Allahabad High Court
Indian Oil Corporation Limited vs State Of Uttar Pradesh And Ors. on 8 January, 2007
Equivalent citations: (2007)10VST282(ALL)
Author: A.K. Yog
Bench: A.K. Yog, Poonam Srivastava
JUDGMENT A.K. Yog, J.
Background in brief
1. The petitioners filed writ petitions challenging constitutional validity of the U.P. Tax on Entry of Goods Act, 2000 (referred as "the Act") on the ground that tax levied under it was not "compensatory" and hence violative of Articles 301 and 304, Constitution of India (called "the Constitution") relying upon the apex court judgments in the case of Atia-bari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 (7 Judges) wherein apex court, dealing with the case of "motor vehicles", observed:
...it seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities....
2. The respondents, on the other hand, contended that "tax" levied as "entry tax" under the Act, was not ultra vires of the Constitution, the traders (enumerated in the Schedule framed under Section 4 of the Act) were the beneficiaries and hence was compensatory in nature as explained by the apex court in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 ; [1995] Supp 1 SCC 673 (3 Judges), later followed in the case of State of Bihar v. Bihar Chamber of Commerce , wherein the apex court observed (page 8 of 103 STC):
...that for the purpose of establishing the compensatory character of the tax, it is not necessary to establish that every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities. It is enough if some connection is established between the tax and the trading facilities provided. The connection can be a direct one or an indirect one, as held by this court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax ....
3. Writ petitions before the Allahabad High Court were heard and allowed by the Division Bench (M. Katju and Mrs. Poonam Srivastava, JJ.) vide common judgment and order dated January 27, 2004 reported in Indian Oil Corporation Ltd. v. State of U.P. (connected with Moser Baer India Ltd. v. State of U.P.).
4. State of U.P., being aggrieved, filed special leave petitions before the apex court. Those appeals (with other connected matters) were initially heard by two-Judge Bench of the apex court which doubted the correctness of the views expressed in State of Bihar v. Bihar Chamber of Commerce and Bhagatram Rajeev Kumar and referred the case to a Constitutional Bench vide judgment and order dated September 26, 2003 Reported as Jindal Stripe Ltd. v. State of Haryana in the case of jindal Stainless Ltd. v. State of Haryana .
5. Constitutional Bench after hearing the parties held with certitude that parameters of judicially evolved concept of "compensatory tax" are justifiable under Article 304 of the Constitution.
6. Relevant paras of the judgment dated April 13, 2006 See Jindal Stainless Ltd. v. State of Haryana (rendered by 5 Judges Constitutional Bench) read:
Difference between 'a tax' 'a fee' and 'a compensatory tax: Parameters of compensatory tax:
37. As stated above, in order to lay down the parameters of a compensatory tax, we must know the concept of taxing power.
38. Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the tax-payer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. In the case of a tax, a particular advantage, if it exists at all, is incidental to the States' action. It is assessed on certain elements of business, such as, manufacture, purchase, sale, consumption, use, capital, etc., but its payment is not a condition precedent. It is not a term or condition of a licence. A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden.
39. On the other hand, a fee is based on the 'principle of equivalence'. This principle is the converse of the 'principle of ability to pay. In the case of a fee or compensatory tax, the 'principle of equivalence' applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the Government action and even if such benefit results from the Government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable.
40. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services which costs in turn become the basis of reimbursement/recompense for the provider of the services/ facilities. Compensatory tax is based on the principle of 'pay for the value'. It is a sub-class of 'a fee'. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progressive or proportional to income, property, expenditure or any other test of ability or capacity (principle of ability). Taxes may be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to benefits. They are based on the principle of equivalence. However, a compensatory tax is levied on an individual as a member of a class, whereas a fee is levied on an individual as such. If one keeps in mind the 'principle of ability vis-a-vis the 'principle of equivalence', then the difference between a tax on the one hand and a fee or a compensatory tax on the other hand can be easily spelt out. Ability or capacity to pay is measurable by property or rental value. Local rates are often charged according to ability to pay. Reimbursement or recompense are the closest equivalence to the cost incurred by the provider of the services/facilities. The theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individual (s), a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it. The basic difference between a tax on one hand and a fee/compensatory tax on the other hand is that the former is based on the concept of burden whereas compensatory tax/fee is based on the concept of recompense/reimbursement. For a tax to be compensatory, there must be some link between the quantum of tax and the facility/ services. Every benefit is measured in terms of cost which has to be reimbursed by compensatory tax or in the form of compensatory tax. In other words, compensatory tax is a recompense/reimbursement.
41. In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net revenue to the Government but that circumstance is not an essential ingredient of compensatory tax.
42. Since compensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters.
43. To sum up, the basis of every levy is the controlling factor. In the case of 'a tax', the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of 'a fee', the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of 'burden' to the concept of measurable/quantifiable benefit and then it becomes 'a compensatory tax' and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more close to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then Article 301 is violated.
Burden on the State:
44. Applying the above tests/parameters, whenever a law is impugned as violative of Article 301 of the Constitution, the court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. If the provisions are ambiguous or even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/facility provider to show by placing the material before the court, that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to its payer (s). As soon as it is shown that the Act invades freedom of trade it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of Article 304(b) (See : paragraph 35 of the decision in the case of Khyerbari Tea Co. Ltd. v. State of Assam .
Scope of Articles 301, 302 and 304 vis-a-vis compensatory tax:
45. As stated above, taxing laws are not excluded from the operation of Article 301, which means that tax laws can and do amount to restrictions on the freedom guaranteed to trade under Part XIII of the Constitution. This principle is well-settled in the case of Atiabari Tea Co. . It is equally important to note that in Atiabari Tea Co. , the Supreme Court propounded the doctrine of 'direct and immediate effect'. Therefore, whenever a law is challenged on the ground of violation of Article 301, the court has not only to examine the pith and substance of the levy but in addition thereto, the court has to see the effect and the operation of the impugned law on inter-State trade and commerce as well as intrastate trade and commerce.
46. When any legislation, whether it would be a taxation law or a non-taxation law, is challenged before the court as violating Article 301, the first question to be asked is : What is the scope of the operation of the law? Whether it has chosen an activity like movement of trade, commerce and intercourse throughout India, as the criterion of its operation? If yes, the next question is : What is the effect of operation of the law on the freedom guaranteed under Article 301? If the effect is to facilitate free-flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature. Clause (b) of Article 304 confers a power upon the State Legislature similar to that conferred upon Parliament by Article 302 subject to the following differences:
(a) While the power of Parliament under Article 302 is subject to the prohibition of preference and discrimination decreed by Article 303(1) unless Parliament makes the declaration under Article 303(2), the State power contained in Article 304(b) is made expressly free from the prohibition contained in Article 303(1) because the opening words of Article 304 contains a non obstante clause both to Article 301 and Article 303.
(b) While the Parliament's power to impose restrictions under Article 302 is not subject to the requirement of reasonableness, the power of the State to impose restrictions under Article 304 is subject to the condition that they are reasonable.
(c) An additional requisite for the exercise of the power under Article 304(b) by the State Legislature is that previous Presidential sanction is required for such legislation.
Why was the matter placed before a bench of five judges?
47. The concept of compensatory taxes was propounded in the case of Automobile Transport , in which compensatory taxes were equated with regulatory taxes. In that case, a working test for deciding whether a tax is compensatory or not was laid down. In that judgment, it was observed that one has to enquire whether the trade as a class is having the use of certain facilities for the better conduct of the trade/business. This working test remains unaltered even today.
48. As stated above, in the post 1995 era, the said working test propounded in the Automobile Transport , stood disrupted when in Bhagatram's case , a Bench of three Judges enunciated the test of 'some connection' saying that even if there is some link between the tax and the facilities extended to the trade directly or indirectly, the levy cannot be impugned as invalid. In our view, this test of 'some connection' enunciated in Bhagatram's case is not only contrary to the working test propounded in Automobile Transport's case , but it obliterates the very basis of compensatory tax. We may reiterate that when a tax is imposed in the regulation or as a part of regulatory measure the controlling factor of the levy shifts from burden to reimbursement/recompense. The working test propounded by a Bench of seven Judges in the case of Automobile Transport and the test of 'some connection' enunciated by a Bench of three Judges in Bhagatram's case cannot stand together. Therefore, in our view, the test of 'some connection' as propounded in Bhagatram's case is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M.P. and State of Bihar v. Bihar Chamber of Commerce stand overruled.
49...
Conclusion:
50. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case followed by the judgment in the case of Bihar Chamber of Commerce was well-founded.
51. We reiterate that the doctrine of 'direct and immediate effect' of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan for deciding whether a tax is compensatory or not vide paragraph 19 of the report, will continue to apply and the test of 'some connection' indicated in paragraph 8 of the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax and followed in the case of State of Bihar v. Bihar Chamber of Commerce is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject-matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment.
Apex court order remitting the issue
7. Division Bench (Arijit Pasayat and S.H. Kapadia, JJ.) of the apex court, when cases were again listed before it, their Lordships' (referring to aforequoted paras of the Constitutional Bench judgment) passed judgment and order dated July 14, 2006 Reported as Jindal Stainless Ltd. v. State of Haryana --observing that basic issue in the cases revolved around concept of "compensatory tax" but since the concerned High Courts appeared to have not examined the matter in proper perspective (since in some cases relevant data was not placed before concerned High Courts), parties may within two months of receipt of said judgment place the same in their concerned writ petitions within two months and concerned High Courts should decide the said basic issue (whether impugned "levy" under the Act was compensatory in nature?) within five months from the date of receipt of their judgment.
8. Above Division Bench judgment dated July 14, 2006 Reported as Jindal Stainless Ltd. v. State of Haryana , of the honourable Supreme Court, was received in this High Court on August 18, 2006. One of the honourable Judges (delivering judgment dated January 27, 2004) not being available, honourable the Chief Justice vide order dated November 9, 2006 constituted this Bench (A.K. Yog and Mrs. Poonam Srivastava, JJ.). Cases were listed on December 1, 2006 and December 11, 2006 but adjourned to January 4, 2007 on the request of respondents to enable them to furnish "data" (as directed by the Supreme Court) to demonstrate that "levy" imposed under "Entry Tax Act" is "compensatory" in nature.
Re: Data furnished by the State to prove "tax" in question is compensatory
9. The State has supplied "data" by filing affidavit (sworn by Amitabh Mishra) on December 7, 2006.
10. Relevant paras of the affidavit of Amitabh Mishra read:
1. That the deponent is presently posted as Deputy Commissioner (Assessmenf)-10, Trade Tax, Lucknow and has been authorised to file counter-affidavit on behalf of Government and is well acquainted with the facts of the case deposed to below.
2. That in the case of Jindal Stainless Ltd. v. State of Haryana , Constitution Bench of the honourable Supreme Court vide judgment dated April 13, 2006 vide paragraph Nos. 44, 47, 49 and 51 (paragraph Nos. 43, 46, 48 and 50 of STC) held as under:
Para 44. Applying the above tests/parameters, whenever a law is impugned as violative of Article 301 of the Constitution, the court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. If the provisions are ambiguous or even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/facility provider to show by placing the material before the court, that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/ measurable benefit provided or to be provided to its payer (s). As soon as it is shown that the Act invades freedom of trade it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of Article 304(b) (See : para 35 of the decision in the case of Khyerbari Tea Co. Ltd. v. State of Assam ).
Para 47. The concept of compensatory taxes was propounded in the case of Automobile Transport , in which compensatory taxes were equated with regulatory taxes. In that case, a working test for deciding whether a tax is compensatory or not was laid down. In that judgment, it was observed that one has to enquire whether the trade as a class is having the use of certain facilities for the better conduct of the trade/business. This working test remains unaltered even today.
Para 49. Before concluding, we may point out that parties before us have taken more or less extreme positions and, therefore, we have not examined the arguments in seriatim.
Para 51. We reiterate that the doctrine of 'direct and immediate effect' of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan for deciding whether a tax is compensatory or not vide para 29 of the Report, will continue to apply and the test of 'some connection' indicated in para 8 of the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M.P. and followed in the case of State of Bihar v. Bihar Chamber of Commerce is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject-matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment.
3. That in pursuance to the aforesaid Constitution Bench judgment of the honourable Supreme Court, the Division Bench of the honourable Supreme Court passed the order dated July 14, 2006 [Jindal Stainless Ltd. v. State of Haryana reported in [2006] STI 175 (SC)], the relevant portion of which is reproduced.
Since relevant data do not appear to have been placed before the High Courts, we permit the parties to place them in the writ petitions within two months. The High Court concerned shall deal with the basic issue as to whether the impugned levy was compensatory in nature. The High Courts are requested to decide the aforesaid issue within five months from the date of receipt of our order.
4. That the Constitution Bench of the honourable Supreme Court in the case of jindal Stainless Ltd. , vide paragraph No. 51, has reiterated the principles of compensatory nature of a tax laid down in the earlier Constitution Bench judgment in the case of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan . The relevant portion of paragraph 19 of the judgment in the case of Automobile Transport (Rajasthan) Ltd. is reproduced below:
...It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of a tax by a meticulous test, and in the nature of things that cannot be done.
5. That in view of the judgment and orders of the honourable Supreme Court the respondents are submitting the following details so as to prove the compensatory nature of entry tax.
6. That the yearwise receipt from entry tax and funds provided by the State Government to local bodies by way of grant-in-aid and also the expenditure incurred for developmental works are submitted as under:
Year Amount Amount given as Amount spent by the
received from grant-in-aid State Government for
entry tax (Rs. from the consolidated construction and main-
in crores) fund of State to local tenance of roads and
bodies for providing bridges (Rs. in crores)
services in areas
(Rs. in crores)
1999-2000 70.41 1608.13 946.60
2000-2001 262.50 1951.45 1117.38
2001-2002 290.89 1737.97 749.86
2002-2003 401.20 2310.47 1521.08
2003-2004 376.75 1970.83 1577.84
2004-2005 643.25 2428.36 1640.17
2005-2006 1082.13 3253.08 4263.15
7. The aforementioned data of entry tax received also includes the entry tax on paper and clinker in respect of which rebate under Section 5 of the U. P. Trade Tax Act, 1948 is allowed in view of entry tax paid.
8. True copy of the statement of receipts of entry tax yearwise, a true copy of statement of grant-in-aid to urban local bodies and Panchayat Raj Institutions and a true copy of statement containing yearwise details of amount spent towards maintenance of roads and bridges are annexed herewith and are marked as annexures 1, 2 and 3 to this affidavit, respectively. A copy of receipt of entry tax giving commoditywise detail and rebate given from the year 2002-03 is also enclosed as annexure 4 to this affidavit.
9. That the perusal of the data aforenoted clearly demonstrates that the amount of entry tax collected by the State is much less than the expenditure incurred by the State Government by way of grant-in-aid or otherwise for development of local areas or for rendering services which ultimately facilitate trade and commerce and thus the entry tax collected under Section 4 of the U.P. Tax on Entry of Goods Act, 2000 (hereinafter referred to as "the Act 2000") is a reimbursement/ recompense for the quantifiable or measurable benefit to the traders/ industrial units as a whole being a class. The facilities provided in the local area by the local authorities mainly out of the fund/grant-in-aid given by the State Government on the recommendation of the State Finance Commission or otherwise, are well defined under the constitutional mandate/constitutional provisions contained in Part IX and IX-A of the Constitution of India [substituted by the 73rd and 74th Constitution (Amendment) Act, 1992]. The provisions contained in Parts IX and IX-A read with 11th and 12th Schedule of the Constitution are well incorporated and reflected in the U.P. Municipalities Act, 1916, the Uttar Pradesh Municipal Corporations Adhiniyam, 1959, U.P. Kshetra Panchayats and Zila Panchayats Adhiniyam, 1961 and the U.P. Panchayat Raj, 1947.
11. Photostat copies of the documents filed as annexures 2, 3 and 4 along with the said affidavit are the same as were earlier filed along with counter-affidavit in the writ petition (i.e., before Division Bench judgment of this court) except that now figures for the years 2003-04, 2004-05, 2005-06 have now been added.
12. For ready reference we reproduce relevant contents of these documents:
(i) Annexure-1 OkLrqokj izos'k dj laxzg ¼ebZ 2006 rd½ :i;s ¼yk[k es½ 2006&07 2005&06 2005&06 2004&05 2003&04 2002&03 Ekkg rd Ekkg rd iwjs o"kZ iwjs o"kZ iwjs o"kZ iwjs o"kZ 1 2 3 4 5 6 7 8 1-
dzwM vk;y 6523-32 5054-96 55878-42 31170-03 11722-72 27116-28 2- e'khu vkSj e'khu ds Qkyrw iqtsZ es] ftudh dher 10 yk[k :0 ;k mlls vf/kd u gks A 132-49 48-88 832-15 583-21 652-84 632-44 3- izkd`frd xSl 1303-72 910-06 12733-87 5762-14 4886-22 4213-58 4- Hkkjr es fufeZr fons'kh 'kjkc 0-71 0-00 1-29 0-00 0-00 0-00 5- phuh 785-78 526-68 4655-84 3343-25 3036-94 2986-93 6- flxjsV ds :i es rEckdw mRikn 469-21 436-09 4287-71 3606-76 2804-75 1405-34 7- lHkh izdkj ds dkxt 541-24 462-00 4356-36 3828-63 3221-53 2587-84 8- rEckdw ;qDr iku elkyk ¼xqVdk½ 99-15 72-07 721-10 674-61 628-81 197-67 9- lhesaV 1502-79 596-03 7805-49 3769-58 3290-09 0-00 10- dks;yk 1907-74 1347-04 13920-42 9018-24 6780-24 0-00 11- rsanw iRrk 35-22 32-44 261-57 174-71 141-02 0-00 12- Hkkax 41-53 7-52 67-71 71-71 69-67 0-00 13- Ifj"d`r peM+k 7-15 7-18 197-25 165-30 132-22 0-00 14- Hkkjr ds ckgj ls vk;kfrr lHkh izdkj ds vkSj lHkh o`{kks ds pkgs os fdlh Hkh tkfr dks gks] dk"B vkSj bekjrh ydM+h ftlds vUrZxr ifRr;kW vkSj ckWal pkgs os mxkbZ tk jgh gks ;k dkV nh x;h gks ;k phjh xbZ gks 17-68 28-24 169-92 158-90 147-83 0-00 15- fofo/k 1703-26 6009-32 81193-23 53508-51 4895-65 0-00 16- lEHkkxh; dk;kZy;ks ls izkIr o oLrq o izos'k dj laxzg dk mi;qZDr dk ;ksx 20470-99 15540-51 187082-32 115535-65 42371-53 40120-18 laHkkx vkxjk&ch dh lwpuk vizkIr o"kZokj izos'k dj ds vkadM+s (Rs. in lakhs) 1999&2000 & 7041-00 2000-2001 & 24587-00 2001&2002 & 29089-00
(ii) Annexure-2 vkxs ds o"kZ mij rkfydk es nf'kZr gS A /kujkf'k djksM+ks :Ik;s esa dzekad Ekn oÔZokj O;; dh /kjkf'k 1999&2000 2000&01 2001&02 2002&03 2003&04 2004&05 2005&06 iqujhf{kr vuq0 2006&07 vk;&O;;d vuq0 1- 'kgjh fodkl tyiwfrZ o lQkbZ 317-32 285-44 359-05 443-62 490-59 369-24 532-90 485-02 ¼d½ 'kgjh fodkl tyiwfrZ o lQkbZ 70-34 57-42 105-06 195-09 98-02 122-81 164-11 27-75 ¼[k½ tyiwfrZ o lQkbZ 246-99 228-02 253-99 248-53 392-57 246-43 368-79 459-27 2- {kfriwfrZ ,oa leqfuns'ku 860-90 1084-64 927-93 1164-57 1356-53 1782-93 2361-72 2693-26 3- vU; xzkeh.k fodkl dk;Zdze 914-44 572-66 447-42 557-50 110-34 270-14 353-29 143-23 4- fpfdRlk vkSj yksd LokLF; ,oa Je rFkk jkstxkj 10-46 8-71 3-57 144-78 13-37 6-05 5-17 6-45 ¼d½ fpfdRlk ,oa yksd LokLF;
8-14 & 3-49 137-94 10-26 & & 0-01 ¼[k½ fpfdRlk LokLF; ¼ifjokj dY;k.k½ 2-32 & 0-08 1-27 & 1-67 1-17 2-46 ¼x½ Je rFkk jkstxkj & 8-71 & 5-57 3-11 4-38 4-00 3-98 Ekgk;ksx 1608-13 1951-45 1737-97 2310-47 1970-83 2428-36 3253-08 3327-96
(iii) Annexure-3 /kujkf'k djksM+ks :i;s es dzekad en o"kZokj O;; dh /kujkf'k 1999&2000 2000&01 2001&02 2002&03 2003&04 2004&05 2005&06 iqujhf{kr vuq0 2006&07 vk;&O;;d vuq0 1- vuqj{k.k 434-74 527-45 536-52 674-74 676-59 486-22 786-11 1434-81 2- fuekZ.k 511-86 589-93 213-34 846-34 901-25 1153-95 3477-04 4708-02 3- ;ksx 946-60 1117-38 749-86 1521-08 1577-84 1640-17 4263-15 6142-83
(iv) Annexure-4 ...
(v) Annexure-5 Hkkjrh; lafo/kku dh ckjgos vuqlwph ds vUrZxr fu/kkZfjr dk;ksZ gsrq jkT; ljdkj }kjk Lohd`r Q.M~l ds lkis{k O;; dk fooj.k /kujkf'k djksM+ks es o"kZ jkT; foRr vk;ksx ls fudk;ks dks nh okyh /kujkf'k futh Jksr dh vk;
dqy vk;
fodkl enks ij O;;
osru ij O;;
lM+d tykiwfrZ vif'k"V izca/ku EkkxZ izdk'k vU; inks ij O;;
dqy O;;
199&2000 2000&01 2001&02 2002&03 2003&04 2004&05 2005&06 2 572-81 693-45 757-07 765-74 789-30 877-00 1012-50 5467-87 3 179-39 204-98 264-52 328-70 392-12 441-31 488-28 2299-30 4 752-20 898-43 1021-59 1094-44 1181-42 1318-31 1500-78 7767-17 5 150-87 202-16 271-39 364-55 391-89 421-28 452-87 2255-01 6 16-61 20-83 26-11 32-74 41-05 51-07 64-54 252-95 7 13-16 14-95 16-99 19-31 20-75 22-31 23-98 131-45 8 19-46 23-96 29-50 43-49 39-04 50-25 54-03 235-37 9 13-88 20-30 29-71 43-49 46-75 50-25 54-03 258-41 10 213-96 282-20 373-70 496-41 539-48 586-88 640-54 3133-19 11 536-22 16-232 647-89 598-03 641-94 731-43 860-24 4633-98 uksV%& 1- mijksDr iznf'kZr O;; es jkT; foRr vk;ksx ,oa uxjh; fudk;ks dh futh Jksr dh vk; Hkh lfEefyr gSA 2- jkT; foRr vk;ksx dh /kujkf'k ls loZizFke deZpkjh;ks ds osru] isa'ku vkfn dk eq[;r% Hkqxrku fd;k tkrk gS] osru isa'ku vkfn ds Hkqxrku ds i'pkr~ tks /kujkf'k curh gS] mlls fudk;ks es fodkl dk;Z djk;s tkrs gSA 3- jkT; foRr vk;ksx dh vo'ks"k /kujkf'k ,oa futh lzksr ls izkIr vk; ls fudk;ks }kjk vf/kfu;e es of.kZr d`R;ks ds fu"iknu es O;; fd;k tkrk gSA lkekU;r% fudk;ks }kjk O;; dk vf/kdka'k Hkkx ewyHkwr lsokvks ;Fkk lM+d fuekZ.k] vif'k"V izca/ku ,oa tykiwfrZ vkfn fodkl dk;ksZ ij O;; gksrk gSA 4- mijksDr vkadM+s fudk;ks ls izkIr lwpuk rFkk funs'kky; es miyC/k vfHkys[kks ds vk/kkj ij vafdr fd;k x;k gSA
(i) Annexure-6 Relevant part of Letter No. 8/8535-Sa/98-12-Schedule-Work/2006-2007 written from Director, (Local Body, U.P.), Lucknow to Under Secretary, U.P. Government, Nagar Vikas Anubhag-9, Lucknow reads:
la[;k&8@8535&'kk@98&12&vuqlwph&dk;Z@2006&2007] fnukad 1 fnlEcj] 2006 izs"kd] funs'kd] LFkkuh; fudk;] 8 okWa ry] bfUnjk Hkou] y[kuÅ A lsok esa] vuq lfpo] mRrj izns'k 'kklu] uxj fodkl vuqHkkx&9] y[kuÅ A fo"k;% Hkkjrh; lafo/kku dh ckjgoh lwph ds vUrZxr fu/kkZfjr dk;ksZ gsrq jkT; ljdkj }kjk Lohd`r Q.M~l ds lEcU/k es A
---
¼1½ jkT; lgk;frr Q.M~l
---
¼2½ Loa; dh vftZr vk;
---
¼3½ dsUnz ljdkj lgk;frr Q.M~l
---
laLrqfr;kas ds vUrZxr fjokfYoax Q.M+ C;kt jfgr _.k
---
o"kZ 1999&2000 ls 2005&2006 rd ukxj LFkuh; fudk;ks dks fofHkUu enks es nh x;h /kujkf'k dk fooj.k A ukxj LFkkuh; fudk;ks dks lafo/kku dh ckjgoh vuqlwph es fn;s x;s drZO;ks dk fuoZgu djus gsrq jkT; ljdkj }kjk rFkk dsUnz ljdkj }kjk /kujkf'k rFkk fjokfYoax Q.M ds :i es fn;s x;s C;kt jfgr _.k dh dqy /kujkf'k dk o"kZokj fooj.k funs'kky; es miyC/k vfHkys[kks rFkk 'kklu }kjk miyC/k djk;h x;h lwph ds vk/kkj ij fuEuor~ gSA ¼/kujkf'k djksM+ :i;s essa½ Ok"kZ jkT; foRr vk;skx 10 okW foRr vk;ksx 11 okW foRr vk;ksx 12 okW foRr vk;ksx fjokfYoax Q.M ;ksx 1999&2000 572-81 28-68 0-00 0-00 0-00 601-49 2000&2001 693-45 0-00 44-54 0-00 64-68 802-67 2001&2002 757-07 0-00 45-04 0-00 76-48 878-51 2002&2003 765-74 0-00 45-58 0-00 71-08 882-40 2003&2004 789-30 0-00 45-58 0-00 135-36 970-24 2004&2005 877-00 0-00 22-78 0-00 139-59 1039-37 2005&2006 1012-50 0-00 0-00 51-70 163-90 1228-10 5467-87 28-68 203-52 51-70 651-01 6402-78 Hkkjrh; lafo/kku dh ckjgoh vuqlwph ds vUrZxr fu/kkZfjr dk;ksZ gsrq jkT; ljdkj }kjk Lohd`r Q.M~ ds lkis{k dk fooj.k----
UkksV%& 1- mijksDr iznf'kZr O;; es jkT; foRr vk;ksx ,oa uxjh; fudk;ks dh futh Jksr dh vk; Hkh lfEefyr gSA o"kZ 1999&2000 ls 2005&06 ukxj fudk;ks dh futh Jksr dh vk; dze'k% 179-39 djksM+] 204-98 djksM+] 328-70 djksM+] 392-12 djksM+] 441-31 djksM+ ,oa 488-28 djksM+ gSA 2- jkT; foRr vk;ksx dh /kujkf'k ls loZizFke deZpkjh;ks ds osru] isa'ku vkfn dk eq[;r% Hkqxrku fd;k tkrk gS] osru isa'ku ds Hkqxrku ds i'pkr~ tks /kujkf'k cprh gS] mlls fudk;ks es fodkl dk;Z djk;s tkrs gSA jkT; foRr vk;ksx dh vo'ks"k /kujkf'k ,oa futh Jksr ls izkIr vk; fudk;ks }kjk vf/kfu;e es of.kZr d`R;ks ds lEiknu es O;; fd;k tkrk gSSA lkekU;r% fudk;ks }kjk O;; dk vf/kdka'k Hkkx ewyHkwr lsovks ;Fkk& lM+d fuekZ.k] vif'k"V izcU/k ,oa tykiwfrZ ij O;; gksrk gSA 3- mijksDr fooj.k es ftl LrEHk es 'kwU; iznZf'kr fd;k tkrk gSA muds nkf;Ro vHkh uxjh; fudk;ks dks gLRkkarfjr ugh gq, gSA jkT; ljdkj ds vU; foHkkx }kjk mudk lEiknu fd;k tkrk gSA 4- mijksDr vkadM+s fudk;ks ls izkIr lwpuk rFkk funs'kky; es miyC/k vfHkys[kks ds vk/kkj ij vafdr fd;k x;k gSA fjokfYoax Q.M+ ds vUrZxr nh x;h /kujkf'k ukxj LFkkuh; fudk;ks dks mudh ekWax rFkk {kerk dks n`f"Vxr j[krs gq, jkT;iky] izdk'k O;oLFkk] lM+d lq/kkj] ty fudklh] ukyk&ukyh fuekZ.k rFkk vU; voLFkkiuk dk;ksZ gsrq 'kklu }kjk C;kt jfgr _.k fn;s tkus dh lqfo/kk iznku dh x;h gSA 'kklu }kjk Lohd`r _.k dh /kujkf'k dk lek;kstu jkT; foRr vk;ksx dh /kujkf'k ls fd;k tkrk gSaaA ftldk o"kZokj fooj.k fuEufyf[kr gS----
n'ke foRr vk;ksx ds vUrZxr nh x;h /kujkf'k 1999&2000 dk fooj.k dsUnz ljdkj }kjk n'ke~ foRr vk;ksx dh laLrqfr;ks ds vUrZxr izns'k dh ukxj LFkkuh; fudk;ks dks o"kZ 1999&2000 es fuEufyf[kr fooj.k ds vuqlkj uxjh; LFkkuh; fudk;ks dks mudh ewyHkwr ukxfjd lqfo/kkvks ds voLFkkiuk fodkl gsrq vuqnku fn;k x;k gS ftles ukyk@ukyh fuekZ.k] lQkbZ midj.k dz; vkfn lfEefyr gSA funs'kky; es miyC/k vfHkys[kks ,oa fudk;ks ls izkIr lwpukvks ds vk/kkj ij O;; fooj.k fuEuor gS----
(vii) Annexure-7 jkT; dk Loa; dj jktLo 1999&2000 2000&2001 2001&2002 2002&2003 2003&2004 200472005 200572006 2006&2007 (BE) 0 1 2 3 4 5 6 7 8 HkwjkTkLo LVkEi rFkk fucU/ku 'kqYd jkT;
vkcdkjh 'kqYd O;kikj dj ,oa eksVj fLizV ij fcdzhdj xUus ij dz;dj EkksVj okguks ij dj ,oa eky rFkk ;k=h dj rFkk izos'k dj euksjatu dj ,oa ckthdj ;ksx vU; dj jktLo dqy ;ksx&dj jktLo
(viii) Anexure 8.--...
(ix) Annexure 9.--Described as "relevant portion of the report of Second State finance Commission (2001-06).
(e) Entry tax
14. 111 Octroi used to be the most important source of revenue for ULBs in U.P. However, the collection of this tax was full of deficiencies, malpractices and caused harassment. It also imposed negative economic costs due to impediments on movement of goods carriers leading to wastage of fuel and substantial time delays. A decision was taken at the national level to abolish octroi and compensate LBs through appropriate mechanisms for loss of revenue caused. The U.P. Taxation Enquiry Committee, 1980 also recommended abolition of octroi. In the alternate, it suggested levy of entry tax on selected commodities. Subsequently, in many States, including U.P., octroi was abolished. Some States like Maharashtra and Gujarat did not follow suit. In U.P. it was decided to levy surcharge on sales tax, proceeds of which were to be distributed to ULBs as grants to compensate them for the loss of revenue. In course of time the surcharge was merged in trade tax. Now, instead of grants, ULBs are receiving octroi and compensate; ULBs are receiving a share of seven per cent in the net tax receipts following the recommendations of FSFC. The volume of transfers to ULBs has substantially improved under the new system. In 1995-96 the total non-plan grants to ULBs in U.P. amounted to Rs. 285 crore. Against this the devolution to them exceeded Rs. 700 crore in 2001-02, an increase of more than two and a half times in seven years.
14. 112...
(x) Annexure 10 Report of The Eleventh Finance Commission As presented in the August House, the Lok Sabha by the honourable Finance Minister Shri Yashwant Sinha On 27th July, 2000 (Under the Chairmanship of Prof. A. M. Khusro) For 2000-2005 Special Supplement No. 3 of 2000 to JMJ BOOK INFO a monthly information relating to new available Law and Other Publications Plus News from Government Gazettes, etc. Marketed by July, 2000 akalank publications....
8.13. Para 6 of the Presidential order requires us to make our own assessment about the manner and extent of augmentation of the Consolidated Funds of the States, keeping in view the provisions required to be made for the emoluments and terminal benefits of the local bodies including teachers, the existing powers of the local bodies to raise financial resources, and the powers, authority and responsibility transferred to local bodies. The States memoranda do not generally indicate the requirement of funds for the emoluments and terminal benefits for the employees including those of teachers. We had sought information on these points specifically through the subsidiary points, but most States have not given the information. States' memoranda to us do not give the position in regard to transfer of powers, authority and responsibility or financial powers devolved on the local bodies to raise resources. The powers of taxation mentioned in the legislation have been made subject not only to the rules, notification, and orders to be issued by the State Government, but also to the procedures and limits to be prescribed ; in quite a few States action is yet to be taken.
Study reports on panchayats and municipalities.
8.14. We entrusted two studies--one for rural local bodies and the other for urban local bodies--to National Institute of Rural Development (NIRD) and National Institute of Public Finance and Policy (NIPFP) to study the position of devolution of functions to the local bodies, the powers to raise resources and for working out the requirements for the maintenance of core services. The core services were identified as primary education, primary health, rural or municipal roads, drinking water supply, sanitation, and street-lighting. The study done by the NIRD reveals that the 73rd amendment has not significantly altered the functional domain of the panchayats at various tiers. Few States have been serious in vesting the panchayats with the necessary powers, funds and staff to enable them to perform the functions assigned to them under the statutes. The Centre as well as the States have sponsored schemes for rural people without associating panchayats in planning and implementation. These have further marginalised them. The States legislation provide for levy and collection of certain taxes, fees and tolls by the rules relating to fixation of rate structure are not periodically done and reviewed. The assessment of the requirement of funds has been stated at Rs. 1,42,128 crore for a period of five years for rural local bodies for operation and maintenance of core services alone. The capital expenditure is assessed at Rs. 83,603 crore for the same period. For urban areas, the study done by NIPFP does not indicate the requirement of funds separately for the maintenance of each core service. It has given five options based on level of transfers in 1997-98 revenue gap at 1997-98 level, enhancement of spending by municipalities deficient in revenue expenditure, enhancement of the level of spending of municipalities deficient in operation and maintenance expenditure on core services and enhancement of the level of core services, in accordance with Zakaria Committee Report. It indicates the requirement of funds ranging from Rs. 6,907 crore to Rs. 32,598 crore over a period of five years depending on the option chosen. None of the studies has indicated the possible measures that need to be taken at the local and State level to bridge this gap.
Measures to augment the Consolidated Funds of the States 8.15. Our primary task is to identify and recommend measures needed for the augmentation of the Consolidated Funds of the States for supplementing the resources of the local bodies. An assessment of the tax and non-tax revenue of the States has already been done earlier in the chapter on the assessment of States' resources. Additional efforts are needed--both at the local and State level--for raising the resources to meet the growing requirements of the local bodies. In our view, the States may take the measures indicated below for augmenting their Consolidated Funds to supplement the resources of panchayats and municipalities:
a. Land taxes: In many States, land revenue has either been abolished or land holdings up to a certain size have been exempted. However, taxes on land/farm income in some form may be levied to strengthen the resource base of the local bodies. The rate structure should be fixed suitably keeping in view the present economic conditions. The revision should not be linked to or depend on survey and settlement operations. In the urban areas, similar measures should be taken for revision of the lease rents. The amounts so collected may be passed on to the local bodies for improving and strengthening the civic services. Local bodies may also be involved in collection of these taxes.
b. Surcharge/cess on State taxes : Cess on land based taxes and other State taxes/duties may be levied to mobilise resources for augmenting specific civic services and for improving their quality. For example, a cess or surcharge of 10 per cent on sales tax, State excise entertainment tax, stamp duties, agricultural income-tax, motor vehicles tax, electricity duties, etc., may give significant additional revenue which could be devolved to the local bodies for improving the basic civic services and for taking up schemes of social and economic development.
c. Profession tax: Article 276 of the Constitution provides for levy of a tax on professions, trades, callings or employment for the benefit of the State or local bodies at a rate not exceeding Rs. 2,500 per taxpayer per year. Many States either do not levy this tax or levy it at very low rates. States should levy this tax with a view to supplement the resources of local bodies or they should empower the local bodies to levy it. The rates should be suitably revised to bring them nearer to the ceiling prescribed under the Constitution. Further, the ceiling that was fixed in 1988 by an amendment to the Constitution, needs to be suitably enhanced. Parliament should be empowered to fix this ceiling without going in for a Constitutional amendment every time.
Reforms in local taxes and rates 8.16. In addition to the measures mentioned above, we would like to highlight the need for improving the revenue mobilisation by the local bodies themselves. Many SFCs have, in their reports, given suggestions in this regard, of which some are State specific but some can be considered useful for all the States. We mention two local taxes, besides user charges, for consideration of all the States.
a. Property/house tax : Property tax/house tax is the single most important local tax today, in a majority of the States. Yet it has remained beset with a variety of problems that have prevented the local bodies to exploit its full potential. Such problems are not merely confined to the proximity factor, namely, the local bodies being too close to the people to be effective tax collectors. In most States, the tax rates have not been revised periodically and there is no standard mechanism for determination of property tax rates and their revision. Indeed, West Bengal has experimented with the institution of Central valuation authority and some other States have initiated reforms in the system of property taxation with provisions for self-assessment, mandatory periodic revision, dispensing with the demand notice for the tax and putting the onus on property owners for timely tax payment, etc. Such measures have yielded good results and need to be pursued by all States in a rationalised manner. Most States have accorded a variety of tax concession/exemption leading to Revenue loss to the local bodies. Arrears of taxes are allowed to accumulate either due to sheer inefficiency or due to delay in assessments and in appeals. Yet another major impediment to the growth of revenue from the property/house tax has been the rent control laws. The property/house tax legislation should be suitably modified to overcome this impediment where the property has been let out, the property tax should be made recoverable from the occupier.
b. Octroi/entry tax: Besides the property/house tax, octroi has been the major source of revenue for the municipalities and, in some States, even for the panchayats. Many States have, however, abolished octroi with a view to remove impediments to the physical movement of goods, though several other new barriers have been created. Some States have introduced a levy in lieu of octroi, usually the entry tax, the net proceeds of which are transferred to the local bodies in the form of grant. During our interaction with the representatives of the local bodies, we were told that though the grant in lieu of octroi given to the local bodies was raised by certain percentage from year to year, it does not have as much buoyancy as the octroi had. There have also been numerous complaints of delay in release of the compensatory grants. While we do not advocate re-introduction of octroi, we do feel that there is a need for replacing it with a suitable tax that is buoyant and can be collected by the local bodies.
Maintenance of Civic Services.
8.18. In our perception, the first such area is the maintenance of civic services in the rural and urban areas, which includes provision of primary education, primary health care, safe drinking water, street lighting, sanitation including drainage and scavenging facilities, maintenance of cremation and burial grounds, public conveniences, and other common property resources. Transfer of these responsibilities to the local bodies should be speeded up, accompanied with transfer of funds and staff. The capital cost of the civic services identified by us would be met under the concerned budgetary heads of the States. The cost of operations and maintenance of these services should be met by raising the revenues and user charges, and by devolution of funds from the State. However, the maintenance of these services, rural and urban areas has not received adequate attention so far. It is more for the purpose of re-emphasising the attention to this aspect, with concern for the people in locus, that we are recommending grants to the States for immediate passing it on to the panchayats and the urban local bodies that have a primary responsibility in this sphere. No amount from this grant should be given to the intermediate or district level panchayats not having any direct responsibility for maintenance of these services. The distribution of these grants to the panchayats and the urban local bodies should be done on the basis of the principles recommended by the SFCs. These grants would be untied except that they should not be used for payment of salaries and wages. We envisage that the measures recommended by us would encourage enhanced economic activities in the rural and urban areas leading to new sets of employment opportunity rather than direct Government employment.
13. Contents of the affidavit of Amitabh Mishra, and documents filed along with it (quoted above) utterly fail to show that amount of "entry tax" in any manner (as pointed out by the apex court in its judgment in the case of jindal Stainless Ltd. "indicate the quantifiable benefit" to the "trades" scheduled under Section 4 of the Act. The State has failed to discharge the "burden" required for establishing that "levy" under the Act is compensatory--either directly or indirectly. The "data" brought on record by the respondents do not reflect the "levy" as entry tax to be proportionally measurable/quantifiable benefit which may be said to be specially extended to scheduled trades only. The documents filed by the respondents show that certain amount has been allocated for panchayats and local bodies by way of "grant-in-aid" to the local bodies/municipalities by the State Government for urban development which includes water supply, health, general development of village, construction of roads, bridges, etc. Whatever is being realised under the Act is pooled into the consolidated fund and thereafter budgetary allocation is done to make the deficiency of funds, enable panchayats and local bodies who otherwise fails to earn revenue on their own and thus to facilitate them to carry out their statutory/constitutional obligations, i.e., implementation of "Welfare Schemes" and maintain "civic services" in general. "Entry tax", under impugned Act, 2000 has no identifiable or specified link with the "trades" enumerated in the Schedule in the Act.
14. Even the "aims and objects" of the Act 2000, which spell out that "entry tax" on Scheduled trades is to "augment the revenue" of the State, reads:
Prefatory Note-Statement of Objects and Reasons.--With a view to augmenting the revenue of the State, it was decided to make law to provide for the levy and collection of tax on entry of certain goods into a local area from any place outside that local area including a place outside Uttar Pradesh for consumption, use or sale therein, at such rates, not exceeding five per cent of the value of the goods, as may be specified by the State Government by notification. It was also decided to provide for the application of certain provisions of the Uttar Pradesh Trade Tax Act, 1948 including the use of check-posts and barriers established thereunder for the purposes of the said law. Since the State Legislature was not in session and immediate legislative action to implement the aforesaid decision was necessary, the Uttar Pradesh Tax on Entry of Goods Ordinance, 1999 (U.P. Ordinance No. 21 of 1999) was promulgated by the Governor on October 30, 1999 after obtaining the instructions of the President....
(emphasis Here italicized laid by us) R : 'Data' furnished by IOC (Indian Oil Corporation)
15. Relevant contents of the affidavit of S.L. Gautam, filed on behalf of the petitioners (IOC) read
15. That in reply to paragraph 17 of the said affidavit, I deny that part of the crude oil is brought into Uttar Pradesh through tankers. The only importer of crude oil in the State of U.P. is Mathura Refinery of Indian Oil Corporation Ltd., and all crude oil for Mathura Refinery is brought into Mathura only through underground pipeline. I reiterate in this behalf the averments in paras 16 to 31, 43 and 50 of my affidavit filed on September 13, 2006 in this behalf. Without prejudice thereto, I specifically deny the allegations that crude oil is brought into the local area or into the State of Uttar Pradesh in tankers. As stated, crude oil is entirely brought into the State of Uttar Pradesh through underground pipeline. Without prejudice to the said denial, with regard to petroleum products transported through tankers within the State of Uttar Pradesh, I say that approximately 50 per cent of petroleum products manufactured at Mathura Refinery are exported outside the State of Uttar Pradesh primarily through underground pipeline constructed by the petitioner-corporation for the purpose. With regard to petroleum products transported within the State of Uttar Pradesh, I say that entry tax is separately levied and collected on such petroleum products. The figures in this connection are given in annexure 1 of the said affidavit filed by the State Government.
16. That the deponent states that the entry tax on petroleum products is not the subject-matter of the above writ petition which is confined to crude oil. This honourable court has been requested to decide in the present writ petition only on the compensatory nature of entry tax, imposed on crude oil imported by Mathura Refinery of Indian Oil Corporation Ltd., into the State of Uttar Pradesh through underground pipeline. With regard to the use of general facility in the State by the traders as part of the general public, I reiterate the contents of the preliminary submissions made hereinabove.
17. That with reference to paragraph 18 of the said affidavit, I deny that the entry tax levied on crude oil imported by Mathura Refinery within the State of Uttar Pradesh has any element of compensatory tax and state that the said levy is a tax simplicitor levied on the import of crude oil within the State of U.P. without the provision of any facility whatsoever by the State of Uttar Pradesh to Mathura Refinery of the petitioner-corporation for the purposes, much less a facility equivalent to the tax.
18. That identical questions regarding compensatory nature of the entry tax on the basis of the facts and figures given by the State of Assam were challenged in Writ No. 2650 of 2005--ITC Limited v. State of Assam [2007] 9 VST 250 (Gauhati) and Writ Petition No. 4775 of 2005-Indian Oil Corporation Ltd. v. State of Assam, which was allowed on November 17, 2006 See [2007] 9 VST 250 (Gauhati) by the honourable Assam High Court. The affidavit was filed by the State Government giving the amount of entry tax collected and amounts released to local bodies as mentioned in para 141 (para 143 of [2007] 9 VST 250) of the said judgment as follows:
Para 9 of the said affidavit in which the amount of entry tax collected and amount released to local bodies of the State of Assam for development activities, i.e., for maintenance of road, etc., is given below:
Year Amount of entry Amount released to local
tax collected bodies (Rs. in crores)
2001-02 7.84 67.48
2002-03 28.34 90.29
2003-04 28.81 97.48
2004-05 106.50 176.56
From the above, it is clear that the amount being spent by the State Government on development of infrastructure facilities to facilitate trade and commerce within the territories of various local bodies is substantially higher than the amount of entry tax collected. Because of the existence of several layers and categories of local bodies in the State, it has been found administratively expedient to resort to the above compensatory mechanism for facilitating trade and commerce in the local areas of various Urban Local Bodies, Panchati Raj Institutions and Autonomous Councils.
Contention of the petitioners:
16. Heard Sri Shanti Bhushan, Senior Advocate on behalf of the petitioner/ (IOC). S/Sri Ashok Kumar and S.D. Singh, Advocates, appearing for petitioners in some of the connected writ petitions, adopted arguments of Shri Shanti Bhushan.
17. Shri Shanti Bhushan, referred to the "aims and object" as well as the provisions of the Act and pointed out that one finds nothing to infer from that that "tax" under the Act is "compensatory" in nature. He contends that the scheme of the impugned Act reveals that the revenue realised from "entry tax" is in fact meant for augmenting general revenue of the State and not for providing any specific or particular facility to the writ peti-tioner/s (including others in the Schedule under the Act) who are made to pay additionally--the impugned "tax" vis-a-vis other trades. The "entry tax", therefore, cannot be regarded as compensatory.
18. He also refers to Articles 301, 302 and 304(b) of the Constitution of India to demonstrate the authority to impose "tax" vis-a-vis "fee", the scope and distinction/restriction in the Constitution in the matter of imposition of "tax" and "fee"/"compensatory tax". It is contended that the "tax" in question impinges upon the freedom of the petitioner to carry on their trade, commerce and intercourse guaranteed by Article 301 of the Constitution. Taking the argument further it pointed out that "the Act" in question exceeds "competence" and authority conferred by Articles 302 to 304 of the Constitution--because "levy" imposed is not "compensatory" in any manner so as to lend it the character of "fee" or "cess" which are based on the principle of "quid pro quo" or to put, in other words, adhering to the principle of equivalence.
19. It is argued that the "tax" in question must be "identifiable", reasonably quantifiable with reference to the specific; additional advantage/benefit (in return) to the "tax" charged from the scheduled trades. And if the additional burden gives "additional advantage" to the "trades" in question, there is no reason why it shall not be welcomed by the concerned trades and once it is meant to recompense/reimburse the "trades" in question, the same shall not come in conflict with Article 301 of the Constitution.
20. He referred to para 19 of the apex court judgment in the case of Automobile Transport (Rajasthan) Ltd. , wherein their Lordships' observed:
...whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities....
21 Shri Shanti Bhushan also referred to the apex court judgment dated April 13, 2006 in the case of jindal Stainless Ltd. and the Gauhati High Court judgment and order dated November 17, 2006 in ITC Limited v. State of Assam [2007] 9 VST 250 (Gauhati) (copy enclosed with compilation of the petitioners) dealing with the Assam Entry Tax Act, 2001 under similar conditions as are present in the instant case. A few relevant passages of the Gauhati High Court judgment are reproduced--
...Mr. Shanti Bhusan, learned Senior Counsel, has submitted that the scheme of the impugned Act and subsequent amendments made thereto clearly reveals that the revenue, realised from entry tax, is in fact, meant for augmenting general revenue of the State and not for providing any specific or particular facility to the traders of tobacco and its products, who are importing goods from outside the State. The entry tax, in the present case, cannot, therefore, be regarded, according to Mr. Shanti Bhusan, as compensatory.
22. Learned Counsel for the petitioners submitted that entry tax under impugned Act 2000 is not compensatory. It is emphasised that "factual aspect" in the case of "IOC" (and like others), viz., no special/additional facility is provided in lieu of "entry tax". State has not controverted the facts mentioned in its affidavit, e.g.
(i) No benefit or facility, whatsoever much less special benefit or facility is provided by the State of U.P. to IOC for transportation and delivery of crude oil on which the entry tax is levied. IOC transports crude oil by the underground pipeline, constructed by IOC at its own cost, after payment of compensation to the land owners.
(ii) As against the payment of about Rs. 2,000 crores as entry tax no special facility, whatsoever, has been provided by the State for import of crude oil into the State for Mathura Refinery.
Contention of the respondent/State
23. On the other hand, Sri S.M.A. Kazmi, Advocate-General referred to para 19 of the judgment of the apex court in the case of Automobile and paras 9,14, 40 and 44 (paras 9, 14, 39 and 43 in STC) of the apex court judgment in the case oijindal Stainless Ltd. .
24. According to the learned Advocate-General the data provided in the affidavit of Amitabh Mishra gives "measurable/identifiable" benefit to the concerned traders from whom entry tax is charged. It is emphasised that "roads" and "bridges" constructed from the funds--given as "grant-in aid"--, are used by the Scheduled traders--these roads and bridges, abolition of "octroi" do help to improve and encourage trade/commerce. Abolition of octroi--maintenance of good "roads" and "bridges" ensure that trade/commerce activities are carried swiftly, safely and smoothly.
25. Learned Advocate-General in his submissions concedes that bridges and roads are general facilities to all and sundry and not for "scheduled" traders. According to him, that is not "relevant circumstance". According to the Advocate-General, specified traders use "road and bridges" for which fund is provided from "pooled consolidated fund" and it is sufficient to show that entry tax is "compensatory tax" in nature. He specifically referred to annexure 4 of the affidavit of Amitabh Mishra. He also referred to Articles 243, 243G, 243H read with Eleventh and Twelth Schedule of the Constitution to show that because of abolition of octroi panchayats and municipalities faced loss of revenue which was sought to be made good and compensated through entry tax under the Act.
26. Learned Advocate-General placed reliance on the judgment in the case of Sanjay Trading Co. v. Commissioner of Sales Tax [1994] 93 STC 589 (MP), (paras 21, 22 and 23).
Reasons and conclusion
27. It is to be appreciated that we are not called upon to adjudicate or define parameters of "compensatory tax" or vires of the "Act", which is outside the scope of the "issue" remitted to High Court vide Supreme Court judgment and order dated July 14, 2006 Reported as jindal Stainless Ltd. v. State of Haryana whereunder High Court/s, after affording opportunity to the parties to furnish relevant data (to discharge its "burden") decide nature of "entry tax", i.e., whether the "tax" under the Act, is "compensatory" in nature. Undisputedly it is to be done on the parameters/touchstone laid down by the apex court in the case of Jindal Stainless Ltd. holding:
(a) That "tax" rests upon and has roots running on the lines of "principles of equivalence" (which is converse of the principle of ability to pay) applies to a case of compensatory tax
(b) That benefits, under a compensatory tax, are quantifiable and measurable.
(c) That it is broadly-proportional and not progressive ;
(d) That it is based on the principle of "pay for the value";
(e) That it is based on the concept of recompense/reimbursement; and reimbursement/recompense is in close proximity to the cost incurred by the provider of the services/facilities; and
(f) That compensatory tax, compulsorily charged is in proportion to the special benefits derived to defray the cost of regulation or facilities or special advantages provided to the trades in question;
(g) That the burden of showing that the tax is compensatory in nature lies on the State.
28. Laying down parameters of compensatory tax, the apex court in Jindal Stainless Ltd. observed:
40. In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net-revenue to the Government but that circumstance is not an essential ingredient of compensatory tax.
29. It is clear from the perusal of documents annexed with the affidavit of Amitabh Mishra that the amount of revenue earned from "entry tax" under the Act is pooled in the "consolidated fund"--which is utilised under budgetary-allocation to the States, which is also utilised as "grant-in-aid" by "State" to make up budgetary deficit of a local body to discharge their statutory/constitutional obligations--which apart from others include construction of roads, bridges, etc. The respondents have placed figures relating to the "funds" given as "grant-in-aid" to panchayats/local bodies from "consolidation fund"--as part of its share received by State of U.P.
30. There is, therefore, no occasion for us to probe reasonableness or proportionality of the same in the instant case.
31. "Aims and objects" of the Act, even though not decisive as held by the Supreme Court, merely refer "to augment revenue of the State" and hence support the contention of the petitioners that "tax" under it is not compensatory in nature. The State has failed to pin-point or establish through its data, the specific/additional service/facility provided to its tax-payer (s).
32. It is obvious that the apex court remitted the issue of "compensatory tax" (after parties are given opportunity to file "data" to discharge their burden) apparently for the reason that it found "aims and object" of the Act irrelevant and none of the provisions of the Act (including its Sections 4, 4-A and 6 read with the Schedule) reflect that the amount of "entry tax" is to provide "additional" or "specific" facility to the scheduled trades visa-vis those who are not subjected to this "tax". There is no co-relation between the "levy of entry tax" and the "scheduled trades".
Finding
33. There is not even an iota of evidence/material on record to give required data/statistics to prove/establish that the amount collected as "tax" and its expenditure on providing additional/specific advantage/facility provided to trade/s in particular mentioned under the Schedule of the Act. In absence of such a data it is not possible for this court to hold that "entry tax" is "compensatory tax". We hold accordingly.
34. In the nature of the case we make no order as to costs.