Karnataka High Court
Syndicate Bank vs State Of Karnataka And Ors. on 26 July, 1999
Equivalent citations: [2000]119STC155(KAR)
ORDER V.K. Singhal, J.
1. Validity of Section 4-B of the Karnataka Tax on Entry of Goods Act, 1979 and notification dated March 31, 1997 issued thereunder have been assailed in these petitions.
The provisions of Section 4-B of the Act are as under :
4-B. Levy of tax.--(1) Notwithstanding anything contained in Section 3, there shall be levied and collected a tax on the entry of any motor vehicle into a local area for use or sale therein by an importer which is liable for registration, or assignment of a new registration mark in the State under the Motor Vehicles Act, 1988.
2. It is submitted that the above provision is unconstitutional and ultra vires Article 404(b) of the Constitution of India as the tax is sought to be levied on the entry of motor vehicle into the local area for consumption, use or sale therein, only when such motor vehicles are entered into the local area from any place outside the State. The motor vehicle coming from other part of the State and entering into the local area are outside the charging provision. The discrimination between the two types of the motor vehicle is hit by the provisions of Article 404(a) of the Constitution of India.
3. Definition of "importer" under Section 4-A(1)(c) provides importer means a person who brings a motor vehicle into a local area from any place outside the State for use or sale therein and who owns the vehicle at the time of entry into the local area. The words "outside the State", since have created a charge only on the imported vehicles, the levy is contrary to the decision given by the apex Court as well as the division Bench of this Court in the case of State of Karnataka v. Hansa Corporation while upholding the validity of the Act it was observed :
"Tax under the impugned legislation would be levied on scheduled goods either manufactured or produced within Karnataka State or imported from outside on their entry into a local area. Thus, this tax is non-discriminatory. In view of the declaration of law as above, the impugned notification is violative of Constitution of India."
Reliance is placed on the decision given in the case of Shree Mahavir Oil Mills v. State of Jammu and Kashmir . While interpreting the provisions of Article 404(a) of the Constitution of India it was observed :
".......though worded in positive language has a negative aspect. It is, in truth, a provision prohibiting discrimination against the imported goods. In the matter of levy of tax--and this is important to bear in mind--the clause tells the State Legislatures--'tax you may the goods imported from other States/Union territories but do not, in that process, discriminate against them vis-a-vis goods manufactured locally'. In short, the clause says : levy of tax on both Ought to be at the same rate. This was and is a ringing declaration against the States creating what may be called 'tax barriers'--or 'fiscal barriers', as they may be called--at or along their boundaries in the interest of freedom of trade, commerce and intercourse throughout the territory of India, guaranteed by Article 401."
Decision in the case of State of Uttar Pradesh v. Laxmi Paper Mart is also referred to show that once the discrimination is made out, the enquiry by the court ends. The price structure of the imported goods vis-a-vis the locally manufactured goods or the economics of the importer need not be gone into.
4. I have considered over the matter.
Article 404 of the Constitution of India reads as under :
"304. Restrictions on trade, commerce and intercourse among States.--Notwithstanding anything in Article 401 or Article 403, the Legislature of a State may by law--
(a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced ; and
(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest :
Provided that no Bill or amendment for the purposes of Clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President."
5. The jurisdiction of the State Legislature for bringing the Karnataka Tax on Entry of Goods Act, 1979 emanates from entry 52 of List II of the Seventh Schedule to the Constitution of India. The said entry provided tax on the entry of goods into a local area for consumption, use or sale therein. Article 404 has permitted the State Legislature to levy tax to which similar goods manufactured or produced in the State are subjected to. There cannot be any discrimination between the goods imported and goods so manufactured. The levy under the Karnataka Tax on Entry of Goods Act by Section 4-B is of tax and therefore the restrictions imposed by Article 404(a) have to be complied with. If the motor vehicles are manufactured in the State of Karnataka and are moved from the municipal limits of one town to another then the charging provision of Section 4-B does not come into operation. If the motor vehicles are imported from other States, liability of tax is created on such imported motor vehicles. The entry tax has been considered to be compensatory in nature.
In Atiabari Tea Co. Ltd. v. State of Assam , wherein it was held as under :
".....that restrictions freedom from which is guaranteed by Article 401, would be such restrictions as directly and immediately restrict or impede the free-flow or movement of trade. Taxes may and do amount to restrictions ; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 401. The argument that all taxes should be governed by Article 401 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld."
In Firm A.T.B. Mehtab Majid & Co. v. State of Madras , it was observed :
"10. It is therefore now well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures. Sales tax, of the kind under consideration here, cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free-flow of trade and it will then offend against Article 401 and will be valid only if it comes within the terms of Article 404(a)."
In Kalyani Stores v. State of Orissa , it was observed that :
"Article 301 has declared freedom of trade, commerce and intercourse throughout the territory of India, and restriction on that freedom may only be justified if it falls within Article 404. Reasonableness of the restriction would have to be adjudged in the light of the purpose for which the restriction is imposed, that is, 'as may be required in the public interest'. Without entering upon an exhaustive categorization of what may be deemed 'required in the public interest', it may be said that restrictions which may validly be imposed under Article 404(b) are those which seek to protect public health, safety, morals and property within the territory. Exercise of the power under Article 404(a) can only be effective if the tax or duty imposed on goods imported from other States and the tax or duty imposed on similar goods manufactured or produced in that State are such that there is no discrimination against imported goods. As no foreign liquor is produced or manufactured in the State of Orissa the power to legislate given by Article 404 is not available and the restriction which is declared on the freedom of trade, commerce or intercourse by Article 404 of the Constitution remains unfettered."
In State of Madras v. N.K. Nataraja Mudaliar it was observed :
"Article 301 is couched in terms of the widest amplitude : trade, commerce and intercourse are thereby declared free and unhampered throughout the territory of India. The freedom of trade so declared is against the imposition of barriers or obstructions within the State as well as inter-State : all restrictions which directly and immediately affect the movement of trade are declared by Article 401 to be ineffective. The extent to which Article 401 operates to make trade and commerce free has been considered by this Court in several cases. In Atiabari Tea Co. Ltd. v. State of Assam , Gajendragadkar, J., speaking for himself and Wanchoo and Das Gupta, JJ., observed at page 860 of SCR (at page 254 of AIR) :
'........we think it would be reasonable and proper to hold that restrictions, freedom from which is guaranteed by Article 401, would be such restrictions as directly and immediately restrict or impede the free-flow or movement of trade'.
In Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan , the view expressed by Gajendragadkar, J., in Atiabari Tea Co.'s case , was accepted by the majority. Subba Rao, J., who agreed with the majority observed that the freedom declared under Article 401 of the Constitution of India referred to the right of free movement of trade without any obstructions by way of barriers, inter-State or intra-State, or other impediments operating as such barriers. The same view was expressed in Firm A.T.B. Mehtab Majid and Company v. State of Madras by a unanimous court. It must be taken as settled law that the restrictions or impediments which directly and immediately impede or hamper the free-flow of trade, commerce and intercourse fall within the prohibition imposed by Article 401 and subject to the other provisions of the Constitution they may be regarded as void."
Levy of tax on the lottery tickets of other States and granting exemption to the tickets of the State lottery was considered to hamper free-flow of trade, commerce and intercourse and violative of Article 401 read with 304(a) of the Constitution in H. Anraj v. State of Tamil Nadu .
In Indian Cements Ltd. v. State of Andhra Pradesh it was observed that there can be no dispute that taxation is a deterrent against free-flow. As a result of favourable or unfavourable treatment by way of taxation, the course of flow of trade gets regulated either adversely or favourably. If the scheme which Part XIII guarantees has to be preserved in the national interest, it is necessary that the provisions in the article must be strictly complied with.
Imposition of tax at different rates on the goods manufactured within the State and goods imported into the State were held violative of Article 401 and Clause (1) of Article 403 of the Constitution of India and unprotected by Clause (a) of Article 404 of the Constitution, in the case of Weston Electroniks v. State of Maharashtra .
In Video Electronics Pvt. Ltd, v. State of Punjab the power to grant exemption to the manufacturers in the State was held not violative of constitutional provision. It was observed that Constitution of India is an organic document, it must be so construed that it lives and adapts itself to the exigencies of the situation, in a growing and evolving society, economically, politically and socially. Taxing provisions in respect of intra-State sale were held not offending Article 401. Logically it would not affect the free-flow and movement of goods from one part of the country to the other under Article 401 of the Constitution.
6. From the various decisions of the apex Court as referred above, it is now settled that the provisions of Part XIII of the Constitution particularly Articles 301 to 304 of the Constitution take into their ambit the provisions of taxation laws in respect of such taxes which restrict the movement of the goods more particularly when a discriminatory treatment is given to the imported goods in comparison to the goods manufactured or could be manufactured in the State. Article 401 provides that trade, commerce and intercourse throughout the territory of India shall be free. Any impediment in the movement of goods from one State to another has to pass the test of the constitutional prohibitions. Article 402 provides that Parliament may by law impose such restrictions on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in the public interest. It is the competence of the Parliament by which restrictions in public interest could be imposed in respect of movement of goods including freedom of trade, commerce and intercourse between one State and the other. Under Article 403, Parliament or State Legislature cannot make a law authorising the making of any discrimination between goods of one State and another. If the tax is levied on the imported goods, similar tax has to be levied on the goods manufactured in the State. It is a different matter if after giving the similar treatment to the goods produced in the State and those imported from outside, an exemption is given, keeping in view the economic, socio and other constraints of the State or any particular area thereof. Article 404 overrides the provisions of Articles 301 and 303. Under Article 404, there is complete prohibition to the Legislature of a State in imposing tax on the goods imported from other States or the Union territories unless similar goods manufactured or produced in that State are subject to it so as not to discriminate between the goods so imported and goods so manufactured or produced. Thus Clause (a) of Article 404 of the Constitution of India empowers the State Legislature to impose tax on goods imported from other States if the similar goods produced in the State are subjected to similar taxes.
In Avinyl Polymers Pvt. Ltd. v. State of Karnataka [1998] 109 STC 26 (Kar), the words "from any place outside the State for consumption or use" as well as the words "where such entry is for consumption or use of such goods and where such goods have not suffered tax under the Karnataka Sales Tax Act, 1957", were held ultra vires the powers of the State Government, keeping in view the provisions of Articles 301 and 304 of the Constitution.
In State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC) ,1996) 9 SCC 136 as relied by the learned Government Advocate it was found that on motor vehicles, tobacco products, Indian-made foreign liquor, vegetable and hydrogenated oils, cements, entry tax is levied and collected by giving credit of the sales tax payable on the sale of such goods which means that no additional burden is created on the dealer by the impugned levy.
Even in Arun Manikchand Shah v. State of Karnataka exemption from levy of entry tax to the locally manufactured goods if they pay the sales tax was held discriminatory in terms of Article 404(a) because no distinction between imported goods and locally manufactured goods at the point of entry was made. The charging section provides the liability of tax at the entry itself. This decision therefore cannot assist the respondent.
There could be a provision by which no discrimination between imported goods and locally manufactured goods is given and the amount of entry tax is given adjustment in the total liability of sales tax or the amount of sales tax already paid could be given adjustment under the provisions of the Entry Tax Act.
7. Provisions of Section 4-B has made liable only the importer of motor vehicles for registration and tax. Importer has been defined under Section 4-A(1)(c) as the person who brings a motor vehicle into a local area from any place outside the State for use, or sale therein and who owns the vehicle at the time of entry into the local area.
8. It cannot be denied nor can be presumed that the motor vehicles are not produced in the State of Karnataka. If such locally manufactured motor vehicles are moved from one local area to another they are not liable to entry tax and it is only the importer who has been subjected to tax. The provisions of Section 4-B of the Karnataka Tax on Entry of Goods Act, 1979 are directly hit by Articles 301 and 304(a) of the Constitution of India and are declared ultra vires the Constitution.
Petitions stand allowed accordingly.