Bombay High Court
Jaika Automobiles (Private) Limited ... vs State Of Maharashtra And Another (And ... on 7 August, 1992
Equivalent citations: 1992(2)MHLJ1658
JUDGMENT V.A. Mehta, J.
1. Constitutional validity of the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987 ("the Act") is impugned in this batch of seventeen petitions.
2. Broadly stated, grounds are :
(a) Want of legislative competence in the State Legislature.
(b) Colourable exercise of legislative power.
(c) Violation of freedom of inter-State trade and commerce declared by article 301 of the Constitution.
(d) Vice of double taxation.
(e) Arbitrariness.
3. State Governor promulgated the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Ordinance, 1987 ("the Ordinance") on September 30, 1987, after receiving instructions from the President as required under article 213(1) of the Constitution. The Act which repeals the said Ordinance received the President's assent on December 18, 1987. The object of the Act will be crystal clear from the following statement appended to the Ordinance :
"From 1984 onwards some States and the Union territories adjoining the State of Maharashtra have reduced the rate of sales tax on motor vehicles and chassis substantially. Such reduction in tax rates by the neighbouring States have resulted in diversion of trade to these areas and the manufacturers of motor vehicles in Maharashtra, for want of market, had to resort to branch transfers to these areas and cater to the needs of consumers in Maharashtra, from those areas. This resulted in the avoidable loss of legitimate sales tax revenue to a large extent by the State of Maharashtra. With a view to compensate such loss of legitimate revenue, the State Government has decided to levy with immediate effect a tax on entry of motor vehicles purchased outside the State and brought in the local areas of the State for use or sale."
4. Section 2 defines certain expressions. Most important and material definition is of the expression "local area" given in clause (h). It means the area within the limits of -
(i) Municipal corporation established under the Bombay Municipal Corporation Act, the Bombay Provincial Municipal Corporation Act, 1949 and the City of Nagpur Corporation Act, 1948.
(ii) Municipal Council established under the Maharashtra Municipalities Act, 1965.
(iii) Zilla parishad established under the Maharashtra Zilla Parishads and Panchayat Samitis Act, 1961.
(iv) Notified area committee or a cantonment board constituted or established under any law for the time being in force.
Some definitions pertain to the authorities entrusted with the task of enforcing the provisions of the Act. Sub-section (2) mentions that the words and expressions not defined in the Act shall have the meaning assigned to them under the Bombay Sales Tax Act, 1959 ("the BST Act"). Other expressions defined are, "accessories", "entry of motor vehicle into a local area", "importer", "purchase value", etc.
5. Chapter II deals with "incidence and levy of tax". Section 3 - the charging section - reads thus :
"3.(1) Subject to the provisions of this Act and rules made thereunder, there shall be levied and collected a tax on the purchase value of a motor vehicle an entry of which is effected into a local area for use or sale therein and which is liable for registration in the State under the Motor Vehicles Act, 1939, at such rate or rates as may be fixed by the State Government by notification in the Official Gazette but not exceeding the rates prescribed for motor vehicles in the Schedules appended to the Bombay Sales Tax Act, or fifteen paise in the rupee whichever is less :
Provided that, no tax shall be levied and collected in respect of a motor vehicle which was registered in any Union territory or any other State under the Motor Vehicles Act, 1939, for a period of fifteen months or more before the date on which it is registered in the State under that Act.
(2) The tax shall be payable and paid by an importer within 15 days from the entry of motor vehicle into the local area or before an application is made for registration of the vehicle under the Motor Vehicles Act, 1988, whichever is earlier in the manner laid down under section 10 of this Act.
(3) The tax shall be in addition to the tax levied and collected as octroi by a municipal corporation and municipal council, zilla parishad, panchayat samiti or village panchayat or any other local authority, as the case may be, within its local area."
Section 4(1) and (2) respectively provides for (i) reduction in dealer's liability to pay sales tax under the BST Act to the extent of tax paid under the Act and (ii) reduction in liability of an importer (other than dealer who had purchased the vehicle for personal use in the other State or the Union Territory, to pay entry tax to the extent of sales tax paid under the General Sales Tax Act of that State or territory.
6. By notification issued forthwith under section 3, tax was fixed at 12 paise in a rupee. Rules known as "Maharashtra Tax on Entry of Motor Vehicles into Local Areas Rules, 1987" have been framed under section 17. Section 12 dealing with exemptions reads thus :
"Subject to such conditions as it may impose the State Government may, if it is necessary so to do is the public interest, by notification in the Official Gazette, exempt any specified class of importers from payment of the whole or any part of the tax payable under this Act or from all or any of the provisions of this Act and such exemption shall take effect from the date of the publication of the notification in the official gazette, or such other date as may be mentioned therein."
Thus, it will be noticed that the salient features of the Act are that the State shall levy and collect entry tax on the purchase value of a motor vehicle, entry of which is effected into a local area for use or sale therein, at such rates to be fixed by the State Government which shall not exceed the rates prescribed for sales tax on motor vehicles in the Schedules appended to the BST Act, or fifteen paise in the rupee whichever is less. No tax shall be levied in respect of a motor vehicle which was registered under the Motor Vehicles Act, 1939 ("the MV Act") in any Union territory or the State for a period of fifteen months or more before the date on which it is registered in the State under the MV Act. The tax shall be in addition to the octroi duty payable to the local authorities. Measure of liability is based on liability under the sales tax laws and machinery for recovery is also under the BST Act. The State has justified the impost with reference to entry 52 of List II of the Constitution which reads thus :
"Taxes on entry of goods into a local area for consumption, use or sale therein."
7. Ground (a) is in two parts. First part is that impost is in reality tax on sale and purchase of goods which takes place outside the State and hence is in violation of article 286(1)(a) of the Constitution and in any case it is a tax on sale and purchase which takes place in the course of inter-State trade or commerce and hence can be justified with reference to only entry 92A of List I. Second part is that the expression "local area" used in entry 52 of List II means an area administered by a local authority and since the term "local area" as defined under the Act comprises of the entire area of the State in totality, the tax cannot be justified with reference to the said entry. Moreover, entry 52 is meant only for augmenting the income of the local authorities and not for raising the State revenue.
8. First part is capable of easy answer. How do we read entries in the Seventh Schedule ? Legal position on the subject is well crystallised by judicial pronouncements made from time to time. These entries are fields and not power of legislation. Widest scope of which the words used there are fairly capable have to be given while interpreting the entry. Pith and substance of the Act, its organic whole and not the incidental encroachment upon fields occupied by other entries, is the deciding factor. In the matter of taxing statute, primary guide is the charging section in which is to be identified the subject-matter of levy. Measure of assessment of tax, machinery by which it is assessed and collected or the motive for the imports is no criterion for judging the nature of the tax. Direct decisions of the Supreme Court dealing with this subject are :
(1) Jall Parsi v. Union of India .
(2) R. R. Engineering Co. v. Zila Parishad .
9. Keeping the above basic tenets of interpretation in view, there is no manner of doubt that the levy is upon entry of vehicle in the local area for use or sale in that area and not upon its sale or purchase outside the State. No entry tax is leviable on a vehicle which is brought even for sale or use in a particular local area after 15 months of its registration outside the State. Even if the vehicle is acquired not through purchase - say for example is acquired by gift - the levy is imposable though sales tax may not be imposable. Undoubtedly, measure of levy, machinery for assessment and recovery, motive for the impost are relatable to the BST Act but those factors are of not much significance for locating the subject-matter of levy for which charging section 3 has to be looked into. Therefore, we reject this part of the ground as not tenable. Linked with this aspect is ground (b) relating to colourable exercise of legislative power which we shall shortly consider independently.
10. Second part of ground (a) seems to be most important of all the grounds. What does expression "local area" as found in entry 52 connote ? The Constitution does not define the expression, but the point is no more res integra having been concluded by two decisions of the Supreme Court, namely :
(i) Diamond Sugar Mills Ltd. v. State of Uttar Pradesh .
(ii) Bhopal Sugar Industries Ltd. v. State of Madhya Pradesh .
Shortly put, the Supreme Court keeping in view the ordinary meaning of the expression and the historical background of the entry 52, has ruled that it means the area administered by a local body and not the area of the factory premises within that area. Whether the entire area of the State as an area administered by the State Government was included in the local area was a question squarely left undecided. Following observations in Diamond Sugar Mills Ltd are to the point (para 19).
"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 any part of the State. Whether the entire area of the State, as an area administered by the State Government, was also intended to be included in the phrase 'local area', we need not consider in the present case."
11. In the above decision there has been a difference of opinion but on a small point which is not material to decide the controversy before us. While the majority judgment held section 3 of the U.P. Sugarcane Cess Act, as invalid being beyond entry 52 since it taxed on entry of goods in the factory premises, the minority judgment, while concurring with the majority view on the expression "local area" held that section 3 was invalid only so far as it seeks to levy tax on entry of goods in the factory premises from the same local area in which they are situate. It consequently held that tax could be validly levied on entry of goods in the factory premises imported from outside the local area. The relevant portion of the minority view is (para 32).
"In other words, the view which they favoured was to read the expression 'local area' practically to mean any 'area' entry into which was by the relevant fiscal statute, made the subject of taxation. In my opinion, that is not a correct interpretation of the entry and I agree with my learned brethren that having regard to the historical material, which has been exhaustively set out and discussed in their judgment, the word 'local area' can in the entry designate only a predetermined local unit - a unit demarcated by statutes pertaining to local self Government and placed under the control and administration of a local authority such as a municipality, a cantonment, a district or a local board, a union or a panchayat, etc., and not any region, place or building within the State which might be defined, described or demarcated by the State's taxing enactment as an area entry into which is made taxable."
Based on the above passage is the submission that though majority view has left undecided the question as to whether the entire area of the State as an area administered by the State Government was also included in the expression "local area", the minority view has answered the question in the negative. We do not agree. In our view, even minority view has kept the point undecided and hence the controversy as to whether such a minority view has binding effect on High Court or not, need not detain us.
12. No much pursuasion is required to accept the contention that "local area" and "area of the State" are identifiably two different concepts. They are recognised as such even in the Constitution. In this connection, language employed in articles 3(b), 12, 245(1), 246, 277, 321, 323-A, 366(28), 371(d) may be noticed.
13. Is "local area" as defined under the Act qualitatively different from the concept of "local area" in entry 52, as interpreted by the Supreme Court is the next question. The definition is inclusive and encompasses within its fold several varieties of local areas, governed by different local bodies, such as municipal corporation, municipal council, zilla parishad, notified areas committee and cantonment boards. No doubt it is a common case before us that in case all the different local areas mentioned in the definition are clubbed together, the total area comprises the entire area of the State. But that feature, though looks quite impressive at the first blush, is not decisive of the question. In this connection, second look at section 3 of the Act is essential. Taxable event is entry "in a local area for use or sale therein". Mere entry in any area of the State is not taxable event. Let us illustrate. If a motor vehicle is to be brought - say from Jabalpur (Madhya Pradesh) - for being used or sold at Amravati (Maharashtra), which is the border area, taxable event is not entry in Nagpur District but entry in area of Amravati Municipal Corporation. Thus, the impost is upon entry into any one of several local areas only. Use of article "a" before the words "local area" is significant. But does it mean that one law can be made with reference to only one local area and not more than one ? If the answer is in the negative - and in our view, it has to be so - the factor that the Act refers to more than one local area, which together covers the entire area of the State, could make no difference and would not put the Act beyond the legislative competence of the State Legislature under entry 52.
14. Impost of tax by the State on entry of goods into local area has not been made by this State only. Lead seems to have been taken in the matter by the State of Karnataka by making the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1979. That impost was intended to be a substitute for the octroi duty levied by the local bodies under relevant municipal laws. Owing to the abolition of octroi duty, there was loss of revenue and the said tax was intended to compensate that loss. In the said Act, the term "local area" is defined as including the area within municipal corporations and municipalities in the State of Karnataka. Section 3 authorises the levy of tax on entry of specified goods into a local area for consumption, use or sale therein at such rate not exceeding two per cent ad valorem as may be specified by the State Government by a notification. Notification was issued specifying different rates of tax on import of specified goods in different local areas. The validity of the tax was challenged on several grounds, such as, want of legislative competence, with reference to entry 52, List II, violation of article 301, etc., Karnataka High Court negatived all but two grounds. Those were that :
(i) Section 3 does not empower the State Government to apply the provisions of the Act to certain local areas only, and
(ii) by not exempting petty dealers, the Act imposes unreasonable restrictions on their trade.
The impost was declared unconstitutional on those two grounds. In an appeal by the State of Karnataka to the Supreme Court, those two grounds were also negatived and validity of the said Act was upheld. That decision is State of Karnataka v. Hansa Corporation .
15. The Karnataka Act as well as notifications issued under section 3 of that Act were amended thereafter from time to time and those amendments were also challenged in the Karnataka High Court. By several decisions the validity of those amendments was also upheld. For our purposes, relevant decision is the case of Jyothi Home Industries v. State of Karnataka [1987] 64 STC 254 [App]. By a notification dated April 2, 1982, the net of the tax was spread over to more goods and more local areas. Article "a" placed before qualifying expression "local area" in the notification was held to mean also "all" or "every". The view taken was that all depends upon the context. To elucidate the point, we can do no better than to reproduce the following pithy observation from that judgment (paras 40 and 41) :
"......... It is implicit in the logic of the situation that 'a local area' did not also necessarily exclude 'all' or 'every' local area and that the State Government could, if it so choose, apply the provisions to every or all local areas as well ........
In our opinion, a proper construction would show that the article 'a' prefixing the 'local area' used in the notification, is not used as a definite-numeral. The word 'a' has varying meanings and uses. 'A' may mean,'one' or 'any' depending on the context. It may mean one where only one is intended. It may mean 'any' also, where the context is not repugnant to that import. It is often used in the sense of 'any' and then applied to more than one individual object. The word any' constructively, would mean also everyone of the sort named."
16. The State of Andhra Pradesh also undertook such an exercise by enacting the Andhra Pradesh Entry of Goods into Local Area Tax Act, 1987. Section 2(e) of the said Act defines "local area" to mean "the area within the limits of a city as declared under the Hyderabad Municipal Corporation Act, 1955, or the Visakhapatnam Municipal Corporation Act, 1979, or the Vijayawada Municipal Corporation Act, 1981, as the case may be, a municipality as constituted or deemed to have been constituted under the Andhra Pradesh Municipalities Act, 1965 and includes such other area within the limits of one or more gram panchayats, as may be declared by the Government by notification to be a local area for the purpose of this Act".
17. The validity of the said Act was upheld by the State High Court in the case of Suresh Chand Sri Gopal v. Union of India [1989] 72 STC 241 repelling all challenges including that the "local area" as defined in the said Act, covered whole of the State, the impost was for raising revenues of the State and not the local bodies and hence the impost could not be justified with reference to entry 52, List II. The Andhra Pradesh High Court held that language of the entry 52 does not warrant a conclusion that it authorizes only the local bodies to impose levy and that too for their revenue. It rejected the argument that by definition of the term "local area" in the said Act, entire State of Andhra Pradesh has been declared as one local area for the purposes of the Act. This is what the High Court has observed (page 253) :
"We are also unable to see any substance in the argument that the entire State of Andhra Pradesh has been declared as one local area for purposes of the Act. As is made clear by the Supreme Court in its decision in Diamond Sugar Mills' case , the expression 'local area' in entry 52 means an area under the administration of a local authority, like a municipality or a gram panchayat. Section 4 of the Act expressly provides that the tax is leviable when the goods enter 'a local area' for consumption, use, or sale therein, from any place outside the local area. Indeed, the definition of the expression 'local area' in clause (e) of section 2 clearly shows that 'local area' means either an area covered by the Hyderabad/Visakhapatnam/Vijayawada Municipal Corporation Act, or a municipality, notified area, or an area within the limits of a gram panchayat."
The submission that the ratio of these two decisions would not apply to the Act because the entry tax there was in substitution of the octroi duty and not in addition to it, does not appeal to us. That feature may be relevant to the point pertaining to the vice of double taxation and not in the construction of entry 52.
Hence, we repel even the second part of this ground. Consequently, we hold that the Act is not beyond the legislative competence of the State Legislature.
19. Ground (b) : Submission is that real motive of the impost is to recover sales tax on sales or purchases outside the State and that is why the definition of the words "local area" is made so wide and hence the Act is made in colourable exercise of legislative power. The submission is based upon misunderstanding of the concept of "colourable legislation". A. H. F. Lefroy in his famous treatise on "Canadian Constitutional Law" under the head, "Law courts are not concerned with motives", has observed (page 75) :
"Even if the Legislature avows on the face of an Act that it intends thereby to legislate in reference to a subject over which it has no jurisdiction; yet, if the enacting clauses of the Act bring the legislation within its powers, the Act cannot be considered ultra vires."
In a leading decision on the subject of colourable legislation, the Supreme Court in the case of Gajapati Narayan Deo v. State of Orissa has observed (page 379) :
"It may be made clear at the outset that the doctrine of colourable legislation does not involve any question of 'bona fides' or 'mala fides' on the part of the Legislature. The whole doctrine resolves itself into the question of competency of a particular Legislature to enact a particular law. If the Legislature is competent to pass a particular law, the motives which impelled it to act are really irrelevant. On the other hand, if the Legislature lacks competency, the question of motive does not arise at all. Whether a statute is constitutional or not is thus always a question of power."
The above principle has been consistently accepted by the Supreme Court in a number of decisions. As observed in these decisions the whole doctrine of colourable legislation is based upon the maxim that "you cannot do indirectly what you cannot do directly". If the Legislature is competent to do a thing directly, then the mere fact that it has attempted to do it in a disguised manner, cannot make the Act invalid. On legislative competence we have already recorded our view earlier.
Therefore, this ground also falls.
20. Ground (c) : Part XIII of the Constitution refers to free-flow of trade, commerce and intercourse within the territory of India. Article 301 imposes limitations upon exercise of legislative power. But this freedom - like other freedoms - is not absolute and is subject to reasonable restrictions imposed in public interest. There is violation of freedom guaranteed by article 301 only where a legislative or executive act operates to restrict trade, commerce or intercourse, directly and immediately. Tax laws are not outside the purview of Part XIII. But only such taxes as directly and immediately restrict trade that fall within the purview of article 301. By article 304(a) and (b), the freedom of inter-State trade and commerce declared in article 301 is subordinated to the State power of taxing goods imported from sister States provided (i) no discrimination is made in favour of similar goods of local origin and (ii) restrictions are reasonable and in public interest.
21. Keeping in view the above basic principles which are deducible from several oft quoted leading decisions of the Supreme Court including the case of Hansa Corporation , we do not notice any vice of violation of article 301 in the Act. [See (i) Atiabari Tea Co. Ltd. v. State of Assam , (ii) Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan , (iii) Khyerbari Tea Co. Ltd. v. State of Assam and (iv) Syed Ahmed Aga v. State of Mysore ]. The purpose of levy and its extent need not be repeated. The tax is not discriminatory. Restrictions imposed thereby are reasonable and in public interest. Moreover, no material is placed before us to show how the levy affected the free-flow of trade, commerce and intercourse in the country.
Thus, the tax does not violate article 301, it satisfies the requirement of article 304(a) and (b) both. It is a common ground that provision to article 304(b) is, in terms, satisfied and, in any case, is deemed to be satisfied by virtue of article 255 due to receipt of assent of the President to the Act.
22. The discussion on this topic will not be complete without reference to the decisions of the Supreme Court : (i) Anraj v. Government of Tamil Nadu and (ii) Weston Electroniks v. State of Gujarat [1988] 70 STC 52, AIR 1988 SC 2038 to which our attention was drawn on behalf of the petitioners. In the former decision levy of sales tax only on sale of lottery tickets of other States while granting exemption to its own tickets was held to be discriminatory under article 304(a). In the latter, levy of sales tax at different rates on goods imported in the State and goods manufactured in the State was held to be similarly discriminatory. In our view the ratio of those decisions do not apply to the matter at hand.
This ground, therefore, cannot succeed.
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 52, 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 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 same property or subject-matter, (2) by the same Government or authority, (3) during the same taxing period, and (4) for the same purpose."
Octroi duty and entry tax are imposed by the different authorities and for entirely two different purposes. Former is for augmenting the resources of the local body and the latter is for compensating the loss of revenue of the State on account of diversion of transaction of sale and purchase of vehicles to the neighboring States or Union Territories due to difference in the rates of sales tax. Goods taxable are not the same, though some may be common, e.g., vehicle brought in the local area after 15 months of its registration under the MV Act in areas outside the State. Thus, there is no taxation of the same goods twice by the same authority and/or for the same purpose and hence there is no "double taxation".
24. Ground (e) : On the question of arbitrariness, two features are brought to our notice. First is the classification between 15 months old vehicle and the new vehicle and second is absence of specific provision in section 12 to exempt even "bona fide" import. We do not see any substance in either points. Import of vehicle after 15 months of its registration outside the State is kept outside the clutches of the Act, quite obviously because it is presumed that purchase of such a vehicle outside was not for the purposes of avoiding sales tax liability under the BST Act. The classification has a nexus with the object of the Act. Moreover, it is a matter of policy decision.
25. Section 12 deals with State Government's power to grant exemptions. No doubt, there is no specific reference therein about grant of exemption to bona fide imports, but that does not mean that the provision gives uncanalized or unguided discretion to the executive capable of being misused. Purpose and policy of legislation is clear. No exhaustive list of categories, situations or persons entitled to exemption can be given in the Act in the modern complexities. Some discretions, some play in the joints have to be provided for. One cannot also lose sight of the fact that discretion is vested in the State Government itself and not in the minor officers. Grant or refusal to grant exemption has to have nexus with the object of the Act. If the nexus does not exist or the action is mala fide or is vitiated by non-application of mind, the action may become bad. There is no power on earth, which is not capable of being misused. But that hard reality cannot render the provision bad. Section 12 refers to specified class of importers, but that does not mean individual cases cannot be considered on merit. Even one case may form a specified class. The respondents inform us that exemptions have in fact been granted even to genuine individual cases.
This last ground also, therefore, falls.
Conclusion : The Act is valid and also enforceable.
Result : Petitions dismissed. Rules discharged. No costs.