever name called under an Act of the Parliament or the State legislature. 86. Learned counsel for the petitioners very fairly conceded that the definition of local area under the Ac....
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....as noted above, is within the legislative competence of the State Government. The deposit of the levy in a central fund and its utilization are separate and distinct from the taxable event. In this regard, we may gainfully refer to certain passages from Bihar Chamber of Commerce, where it is held that entry tax 'is a State level levy' and 'spending for the purposes of the State is spending for the purposes of local area' :- "12. ....Where the local areas contemplated by the Act cover the entire States the distinction between the State and the local areas practically disappears. The situation would, no doubts be different if the local areas are confined to a few cities or towns in the State and the levy is upon the entry of goods into those local areas alone. This is an important distinction which should be kept in mind while appreciating the aspect and also while examining the decisions of this Court rendered in fifties and sixties). The facilities provided in the State are the facilities provided in the local areas as well. Interests of the State and the interests of the local authorities are, in essence, no different.... 36. ...Entry 52 empowers ....
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...., Article 243-X is extracted below :- "243X. Power to impose taxes by, and Funds of, the Municipalities. - The Legislature of a State may, by law,- (a) authorise a Municipality to levy, collect and appropriate such taxes, duties, tolls and fees in accordance with such procedure and subject to such limits; (b) assign to a Municipality such taxes, duties, tolls and fees levied and collected by the State Government for such purposes and subject to such conditions and limits; (c) provide for making such grants in aid to the Municipalities from the Consolidated Fund of the State; and (d) provide for constitution of such Funds for crediting all moneys received, respectively, by or on behalf of the Municipalities and also for the withdrawal of such moneys therefrom, as may be specified in the law." 90. What Article 243-X does is to permit legislature of a State to make a law (a) authorising a municipality to levy, collect and appropriate taxes, duties, tolls and fees; (b) permit the State Government to collect such taxes, duties, tolls and fees and assign the same to the municipality; (c) provide for making such grants-in-aid to the municipa....
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....ishes before the concerned assessing authority the prescribed declaration in regard thereto within such time as may be prescribed: PROVIDED that the amount of tax deposited under this section shall be deemed to have been deposited for and on behalf of such dealer or any subsequent dealer to whom above prescribed declaration has been issued". 92. The contention, in fact, is again based on the assumption that entry tax is a local levy, the power of a local body to impose such tax. Accordingly, it is contended that local area where such good is re-sold would not be able to realise the levy, albeit the same having been paid in some other local area. 93. The object of the provision is to avoid double taxation. Once a good covered by the Act has been subjected to levy upon its entry into a local area, the same good, upon being re-sold in same or some other local area, will not be subjected to the levy over again. We have already repelled the contention that the levy of entry tax is a local levy or an adjunct of the power of the local body, consequently, argument based on such premise, which itself is not correct, is also not sustainable. We once again reiterate that the ta....
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....with realization of tax through manufacturer. It is a machinery provision to facilitate collection of tax. None of these provisions, in our opinion, support the contention that thereunder the entire State is being treated as one local area, though no doubt the Act being applicable to the entire State deals with various situations and events which would arise in the entire State. These provisions would, in no manner, detract from the nature of the levy or the power of the State Government to provide for various matters incidental to the charging provision. Plea of excessive delegation:- 95. Sri Ravi Kant, learned senior counsel appearing for the petitioners in some of the matters contended that Sections 4 (1) and 15 of the Act suffers from the vice of excessive delegation of power. It is urged that under these provisions the State Government has been conferred unfettered and uncanalized powers to fix the rate of entry tax and to issue orders in the name of exercising power to remove difficulties in implementation of the provisions of the Act. The provisions do not lay down any guidelines, according to which, power under these provisions is to be exercised. In respect of Sectio....
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....ve power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a Court to hold on a fair, generous and liberal construction of an impugned statute whether the legislature exceeded such limits. But the said liberal construction should not be carried by the Courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the Court to strike down without any hesitation any arbitrary power conferred on the executive by the legislature". (emphasis supplied) 96A. Under Section 5 of the Punjab General Sales Tax Act, 1948 as it originally stood, an uncontrolled power was conferred on the Provincial Government to levy tax on the taxable turnover of a dealer at such rates as it may direct. The said provision later came to be amended, whereunder a ceiling was prescribed in regard to the upper limit at which the tax could be levied. The Supreme Court, while examining the argument relating to excessive delegation of legislative power in the context of the unamended provision, held it as suffering from the vice of exces....
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....mate analysis, the permissible discretion depends upon the facts of each case. The discretion to fix the rate between 1 pice and 2 pice in a rupee is so insignificant that it is not possible to hold that it exceeds the permissible limits. It follows that Section 5 of the Act as amended is valid." (emphasis supplied) 97. Hon'ble Wanchoo, C.J. in Municipal Corporation of Delhi Vs. Birla Cotton, and Spinning and Weaving Mills, Delhi, AIR 1968 SC 1232, has explained the principles which are applied to find out if the legislature has provided sufficient guidelines to the delegate or not in the following words:- "It will depend upon the circumstances of each statute under consideration; in some cases guidance in broad general terms may be enough; in other cases more detailed guidance may be necessary. As we are concerned in the present case with the field of taxation, let us look at the nature of guidance necessary in this field. The guidance may take the form of providing maximum rate of tax upto which a local body may be given the discretion to make its choice, or it may take the form of providing for consultation with the people of the local area and then fixi....
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....e it is in session, for a total period of not less than 14 days, extending in its one session or more than one successive session and shall unless some later date is appointed, take effect from the date of its publication in Gazette subject to such modifications or annulments as the two Houses of the legislature may during the said period agree to make, so however, that any such modification or annulment shall be without prejudice to the validity of anything previously done thereunder except that any imposition, assessment, levy or collection of tax or penalty shall be subject to the said modification or annulment. 100. A perusal of these provisions would indicate that the legislature has not only provided sufficient guidelines to the delegate by prescribing the upper limit at which tax could be imposed, but a further check by providing that the notification issued shall be subject to the approval of the State Legislature. The legislature has reserved with it the power to annul the notification or to approve subject to such modification as it may agree. Thus, the power conferred upon the State Government is hedged with adequate check and balances which, in our opinion, would kee....
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.... Supreme Court was called upon to adjudge the validity of Section 90 (3) of the Punjab Municipal Corporation Act which empowered the Government to impose tax on sale of Indian made foreign liquor at the rate of Rs. 1 per bottle where the Municipal Corporation fails to exercise such power. The provision was challenged on the ground interalia that it suffered from the vice of the excessive delegation and there were no guidelines for the exercise of fiscal power by the Corporation or the Government. Hon'ble Krishna Iyer, J. speaking for the Bench held that the stipulation contained in Section 90 (2) that taxes shall be levied "for the purposes of the Act" provides sufficient guideline and canalise the objects for which the fiscal levy may be collected or spent. It has been observed thus:- "18. We are clearly of the view that there is fixation of the policy of the legislation in the matter of taxation, as a close study of Section 90 reveals; and exceeding that policy will invalidate the action of the delegate. What is that policy? The levy of the taxes shall be only for the purposes of the Act. Diversion for other purposes is illegal. Exactions beyond the requirements for ....
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....sequent judgments, noticeable amongst them being State of M.P. Vs. Mahalaxmi Fabric Mills Ltd. and others, 1995 Supp (1) SCC 642, and in R.C. Tobacco (P) Ltd and another Vs. Union of India and another, (2005) 7 SCC 725. In Mahalaxmi Fabric Mills, a similar contention relating to power conferred on the Central Government under Section 9 (3) of the Mines and Minerals (Regulation and Development) Act, 1957 was challenged as suffering from the vice of excessive delegation. Under the said provision, the Central Government was empowered to issue notification amending the Second Schedule so as to enhance or reduce the rate at which royalty would be payable in respect of any mineral. The argument was repelled by placing reliance on the law laid down in Papiah holding that the power of repeal reserved by the Parliament under Section 28 (1) acts as "safety valve". The relevant observations made in this regard are extracted below:- "15. ...........There are sufficient guidelines from the Act to enable the Central Government to exercise its delegated legislative function in a just and proper manner keeping in view the uniform development of minerals through out the country. In this co....
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....he mere fact that it is not certain whether the preamble of the Act gives any guidance for fixing the rate of excise duty, it cannot be said that the legislature has no control over delegate; that requirement of laying of rules before the legislature is control over delegated legislation. The legislature may also retain its control over its delegate by exercising its power of repeal." (emphasis supplied) 104. The provisions of Section 7 of the Act, which permits grant of exemption by the State Government, is also sought to be challenged on the ground that thereby the State Government could make a hostile discrimination between goods or class of goods or class of dealers. The exemption under Section 7 could be issued only where the State Government is satisfied that it is expedient to grant such exemption in the public interest. A notification issued under Section 7 pre-supposes a considered decision by the State Government having regard to the market conditions, the availability of the goods or such other factors it considers expedient in the public interest. The notification has to be in respect 'any goods' or 'class of goods' or 'class of dealers&#....
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....of goods, while deciding grant of exemption. This again provides ample safeguard against misuse of power by the delegate. Where, however, the power is exercised for extraneous considerations or has resulted in any discrimination, the exercise of power would be bad and not the provision itself. 107. Sri Manish Goel, learned Additional Advocate General submitted that a notification for exempting a good from levy of entry tax under Section 7 could only be issued by following the procedure provided under Section 4 (10) of the Act. The contention is based on Section 21 of the U.P. General Clauses Act which provides that a power to do a particular thing also includes a power, exercisable in the like manner and subject to the like sanction and conditions (if any), to add, amend, vary or rescind. 108. We have already held in the earlier part of this judgment that where the Legislature reserves in itself the power of repeal, there is rare possibility of the delegate abusing its power. Consequently, where the notification issued by the State Government is found to be against public interest, it is always open to the State Legislature to annul or modify the same in exercise of its power....
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....as like Henry VIII Clause. It confers absolute and arbitrary power on the Corporation to terminate service of a permanent employee without providing the guidelines for exercise of such power. The contention advanced on behalf of the Corporation that the power was to be exercised by Board of Directors which comprised of responsible persons, therefore, the apprehension that the power would be exercised arbitrarily or capriciously is not correct, was repelled by quoting a maxim from Historical Essays and Studies, a well-known treaties of Lord Acton, which states that "power tends to corrupt, and absolute power corrupts absolutely". 112. The next judgement relied upon was in Straw Products Ltd. Vs Income-Tax Officer, 'A' Ward Bhopal & others, AIR 1968 SC 579, wherein Section 6, which is also a difficulty removal clause of the Taxation Laws (Extension to Merged States and Amendment) Act, 67 of 1949 was under consideration. The said Act, had come into force from 1st April, 1949, to meet with the situation emerging out of the merger of the State of Bhopal with the State of Madhya Pradesh under the States Re-organization Act, 1956. The Governor General of India issued the "Taxat....
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....The Supreme Court examined the implications flowing out of the order of the Central Government under challenge and thereafter, came to the conclusion that in fact, no difficulty had arisen in implementation of the provisions of the Act. Consequently, the exercise of power under Section 6 was found to be invalid. The conclusion has been summed up in paragraph 19 of the Law Report in the following words:- "To sum up : the power conferred by Section 6 of Act 67 of 1949 is a power to remove a difficulty which arise, in the application of the Income-tax Act to the merged States : it can be exercised in the manner consistent with the scheme and essential provisions of the Act and for the purpose for which it is conferred. The impugned Order which seeks, in purported exercise of the power, to remove a difficulty which had not arisen was, therefore, unauthorised. " (emphasis supplied) 112C. Accordingly, the definition given by the Order, 1962 issued in purported exercise of power under the Removal of Difficulty Order was declared ultravires the power under Section 6 of the Act and was struck down. However, Section 6 itself, which confers power on the Central Government....
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.... Stale or extends the existing Indian laws to new territories or areas freshly merged in the Union of India. In order to obviate the necessity of approaching the legislature for removal of every difficulty, howsoever trivial, encountered in the enforcement of a statute, by going through the time consuming amendatory process, the legislature sometimes thinks it expedient to invest the Executive with a very limited power to make minor adaptations and peripheral adjustments in the statute, for making its implementation effective without touching its substance. That is why the "removal of difficulty clause" once frowned upon and nicknamed as Henry VIIT Clause in scornful commemoration of the absolutist ways in which that English King got the "difficulties" in enforcing his autocratic will removed through the instrumentality of a servile Parliament, now finds acceptance as a practical necessity in several Indian statutes of post independence era." (emphasis supplied) 113C. Thereafter, the Full Bench concluded by holding as under:- "The notifications purporting to issue under Section 8 are indeed very far from removing any difficulty in the enforcement of the Act. In....
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....establish that the order issued is (i) not inconsistent with the provisions of the Act; and (ii) the measures provided thereby would result in removal of the difficulty. In case the Order issued is inconsistent with any provision of the Act, it would render the Order vulnerable and so would be the case where the measures sought to be enforced do not remedy the difficulty. The Legislature has diligently put these restrictions to ensure that the power under Section 15 is not used in a colourable manner, as a substitute to the rule making power, as was in the case before the Full Bench of the Patna High Court. The proviso to sub-section (1) of Section 15, which limits the exercise of the power under Section 15 to a period of only two years from the date the Act is notified, in our opinion, sets at rest all speculative arguments regarding likelihood of the power being abused or taking shape of a substitute to the rule making power. It is a matter of common knowledge that the difficulties in implementation arise ordinarily during the initial years, during which period only the power was to be exercised. We thus find no force in the contention that Section 15 arms the State Government wi....
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....t the manufacturer receiving the same, neither gets rebate under Section 6 of the Act nor input tax credit under the U.P. VAT Act. At the time of sale of cement, he has to pay VAT @ 12.50%. Thus, he has to suffer a total tax burden of 14.33% on the manufactured cement. On the other hand, in case the same amount of clinker is purchased from a trader dealer situated within the State, then the selling dealer gets a rebate upto the full amount of tax leviable as entry tax under the Act. The purchasing manufacturer dealer has to pay only VAT on the purchase of clinker at the rate of 4%. The alleged discrimination was sought to be highlighted by bringing on record a chart alongwith supplementary affidavit, which is extracted below:- 117. The State has filed an affidavit in rebuttal thereto. It has taken a specific plea that clinker, which is raw material for the manufacture of cement, is not produced in the State. The said fact has not been disputed by the petitioners in the supplementary rejoinder affidavit nor during course of hearing. It is stated by the State respondents that clinker was added in the list of Scheduled Goods for the first time by a Notification dated 18.8.2005 and ....
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....de the State, otherwise a cement manufacturer in U.P. who purchases clinker from within U.P. would be in disadvantage position with reference to cement manufacturer who purchases/brings clinker from outside the State. Thus by providing rebate on clinker to the extent of VAT payable both the manufacturer i.e. a manufacturer who purchases or brings clinker from outside the State and a manufacturer who purchases clinker within the State have been put at par." "That by notification no.K.A.NI.-2-1045/XI-9(1)/08-U.P. Act-30-07-Order-46-2009 dated 29.5.09 and w.e.f. 1.6.09 entry tax on clinker has been omitted. It is further stated that rebate granted to clinker by notification dated 4.3.08 is to the extent of VAT payable by a dealer on sale or purchase of clinker under the U.P. Value Added Tax Act, 2008. If clinker is brought in the State of U.P. by stock transfer and consumed by the manufacturer of cement in U.P. no VAT on clinker would be payable and consequently no rebate in respect of such clinker would be available. If clinker is purchased within the state a rebate to the extent of VAT payable on sale or purchase on clinker would be available. If such clinker is pu....
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....thi Raning Rawat Vs. the State of Saurashtra, AIR 1952 SC 123, holding that all legislative differentiation is not discrimination. The relevant passages from the said judgment on which reliance was placed is reproduced below:- "7. All legislative differentiation is not necessarily discriminatory. In fact, the word "discrimination" does not occur in Article 14. The expression "discriminate against" is used in Article 15(1) and Article 16(2), and it means, according to the Oxford Dictionary, "to make an adverse distinction with regard to; to distinguish unfavourably from others". Discrimination thus involves an element of unfavourable bias and it is in that sense that the expression has to be understood in this context. If such bias is disclosed and is based on any of the grounds mentioned in Articles 15 and 16, it may well be that the statute will, without more, incur condemnation as violating a specific constitutional prohibition unless it is saved by one or other of the provisos to those articles. But the position under Article 14 is different. Equal protection claims under that article are examined with the presumption that the State action is reasonable and justified. T....
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.... legislations." 124. Hon'ble Ramana, J. again placing reliance on Video Electronics observed as under:- "There is a vital difference between mere ''differentiation' and ''discrimination. It is discrimination not differentiation that is sought to be prevented through Part XIII. Again reference to certain observations of this Court in Video Electronics would be pertinent: ''... very differentiation is not discrimination. The word 'discrimination' is not used in Art. 14 but is used in Articles 16, 303 & 304(a). When used in Article 304(a), it involves an element of intentional and purposeful differentiation thereby creating economic barrier and involves an element of an unfavorable bias. Discrimination implies an unfair classification. Reference may be made to the observations of this Court in Kathi Raning Rawat v. The State of Saurashtra, [1952] SCR 435 where Chief Justice Shastri at p. 442 of the report reiterated that all legislative differentiation is not necessarily discriminatory. At p. 448 of the report, Justice Fazal Ali noticed the distinction between 'discrimination without reason' and 'discrimination w....
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....try of goods into a local area from another local area of the State can be effected either by a dealer who purchased the goods from the manufacturer or by an individual. A dealer who effects entry of goods into a local area from another local area in the same State would be taxed in the form of sales tax/VAT; so also the individual would have already paid the sales tax in another local area, where he bought the goods. In case of entry tax levied on goods imported from other State, set-off like in the cases of State enactments of Tamil Nadu and Andhra Pradesh is given to the extent of the sales tax/VAT paid in the purchasing State; in few of the States like Kerala, after levy of entry tax, to the extent entry tax paid, input credit is given from the sales tax/VAT payable in the State where the goods are imported. Tax burden is more or less the same, for both indigenous goods and outside goods. This is because, where an entry tax is imposed on goods brought from outside, the benefit of credit of the amount already paid as entry tax is given as input credit for the purpose of payment of VAT. Moreover, if a State enactment provides for set-off and statutory exemptions to goods paying l....
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....from outside the State. However, in the chart, purchase value of clinker in case of stock transfer as well as in case of purchase from a registered dealer of U.P. has been shown to be one and the same. In view of the said discrepancy, all other figures given in the chart are also not correct. 130. Moreover, it is relevant to note that the notification dated 4.3.2008 by which rebate was granted on clinker was not challenged by the petitioners when they filed Writ Petition No.1515 of 2007 challenging the validity of the Act, nor even now. The rebate on clinker, as noted above, was effected for the short period starting from 4.3.2008 and ending on 1.6.2009. Certified copy of the assessment orders of the relevant period was placed on record during the course of hearing by Sri Manish Goel, learned Additional Advocate General and wherein no such plea relating to discrimination was raised. The assessment proceedings have attained finality long back and as noted above, the challenge even in the earlier writ petition to the validity of the Act was not on the ground of any discrimination having taken place against the petitioners on account of the notification dated 4.3.2008. 131. An i....
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....tration :- Cement sold against Form-C from State of M.P. For Varanasi in State of U.P. & Considering value of Cement to be Rs. 100/- Cement manufactured at Chunar in State of U.P. and sold for Varanasi in State of U.P. & Considering value of Cement to be Rs. 100/- CST @ 2%=Rs 2/- NIL ET @ 5%=Rs 5.1/- ET @ 5%=Rs 5/- VAT @ 14.5 = Rs. 15.52 VAT @ 14.5=Rs 15.22 Total Tax = 22.62/- Total Tax = 20.22/- 133. It is contended on its behalf that entry tax could only be sustained if the State while imposing the same succeeds in equalising the fiscal burden, so that there is no disparity in the final price of the good. It is contended that the said principle has been laid down in Jindal Stainless-II in para 141 and 378 which reads thus :- "141. Seen in the context of the above, we are inclined to accept the submission made on behalf of the State that so long as the intention behind the grant of exemption/adjustment/credit is to equalize the fall of the fiscal burden on the goods from within the State and those from outside the State such exemption or set off will not amount to hostile discrimination offensive to Article 304(a)." "378....
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....nd against the equality contemplated by Article 304. That is the consequence of ad valorem tax being levied at a particular rate. So long as the rate is the same Article 304 is satisfied. Even in the case of local manufactures if their cost of production varies, the net tax collected will be more or less in some cases but that does not create any inequality because inequality is not the result of the tax but results from the cost of production of the goods or the 'cost of their importation. This ground, therefore, has also no substance. We do not think it necessary to set down here the provisions of the Haryana Amendment Act because they follow the scheme of the Punjab Amendment Act in substance and what we have said in regard to the Punjab Amending Act applies mutatis mutandis to Haryana Amendment Act also." (emphasis supplied) 134A. Again in Shree Digvijay Cement Co. Ltd. and others Vs. State of Rajasthan and others, (2000) 1 SCC 688, the Supreme Court considered a challenge to validity of a notification issued by the State of Rajasthan under the Central Sales Tax Act, 1956 reducing sales tax on inter-State sale of cement by dealers of that state to 4%, while it w....
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....ement imported from outside and that manufactured within the State, the impost, in our opinion, was absolutely non-discriminately and fully passes muster of Article 304(a). The principle of equalization of fiscal burden was laid down to save exemptions and set-off granted under the Act. It is nowhere held that if there is disparity in price because of the good being subject to certain taxes in the importing State, it is incumbent upon the State to equalise the fiscal burden on the good imported from outside by giving it a set off or exemption in the entry tax. Grant of set off or exemption is a matter of policy and the State Government cannot be compelled to exercise these powers. The object of Article 304(a) is to prevent erection of economic barrier for the goods coming from other States and not to provide for a machinery to equalise the cost of procurement of a good from the other State where it had been subjected to taxes payable in that State. 137. In Writ Petition No.24953 of 2017 M/s. Bhushan Steel Ltd vs. State of U.P., and certain other petitions, wherein the petitioners are manufacturers and dealers of CR Coil, GP/GC sheets etc., the validity of the notification dated ....
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....nd exigencies of the society and as suggested by experience. It can recognise even degree of evil, but the classification should not be arbitrary, illusory, or artificial. It is well settled that latitude for classification in a taxing statute is much greater; and in order to tax something as observed above, it is not necessary to tax everything. These basic postulates have to be borne in mind while determining the constitutional validity of a taxing provision challenged on the ground of discrimination. 139. The scope for permissible classification in a taxing statute was considered in P.H. Ashwathanarayana v. State of Karnataka, AIR 1989 SC 100. After a review of earlier decisions, it was stated therein as under :- "It is for the State to decide what economic and social policy it should pursue and what discrimination advance those social and economic policies. In view of the inherent complexity of these fiscal adjustments, courts give a larger discretion to the legislature in the matter of its preferences of economic an social policies and effectuate the chosen system in all possible and reasonable ways........" (emphasis supplied) 140. The Act, by Section ....
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....t entry at Sl. No.14 read thus : "Iron and Steel as defined in Section 14 of the Central Sales Tax Act, 1956". It included H.R. Coil as well. By subsequent notification dated 15.1.2009, the earlier notification dated 29.9.2008 was amended. The entry, after amendment, was to the following effect:- 14. Iron and Steel as defined in section 14 of the Central Sales Tax Act, 1956 excluding following goods :-(i) pig iron, sponge iron and cast iron including ingot moulds, bottom plates, iron scrap, cast iron scrap, runer scrap and iron skull scrap; (ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes); (iii) steel melting scrap in all forms including steel skull, turnings and borings; (iv) wires-rolled, drawn, galvanized, aluminized, tinned or coated such as by copper. 1% of the value of goods. 143A. On 31.3.2011, again the notification was amended and H.R. Coil was also excluded. By the second notification of the same date, issued in exercise of power under Section 6, a rebate to the extent of the amount of tax payable by a dealer under UP VAT Act was also granted in respect of the items which remained under the ambit of the notifica....
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....ied under 'Iron and Steel' under the Central Sales Tax Act, 1956, only four were exempted. It cannot be assumed that there was any omission on part of the State while issuing the said notification. Like several other items which were not excluded, HR Coil, though falling under the category of 'Iron and Steel' under the Central Sales Tax Act, 1956 was also not excluded. It was certainly a deliberate and well considered decision of the State not to exclude HR Coil from the tax net under the Act. It is possible that initially when entry tax was leviable at the rate of 1% of the value of goods, the State felt that HR Coil should also be taxed, but when the rate was enhanced to 5% by notification dated 31.3.2011, it was considered expedient to exclude HR Coil also. Though, the notifications were issued with specific reference to the phrase 'Iron and Steel' used in the Central Sales Tax Act, 1956 but the categorisation made thereunder was not binding on the State. It was free to decide which of these items should be included and which excluded. It would not be proper to subject the judgement of the State not to exclude HR Coil from levy of entry tax, while issuing....
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....s which will be subjected to taxation and those which would be exempted from it." 145. It is noteworthy that in the body of the writ petition, no factual foundation has been laid, to make out a case of discrimination. Under the heading 'Grounds', some such assertions have been made, albeit aware of the practice prevalent in this Court that the other party only replies to the pleadings and not the grounds. Thus, the version of the State as regards the circumstances in which such distinction was drawn while issuing the notification dated 15.1.2009 could not come on record. This is not withstanding the fact that the writ petition was filed before this Court in pursuance of liberty granted by the Supreme Court, to enable the petitioners to make factual pleadings to enable its adjudication by this Court. It is also not borne out from record whether any such plea was raised before the Authorities during assessment proceedings, which seem to have attained finality by now. Having regard to these facts, the challenge on the above ground, does not merit acceptance and is accordingly rejected. 146. The exemption notifications, in respect of which it was alleged that it had resul....
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....ccording to the petitioner, although the said facility has been withdrawn since 15.2.2005, but the import of crude oil upto the port and its further transportation through the underground pipeline to the Mathura Refinery is part of an integrated activity of import. It is contended that the import of crude oil which originates in the foreign countries ends at Mathura Refinery. Consequently, the crude oil is not subject to the VAT Act or the Central Sales Tax Act during its movement to the Mathura Refinery. Prior to 2005, the petitioner Corporation did not discharge the custom duty at Vadinar Port situated in Gujarat since the crude was stored at the Port under warehousing bond. It was transferred to the inland warehouse at the Mathura Refinery under Into Bond Bill of Entry. The custom duty was paid at Mathura Refinery and whereafter customs payment challan was generated in which the details of Bill of Entry, shipping bill number, Ex-Bond Bill of Entry and the quantity of the crude oil is duly mentioned. Thereafter, the petitioner was permitted to take out crude oil from the bonded tanks for further processing in the Refinery. 148. Since the midnight of 15.2.2005, the Government o....
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....re cleared for home consumption either under Section 47 of the Act or under Section 68 of the Customs Act, the imported goods mix up with the mass of goods in the country and enter into the local area. Import of goods into the territory of India and transit of goods within the country are not integral. Import of goods and customs clearance and the entry of goods into the local areas are two distinct events. In the case of customs duty, the taxable event is entry of goods into the territory of India."The taxable event under entry 52, List II is the entry of goods into local area for consumption, use or sale therein. Two taxable events are distinct in law and there is no overlap." (emphasis supplied) 151. Hon'ble Dr. D.Y. Chandrachud, J. has also specifically noted a similar contention in paragraph 705 in the following words:- "705 (246). Entry 83 of List I provides for "duties of customs including export duties". The submission of the petitioners is that there being no over-lapping of legislative entries, the field of Entry 52 of List II would begin where that of Entry 83 of List I ends. Hence, while considering whether entry tax can be imposed in relation t....
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.... of India, the two Hon'ble Judges, i.e. Justice R. Banumathi and Justice Dr. D.Y. Chandrachud while delivering separate judgment have considered the leviability of entry tax on imported goods in detail. Both Hon'ble Judges have held that there is no clash/overlap between entry levied by the State under Entry 52 List II and the custom duty levied by the Union under Entry 83 List I. We have also arrived at the same conclusion in view of the foregoing discussions. We thus hold that entry tax legislations do not intrude in the legislative field reserved for Parliament under Entry 41 and under Entry 83 of List I. The State Legislature is fully competent to impose tax on the entry of goods into a local area for consumption, sale and use. We thus repel the submission of petitioner that entry tax legislation of the State encroaches in the Parliament's field. " (emphasis supplied) 153. Following the above and with due deference to their Lordships of the Supreme Court, we outrightly repel the contention that crude oil, which is imported by the petitioner, cannot be subjected to entry tax. Doctrine of unbroken package:- 154. We now proceed to examine the other li....
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....ld not apply. One was the case of a state tax levied after the imported goods had lost their status as imports. The Court devised an evidentiary tool, the "original package" test, for use in making that determination. The formula was: "It is sufficient for the present to say, generally, that when the importer has so acted upon the thing imported, that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the State; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports to escape the prohibition in the constitution." Id., at 441-442 6 L Ed 678. "It is a matter of hornbook knowledge that the original package statement of Justice Marshall was an illustration, rather than a formula, and that its application is evidentiary, and not substantive . . . . Galveston v. Mexican Petroleum Corp., 15 F2d 208 (SD Tex 1926)." "Thus, it is clear that the Court's view in Brown was that merely because certain actions taken by the importer....
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....s cross the customs barrier." 158A. Again in paragraphs 102, 104 and 105 of the Law Report, after considering the provisions of the Customs Act, it has been concluded thus:- "102. The law relating to customs has been consolidated by the Customs Act,1962. The definitions of "import", "imported goods" and "importer" have already been noticed above. The definition of imported goods as given in Section 2(25) is - any goods brought into India from the place outside India but does not include goods, which have been cleared for home consumption. The provision clearly contemplates that once the goods are released for home consumption, the character of imported goods is lost and thereafter no longer the goods could be called as imported goods. The import transit is only till the goods are released for home consumption. The taxing event for entry tax under Entry 52 List II is entirely different and has nothing to do with the customs duty. The State by imposing entry tax in any manner is not entrenching in the power of the Parliament to impose customs duty. The goods are released for home consumption only after payment of the customs duty due to the Central Government. The goods w....
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....ches upon the Parliamentary Legislation under Entry 41 and Entry 83. There is no invalidity in levy of entry tax by the States." (emphasis supplied) 159. Learned counsel for the petitioner has placed a great emphasis on paragraph 104 in contending that the crude oil could not be subjected to entry tax before it is released for home consumption. It is urged that the crude oil gets released for home consumption when it is taken out from underground pipeline situated within the premises of the Mathura Refinery but thereafter it does not enter any local area, but is consumed within the same local area, consequently, it cannot be subject to any entry tax. 160. It is not in dispute that the petitioner Corporation, after receiving the crude oil at Vadinar Port in VLCC, stores the same at storage tanks located at the port. These storage tanks are bonded warehouses where crude oil is stored without payment of custom duty. However, before the same is removed from the storage tanks for further transportation to Mathura Refinery through underground pipelines, it pays the custom duty at the custom barrier at Vadinar Port. This practice is being adopted since the year 2005. Once t....
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.... pay duty. Sometimes they transfer the warehoused goods from one warehouse to another without payment of duty under Section 67 of the Customs Act, 1962 with the permission of proper officer of customs and then pay duty at the destination. 2. It has been decided to withdraw this facility of transfer of petroleum products without payment of customs duty from the warehouse at the port of import to inland warehouse. Section 46 of the Customs Act, 1962, provides for the importer to file the Bill of Entry for home consumption and clear the goods on payment of duty or to file Into-Bond Bill of Entry and warehouse the goods and clear them subsequently after payment of duty. Henceforth, the warehousing facility for petroleum products would be available only at the port of import and no removal to inland bonded warehouses without payment of customs duty will be allowed. 3. The proper officer of customs in the field should ensure that the petroleum products lying in warehouses at places in the hinterland other than the ports are de-bonded from the customs warehouses and duty realized immediately. 4. It may, however, be noted that nothing in the above instructions wo....
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....out re-assessment by passing a speaking order. Under Section 59, the importer of any good in respect of which a Bill of Entry for warehousing has been presented under Section 46 and assessed to duty under Section 17 or Section 18, shall execute a bond in a sum equal to thrice the amount of the duty assessed on such goods binding himself to comply with the provisions of the Act and the Rules; to pay all duties with interest; and to pay all penalties and fines incurred for the contravention of the Act or the Rules and Regulations. When the provisions of Section 59 has been complied with, the proper officer may order under Section 60 permitting removal of the goods from a custom station for the purpose of deposit in a warehouse. Section 61 prescribes the period for which any warehoused good may remain in the warehouse. Section 67 of the Act permits owner of any warehoused goods to transfer them from one warehouse to another. This is done by presenting once again a Bill of Entry, which in commercial parlance is called Into-Bond Bill of Entry. The petitioner Corporation availing the said facility had been transferring crude oil from bonded warehouse at Vadinar Port to the bonded warehou....
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.... all duties or interest on or before the date of demand. Under Section 62, the proper custom officer exercises control over all the warehoused goods and he may cause any warehouse to be locked. The owner of the goods can with the sanction of the proper officer deal with the goods, show the goods for sale and even carry on any manufacturing process or other operations in the warehouse in relation to such goods. (emphasis supplied) Again in paragraph 436 it has been held as follows:- "436(176). Such warehousing or warehousing bond cannot prevent the levy of entry tax, especially where warehouse is established in a factory unit. On the basis of the law laid down above, I hold that the taxable events under entry 83, List I and entry 52, List II are distinct; any movement of the imported goods to the warehouse in the factory unit would not prevent the State from levying and collecting entry tax when such goods enter a local area of the State for consumption, use or sale therein." (emphasis supplied) 166. A similar view was taken by Hon'ble Dr. D.Y. Chandrachud, J after placing reliance on a passage from the judgement of the Hon'ble Sinha, CJ. in ....
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....e for this Court. 168. Under the Customs Act, the taxable event is the import of goods within the custom barriers. Sections 17 of the Act postulates that an importer, after entering the goods on importation under Section 46, whether for home consumption or for warehousing, shall self-assess the duty, if any, leviable on such goods. Where he is unable to assess the duty imposed, the provisions of Section 18 takes care of the manner in which the duty is to be assessed and paid. The provisions of Section 60 which permits storage of goods in a bonded warehouse and that of Section 66 which permits removal of goods from one warehouse to another warehouse, are facilitative provisions for the benefit of the importer or owner of the goods. As aptly observed by Hon'ble Banumathi, J. in Jindal Stainless-II, these inland container depot and warehousing station which are creatures of Statute, are not determinative of the taxable event for imposition of custom duty on imports. It is separate and distinct from the taxable event of Entry 52 List II. 169. The contention could be examined from another angle. Ordinarily, as noted above, the custom duty was payable at Vadinar Port, as is bei....
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....he Parliament, is entirely different from that of event of entry tax. The liability to pay State entry tax arises only when goods enter into a local area for consumption, use and sale, which event is entirely different and separate from the levy of a customs duty, which is on import." (emphasis supplied) 171. In taking the above view, their Lordships have placed reliance on a judgment of the Supreme Court of United States in Michelin Tire Corporation Vs. W.L. Wages, Tax Commissioner, 46 L.Ed. 2d 495. In that case, the respondent was importer of tires and tubes from the European countries. The articles were included in an inventory maintained in a whole-sale distribution warehouse. The authorities assessed ad valorem property taxes against inventory of imported tires and tubes. The imposition of property tax was challenged on similar ground that the State taxes were prohibited by the provisions of the Constitution. The U.S. Supreme Court held that the prohibition imposed on the State to tax the imported goods on the basis of their foreign origin would not mean according preferential treatment to imported goods, thereby permitting them to escape from non-discriminatory St....
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....the following example:- "Assuming that the cost of manufacturing, packaging and taxes at a manufacturing unit in the State of M.P. is Rs. 100/- per bag of cement and insurance, transport and other charges upto the point of entry into the local area in Allahabad is Rs. 50/- and the wholesale margin is Rs. 50/-, then the bag of cement will be sold in the State of U.P. for 200/-. Thus, the petitioner will have to pay entry tax on Rs. 200/- because petitioner has not acquired goods in question by way of purchase. On the other hand, a normal trader in the State of U.P. who purchases cement directly from M.P. at Rs. 100/- and incurs Rs. 50/- as transport and insurance charges till the time of entry into local area in U.P. will have to pay entry tax by valuing the same cement only at Rs. 150/- although the cement bag may be sold by him in the local area in U.P. at Rs. 200/- by taking the same profit of Rs. 50/-." 174. Reliance was placed on paragraph 6 of the judgement of Supreme Court in Govind Saran Ganga Saran Vs. Commissioner of Sales Tax and others, (1985) Supp. SCC 205, which enumerates the components of a tax as under:- "The components which enter into....
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....lace is taken only as a basis to provide measure of levying tax on a completed transaction between wholesalers and the retailer would make it suffer from basic fallacy of importing the composition (sic component) of sale which has not come into existence to determine tax which is fixed as soon as the taxable sale is completed. " 176. Section 2 (h) reads thus:- "2. (h) "Value of Goods" means the value of any goods as ascertained from original purchase invoice or bill and includes value of packing material, packing and forwarding charges, insurance charges, amounts representing excise duty, countervailing duty, custom duty and other like duties, amount of any fee or tax charged, transport charges, freight charges and any other charges relating to purchase and transportation of such goods into the local area in which goods are being brought or received for consumption, use or sale therein; PROVIDED that where any goods have been- (i) purchased and the value thereof is not ascertainable on account of non availability or non production of any document; or (ii) purchased and the value declared by the dealer or the person incharge is not verifiable o....
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....It is true that the whole sale price would include the profit of the whole seller but it is equally possible that in a given case the good is produced in the same local area and thus, its whole sale price at which the manufacturer is selling the same, is available. It may include his profit but since the good is available in the same local area, therefore, the insurance, transport and other charges would be considerably low as compared to goods brought from outside the State. In the illustration cited, the cost of a bag of cement acquired by stock transfer is assumed to be Rs. 100/-. It includes the cost of manufacturing, packaging and taxes, but not profit, as there is no sale in case of stock transfer. On the other hand, the same price has been assumed even when the cement is acquired by a dealer by purchase. In normal course of events, the manufacturer would also take his profit and thus, a cement bag for a trader buying goods from a manufacturer in Madhya Pradesh would not be Rs. 100/- but higher than that. Again in case of purchase of cement from a manufacturer or distributor in another State, the central sales tax and other local taxes including entry tax, if leviable in that....
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....of Sections 44-AC and Section 206-C of the Income Tax Act. These provisions enabled the Revenue to estimate the profits on a "presumptive basis". The provisions were introduced as the Government wanted to get over the problems in assessing income and recovering tax in the case of persons dealing in country liquor, timber, forest produce etc. The stand taken by the Government was that persons dealing in these commodities did not maintain any books of accounts or where such books are maintained, those were found to be incomplete; the business of such persons existed only for a short period and whereafter it was also not possible to trace them. The assessees contended that the legislature lacked competence to enact such provisions whereunder tax was sought to be realised on a hypothetical income and not real income. It was further contended that both the provisions were arbitrary and discriminatory, inasmuch as the legislature had picked up only wholesale dealers of country liquor leaving out the retailers, processors, manufacturers as well as persons dealing in Indian made foreign liquor. 179A. Their Lordships, after referring to judgment in Ram Krishna Dalmia vs. Justice S.R. Ten....
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....otified by the State Government, shall, at the time of taking delivery of the goods from the manufacturer, pay to the manufacturer the tax payable on entry of such goods into the local area and the manufacturer shall receive the tax so paid. The manufacturer shall not deliver such goods to the purchaser unless the amount of such tax has been paid by the purchaser. (2) The manufacture receiving the tax under sub-section (1) shall submit to the Assessing Authority a return in respect of the goods supplied, and the tax received, by him under sub-section (1) and deposit the tax so received in such manner and within such time as may be prescribed. (3) Where any manufacturer fails to deposit, the tax under this section he shall be liable to pay the tax along with the interest and penalty, if any, payable thereon which shall be recoverable as arrears of land revenue. (4) Where the Assessing Authority is satisfied that any goods referred to in sub-section (1) is lost or destroyed after its delivery by the manufacturer and before its entry into the local area, it shall direct that the tax paid in respect of such goods shall be refunded to the person who had paid t....
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.... fails to catch him on account of Legislature's failure to express itself clearly. " 183. Reliance has also been placed on the judgment of the Supreme Court in Mathuram Agrawal Vs. State of Madhya Pradesh, (1999) 8 SCC 667, wherein it is held that an interpretation which does not follow from the plain, unambiguous language of the statute is to be eschewed. The Statute should clearly and unambiguously convey the three components of tax i.e. the subject of tax, the person who is liable to pay the tax and the rate at which the tax is paid. If there is any ambiguity regarding any of these ingredients in a taxing Statute, then there shall be no tax in law. The judgment in Commissioner, Central Excise & Customs, Kerala Vs. M/s Larsen & Toubro Ltd., (2016) 1 SCC 170, wherein the above observations made in Mathuram Agrawal have been reiterated in paragraph 20 was also cited in contending that the charging section and the computation provisions together constitute an integrated code. Consequently, where the computation provisions cannot apply at all, it is a case falling beyond the charging section. The operation of the charging section cannot be altered by a computation provision. ....
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....e. Section 41 of the Act empowered the Government to authorise officers to carry out search and seizure. Sub-section (4) thereof conferred power on the officer carrying out search to seize and confiscate any goods which are found in any office, shop, godown, vessel, vehicle, or any other place of business or any building or place of the dealer, but not accounted for by dealer in his accounts registers, records and other documents maintained in the course of his business. Under the second proviso, an option was given to the person affected by confiscation to pay in addition to the tax recoverable, a sum not exceeding one thousand rupees or double the amount of tax, whichever is greater, and in other cases, a sum of money not exceeding one thousand rupees. The provision thus conferred power to confiscate goods merely on suspicion, without the taxable event taking place i.e. sale or purchase of goods. The statute was enacted in purported exercise of power under Entry 54, List II relating to "taxes on sale or purchase of goods". In the aforesaid background, it was held that the second proviso was beyond the legislative competence, as thereby "the tax is ordered to be recovered even bef....
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.... or fails to deposit, the tax under this section he shall be liable to pay the tax alongwith the interest and penalty, if any, payable thereon which shall be recoverable as arrears of land revenue. (4) Where the Assessing Authority is satisfied that any goods referred to in sub-section (1) is lost or destroyed after its delivery by the manufacturer and before its entry into the local area, it shall direct that the tax paid in respect of such goods shall be refunded to the person who had paid the tax under sub-section (1): Provided that no claim for such refund shall be entertained after the expiry of six months from the date of the loss or destruction of the goods. (5) The provisions of section 5 shall not apply to a person making payment of the tax under sub-section (1) and such person shall not be assessed, or required to submit a return, under this Act." 186A. Its vires was subjected to challenge on exactly similar grounds in West U.P. Sugar Mills Association and others vs. State of U.P., 2001 U.P. T.C. 1110. The State defended its action by contending that insertion of Section 4-A did not change the taxable event. It continued to be the entry of go....
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....rative Bank v. IIIrd Income Tax Officer, AIR 1975 SC 2016. The Supreme Court held that the power to collect a tax means the power to collect it properly and effectively and the same view was taken in Orient Paper Mills v. State of Orrissa, 12 STC 357 and Chhote Bhai Jetha Bhai Patel v. State of M.P., 30 S.T.C. 1. In V.K. Singhal v. State of U.P., 1995 UPTC 337, this Court upheld the validity of Section 8-D and observed that the power to impose tax also include the power of collection by means of advance payment of tax or deduction of tax at source to be finally adjusted at the time of filing of the return of the assessment." "16. ........Sri Chandra submitted that Section 4-A levies a tax on intention and not on actual entry of goods into the local area. In our opinion sub-section (4) of Section 4-A must be read alongwith sub-section (1). Sub-section (4) deals with the situation where despite an intention goods are not brought into the local area. In such a situation the tax has to be refunded as provided by sub-section (4). Hence the statute has also catered for this situation". "22. As regards the argument on the basis of Article 19 (1) (g) of the Constitution w....
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....es, nor the taxable event. The advance tax under the Act would have been collected only till the Act was in force. The amount already collected must have been deposited or would be deposited in due course, for which due credit is admissible to the person paying the tax. The advance collection of tax under this provision, by the manufacturer, is no more in vogue, the Act itself having been repealed. Therefore, challenge to the provision is only academic in nature and does not deserve any further consideration. Conclusions:- 189. The result of the above discussion is summarised thus:- (a) The contention that the impugned Act was not covered under Entry 52 List II since Entry 52 is in essence power of local bodies to levy octroi and thus State legislature had no legislative competence to impose entry tax, is no more res-integra, having been repelled by the Supreme Court in Fr. Williams. Accordingly, we find no force in the said contention. (b) Again the contention that the provisions of the Act, particularly Section 14 (2), which mandates that the entry tax levied and collected would be credited to a central fund i.e. Uttar Pradesh Trade Development Fund and be....
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....hich have been challenged, also pass muster of Article 14 and Article 304 (a). The third question framed by the Supreme Court is thus answered in favour of the Revenue and against the petitioners. (h) The crude oil imported by IOC from Gulf countries becomes part of the land mass of the country and was liable to entry tax upon its entry into a local area within the State. Entries 41 and 83 of List I operate in separate and distinct fields as compared to Entry 52 of List II and there is no conflict between the Customs Act, 1962 and the impugned Act. (i) The doctrine of unbroken package having been abandoned by Courts in the United States where the doctrine was propounded and no more followed by the Supreme Court would not come to the rescue of IOC in contending that crude oil could not be subjected to entry tax in course of its transportation to Mathura Refinery through the underground pipelines. In the above context, we further hold that goods which are directly imported from other country could, in a given case, be subject matter of entry tax. We accordingly answer the second question framed by the Supreme Court in affirmative. (j) The warehousing facili....