TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 969
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.... NAIK, J.] 1] The petitioners have invoked Writ Jurisdiction of this Court under Article 226 of the Constitution of India. 2] The petitioner in Writ Petition No.4563 of 2013 seeks declaration that the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002, as amended, Notification issued thereunder and the Rules framed under the authority of the aforesaid Act as null and void and ultra vires the Constitution of India, being violative of Articles 14, 19, 245, 286 and Article 301 read with Article 304 of the Constitution of the India. 3] The petitioner in Writ Petition No.2785 of 2017, seeks issuance of writ of mandamus or any other writ or direction under Article 226 of the India, declaring Entry No.16 of the Schedule to the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 as ultra-vires and Entry 52 of List II of the Seventh Schedule to the Constitution of India, and to declare that Entry No.16 of the Schedule to the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 is ultra- vires Article 304(a) of the Constitution of the India. 4] The petitioner in Writ Petition No.1813 of 2013, also seeks declaration that the provisions of the Maharas....
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....evied Entry Tax under Entry 52 of the List II of the Seventh Schedule to the Constitution. The Entry 52 relates to tax on the entry of goods into Local Area for consumption, use or sale therein. The Legislative power is subject to Article 304 of the Constitution. It is submitted that the constitutional validity of powers of the State Legislature to levy entry tax on goods imported from outside State in the Local Areas was re-examined by the Hon'ble Supreme Court in the case of Jindal Stainless Steel Ltd -vs- State of Haryana and ors. A.I.R.2016 S.C.5617. In the said decision the Court has observed that only such taxes as are discriminatory in nature are prohibited under Article 304(a) of the Constitution of India. It follows that levy of non-discriminatory tax would not impinge Article 301 of the Constitution of India. A levy that violates Article 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso thereunder is satisfied. The theory of compensatory tax evolved in the cases of Automobile Transport and subsequently modified in the Jindal case (supra), has no juristic basis and is therefore, rejected. It is further observed that Article 304(a), frowns....
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.... is further observed that the Courts have left it open for examination by the regular benches hearing the matters whether the impugned enactment achieve the object of such equalization or lead to a situation that exposes goods from outside the State to suffer any disadvantage vis-a-vis those produced or manufactured in the taxing State. It is submitted that the burden on imported L.N.G. is much higher than locally produced L.N.G. which suffers tax burden and therefore, the importing dealer is put in a disadvantageous position. It is a hostile discrimination as higher tax burden discourages the petitioner to import L.N.G. in to the State of Maharashtra. It is clear from the above that L.N.G. imported from the outside State suffer disadvantage vis-a-vis those produced or manufactured in the State and therefore levy cannot be sustained. 13] It is submitted that the respondent has passed the order dated 31st March, 2017 demanding tax without giving effect to the second proviso. The said dis-allowance of reduction of the amount of CST paid from the Entry Tax has further increased tax burden on the petitioner. Respondent has not allowed set off of Entry Tax under Section 48 of the VAT A....
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....tion 3 of the CST Act, states that where the movement of goods commences and terminates in the same State, it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement, the goods pass through the territory of any other State. Thus, without entry and termination of goods in the local areas CST cannot be levied. Movement of goods from one State occasioned by sale and entry and termination of such goods in the local areas of another State is one integral transaction which is subject to CST. One single transaction of sale of goods in the course of inter-state sale cannot be dissected into two taxable event to justify levy of entry tax. 16] Mr. Desai relied upon the decision in the case of M/s V. Guruviah Naidu and Sons and others -vs- State of Tamil Nadu and others (1977) 1 SCC 234. Learned counsel adverted to paragraph No.9 of the said decision; wherein it is observed by the Apex Court that Article 304(a) does not prevent levy of tax on goods; what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced....
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....remains with local authority constituted under Mumbai Municipal Corporation Act, Bombay Provincial and Municipal Corporation Act, or City of Nagpur Corporation Act, 1948 and Maharashtra Zilla Parishad and Panchayat Samitis Act, 1961. There cannot be two taxes on the same aspect of transaction that is entry on goods in the local area for use, consumption or sale therein. The impugned Entry Tax Act amounts to double taxation which is impermissible under the Constitution. The petitioner has filed Affidavit 10.10.2017, stating that for the financial year 2012-2013, the petitioner would suffer tax burden on procurement of LNG from outside the State of Maharashtra, if the levy of Entry Tax under the Maharashtra Tax on the entry of Goods into Local Area, is upheld. The petitioner has tendered compilation of documents and decisions. 19] Learned Senior Counsel, Mr. Shridharan, representing the petitioner in Writ Petition No.2785 of 2017, and W.P. No.1813 of 2013, submits that the petitioner in Writ Petition No.2785 is engaged in manufacture of fertilizers chemicals etc at it's factory in Taloja Industrial Estate, District: Raigad, and subsequent sale of the said manufactured fertilizer....
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....such as Municipality, district Board, Local Board, Union Board, Panchayat or any other body constituted under the statute for the governance of the local affairs of any part of the State. Hence Entry 52 of the List II must be interpreted to mean that tax on entry into local area to be imposed, assessed, collected and retained by the local area and more significantly utilized or consumed by same local area, as that was the consistent legislative practice adopted without any exception. Mr. Shridharan, further submitted that the Hon'ble Supreme Court has laid down law while interpreting Entry 52, in the case of Diamond Sugar Mills and anr -vs State of Uttar Pradesh A.I.R. 1961 3 SCR 242, Burmah Shell Oil Storage and Distributing Co. of India -vs- Belgaum Borough Municipality Belgaum 1961 Supp (2) SCR 216. It is submitted that Maharashtra Tax on the Entry of Goods in Local Areas Act 2002, does not adhere to principles laid down in the aforesaid decisions. The tax is levied, assessed, collected and retained by the State Government itself and is not distributed directly to the respective local areas in which the goods enter for use, sale or consumption therein. Hence that Entry 16 of....
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....d entry. 25] Learned counsel drew our attention to the observation of the Apex Court in paragraph Nos. 17, 18, 19, 20, 21, 22 of the said decision. "17. Turning now to the previous legislative history we find that in the Government of India Act, 1935, Entry 49 of the Legislative List (List II of the 7th Schedule) was in the same words as Entry 52 of the Constitution except that instead of the words "taxes" as in Entry 52 of List II of the Constitution, Entry 49 List II of the Government of India Act, used the word "cess". The Government of India Act, 1915, the powers of the provincial legislatures were defined in s. 80A. Under clause (a) of the third sub-section of this section the local legislature of any province has with the previous sanction of the Governor-General power to make or take into consideration any law imposing or authorizing the imposition of any new tax unless the tax was a tax scheduled as exempted from this provision by rules made under the Act. 18. The third of the Rules that were made in this matter under Notification No.311/8 dated December 18, 1920, provides that the Legislative Council of a Province may without the previous sanction of the Governor Genera....
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....y of goods into an area administered by a local body, that is, a local government authority and the area in respect of which such tax could be imposed was mentioned in item 8 as local area. 21. It is in the background of this history that we have toexamine the use of the word "local area" in item 49 of List II of the Government of India Act, 1935. Here the word "octroi" has given place to the longer phrase "cesses on the entry of goods into a local area for consumption, use or sale therein." 22. It was with the knowledge of the previous history of the legislation that the Constitution-makers set about their task in preparing the lists in the seventh schedule. There can be little doubt therefore that in using the words "tax on the entry of goods into a local area for consumption, use or sale therein", they wanted to express by the words "local area" primarily area in respect of which an octroi was leviable under item 7 of the schedule tax rules, 1920 - that is, the area administered by a local authority such as a municipality, a district Board, a local Board or a Union Board, a Panchayat or some body constituted under the law for the governance of the local affairs of the any part....
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....at very same point, then the minority view is a binding precedent. He relies on the decision in the case of "Bakul Cashew Co. & Ors -vs- Sales Tax Officer (1986) 2 SCC 365, Income Tax Officer -vs- M.C. Ponooze & ors 1969 (2) SCC 351 and Commissioner of Wealth Tax -vs- Dr. Karan Singh and ors 1993 Supp(3) SCC 500. Learned counsel with the assistance of the chart prepared by him contends that there is discrimination in the rates of tax viz. Purchase of goods by Maharashtra based consumer in Gujarat and then brought into Maharashtra, purchase of goods by Maharashtra based dealer in Gujarat and then brought into Maharashtra for sale to consumer, purchase of goods by Maharashtra based dealer on inter-state basis from Gujarat for local sale to consumer in Maharashtra. 29] Writ Petition No.1813 of 2013, was amended by incorporating new grounds. It is contended that the levy under the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 is discriminatory in nature as sub section 5 of section 3 of the charging provision specifically exempts the levy of entry tax on goods imported by a dealer registered under MVAT Act, for the purpose of resale in the state or sale in the course....
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.... and anr -vs- Bhailal Bhai and ors 1964 (15) STC 450, A. Hajee Abdul Shukoor & Co. -vs- The State of Madras 1964 (15) STC 719. 31] Mr. D. J. Khambata, Senior Advocate and Special Counsel, appearing for the respondent submitted that the petitions are devoid of merits and are required to be dismissed. It is submitted that Entry 52 of List II of the Seventh Schedule to the Constitution of India, empowers the State Legislature to impose tax on the Entry of Goods into Local Area for the consumption, use or sale therein. The State of Maharashtra has enacted, Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002. The provision of Maharashtra Entry Tax read together with Maharashtra Value Added Tax Rules, 2005 (for short "MVAT Rules), satisfy the criteria laid down by the Supreme Court and are not unconstitutional. 32] The Courts have already considered and addressed the issues raised by the Petitioners and the law in this regard is now settled. It is submitted that the Supreme Court, in the case of Jindal Stainless Steel (supra), a nine Judge bench, considered the constitutional validity of Entry Tax, inter alia reiterated that freedom guaranteed by Article 301 of the Constit....
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....cal manufacturers/producers by virtue of the rate of tax in the place of origin being lower than that imposed by the State into which the goods are imported. To buttress this submission, learned Senior counsel for respondent relied upon the decision in the case of Eagle Corporation Pvt. Ltd -vs- State of Gujarat (2007) 6 VST 560. In the said decision it was observed that:- "On payment of Entry Tax by the importer, after deduction of Sales-tax and/or C.S.T. already paid in another State, such an importer would be put at par with the local dealers. Thus, in sum and substance, the importers as well as the local dealers would be paying the tax at 12% in all. It can, therefore, be said that, on the contrary, the vice of discrimination would stand removed by payment of Entry Tax by an importer of specified goods. If the importer is not required to pay Tax on Entry he would stand on better footing because on one side the local person would be required to pay 12% Sales Tax while the importer would be paying 4% tax in other State, which would be discriminatory qua the local person. Not only that, such low tax would persuade local people to import specified goods from another State which sh....
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....As long as the intention behind the grant of exemption / adjustment is to equalise the fall of the fiscal burden on local and imported goods there is no hostile discrimination. 35] Learned counsel further submitted that in the case of Indian Oil Corporation Ltd -vs- State of Bihar (2018) 1 SCC 242 the Hon'ble Supreme Court has reiterated well established principles that set off is not a matter of right and has clarified, in the context of VAT -vs- entry tax, that a levy of entry tax cannot be assailed as unconstitutional only because set off is not given. There is no burden on the State to nullify the effect of taxes imposed by it. Article 304(a) of the Constitution mandates that the State shall not discriminate between imported and local goods. The fetter imposed by this Article is on the taxation power of the State and is not a mandate or compulsion on the State to proactively equalise all inequalities or differences that may arise as a consequence of other tax laws. It is submitted that in State of Madras -vs- N.K. Mudaliar (supra), the Hon'ble Supreme Court has clarified that goods manufactured or produced in the State and similar goods imported in the State. Learned c....
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....ity with the Maharashtra Entry Tax Act. Merely because some states may have argued in Jindal's case that the burden of VAT/ Sales Tax/Central Sales Tax payable on imported goods was equal to the entry tax imposed in their States, does not affect much less alter the ratio of Jindal's case. It is well settled that a judgment is ratio for only what it actually holds and not for what may logically flow from it, much less an argument of parties. The ratio of Jindal's case does not contain any dicta that even Central Sales Tax has to be compensated for by States or else the entry tax would be discriminatory. Section 3 proviso 2 refers to a reduction in Entry tax for the amount of tax paid, if any, under the "the law relating to General Sales Tax in force in the Union Territory or the State in which the goods are purchased by the importer". The "law in force in any State" clearly means a law by that State and not a Central law which operates in the entire Union of India. When the State of Maharashtra wished to give a reduction for Central Sales Tax in the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987, it expressly did so. 37] In the present case the Pe....
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....y of goods into a local area in the State. It is submitted that the meaning of words, "a local area" has also been considered by a Division bench of the Karnataka High Court, in the case of Jyothi Home Industries and ors -vs- State of Karnataka 1983 SCC Online Kar 197, and it was held that on a proper construction the article 'a' prefixing the words "local area" does not mean that the State Government has no power to apply the provisions of the Act to every local area. The petitioners are relying on the minority decision in the case of Jindal (supra). The minority judgments cannot be relied upon in support of the petitioner's contention, in the light of the fact that it is contrary to the express decision of the majority to leave this issue open. In any event, the two minority judges cannot overrule the earlier decision of the Supreme Court in the case of State of Bihar -vs- Bihar Chamber of Commerce (supra). 40] In the case of State of Kerala -vs- Fr. William Fernandez 2017 SCC Online SC 1291 the Hon'ble Supreme Court has rejected his submission that entry tax Legislation is not covered by Entry 52 of the List II of the Seventh Schedule to the Constitution. The Su....
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..... Applying this analogy, it is submitted that when tax under Entry 52 in List II is collected in absence of any constitutional bar, it will have to be credited to the consolidated Fund of India. It is submitted that where rebate is given or not for CST paid by the petitioner does not make out any net burden caused to the petitioner. In Jindal's case the Supreme Court has clearly observed that additional burden of tax cannot be said to be a ground to conclude that there is hostile discrimination falling under Article 304(a) of the Constitution of India. 42] After hearing both sides extensively, on considering the issue relating to challenge raised by the petitioner, provisions of law and the judicial pronouncements pressed into service by both sides, we have no doubt that the issue or point raised by petitioners in these petitions is squarely covered by the recent judgment of the Supreme Court delivered by nine judges, in the case of Jindal (supra). 43] Article 304 of the Constitution provides as follows:- "Notwithstanding anything in Article 301 or Article 303, the Legislature of a State may by law :- "(a) impose on goods imported from other States or the Union territories ....
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....n order has clarified that taxation does not amount to restriction on trade, commerce and intercourse. The levy of tax which is non discriminatory would not constitute an infraction of Article 301. Justice Banumathi, in a concurring decision has observed as follows :- "263. Historically, Article 301 was meant to do away with barriers between 'Native States' and the rest of India. Thus, Article 301 should be interpreted in the light of the object i.e. "economic integration of the nation", as opposed to being aimed at any or every action which can possibly have an impact on trade, commerce and intercourse. "Free" in Article 301 does not mean freedom from taxation; taxation simpliciter is not within the purview of Article 301. In a sense, every tax imposed by a State Legislature may have an indirect effect on the flow of trade, commerce and intercourse. If the power of the State Legislature to enact any tax laws is held to be subject to the limitation Under Article 301, the legislative power of the State to levy taxes under various entries in List II would be rendered ineffective. 273. In Hari Krishna Bhargav v. Union of India and Anr. AIR 1966 SC 619, the Bench noting the e....
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....tory taxes are forbidden. There is no impediment to trade, commerce and intercourse unless the tax visits hostile discrimination. In the light of observations, imposition of entry tax under Entry 52 of the State list would not violate Article 301 or 304(b) of the Constitution. 47] In the case of Ratanlal & Co. (supra), in paragraph No.14 and 15 of the said decision, it was observed as follows :- "14. It is also urged in this connection that there is a discrimination between the imported goods and local goods. It is said that the discrimination is also between the first purchase in the case of imported goods and last sale in the case of local goods. Since the imported goods might be more expensive by reason of freight etc. or intermediary sales having taken place, it is said, that the burden of tax will be heavier and therefore this will offend against the equality clause and Article 304 of the Constitution. In our opinion this argument is without any substance. The rate of tax is same in every case. In State of Madras' v. N. K. Nataraja Mudaliar, [1969] 1 S.C.R this Court stated that the essence of Articles 301 and 303 is to enable the State by a law "to impose on goods impor....
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.... commerce and intercourse throughout the territory of India". The Supreme Cort then goes on to clarify, in paragraph 22, that "the mere fact that there is a difference in the rate of tax on goods locally manufactured and those imported, this would not amount to hampering of trade between the two States within the meaning of Article 301 of the Constitution". 49] In Indian Oil Corporation Ltd -vs- State of Bihar (supra), the Hon'ble Supreme Court has reiterated the well established principle that a set off is not a matter of right and has clarified, in the context of VAT -vs- entry tax, that a levy of entry tax cannot be assailed as unconstitutional only because set off is not given. In paragraph Nos. 25 and 26 of the said decision, it has been observed that :- "25. When it comes to taxing statutes, the law laid down by this Court is clear that Article 14 of the Constitution can be said to be breached only when there is perversity or gross disparity resulting in clear and hostile discrimination practiced by the legislature, without any rational justification for the same (See Twyford Tea Co. Ltd v. State of Kerala (Twyford Tea Co. Ltd -vs- State of Kerala, (1970) 1 SCC 189) at ....
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....ion as to the approach that courts adopt towards fiscal measures while examining their constitutional validity is fairly well settled by a long line of decisions of this Court. The law on the subject is so well settled that it calls for no elaborate discussion of the same. Courts have almost universally accepted the principle that keeping in view the inherent complexities of fiscal adjustments and the diverse elements and inputs that go into such exercise a greater latitude is due to the legislature in taxation related legislations. It is unnecessary to refer to all the decisions in which this Court has conceded such play at the joints to the legislature. Reference to some of the decisions of this Court should, in our opinion suffice. In Mafatlal Industries Ltd -v. Union of India (1997) 5 SCC 536), in a separate but concurring opinion Paripoornan, J. held in para 343 :- "343. ........ In the matter of taxation laws, the court permits a great latitude to the discretion of the legislature. The State is allowed to pick and choose districts, objects, persons methods, and even rates for taxation if it does so reasonably. The Courts view the laws relating to economic activities with gr....
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....etoff in respect of any entry tax paid under the Maharashtra Entry Tax Act to the dealers registered under the MVAT Act. This is to safeguard against any double taxation /cascading effect in Maharashtra. 53] These provisions indicate that the object and purpose of the Maharashtra Entry Tax Act is not to discriminate against goods from outside the State but instead is to bring about economic unity and parity by doing away with the discrimination visited by virtue of differing rates of tax in different States. 54] There is no Constitutional burden on the State to equalize all inequalities of burden on goods even if such inequalities do not result from the State's taxation. No inequality results from any action /legislation attributable to the State of Maharashtra. Merely since the State of Maharashtra has allowed reduction for Central Sales Tax in the Maharashtra Tax on Entry of Motor Vehicle into Local Areas Act, 1987, does not mean that it is obligated to give a similar reduction for entry tax under the Maharashtra Entry Tax Act. Notably, other States also do not give any reduction for Central Sales Tax while levying entry tax. Therefore, local goods exported from Maharashtra....
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....at of entry tax - by whatever name it is called..... In our opinion, the relevant requirement is satisfied in this case. As stated hereinbefore, the entire State of Bihar is divided into local ares. From the point of view of the entry tax, one may say that the State is a compendium of local areas. Spending for the purposes of the State is thus spending for the local areas. Situation may perhaps be different where the local areas are confined to a few cities or towns in the State. But where the local areas span the entire State, it cannot be argued that money spent for welfare schemes for improvement of roads, rivers and other means of transport and communication is not spent on or for the purposes of local areas. The purposes and needs of local areas are no different from the purposes and needs of the State - not at any rate to any appreciable degree. In this context, it is relevant to notice that the Maharashtra Entry Tax Act, considered by this Court in Shaktikumar (1995) 1 SCC 351 was also meant for augmenting the general revenues of State, to wit to make up the loss of revenue the State was suffering on account of reduction of sales tax on motor vehicles in the adjoining States....
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....utomobiles (supra), this Court in paragraph No.23 has observed as follows : "23. Ground (d) Submission of the petitioner is that there is in the field a tax in the nature of octroi duty imposed under the various municipal laws made under entry 542, List II and hence impost referable to that very entry amounts to double taxation and hence is bad in law. The submission is wholly misconceived. In the first place, there is neither constitutional nor statutory bar in express terms prohibiting levy of double taxes. Article 265 of the Constitution only mandates that, "no tax shall be levied or collected except by authority of law". Upon same object and person, separate taxes can be imposed for different purposes by the same authority or by different authorities. Last word on the topic can be found in recent decision of the Supreme Court in the case of Sri Krishna Das v. Town Area Committee [(1990) 183 ITR 401 SC; wherein it is observed "Double taxation, in the strict legal sense means taxing the same property or subject-matter twice, for the same purpose, for the same period and in the same territory. To constitute double taxation, the two or more taxes must have been (1) levied on the....
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....d are importing goods into a local area covered by the Entry Tax Act for the purpose of resale or export are liable to pay entry tax if the goods are not resold and are dealt with in any other manner. Notably, such registered dealers would; be liable to pay VAT or Central Sales Tax to the Revenue at the time of the resale since the MVAT Act and Central Sales Tax Act also apply to the local areas within the State covered by the Entry Tax Act. Such importers are, accordingly, placed on the same footing as other dealers who sell or buy; goods within the State. Instead of levying entry tax on such dealers and then granting a set-off, the Legislature has opted to grant a conditional exemption under Section 3(5) of the MVAT Act. The grant of such an exemption is neither discriminatory nor unconstitutional. The Petitioner's submissions further ignore the fact that the grant of set-off or exemptions to dealers who are registered within the State and importing goods into a local area covered by the Entry Tax Act has the same effect as grant of set-off to a dealer who purchases such goods domestically within a local area of the State. The purpose of a set off is to obviate any cascading ....
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....om other states and goods manufactured or produced within the State. Since, under the Entry Tax Act and MVAT Act, the rate of tax on specified goods which are imported into the local areas in the State of Maharashtra is brought at par with the rate on similar goods manufactured or produced in the State of Maharashtra, there is no infirmity in the provisions of the Entry Tax Act whether as alleged or at all. There is no unfair or arbitrary classification whether as alleged or at all. 63] Thus, the controversy raised in this petition as stated hereinabove is no more res-integra. In paragraph No.9 of the Judgment in Jindal's case, the Court formulated following questions :- a) Can levy of a non-discriminatory tax per se constitute infraction of Article 301 of the Constitution of India? b) If the answer to Question No.1 is in the affirmative, can a tax which is compensatory in nature also fall foul of Article 301 of the Constitution of India? c) What are the tests for determining whether the tax or levy is compensatory in nature? d) Is the entry tax levied by the states in the present batch of cases violative of Article 301 of the Constitution and in particular have the impugn....
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.... of what we have said above, we answer Question No.1 in the negative and declare that a non discriminatory tax does not per se constitute a restriction on the right to free trade, commerce and intercourse guaranteed under Article 301. Decisions taking a contrary view in Atibari's case (supra) followed by a series of later decisions shall, therefore, stand overruled including the decision in Automobile Transport (supra) declaring that taxes generally are restrictions on the freedom of trade, commerce and intercourse but such of them as are compensatory in nature do not offend Article 301. Resultantly decisions of this Court in Jindal Stainless Limited (2) and anr v. State of Haryana and ors (2006) 7 SCC shall also stand overruled". 65] The Act in no way makes any discrimination against the local purchases and importers much less any hostile discrimination. The importers are given input tax credit of Entry Tax Paid to the Government against the VAT liability and balance is payable or refundable as the case may be. Hence tax burden of Entry Tax not borne by the dealers who purchase locally within the State who get set off of the input tax credit u/s 48 r/w 52, is balanced in case....