Patna High Court
Ws Retail Services Private Limited vs The State Of Bihar & Ors on 27 September, 2016
IN THE HIGH COURT OF JUDICATURE AT PATNA
Civil Writ Jurisdiction Case No.6155 of 2016
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Instakart Services Private Limited, a Company incorporated under the Companies
Act, 1956 having its registered office at Brigade Manae Court, First Floor, No. 111,
Koramangala Industrial Layout, Bangalore- 500095, and Branch Office at Flat No.
D5, Shakti Dham Apartment, Chakaram Link Path, Budha Colony, Dist- Patna,
Bihar- 800001, through its authorized signatory Goutam Kumar Singh, son of Shri
Arbind Kishore Singh, resident of Flat No. 206-C, Vina Vihar Apartment,
P.O.+P.S.- Rupaspur, District- Patna.
.... .... Petitioner
Versus
1. The State of Bihar through the Joint Secretary, Bihar, Patna having its office at
Vikash Bhawan, Bailey Raod, Patna.
2. The Commissioner-cum-Principal Secretary, Commercial Taxes Department,
Bihar, Patna having its office at Vikas Bhawan, Bailey Road, Patna.
3. The Deputy Commissioner of Commercial Taxes, Patliputra Circle, Patna having
its officer at 4th Floor, Pant Bhawan, Bailey Road, Patna.
.... .... Respondents
With
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Civil Writ Jurisdiction Case No. 6206 of 2016
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WS Retail Services Private Limited, a Company incorporated under the Companies
Act, 1956 having its registered office at Ozone Manay Tech Park, 'B' Block, 9th
Floor, Survey No. 56/18 & 55/9, Garvebhavipalya, Hosur Road, Bangalore, through
its authorized signatory, Pradeep L. Sankaje, son of Shri Laxman A Sankaje,
resident of 23, 11th Main, J.C.Nagar, Mahalaxmipuram, P.O. + P.S.
Mahalaxmipuram, Bangalore - 560086.
.... .... Petitioner
Versus
1. The State of Bihar through the Joint Secretary, Bihar, Patna having its office at
Vikas Bhawan, Bailey Road, Patna.
2. The Commissioner-cum-Principal Secretary, Commercial Taxes Department,
Bihar, Patna, having its office at Vikash Bhawan, Bailey Road, Patna.
3. The Deputy Commissioner of Commercial Taxes, Patliputra Circle, Patna having
its office at 4th Floor, Pant Bhawan, Bailey Road, Patna.
.... .... Respondents
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Appearance :
For the Petitioner : Dr. Ashok Saraf, Senior Advocate
(In both cases) Mr. D.V.Pathy, Advocate
Mr. Kishore Kunal, Advocate
Mr. Suman Chetia, Advocate
Mrs. Manju Jha, Advocate
For the Respondents : Mr. Lalit Kishore, PAAG
Mr. Piyush Lal, AC to PAAG
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CORAM: HONOURABLE THE CHIEF JUSTICE
and
Patna High Court CWJC No.6155 of 2016 dt.27-09-2016
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HONOURABLE MR. JUSTICE CHAKRADHARI SHARAN
SINGH
JUDGMENT & ORDER
C.A.V.
(Per: HONOURABLE THE CHIEF JUSTICE)
Date: 27-09-2016
The present writ petitions have been filed
challenging the levy and collection of entry tax on goods
brought by the petitioners to the State of Bihar for individual
consumers, who reside in the State of Bihar, and which are
transacted using electronic commerce portal (E-commerce).
2. The petitioners are Private Limited Company and
are engaged in the business of providing logistics and delivery
services to various individual buyers, who undertake purchase
transactions through technology platform of M/s Flipkart
Internet Private Limited ( in short "Flipkart Internet").
3. The petitioners are registered as a transporter
within the provisions of the Bihar VAT Act, 2005. In furtherance
of their business objects, the petitioner of C.W.J.C. No.6155 of
2016 entered into an agreement, dated 01.09.2015, and the
petitioner of C.W.J.C. No.6202 of 2016 entered into an
agreement, dated 01.01.2013, with M/S Flipkart Internet,
Bangalore, for providing logistics services to the individual
buyers, who are registered on the website of Flipkart Internet
Pvt Ltd, viz, www.flipkart.com. Business model, adopted by the
petitioner for Flipkart Internet, is that the online portal,
www.flipkart.com, works as an online market place, whereby
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goods of various sellers, who are registered in the respective
States, under the VAT/ Central Sales Tax Act laws, are
displayed.
4. As per the specific terms of use of the said portal,
the goods, which are purchased by the purchaser- customers,
are meant for personal use or consumption only and are not for
subsequent sale. The customers purchase identified goods from
amongst the various goods displayed for sale on the portal.
Once the identified/required/desired goods are purchased by a
customer and the seller has received the orders from the
customer, the petitioners undertake logistics support for such
sellers. The sale between the concerned sellers and customers,
in the present cases, where the goods are situated outside the
State of Bihar, consummates prior to the petitioners‟ taking
delivery for providing logistics support and the appropriate CST
is paid on such goods by the concerned seller. Package, along
with invoice, is handed over to the petitioners for delivery
directly to the customers at the destination addressed.
5. The State legislature of Bihar, enacted the
Bihar Tax on Entry of Goods into Local Areas for consumption,
Use or Sale Therein Act, 1993, (hereinafter referred to as the
"1993 Act"), with a view to levy tax on entry of goods into local
areas for consumption, use or sale therein. The Bihar Entry of
Goods Into Local Area Rules, 1993, (hereinafter referred to as
the "1993 Rules") were framed to give effect to the provisions
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of the 1993 Act. However, the 1993 Act was declared ultra
vires Articles 301 and 304 of the Constitution of India by the
judgment of this Court in Bihar Chamber of Commerce vs.
State of Bihar, (1995) 97 STC 53. The said judgment of this
Court was subsequently reversed by the Supreme Court in
State of Bihar vs. Bihar Chamber of Commerce, reported
in (1996) 9 SCC 136, wherein it was held, by applying the
decision, in Bhagatram vs. CST, reported in 1995 Supp (1)
SCC 673, that the levy, under the 1993 Act, was
compensatory in nature and, hence, did not violate Article 301
of the Constitution.
6. The said decision of the Supreme Court, in Bihar
Chamber of Commerce (supra), was, later on, overruled by
the decision of the Constitution Bench of the Supreme Court, in
Jindal Stainless Ltd. vs. State of Haryana, reported in
(2006) 7 SCC 241.
7. By the Bihar Tax on Entry of Goods into Local Areas
for Consumption, Use or Sale Therein (Amendment) Act, 2001,
the 1993 Act was amended. In terms of the Amendment Act of
2001, the definition of ―entry of goods‖ was amended and the
following proviso to Section 2(c) was inserted:
―Provided that in case of such goods which
are liable to tax under Section 12(1) of the Bihar
Finance Act, 1991, entry of goods shall mean entry
of goods into local area from a new place outside
the State for consumption, use or sale therein.‖
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8. Amendment was also made in Section 3 by
inserting second Proviso to Section 3(2), which read as under:
―Provided further that where an importer of
scheduled goods liable to pay tax under the Act,
incurs tax liability, at the rate specified under
Section 13 of the Bihar Value Added Tax Act, 2005
(Act 27 of 2005), by virtue of sale of imported
scheduled goods or sale of goods manufactured by
consuming such imported scheduled goods, his tax
liability under the Bihar Value Added Tax Act, 2005
(Act 27 of 2005) shall stand reduced to the extent
of tax paid under the Act.‖
9. With the insertion of the second Proviso to
Section 3(2) of the 1993 Act, the taxable liability of a person
on a scheduled goods imported in the State of Bihar, shall
stand reduced to the extent of tax paid under the Act.
10. The 1993 Act was further amended by the Bihar
Tax on Entry of Goods Into Local Areas for Consumption, Use
or Sale Therein (Amendment) Act, 2003. By this amendment,
the maximum rate of entry tax was revised from 5% to 20%
and a number of other goods were added to the Schedule of
the 1993 Act. Further, by another amending Act, namely, Bihar
Tax on Entry of Goods Into Local Areas for Consumption, Use
or Sale Therein (Amendment and Validation) Act, 2003, an
explanation has been added. This Explanation to the definition
of ―entry of goods‖, goods, coming from outside the territory of
India, were also brought within the purview of the Act. Both
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the aforesaid amendments of 2003 were made without prior
sanction of the President of India.
11. By the Bihar Finance Act of 2006, the 1993 Act
was, again, amended by insertion of a proviso to Section 3(2),
which stipulated that the facility of adjustment towards sales
tax would not be available on goods that were exempted from
payment of sales tax in terms of any notification issued under
Section 7(3) of the Bihar Finance Act, 1981. The said proviso
was inserted retrospectively with effect from 25.02.1993. The
proviso, as inserted by the Bihar Finance Act, 2006, reads, as
under:
―Provided also that if the sale of such
scheduled goods is exempted from tax under any
notification issued under sub-section (3) of Section
7 of the Bihar Finance Act, 1981, reduction of his
liability under the Bihar Finance Act, 1981 as
provided in this section or any notification
thereunder, issued shall not be made.‖
12. In the same year, i.e., in 2006, pursuant to the
decision of the Supreme Court, in Jindal Stainless (supra),
Bihar Tax on Entry of Goods into Local Areas for Consumption,
Use or Sale Therein (Amendment) Act, 2006, underwent
various amendments in the 1993 Act including amendments to
the second Proviso to Section 3(2) extending the adjustments
of entry tax against also the sales tax liability to the sale of
manufactured goods by consuming the imported scheduled
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goods.
13. The amendments, so made by the 2001 Act, 2003
Act and 2006 Act, were challenged before this Court in Indian
Oil Corporation Limited vs. State of Bihar, [2007] 10 VST
140 (Patna), and this Court, upon considering the changes
made to the 1993 Act by way of the aforesaid amendments,
held that the parent 1993 Act, before its amendment, was not
compensatory in character and was, therefore, violative of
Article 301 of the Constitution. The Court, however, held that
the Act was nevertheless saved by virtue of Article 304(b) of
the Constitution and the decision, in Bihar Chamber of
Commerce (supra), to that extent, remains subsisting till date.
The Court further held that the Amendment Acts 10 of 2001
and 9 of 2003 were bad, because of being violative of Article
304(a) of the Constitution and, further, that amendments had
been made without the previous sanction of the President. It
was also held that the introduction of imported goods, within
the definition of "entry of goods", was bad for being
retrospective as also for want of the Presidential
sanction/assent. The Court further held that after the 2006
amendment, the levy, under the 1993 Act, acquired the nature
of a compensatory tax and the 1993 Act, therefore, is a valid
piece of legislation. However, on the question as to whether
amendments, made in the 1993 Act, were discriminatory or
not, this Court upheld the validity only on the basis that there
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was a provision of set-off in terms of the second Proviso to
Section 3(1) of the 1993 Act.
14. Fresh amendments to the 1993 Act were made by
the Bihar Finance Act, 2015, to ensure levy of entry tax on
goods, brought into the State of Bihar, on account of
transactions undertaken by individual consumers through e-
commerce. By the said Finance Act of 2015, the definition of
"dealer", under the 1993 Act, has been substituted as under:
―(b) ‗Dealer' means any person who,
whether regularly or otherwise, in the course of
business, buys, sells, supplies, distributes or does
anything incidental to such buying, selling,
supplying or distributing of goods, directly or
indirectly, whether for cash, or for deferred
payment or for commission, remuneration or other
valuable consideration and it includes-
(A) A local authority;
(B) A Hindu undivided family;
(C) A company, or any society
(including a co-operative society), club, firm,
association of persons or body of individuals,
whether incorporated or not, which carries on such
business;
(D) A society (including a cooperative
society), club, firm or association which buys goods
from, or sells, supplies or distributes goods to its
members;
(E) An industrial, commercial, banking
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or trading undertaking, whether or not of the
(F)Central Government or of any of the
State Governments or of a local authority;
(G) A commission agent, broker,
factor, a del-credere agent, an auctioneer or any
other mercantile agent, by whatever name called,
who carries on the business of buying, selling,
supplying or distributing goods on behalf of the
principal.
Explanation I- Every person who acts as an
agent on behalf of a dealer residing outside the
State of Bihar and buys sells, supplies or distributes
goods in the State or acts on behalf of such dealer
as -
(a) A commission agent, broker,
factor, a del-credere agent, an auctioneer or any
other mercantile agent, by whatever name called;
or
(b) An agent for handling goods or
documents of title to goods ; or
(c) An agent for the collection or the
payment of the sale price of goods or as a
guarantor for such collection or payment; or
(d) A local branch of a firm or
company situated outside the State, shall be
deemed to be a dealer for the purpose of this Act
Explanation II- A Government which
whether or not in the course of business, buys,
sells, supplies or distributes goods, directly or
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otherwise, for cash or for deferred payment or for
commission, remuneration or other valuable
consideration, shall be deemed to be a dealer for
the purpose of this Act.‖
Explanation III - Every person engaged in
the business of supplying or delivering Scheduled
goods to any buyer or importer within the State
through any System of electronic commerce or
otherwise shall be deemed to be a dealer for the
purpose of this Act‖
15. Section 3AA has been inserted, in the 1993 Act,
empowering the respondents to collect tax from importers in
certain cases, which reads as under:
―3AA. Collection of tax from importers in
certain cases.-- (1) Notwithstanding anything
contained in the Act, every person or dealer
engaged in the business of delivering or supplying
goods to any buyer or importer within the State
who are not registered under the Act, through any
System of electronic commerce or otherwise shall,
at the time of or before delivery of the said
Scheduled goods, recover entry tax at the
prescribed rate on the said scheduled goods from
the buyer or importer of the said goods.
(2) No such delivery of any imported
scheduled goods shall be made without recovery of
entry tax to be recovered under sub section (1)
(3) The power to recover tax under sub-
section (1) shall be without prejudice to any other
mode of recovery.
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(4) Any person or dealer collecting any
amount under sub-section(1) shall, within the
prescribed time, deposit the amount so collected
into Government Treasury in the manner prescribed
for deposit of tax under the Act;
(5) The provisions of sub-section (3), sub-
Section (4), sub-Section (50 and sub-Section (6) of
Section 40 of the Bihar Value Added Tax Act, 2005 (
Act 27 of 2005) relating to collection, deposit and
liability of the person or dealer collecting such tax,
discharge of liability, recovery and imposition of
penalty shall, mutatis mutandis, apply to any
amount collected under the provisions of sub-
Section
(1)
(6) Every person or dealer collecting tax
under the provisions of this section shall, within
such period as may be prescribed, furnish to the
buyer a certificate to the effect that tax has been
collected, and specifying the sum so collected, the
rate at which the tax has been collected and such
other particulars as may be prescribed.
(7) Every person or dealer collecting tax
under the provisions of this section shall prepare
within the prescribed time after the end of each
month, quarter and year and deliver or cause to be
delivered to the prescribed authority such returns in
such form and verified in such manner and setting
forth such particulars and within such time as may
be prescribed.
(8) Every person or dealer, under sub-
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section (1), shall maintain true and complete
accounts, registers and documents, as may be
prescribed, in respect of the scheduled goods
handled by him and the documents of title relating
thereto and shall produce the said accounts,
registers and documents before the prescribed
authority as and when required by him.
(9) Every person or dealer responsible for
collecting tax, in accordance with the provisions of
this section shall apply for and obtain registration
under the Act in the manner prescribed under
section 5 of the Act.‖
16. Apart from the above, the earlier applicability
of the 1993 Act only to transactions above Rs. 25,000/- has
been changed making the Act applicable to transactions with
value above Rs. 1,000/-. To give effect to the amendments
made in the 1993 Act, changes were made, in exercise of
powers under Section 9(1) of the 1993 Act, to the 1993 Rules
by S.O. No. 169, dated 21.07.2015. Again, vide Notifications
S.O. No. 16 and 18, dated 20.01.2016, issued, in exercise of
powers under Section 3(1) of the 1993 Act, various new items
were added to the existing Schedule of 1993 Act as well as rate
of entry tax was revised in certain cases.
17. It is the case of the present petitioners that by the
amendments aforesaid, entry tax, on the various goods
imported by the petitioners, has been imposed at a rate higher
than the rate of sales tax under the Bihar VAT Act, 2005.
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18. The aforesaid amendments made to the 1993 Act
as well as 1993 Rules have been put to challenge in the
present writ application contending the same to be ultra vires
and illegal being violative of Articles 14, 301 and 304(a) of the
Constitution.
19. We have heard Dr. Ashok Saraf, learned Senior
Counsel assisted by Mr. T. Gulati and Mr. S. Chetia on behalf of
the petitioners, and Mr. Lalit Kishore, learned Principal
Additional Advocate General, appearing on behalf of the
respondents.
20. Contending that the impugned provisions of the
1993 Act, as amended by the Amendment Act of 2015, are
discriminatory against goods, which are brought in by the
petitioners for personal use or consumption of individual
consumers, Dr. Saraf submits that the impugned provisions
create a tax or a fiscal barrier on such goods, which are
brought in on account of an inter-State sale transaction and on
which full rate of Central Sales Tax (in short, „CST‟) is being
paid. The impugned levy of entry tax on the goods brought into
the State of Bihar, contends Dr. Saraf, is a colorable exercise of
power by the State of Bihar to levy sales tax on goods brought
into the State of Bihar on account of e-commerce transactions.
It is submitted by Dr. Saraf that the impugned levy, in pith and
substance, being sales tax/VAT, in the garb of levy of entry
tax, violates Article 286 of the Constitution.
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21. Referring to the definition of "entry of goods"
given under Section 2(c) of the 1993 Act and the charging
provisions of Section 3 of the said Act, Dr. Saraf submits that
where goods are exigible to tax in terms of sales tax law in the
State of Bihar, i.e., the Bihar VAT Act, 2005, entry for the
purpose of levy of entry tax would be only when the goods are
coming from outside the State of Bihar and, in such cases,
where the goods move from one local area to another local
area, the same is not liable to entry tax. This apart, contends
Dr. Saraf, that if VAT is paid on the goods brought in from
outside the State of Bihar under the Bihar VAT Act, 2005, no
entry tax is payable inasmuch as the payment of entry tax is
liable to be set off against the VAT liability on such goods.
Further, no entry tax is levied on goods, which are exempted
from payment of VAT in terms of the third Proviso to Section
3(2) of the 1993 Act.
22. Coupled with the above, Dr. Saraf submits that
the impugned levy of entry tax, in pith and substance, is a tax
on goods, which are brought into the State of Bihar on account
of inter-State sale transactions on which the State of Bihar
cannot levy VAT inasmuch as wherever VAT is leviable, there is
set off against the VAT so payable. The State of Bihar, submits
Dr. Saraf, realizing the limitation imposed on it by Article
286(1)(a) of Constitution of India, which prohibits the State
from taxing inter-State sale transactions has evolved a novel
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way of contravening Article 286(1)(a) of Constitution by
selectively taxing inter-State transactions of sale in the garb of
entry tax.
23. It is submitted by the learned Senior Counsel, Dr.
Saraf, that in terms of Article 286(1)(a), the State does not
have the legislative competence to impose tax on sale or
purchase of goods, when sale or purchase takes place outside
the State; whereas, the impugned proviso, in pith and
substance, seeks to levy tax on the sale transactions, which
stand already concluded outside the State, and the movement
of goods, in the State of Bihar, is only for personal use or
consumption for individual consumers.
24. In support of his above submissions, Dr. Saraf,
places reliance on the decision of the Gauhati High Court, in
ITC Ltd vs. State of Assam, (2007) 9 VST 250. It is
further submitted by Dr. Saraf that the impugned levy of entry
tax on goods brought by the petitioners to the State of Bihar,
for individual consumer on account of e-commerce transaction,
is discriminatory and thereby violative of Article 14, 19(1)(g)
and 304(a) of the Constitution of India.
25. It is further submitted by Dr. Saraf that the
impugned levy of entry tax on goods, brought into the State of
Bihar by the petitioners on account of an e-commerce
transactions, is discriminatory against such goods violating
Article 304 (a) of the Constitution of India. In so far as other
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goods, which are brought into the State of Bihar, and which are
for further resale or for consumption in the manufacture of
goods, a set off/reduction of VAT is provided against the
payment of entry tax to ensure that there is only a single
incidence of tax. The effect thereof, submits Dr. Saraf, is that if
the CST paid goods are not sold, but are used for personal
consumption, the cumulative tax burden on such goods is
much higher.
26. In support of his plea that the impugned
provisions providing for levy of entry tax on the goods brought
into the State of Bihar, on account of e-commerce transaction,
is discriminatory, Dr. Saraf has tried to explain the same by
four different situations by giving following examples:
Scenario 1- Tax burden on Goods brought in by a
Dealer, registered under the Bihar VAT Act, for the
purpose of resale in the State of Bihar: Where goods are
brought in for the purpose of resale either on account of a
Stock Transfer or on the basis of C-form or a direct inter-State
sale, in terms of the second proviso to Section 3 (2), the
payment of Entry tax under the Act will stand reduced from the
VAT to be paid on the goods as under:-
(i) Bihar Dealer, doing resale of Mobile
Phone, to end customers in Bihar
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Price of CST ET BVAT [5% BVAT after reduction Cost to the
Mobile [2%] on A+B+C] of ET as per proviso to Customer
[5% on Section 3 (2)
(A) (B) A+B] (D) (A+B+C)
(E=D-C)
(C)
10000 200 510 535.50 25.50 10225.50
(i) Bihar Dealer doing resale of Mobile
Phone to end customers by bring goods in Bihar though
Stock Transfer
Price of CST ET BVAT [5% BVAT after reduction Cost to the
Mobile [2%] on A+B+C] of ET as per proviso to Customer
[5% on Section 3 (2)
(A) (B) A+B] (D) (A+B+C)
(E=D-C)
(C)
10000 NIL 500 525 25 10025
a. Scenario 2- Tax burden on Goods brought in
by a Dealer registered under the Bihar VAT Act for the
purpose of manufacturing in the State of Bihar: Where
goods are brought in for the purpose of manufacturing goods
which are to be sold in the State of Bihar, in terms of the
second proviso to Section 3 (2), the payment of Entry tax
under the Act will stand reduced from the VAT to be paid on
the manufactured goods as under:-
(ii) Bihar Dealer manufacturing Mobile
Phones using raw material brought in from outside Bihar
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Total Cost CST ET Price BVAT BVAT Cost to the
of [2%] Mobile [5% on after Customer
material [5% on Phone D] reduction
(B) A+B] manufactur of ET as (A+B+C)
ed in Bihar (E) per
(C) proviso
to
Section 3
(2)
(F = E-
C)
8000 160 408 10000 500 92 10092
(iii) Bihar Dealer doing resale of Mobile
Phone using bring goods in Bihar though Stock Transfer
Total Cost CST ET Price of Mobile BVAT BVAT Cost to the
of raw Phone [5% on after Customer
material [5% manufactured D] reduction
on in Bihar of ET as (A+ B+ C)
(A) (B) A+B] per
proviso
(C) (E) to
Section 3
(2)
(F = E-
C)
8000 NIL 400 10000 500 100 10100
a. Scenario 3- Tax burden on Goods brought in
by the Petitioners for personal use or consumption of
individual consumers: Where the same mobile phone is
brought in by the Petitioner for the personal use or
consumption of the consumers in the State of Bihar, CST will
be charged at full rate i.e. 5.5% in the State of Karnataka.
Further, the set off/ reduction of Entry tax under the second
proviso to Section 3 (2) is not available as there is no sale in
the State of Bihar and there is a higher burden of tax as
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under:-
Price of CST ET BVAT BVAT after reduction Cost to the
Mobile [5.5%] of ET as per proviso to Customer
[5% on Section 3 (2)
(A) (B) A+B] (A+ B+ C)
(D) (E=D-C)
(C)
10000 550 527.50 525 527.50 10527.50
27. It is submitted that in the light of the aforesaid
scenarios, the price of mobile phones for the customers will be
as under:
Scenario Price to be paid by
the Consumer
Scenario 1 (i): Bihar Dealer 10225.50
doing resale of Mobile Phone to
end customers in Bihar
Scenario 1 (ii): Bihar dealer 10025
doing resale of Mobile Phone to
end customers by bring goods in
Bihar though Stock Transfer
Scenario 2 (i): Bihar Dealer 10092
manufacturing Mobile Phones
using raw material brought in from
outside Bihar
Scenario 2 (ii): Bihar Dealer 10100
doing resale of Mobile Phone using
bring goods in Bihar though Stock
Transfer
Scenario 3: Tax burden on Goods 10527.50
brought in by the Petitioner for
personal use or consumption of
individual consumers
28. Based on the above illustrations, Dr. Saraf
submits that on account of non-availability of set off in terms of
proviso to Section 3(2), the imposition of entry tax, by way of
impugned provisions, leads to a higher tax burden on such
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goods, which are brought into the State of Bihar by the
petitioner for personal use or consumption of individual
consumers and which are transacted using an e-commerce
portal. Therefore, the levy of entry tax, on the goods so brought
into the State of Bihar by the petitioners, acts as a tax or fiscal
barrier on the inter-State movement of such goods and is also
discriminatory against such goods. It has been further
submitted that on account of levy, introduced by impugned
amendment made in the 1993 Act, goods, purchased by an
individual consumer, when bought from any seller outside the
State of Bihar using an e-commerce portal, will be liable to
suffer a higher rate of tax and thereby become costlier for the
consumer as compared to the same goods, when purchased
from a local dealer in the State of Bihar.
29. With regard to the above, Dr. Saraf submits that
the artificial distinction and discrimination against the said
goods purchased through an e-commerce portal arises on
account of the second Proviso to Section 3(2), which restricts
the set off of entry tax paid on such goods only to a dealer,
who is liable to pay VAT under the Bihar VAT Act, 2005. In
respect of the aforesaid submissions, reliance has been placed
on the decisions of this Court in Indian Oil Corporation
Limited (supra) and Food Corporation of India vs. State of
Bihar, reported in (2008) 2 PLJR 69.
30. It is submitted by Dr. Saraf that in Indian Oil
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Corporation Limited (supra), this Court held that the Act was
saved from being held discriminatory against goods, which are
brought in on account of an inter-State transactions only on
account of the proviso to Section 3 (2), which ensured that the
goods from other States are given similar tax treatment as that
of locally manufactured/ sold goods.
31. However, in the present case, submits Dr. Saraf,
the said second Proviso to Section 3(2) is not applicable to the
transaction undertaken through e-commerce portal inasmuch
as the goods, which are brought in by the petitioners, are only
for personal use or consumption and not for being sold. Where
the individual consumer are not „dealers‟ and do not have
liability under the Bihar VAT Act, 2005, the payment of entry
tax, on such transactions, will be an additional cost on such
goods.
32. It is submitted by Dr. Saraf in Indian Oil
Corporation Limited (supra), this Court held the amendment
to the 1993 Act as discriminatory in the case of a petitioner,
when the set off was not made applicable. Similarly, in Food
Corporation of India (supra), the Court struck down the
notification, whereby entry tax was imposed at a rate higher
than the rate of sales tax on those goods. Reliance was also
placed by Dr. Saraf on the decision of the Supreme Court in
State of U.P. Vs. Jaiprakash Associates Ltd, reported in
(2014) 4 SCC 17, wherein the notifications, under the Uttar
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Pradesh Trade Tax Act, 1948, granting rebate of tax on goods
manufactured, in the State of Uttar Pradesh, were challenged
on the ground of being discriminatory against goods imported
from neighbouring States and violating Article 301 and 304(a).
Placing reliance on the aforesaid decision of the Supreme
Court, in Jaiprakash Associates (supra), it is submitted that
set off, as granted by proviso to Section 3(2) of the 1993 Act,
is in the nature of a rebate.
33. Relying on the decision of the Supreme Court in
Jaiprakash Associates (supra), it is submitted by Dr. Saraf
that granting of set off of entry tax against VAT, payable under
the Bihar VAT Act, 2005, is only applicable, when the goods are
imported from outside the State for the purpose of resale
within the State. No such set off is available, when goods are
imported from outside the State for the purpose of personal
use or consumption and, as such, the grant of set off, which is
in the nature of rebate or exemption, discriminates between
the goods, which are imported for the purpose of resale, and
the goods, which are imported for the purpose of personal use
or consumption inasmuch as the goods, which are imported
from outside the State for the purpose of use or consumption,
has to bear the burden of the CST as well as entry tax,
whereas the goods, which are imported from outside the State
for the purpose of resale, do not have to bear the burden of
entry tax and, as such, the goods, brought in for personal use
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or consumption, has to bear higher burden of tax.
34. It is, therefore, submitted by Dr. Saraf that when
a dealer, who makes a sale of goods from outside the State to
a consumer in the State of Bihar, the total burden of tax on
him is much higher than a dealer, who makes a sale, within the
State, to a consumer. This clearly violates Article 304 (a) of the
Constitution of India; so contends Dr. Saraf.
35. It is also submitted that the impugned levy of
entry tax is also discriminatory and unreasonable being
violative of Article 14 and 19(1)(g) of the Constitution. It is
submitted, in this regard, that it is obligatory on the part of the
respondents to give equal treatment to locally sold goods as
well as goods, which are purchased by the consumers, on
account of an inter-State sale; whereas, the effect of the
impugned provisions is that higher burden of tax is imposed
only on such goods, which are transacted through an e-
commerce portal and brought in by the petitioners for personal
use or consumption by the individual consumers and,
therefore, the same is, according to Dr. Saraf, violative of
Article 14 and 19(1)(g) of the Constitution of India.
36. Mr. Lalit Kishore, learned Principal Additional
Advocate General, appearing on behalf of the respondents,
submits that the 1993 Act has already been held to be
compensatory and, consequently, the issue, as regards the
validity of the 1993 Act, according to learned Principal
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Additional Advocate General, must be taken to have already
been decided by this Court, in Indian Oil Corporation
(supra), and, therefore, the validity of the impugned provisions
of the 1993 Act cannot, again, be looked into in the present
writ petition. Learned Principal Additional Advocate General
also submits that the impugned provisions are merely the
machinery provision and, hence, levy of entry tax, on e-
commerce transactions, were all along present in the 1993 Act
prior to 2015 and this has already been upheld by this Court, in
Indian Oil Corporation (supra). It is submitted that the levy
of entry tax is irrespective of the fact whether the goods are
brought into the State directly by the consumer/individual
buyer thereof or has been imported into the State for
subsequent sale and, therefore, contends Mr. Lalit Kishore, the
levy cannot be treated as discriminatory on this count.
37. The learned Principal Additional Advocate General
submits that the petitioners are also part of the same trade,
commerce and industry for which infrastructure is developed
and maintained from the proceeds of the levy and, therefore,
once the levy has been held to be compensatory, the
petitioners cannot challenge the validity of the same. It is
contended by the learned Principal Additional Advocate General
that the levy of entry tax, even if found to be discriminatory,
has to be upheld if the entry tax, so levied, is found to be
compensatory and, hence, the same cannot be challenged on
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the ground that the levy of entry tax is violative of Article
304(a) of the Constitution of India. Permitting set off is not a
condition precedent for upholding the validity of the levy of
entry tax, contends learned Principal Additional Advocate
General, because entry tax can be levied even if VAT/sales tax
is not payable. The learned Principal Additional Advocate
General, therefore, contends that the writ petition has got no
merit and the same is liable to be dismissed.
38. Reacting to the submissions made on behalf of the
respondents, Dr. Ashok Saraf, learned Senior Counsel, submits
that the decision of this Court, in Indian Oil Corporation
(supra), has been misconstrued. It is submitted that this Court,
in Indian Oil Corporation (supra), although held that after
the 2006 amendment, the levy, under the Act, is
compensatory, yet the question as to whether the validity of
the levy can be upheld, even if such a compensatory Act is
distinctly violative of Article 304(a) of the Constitution, has not
been decided by this Court in Indian Oil Corporation (supra)
as the period involved, in the aforesaid case, was prior to the
year 2006.
39. It is also submitted by Dr. saraf that the question
of entry tax, on transactions undertaken through e-commerce,
and, further, colourable exercise of powers to impose sales tax,
under the garb of entry tax, were not in issue in Indian Oil
Corporation (supra). Dr. Saraf, learned Senior Counsel,
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submits that it is incorrect to say that only machinery
provisions have been brought in by the impugned amendments
in the Act; rather, contends Dr. Saraf, substantive changes
have been made in the 1993 Act to ensure that entry tax is
levied on transactions of e-commerce, where goods are
brought into the State of Bihar for personal consumption and
use of individual buyers.
40. It is not disputed by the respondents, submits Dr.
Saraf, that there was no machinery provision in the 1993 Act
prior to the impugned amendments and, therefore, the
impugned provisions are seeking to provide for a mechanism to
impose entry tax on e-commerce transactions. Dr. Saraf
further submits that the goods, brought into the State of Bihar
for personal use or consumption, were, otherwise, not
subjected to entry tax inasmuch as there was no machinery
provision to collect entry tax and by creating a specific
machinery for collection of entry tax, when the goods are sold
for personal use or consumption through the medium of e-
commerce, the provisions seek to create a blatant
discrimination against such goods and seek to put a restrain on
e-commerce transactions.
41. To reboost his submissions, Dr. Saraf points out
that the impugned provisions are to ensure that the cumulative
burden is higher on such goods, which have been held to be
―fiscal barrier‖ by the Supreme Court in Jaiprakash
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Associates (supra). Such a fiscal barrier has an immediate
and direct effect of ensuring that the goods are not brought in
from outside the State of Bihar, by resorting to e-commerce for
personal use or consumption on payment of CST and thereby a
preferential treatment has been accorded by the State of Bihar
to the dealers in Bihar, which directly contravenes Article
304(a) of the Constitution. Further, it is submitted that a gross
discrimination has been created by selectively creating a
machinery for taxing and collecting tax only on e-commerce
transactions, whereas there was no machinery to collect tax on
goods brought in for personal use or consumption through
normal means.
42. Having regard to the rival submissions made
before us and the materials on record, let us, now, examine the
constitutional scheme, with regard to the conduct of trade,
commerce and intercourse as contained in Chapter XIII of the
Constitution of India. Article 301 to 304 of the Constitution of
India, being relevant in this regard, is reproduced as follows:
―301. Freedom of trade, commerce and
intercourse.- Subject to the other provisions of
this Part, trade, commerce and intercourse
throughout the territory of India shall be free.
302. Power of Parliament to impose
restrictions on trade, commerce and
intercourse.- Parliament may by law impose such
restrictions on the freedom of trade, commerce or
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intercourse between one State and another or
within any part of the territory of India as may be
required in the public interest.
303. Restrictions on the legislative
powers of the Union and of the States with
regard to trade and commerce.- (1)
Notwithstanding anything in article 302, neither
Parliament nor the Legislature of a State shall have
power to make any law giving, or authorising the
giving of, any preference to one State over another,
or making, or authorising the making of, any
discrimination between one State and another, by
virtue of any entry relating to trade and commerce
in any of the Lists in the Seventh Schedule.
(2) Nothing in clause (1) shall prevent
Parliament from making any law giving, or
authorizing the giving of, any preference or making,
or authorising the making of, any discrimination if it
is declared by such law that it is necessary to do so
for the purpose of dealing with a situation arising
from scarcity of goods in any part of the territory of
India.
304. Restrictions on trade, commerce
and intercourse among States.- Notwithstanding
anything in article 301 or article 303, the
Legislature of a State may by law-- (a) impose on
goods imported from other States 1 [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
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(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.‖
43. Article 1, if we may point out, conceives India as a
Union of States and declares that the territory of India shall
compromise of the territories of the States, the Union
territories and such other territories as may be acquired. It is in
the backdrop of the fact that Article 1 conceives India as a
Union of States that the constitutional scheme for the conduct
of trade, commerce and intercourse, contained in Part XIII,
needs to be analysed.
44. What becomes glaringly noticeable to the eyes are
the two expressions used in Article 301, namely, "throughout
the territory of India" and "subject to the other provisions of
the part". The use of the words "throughout the territory of
India" shows that Part XIII conceives India as one economic
unit. To appreciate as to why Article 301 guarantees freedom
of trade, commerce and intercourse "throughout the territory of
India", the background in which Article 301 came to be enacted
needs to be borne in mind.
45. Before the industrial revolution, the society, world
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over, was mainly agricultural based. There were small
principalities and very little quantity of goods moved from one
area to another, because goods were, ordinarily, produced for
consumption by the producers themselves, such as, land-
owners and their tenants. Petty artisans, normally, produced
very little commodities for sale. With the industrial revolution,
expansion of industries took place, which gave rise to larger
production of goods and this resulted in to faster movement of
goods to distant places. The trade-barriers were, therefore,
required to be minimized in order to avoid obstructions to the
free movement of goods.
46. Because of the fact that the makers of our
Constitution conceived India as a strong economic unit, it was
but natural for them to introduce into our Constitution a
meaningful scheme for growth of industries so as to strengthen
economic base of India as a whole. The makers of our
Constitution knew that no meaningful growth of industries is
achievable unless obstructions, in the movement of the goods,
were, if not completely removed, be, at least, reduced as much
as possible.
47. It was in an age of struggle that India's struggle
for independence achieved success, for, with the end of the
Second World War, countries were struggling to overcome the
disastrous consequences, which the war had brought. It was an
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age, when the people, all over the world, were struggling for
space and everyone wanted to have greater say in the
governance of their respective countries. British empire had
fragmented and struggle to occupy he void created by the fall
of the British empire had had fragmented and struggle to
occupy the void created by the fall of the British empire
intestified. It was in such a period of transition from colonial
rule to a rule of self-governance that the constitution of India
was in prepared. What our constitution-makers witnessed and
experienced had its reflection in our Constitution. The concept
of entry tax is a concept routed in history. Before the industrial
revolution, the society, world over was mainly agriculture
based, there were small principalities and very little quantity of
goods moved from one area to another, because gods were,
ordinarily, produced for consumption by the producers
themselves, such as, land-owners and their tenants. Petty
artisans, normally, produced very little commodities for sale.
With the industrial revolution, industries grew and this resulted
into faster movement of goods, which forms an integral and
inseparable part of commerce. The situation in India was no
different. As the makers of our Constitution conceived India as
a strong economic unit, it was but natural for them to knit into
the scheme of our Constitution the concept of a meaningful
growth of industries so as strengthen economic base of India.
This was not possible to achieve unless obstructions in the
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movement of the goods were, if not completely removed, be,
at least, reduced as much as possible.
48. Before India became independent, the western
world, particularly, Europe was fragmented into small
principalities having toll-barriers imposing toll taxes and these
toll-barriers caused obstructions to the movement of goods.
Such obstructions to the free flow of goods from one
principality to another caused hindrance to the growth of
industries and commerce in those countries. Gradually,
therefore, these trade barriers were started being removed.
Having witnessed the history of development of industries all
over the world, and in order to give India strong economic
base, the makers of our Constitution incorporated, in Part XIII,
a specific constitutional scheme for conduct of trade, commerce
and intercourse. It is in the backdrop of these historical
realities that the present writ petitions have to be considered.
49. No wonder, therefore, that the trade, commerce
and intercourse were guaranteed to be free throughout the
territory of India, which, as Article 1 reflects, consists of
various States and Union territories.
50. However, as the conduct of every facet of life
needs some regulations and regulatory measures, the freedom
of trade, commerce and intercourse, too, could not have been
left absolutely free or completely without any regulation. It is in
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this light that the words "Subject to the other provisions of this
part", occurring in Article 301, need to be read. Some of these
aspects of our Constitutional scheme succinctly surface from
the decision of the Constitution Bench, in Atiabari Tea
Company Limited v. State of Assam (AIR 1961 SC 232),
wherein the Court, at paragraph 33, observed as follows:
"In drafting the relevant Articles of Part
XIII there makers of the Constitution were fully
conscious that economic unity was absolutely
essential for the stability and progress of the federal
policy which has been adopted by the Constitution
for the governance of the country. Political freedom
which had been won, and political unity which had
been accomplished by the Constitution, had to be
sustained and strengthened by the bond of
economic unity. It was realised that in course of
time different political parties believing in different
economic theories or ideologies may come in power
in the several constituent units of the Union, and
that may conceivably give rise to local and regional
pulls and pressures in economic matters. Local or
regional fears or apprehensions raised by local or
regional problems may persuade the State
Legislature to adopt remedial measures intended
solely for the protection of regional interests without
due regards to the their effect on the economy of
the nation as a whole. The object of Part XIII was to
avoid such a possibility. Free movement and
exchange of goods throughout the territory of India
is essential for the economy of the nation and for
sustaining and improving licensing standards of the
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country. The provision contained in article 301
guaranteeing the freedom of trade, commerce and
intercourse is not a declaration of mere platitude, or
the expression of a pious hope of a declaratory
character ; it is not also a mere statement of
direction principle of State policy ; it embodies and
enshrines a principle of paramount importance that
the economic unity of the country will provide the
main sustaining force for the stability and progress
of the political and cultural unity of the country. In
appreciating the significance of these general
considerations were may profitably refer to the
observations made by Cardozo, J. , "was framed
under the dominion of a political philosophy less
parochial in range. It was framed upon the theory
that the peoples of the several states must sink or
swim together and that in the long fun prosperity
and salvation are in union and not division."
51. From the above observations made in Atiabari
Tea Company Limited (supra), it is clear that our
Constitution makers wanted to ensure freedom of movement
and exchange of goods throughout the territory of India in
order to strengthen the economic base of the nation and for
sustaining and improving the living standard of our
countrymen.
52. Pointing out that by granting freedom of trade
throughout India, Article 301, aims at, primarily, removing the
barriers in the movement or transportation part of the goods,
the Supreme Court, in Atiabari Tea Company Limited
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(supra), observed as follows:
―49. Let us now revert to article 301 and
ascertain the width and amplitude of its scope. On a
careful examination of the relevant provisions of
Part XIII as a whole as well as the principle of
economic unity which it is intended to safeguard by
making the said provisions, the conclusion appears
to us to be inevitable that the content of freedom
provided for by article 301 was larger than the
freedom contemplated by s. 297 of the Constitution
Act of 1935, and whatever else it may or may not
include, it certainly includes movement of trade
which is of the very essence of all trade and is its
integral part. If the transport or the movement of
goods is taxed solely on the basis that the goods
are thus carried or transported that, in our opinion,
directly affects the freedom of trade as
contemplated by article 301. If the movement,
transport or the carrying of goods is allowed to be
impeded, obstructed or hampered by taxation
without satisfying the requirements of Part XIII the
freedom of trade on which so much emphasis is laid
by article 301 would turn to be illusory. When art.
301 provides that trade shall be free throughout the
territory of India primarily is the movement or the
transport part of trade must be free subject of
course to the limitations and exceptions provided by
the other articles of Part XIII. That we think is the
result of article 301 read with the other Articles in
Part XIII‖.
53. Alive to the fact that fiscal barriers impede free
flow of goods and that the growth of trade or commerce is not
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possible to achieve unless the movement of goods is made free
from unreasonable fiscal barriers, Article 301 seeks to ensure
that tax shall not be imposed on movement of goods solely for
the reason that the goods are carried to or transported through
a given State, for, if such restrictions are not avoided, the
freedom of trade cannot be achieved.
54. Addressing, therefore, the question as to whether
tax laws are excluded from the provisions of Part XIII and
whether tax laws are immune from the freedom guaranteed
under article 301, the Supreme Court, in Atiabari Tea
Company Limited (supra), observed:
―50. Thus the intrinsic evidence furnished
by some of the Articles of Part XIII shows that
taxing laws are not excluded from the operation of
article 301 ; which means that tax laws can and do
amount to restrictions freedom from which is
guaranteed to trade under the said Part. Does that
mean that all tax laws attract the provisions of Part
XIII whether their impact on trade or its movement
is direct and immediate or indirect and remote? It is
precisely because the words used in article 301 are
very wide, and in a sense vague and indefinite that
the problem of construing them and determining
their exact width and scope becomes complex and
difficult. However ; in interpreting the provisions of
the Constitution we must always bear in mind that
the relevant provision ―has to be read not in vacuo
but as occurring in a single complex instrument in
which one part may throw light on another‖. (Vide..
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James v. Commonwealth of Australia (1936) A.C.
578, 613). In construing article 301 we must,
therefore, have regard to the general scheme of our
Constitution as well as the particular provisions in
regard to taxing laws. The construction of article
301 should not be determined on a purely academic
or doctrinaire considerations ; in construing the said
article we must adopt a realistic approach and bear
in mind the essential features of the separation of
powers on which our constitution rests. It is a
federal constitution which we are interpreting, and
so the impact of article 301 must be judged
accordingly. Besides, it is not irrelevant to
remember in this connection that the article we are
construing imposes a constitutional limitation on the
power of the Parliament and State Legislatures to
levy taxes, and generally, but for such limitation,
the power of taxation would be presumed to be for
public good and would not be subject to judicial
review or scrutiny. Thus, considered we think it
would be reasonable and proper to hold that
restrictions freedom from which is guaranteed by
article 301, 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 301. The argument that all taxes
should be governed by article 301 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. If the said
argument is accepted it would mean, for instance,
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that even a legislative enactment prescribing the
minimum wages to industrial employees may fall
under Part XIII because in an economic sense an
additional wage bill may indirectly affect trade or
commerce. We are, therefore, satisfied that in
determining the limits of the width and amplitude of
the freedom guaranteed by article 301 a rational
and workable test to apply would be: Does the
impugned restriction operate directly or
immediately on trade or its movement? It is in the
light of this test that we propose to examine the
validity of the Act under scrutiny in the present
proceedings.‖
55. From the above observations made in Atiabari
Tea Company Limited (supra), it is clear that the Supreme
court answered, in the negative, the question as to whether the
tax laws are immune from the operation of Article 301. Having
held that tax laws were not immune from the operation of the
Article 301 or, for that matter, the constitutional scheme,
embodied in Part XIII, the Constitution Bench, in Atiabari Tea
Company Limited (supra), clarified that it is not all taxes, which
will hit Article 301, but only such taxes, which, directly and
immediately, restrict trade, for, it is only direct restrictions
causing impediments to the movement of goods that Article
301 seeks to avoid and nullify. It is in this light that the
following further observations, made in Atiabari Tea
Company Limited (supra), need to be read.
‖51. We do not think it necessary or
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expedient to consider what other laws would be
affected by the interpretation we are placing on
article 301 and what other legislative entries would
fall under Part XIII. We propose to confine our
decision to the Act with which we are concerned. If
any other laws are similarly challenged the validity
of the challenge will have to be examined in the
light of the provisions of those laws. Our conclusion,
therefore, is that when article 301 provides that
trade shall be free throughout the territory of India
it means that the flow of trade shall run smooth and
unhampered by any restriction either at the
boundaries of the States or at any other points
inside the States themselves. It is the free
movement or the transport of goods from one part
of the country to other that is intended to be saved,
and if any Act imposes any direct restrictions on the
very movement of such goods it attracts the
provisions of article 301, and its validity can be
sustained only if it satisfies the requirements of
article 302 or article 304 of Part XIII. At this stage
we think it is necessary to repeat that when it is
said that the freedom of the movement of trade
cannot be subject to any restrictions in the form of
taxes imposed on the carriage of goods or their
movement all that is meant is that the said
restrictions can be imposed by the State
Legislatures only after satisfying the requirements
of article 304(b). It is not as if no restrictions at all
can be imposed on the free movement of trade."
56. What, thus, surfaces from the above discussion, is
that Article 301 guarantees freedom of trade, commerce and
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intercourse throughout the territory of India. It is, however, not
freedom from all laws that Article 301 aims at protecting;
rather, it guarantees freedom only from such laws, which
restrict or impede the movement or transportation of goods or
adversely affect the activities of trade and commerce amongst
the States.
57. In effect, Article 301 casts an obligation on the
legislative power of the Parliament and the States to ensure
that the trade, commerce and intercourse throughout India
shall be free. Article 301, therefore, refers to freedom from
laws, which go beyond regulations, and which put restrictions
or prevent movement beyond States or within the States, for,
Article 301 applies not only to inter-State trade, commerce and
intercourse, but also to intra-State trade, commerce and
intercourse.
58. What may, now, be pointed out is that though
Article 301 restrains both the Union Legislature and the State
Legislatures from enacting laws including tax laws, which
create hindrance to the freedom of trade, commerce and
intercourse throughout India, Article 302 permits the Union
Legislature to impose, by law, such restrictions on these
freedoms as may be required in public interest. Article 303,
however, clarifies that neither Parliament nor the Legislature of
States shall have the power to make any law giving or
authorizing the making of any discrimination between one
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State and another by virtue of any entry relating to trade and
commerce in any of the Lists in the Seventh Schedule. In other
words, Article 303 clarifies that even in public interest,
Parliament is not authorized to make laws giving preference to
one State over the other. This restriction is, however, subject
to one exception, the exception being that the Parliament is left
with the discretion to make laws giving preferential treatment
or making discriminatory provisions if such laws become
necessary for the purpose of dealing with a situation arising
from scarcity of goods in any part of the territory of India.
59. Thus, a State Legislature, apart from the
limitation imposed by Article 301, has the limitation of not
making laws to give preference or make discrimination between
one State and another, while making laws, in exercise of its
powers, relating to trade, commerce and intercourse. However,
this limitation, on the State Legislature, is lifted in two cases,
namely, that the State may, under Article 304(a), impose, on
goods, imported from sister States or Union territories, any tax
to which similar goods, manufactured in its own State, are
subjected, but not so as to discriminate between the imported
goods and the goods manufactured in the State. In other
words, Article 304(a) authorizes State Legislature to impose
non-discriminatory tax on goods imported from sister States
even if such law interferes with the freedom of trade,
commerce and intercourse guaranteed by Article 301. The ban
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imposed, under Article 303(1), stands lifted even when
discriminatory restrictions are imposed by the State Legislature
if the legislation fulfils three conditions, which Article
304(b)embodies, namely, that such restrictions shall be
reasonable, the same shall be in public interest and, above all,
no Bill or amendment for the purpose of Clause (b) or for
making amendment thereto shall be introduced or moved in
the Legislature of any State without previous sanction of the
President. To be more precise, one can point out that even
restrictions, which may be reasonable and are also in public
interest, cannot be imposed on the freedom of trade and
commerce unless prior sanction of the President has been
obtained by the State before introduction of the Bill or before
making the legislation.
60. In short, while Article 301 guarantees freedom of
trade and commerce throughout India, this freedom is not
absolute, for, in an orderly society, the conduct of trade and
commerce cannot be left completely free from regulations.
61. Regulatory measures, therefore, cannot be
regarded as impediments in the freedom of trade and
commerce. It is for this reason that the Constitution Bench, in
Atiabari Tea Co. Ltd. (supra), makes it clear that though tax
laws are not immune from Article 301, all tax laws do not
infringe Article 301.
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62. The question, which, naturally, arises is this: what
can be these laws, which may hit Article 301 or be treated as
infringement of the guarantee given by Article 301? Since it is
the movement part of the goods, which Article 301 guarantees,
the Supreme Court makes it clear, in Atiabari Tea Company
Limited (supra), that only such tax laws, which, directly and
immediately, impact the free flow of trade and commerce that
will be impermissible under Article 301. However, a law, which
has direct and immediate impact on the movement of goods,
can be saved only if it falls in any of the permissible
restrictions, which Articles 302, 303 and 304 perceive.
63. It may also be noted that in Atiabari Tea
Company Ltd. (supra), the three appellants before the
Supreme Court were tea companies, two of whom carried on
the trade of growing tea in Assam and the third one carried on
its trade at Jalpaiguri. They carried their tea to Calcutta in
order that it might be sold, in Calcutta, for consumption and
sale outside India. Tea, produced in Jalpaiguri, had to move
through a few miles of the territory of the State of Assam.
Besides the tea, which was carried by railways, a substantial
quantity of tea was also carried by road or by inland waterways
and, as such, became liable to pay tax leviable under the
Assam Taxation (on goods carried by roads or inland
waterways) Act, 1954, for, this Act levied tax on certain goods,
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such as, tea, which was carried by road and inland waterways.
The principal ground of attack on the legislation was that it
violated the provisions of Article 301 and was not saved
by Article 304(b). It is of immense importance to note that in
Atiabari Tea Company Ltd. (supra), three views were
expressed. The views, expressed in Atiabari Tea Company
Ltd. (supra), by the learned Chief Justice BP Sinha, which the
Supreme Court, in its subsequent judgment in Automobile
Transport (Rajasthan) Ltd. (supra), described as the narrow
view, was that taxation simpliciter was not within the ambit of
Article 301 and a tax, on the movement of goods or
passengers, did not necessarily connote impediment or
restraint in the matter of trade and commerce. Drawing a
distinction between laws of taxation, which are enacted for the
purpose of general revenue, and taxation laws, which are
enacted for the purpose of making discrimination or giving
preference, the learned Chief Justice took the view that taxing
statutes, enacted for the purpose of general revenue, were
outside the purview of Article 301 and it is only those laws of
taxation, which were made for the purpose of making
discrimination or giving preference, which fall within the ambit
of Article 301. The learned Chief Justice concluded these views
in the following words:
Thus, on a fair construction of the
provisions of Part XIII, the following propositions
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emerge : (1) trade, commerce, and intercourse
throughout the territory of India are not absolutely
free, but are subject to certain powers of legislation
by Parliament or the Legislature of a State; (2) the
freedom declared by Article 301 does not mean
freedom from taxation simpliciter, but does mean
freedom from taxation which has the effect of
directly impeding the free flow of trade, commerce
and intercourse ; (3) the freedom envisaged
in Article 301 is subject to non-discriminatory
restrictions (Article 392); (4) even discriminatory or
preferential/legislation may be made by Parliament
for the purpose of dealing with an emergency like a
scarcity of goods in any part of India (Article
303(2); (5) reasonable restrictions may be imposed
by the Legislature of a State in the public (Interest
(Article 304(b); (6) non-discriminatory taxes may
be imposed by the Legislature of a State on goods
imported from another State of other States, if
similar taxes are imposed on goods produced of
manufactured in that State (Article 304(a); and
lastly (7) restrictions imposed by existing laws have
been continued, except in so far as the President
may by order otherwise direct (article 305). (pp.
831-832).
64. The other view, which may be called the third
view as expressed by Shah, J, and described, in Automobile
Transport (Rajasthan) Ltd. (supra), as the widest view was
that the freedom, contemplated under Article 301, was
freedom of trade, commerce and intercourse in every aspect of
all such activities, which constitute commerce and intercourse
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and not merely restrictions on the movement or transportation
part of goods. Shah J (as his Lordship then was) expressed his
view thus, "The guarantee of freedom of trade and commerce
is not addressed merely against prohibitions, complete or
partial ; it is addressed to tariffs, licensing, marketing
regulations, price-control, nationalization, economic or social
planning, discriminatory tariffs, compulsory appropriation of
goods, freezing or stand-still orders and similar other
impediments operating directly and immediately on the
freedom of commercial intercourse as well. Every sequence in
the series of operations which constitutes trade or commerce is
an act of trade or commerce and burdens or impediments
imposed on any such step are restrictions on the freedom of
trade or commerce and intercourse. What is guaranteed is
freedom in its widest amplitude - freedom from prohibition,
control, burden or impediment in commercial intercourse.
65. However, the majority, in Atiabari Tea
Company Ltd. (supra), differed from what the learned Chief
Justice had concluded and did not accept as the correct
proposition that tax laws are governed by Part XII of the
Constitution and were outside Part XIII. The majority did not
also agree with the views expressed by Shah, J. Hence,
speaking for the majority, in Atiabari Tea Company Ltd.
(supra), Gajendragadkar, J, observed as follows:
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―It is a federal constitution which we are
interpreting, and so the impact of Article 301 must
be judged accordingly Besides, it is not irrelevant to
remember in this connection that the Article we are
construing imposes a constitutional limitation on the
power of the Parliament and the State Legislatures
to levy taxes, and generally ; but for such
limitation, the power of taxation would be presumed
to be for public good and would not be subject to
judicial review or scrutiny. Thus, considered we
think it would be reasonable and proper to hold that
restrictions freedom from which is guaranteed
by Article 301, 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 301. The argument that all taxes
should be governed by Article 301 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.‖
66. In short, thus, in Atiabari Tea Company Ltd.
(supra), while the narrow view was to the effect that unless a
tax law is enacted for the purpose of making discrimination or
giving preferential treatment, such a law would not fall within
the purview of Article 301, the majority view was that apart
from discrimination or preferential treatment, it was the
movement or transport part of goods, which Article 301 seeks
to make free and, hence, any such law, which, directly and
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immediately, restrict the free flow or movement of goods would
fall within the ambit of Article 301.The third view expressed by
Shah, J, was that it is not merely movement part of the goods,
which Article 301 seeks to make free, but also trade and
commerce, in all its varied aspects and in all its activities, shall
be free.
67. In Automobile Transport (Rajasthan) Ltd.
(supra), which is a decision of 7 Judges Bench, the correctness
of the majority view, expressed in Atiabari Tea Company
Ltd. (supra), came to be questioned. Having examined all the
three views, as indicated hereinabove, the majority, in
Automobile Transport (Rajasthan) Ltd. (supra), held that
the widest view, expressed by Shah, J, being based on purely
taxtual interpretation of Part XIII of the Constitution of India,
was not the correct view, for, this view ignores altogether,
amongst others, the reality that the freedom of trade,
commerce and intercourse in a society, regulated by law, must
be understood in the context of working of an orderly society
and the effect of such a view, if conceded to, would be that
even when a. State Legislature wishes to control or regulate
trade, commerce and intercourse in such a way as to facilitate
its free movement, it must, nevertheless, proceed to make a
law under Article 304(b) and that no such Bill can be
introduced or moved in the Legislature of the States without
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the previous sanction of the President. In other words, the
views of Shah, J, if acceded to, would mean that even when a
Bill seeks to impose restrictions in order to facilitate trading or
commercial activities, such a Bill has to receive sanction of the
President under Article 304(b). Such an interpretation,
according to the majority, in Automobile Transport
(Rajasthan) Ltd. (supra), would, if accepted, result into
stoppage of every Bill undermining thereby effective legislation,
which may, at times, be, otherwise, urgent in nature. Pointing
to the difficulties in accepting the views expressed by Shah, J,
the court, in Automobile Transport (Rajasthan) Ltd.
(supra), observed as follows:
―11. The most serious objection to the
widest view canvassed before us is that it ignores
altogether that in the conception of freedom of
trade, commerce and intercourse in a community
regulated by law freedom must be understood in
the context of the working of an orderly society. The
widest view proceeds on the footing that Article
301 imposes a general restriction on legislative
power and grants a freedom of trade, commerce
and intercourse in all its series of operations, from
all barriers, from all restrictions, from all regulation,
and the only qualification that is to be found in the
Article is the opening clause, namely, subject to the
other provisions of Part XIII. This in actual practice
will mean that if the State Legislature wishes to
control or regulate trade, commerce and intercourse
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in such a way as to facilitate its free movement, it
must yet proceed to makes a law under Article
304(b) and no such bill can be introduced or moved
in the Legislature of a State without the previous
sanction of the President. The practical effect would
be to stop or delay effective legislation which may
be urgently necessary. Take, for example, a case
where in the interests of public health, it is
necessary to introduce urgently legislation stopping
trade in goods which are deleterious to health, like
the trade in diseased potatoes in Australia. If the
State Legislature wishes to introduce such a bill, it
must have the sanction of the President. Even such
legislation as imposes traffic regulations would
require the sanction of the President. Such an
interpretation would, in our opinion, seriously affect
the legislative power of the State Legislatures which
power has been held to be plenary with regard to
subjects in List II. The States must also have
revenue to carry out their administration and there
are several items relating to the imposition of taxes
in List II. The Constitution-makers must have
intended that under those items the States will be
entitled to raise revenue for their own purposes. If
the widest view is accepted, then there would be for
all practical purposes, an end of State autonomy
even within the fields allotted to them under the
distribution of powers envisaged by our
Constitution. An examination of the entries in the
lists of the Seventh Schedule to the Constitution
would show that there are a large number of entries
in the State list (List II) and the Concurrent list (List
III) under which a State Legislature has power to
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make laws. Under some of these entries the State
Legislature may impose different kinds of taxes and
duties, such as property tax, sales tax, excise duty,
etc., and legislation in respect of anyone of these
items may have an indirect effect on trade and
commerce. Even laws other than taxation laws,
made under different entries in the lists referred to
above, may indirectly or remotely affect trade and
commerce. If it be held that every law made by the
Legislature of a State which has repercussion on
tariffs, licensing, marketing regulations, price
control, etc., must have the previous sanction of the
President, then the Constitution in so far as it gives
plenary power to the States and State Legislatures
in the fields allocated to them would be
meaningless. In our view the concept of freedom of
trade, commerce and intercourse postulated
by Article 301 must be understood in the context of
an orderly society and as part of a Constitution
which envisages a distribution of powers between
the States and the Union, and if so understood, the
concept must recognize the need and the legitimacy
of some degree of regulatory control, whether by
the Union or the States. this is irrespective of the
restrictions imposed by the other Articles in Part
XIII of the Constitution. We are, therefore, unable
to accept the widest view as the correct
interpretation of the relevant articles in Part XIII of
the Constitution.‖
68. As regards the narrow view expressed by the
learned Chief Justice, in Atiabari Tea Company Ltd. (supra),
which was to the effect that taxing laws were governed by the
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provisions of Part XII and except when a tax law is made
under Article 304(a), Article 301 did not come into play or, in
other words, none of the provisions of Part XIII, except Article
304(a), extended to taxing laws, it may be pointed out that the
majority, in Automobile Transport (Rajasthan) Ltd.
(supra), did not accept this view ; rather, accepting the
majority views expressed in Atiabari Tea Company Ltd.
(supra), the majority, in Automobile Transport (Rajasthan)
Ltd. (supra), held thus, "It would appear from what we have
stated above that this interpretation consists of two main
parts: one part is that taxation simpliciter is not within the
terms of Article 301 and the second part is that Article
301 must take colour from the provisions of Article 303 which,
it is said, is restricted to legislation with respect to entries
relating to trade and commerce in any of the lists in the
Seventh Schedule. In Atiabari Tea Co. Case [1961] 1. S.C.R.
809 this Court deal with the correctness or otherwise of this
narrow interpretation and by the majority decision held against
it. The majority judgment in the Atiabari Tea Co. Case (1961) 1
S.C.R. 809, deals, with the arguments advanced in support of
the interpretation in detail and as we are substantially in
agreement with the reason given in that judgment, we do not
think that any useful purpose would be served by repeating
them. It is enough to point out that though the power of
levying tax is essentially for the very existence of government,
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its exercise may be controlled by constitutional provisions
made in that behalf. It cannot be laid down as a general
proposition that the power to tax is outside the purview of any
constitutional limitations. We have carefully examined the
provisions in Part XII of the Constitution and are unable to
agree that those provisions exhaust all the limitations on the
power to impose a tax. The effect of Article 265 was considered
in the majority decision and it was pointed out that the power
of taxation under our Constitution was subject to the condition
that no tax shall be levied or collected except by authority of
law. Article 245 which deals with the extent of laws made by
Parliament and by the Legislatures of States expressly states
that the power of Parliament and of the State Legislatures to
make laws is, 'subject to the provisions of this Constitution'.
The expression subject to the provisions of this Constitution" is
surely wide enough to take in the provisions of both Part XII
and Part XIII. In view of the provisions of Article, 245, we find
it difficult to accept the argument that the restrictions in Part
XIII of the Constitution do not apply to taxation laws. As to the
argument that Article 301 must take colour from Article 303,
we are unable to accept as correct the argument that the
provisions of Article 303 must delimit the general terms
of Article 301. It seems to us that so far as Parliament is
concerned, Article 303(1)carves out an exception from the
relaxation given in favour of Parliament by Article 302 ; the
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relaxation given by Article 302 is itself in the nature of an
exception to the general terms of Article 301. It would be
against the ordinary canons of construction to treat an
exception or proviso as having such a repercussion on the
interpretation of the main enactment so as to exclude from it
by implication what clearly falls within its express terms.
69. Having, thus, agreed with the views expressed by
the majority, in Atiabari Tea Company Ltd. (supra), the 7
Judges Bench, in Automobile Transport (Rajasthan) Ltd.
(supra), further held that regulatory measures, which do not
impede the freedom of trade, commerce and intercourse, and
compensatory taxes for use of the trading facilities are not hit
by Article 301, for, such regulatory measures or compensatory
taxes, instead of hampering trade, commerce and intercourse,
facilitate them. In short, in the opinion of the majority, in
Automobile Transport (Rajasthan) Ltd. (supra), regulatory
measures, which do not impede freedom of trade, commerce
and intercourse, are not hit by Article 301 nor can
compensatory taxes, which are imposed for providing trading
facilities to the traders, as a class, be said to be violative
of Article 301. The majority view so expressed, in Automobile
Transport (Rajasthan) Ltd. (supra), run as under:
―14. After carefully considering the
arguments advanced before us we have come to the
conclusion that the narrow interpretation canvassed
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for on behalf of the majority of the State cannot be
accepted, namely ; that the relevant articles in Part
XIII apply only to legislation in respect of the
entries relating to trade and commerce in any of the
lists of the Seventh Schedule. But wee must advert
here to one exception which we have already
indicated in an earlier part of this judgment. Such
regulatory measures as do not impede the freedom
of trade, commerce and intercourse and
compensatory taxes for the use of trading facilities
are not hit by the freedom declared by Article
301. They are excluded from the purview of the
provision of Part XIII of the Constitution for the
simple reason that they do not hamper trade,
commerce and intercourse but rather facilitate
them. We have, therefore, come to the conclusion
that neither the widest interpretation nor the
narrow interpretation canvassed before us are
acceptable. The interpretation which was accepted
by the majority in the Atiabari Tea Co. case (1961)
1. S.C.R. 809, is correct, but subject to this
clarification. Regulatory measures or measures
imposing compensatory taxes for the use of trading
facilities do not come within the purview of the
restrictions contemplated by Article 301 and such
measures need not comply with the requirements of
the proviso to Article 304(b) of the Constitution.‖
70. Having laid down the parameters of the freedom
guaranteed under Article 301, the majority examined the
scheme of the Act, which was under challenge in Automobile
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Transport (Rajasthan) Ltd. (supra) and having found that
the tax imposed by the enactment, questioned therein, was
compensatory in nature, it upheld the enactment. This aspect
can be discerned from the observations made in paragraph
Nos. 19 and 20, which run as follows:
―19. The taxes are compensatory taxes
which instead of hindering trade, commerce and
intercourse facilitate them by providing roads and
maintaining the roads in a good state of repairs.
Whether a tax is compensatory or nor cannot be
made to depend on the preamble of the statute
imposing it. Nor do we think that it would be right
to say that a tax is not compensatory because the
precise or specific amount collected is not actually
used to providing any facilities. It is obvious that if
the preamble decided the matter: then the
mercantile community would be helpless and it
would be the easiest thing for the Legislature to
defeat the freedom assured by Article 341 by
stating in the preamble that it is meant to provide
facilities to the tradesmen. Likewise actual user
would often be unknown to tradesmen and such
user may at some time be compensatory and at
others not so. 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
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nature of things that cannot be done.‖
―20. Nor do we think that it will make any
difference that the money collected from the tax is
not put into a separate fund so long as facilities for
the trades people who pay the tax are provided and
the expenses incurred in providing them are born
by the State out of whatever source it may be. In
the cases under our consideration the tax is based
on passenger capacity of commercial buses and
loading capacity of goods vehicles ; both have some
relation to the wear and tear caused to the roads
used by the buses. In basing the taxes on
passenger capacity or loading capacity, the
Legislature has merely evolved a method and
measure of compensation demanded by the State,
but the taxes are still compensation and charge for
regulation.‖
71. The scope of Article 301, 302, 303 and 304 was
again explained by the Supreme Court, in Jindal Stainless
Ltd vs State of Haryana, (2006) 7 SCC 241, at para 32, 33,
34 and 35 as under:
"32. Article 301 states that subject to the
other provisions of Part XIII, trade, commerce and
intercourse throughout India shall be free. It is not
freedom from all laws but freedom from such laws
which restrict or affect activities of trade and
commerce amongst the States. Although Article 301
is positively worded, in effect, it is negative as
freedom correspondingly creates general limitation
on all legislative power to ensure that trade,
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commerce and intercourse throughout India shall be
free. Article 301, therefore, refers to freedom from
laws which go beyond regulations which burdens,
restricts or prevents the trade movement between
States and also within the State. Since ―freedom‖
correspondingly imposes ―limitation‖, we have the
doctrine of ―direct and immediate effect‖ of the
operation of the impugned law on the freedom of
trade and commerce in Article 301 as enunciated in
Atiabari Tea Co.
33. Article 301 is, therefore, not only an
authorisation to enact laws for the protection and
encouragement of trade and commerce amongst
the States but by its own force creates an area of
trade free from interference by the State and,
therefore, Article 301 per se constitutes limitation
on the power of the State. Article 301 is, however,
subject to the other provisions of Articles 302, 303
and 304. It states that subject to other provisions of
Part XIII, trade, commerce and intercourse
throughout India shall be free.
34. Article 301 is binding upon the Union
Legislature and the State Legislatures, but
Parliament can get rid of the limitation imposed by
Article 301 by enacting a law under Article 302.
Similarly, a law made by the State Legislature in
compliance with the conditions imposed by Article
304 shall not be hit by Article 301. Article 301 thus
provides for freedom of inter-State as well as intra-
State trade and commerce subject to other
provisions of Part XIII and correspondingly it
imposes a general limitation on the legislative
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powers, which limitation is relaxed under the
following circumstances:
(a) Limitation is relaxed in favour of
Parliament under Article 302, in which case
Parliament can impose restrictions in public interest.
Although the fetter is limited enabling Parliament to
impose by law restrictions on the freedom of trade
in public interest under Article 302, nonetheless, it
is clarified in clause (1) of Article 303 that
notwithstanding anything contained in Article 302,
Parliament is not authorised even in public interest,
in the making of any law, to give preference to one
State over another. However, the said clarification
is subject to one exception and that too only in
favour of Parliament, where discrimination or
preference is admissible to Parliament in making of
laws in case of scarcity. This is provided in clause
(2) of Article 303.
(b) As regards the State Legislatures, apart
from the limitation imposed by Article 301, clause
(1) of Article 303 imposes additional limitation,
namely, that it must not give preference or make
discrimination between one State or another in
exercise of its powers relating to trade and
commerce under Entry 26 of List II or List III.
However, this limitation on the State Legislatures is
lifted in two cases, namely, it may impose on goods
imported from sister State(s) or Union Territories
any tax to which similar goods manufactured in its
own State are subjected but not so as to
discriminate between the imported goods and the
goods manufactured in the State [see clause (a) of
Article 304]. In other words, clause (a) of Article
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304 authorises a State Legislature to impose a non-
discriminatory tax on goods imported from sister
State(s), even though it interferes with the freedom
of trade and commerce guaranteed by Article 301.
Secondly, the ban under Article 303(1) shall stand
lifted even if discriminatory restrictions are imposed
by the State Legislature provided they fulfil the
following three conditions, namely, that such
restrictions shall be in public interest; they shall be
reasonable; and lastly, they shall be subject to the
procurement of prior sanction of the President
before introduction of the Bill.
35. Broadly, the above analysis of the
scheme of Articles 301 to 304 shows that Article
304 relates to the State Legislature while Article
302 relates to Parliament in the matter of lifting of
limitation, which, as stated above, flows from the
freedom of trade and commerce guaranteed under
Article 301. Article 304 also confers upon the State
Legislature power to lift the limitations imposed on
it by Article 301 and clause (1) of Article 303. This
aspect is important because the doctrine of ―direct
and immediate effect‖ which is mentioned in
Atiabari Tea Co. emerges from the concept of
―limitation‖ embodied in Article 301. It is this
doctrine of direct and immediate effect which
constitutes the basis of the working test
propounded vide para 19 (of AIR) in Automobile
Transport. Therefore, whenever the law is impugned
as violative of Article 301, the courts will have to
examine the effect of the operation of the impugned
law on the inter-State and the intra-State
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movement of goods, which movement constitutes
an integral part of trade.‖
72. From the aforesaid observations of the Supreme
Court in Jindal Stainless (supra), it is clear that the State
Legislature apart from the limitation imposed by Article 301,
also suffers from additional limitation, which is imposed by
clause (1) of Article 303, namely, the State must not give
preference or make discrimination between one State or
another in exercise of its powers relating to trade and
commerce under Entry 26 of List II or List III. However, this
limitation on, the State Legislatures, is lifted in two cases,
namely, it may impose on goods imported from sister State(s)
or Union Territories any tax to which similar goods,
manufactured in its own State, are subject to, but not so as to
discriminate between the imported goods and the goods
manufactured in the State. In other words, clause (a) of Article
304 authorises a State Legislature to impose a non-
discriminatory tax on goods imported from sister State(s), even
though it interferes with the freedom of trade and commerce
guaranteed by Article 301. Secondly, the ban, under Article
303(1) would stand lifted even if discriminatory restrictions are
imposed by the State Legislature provided that such provisions
fulfil the following three conditions, namely, that such
restrictions shall be in public interest; such restrictions shall be
reasonable; and, lastly, such restrictions shall be subject to the
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obtaining of prior sanction of the President before introduction
of the Bill.
73. If we analyse the scheme of Article 301 to 304 of
Constitution of India, it will become transparent that Article
301 provides that the trade, commerce and intercourse,
throughout India, shall be free. Article 302 empowers the
Parliament to impose restrictions on trade, commerce and
intercourse between one State and another or within any part
of the territory of India as may be required in public interest.
As such, Article 302 deals with imposition of restrictions on
freedom of trade, commerce and intercourse between one
State and another within any part of the territory of India and
Parliament alone has been empowered by Article 302 to impose
such restrictions in freedom of trade, commerce and
intercourse as may be required in public interest.
74. Article 303 deals with discrimination and, in such
cases, neither the Parliament nor the Legislature has been
empowered to make any law authorising or giving any
preference to one State over another or making any
discrimination between one State and another by virtue of any
entry relating to trade and commerce in any of the lists in the
Seventh Schedule. However, clause (2) of Article 303
empowers the Parliament to make any law, giving or
authorizing the giving of any preference, or making, or
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authorizing the making of, any discrimination if it is declared by
such law that it is necessary to do so for the purpose of dealing
with a situation arising from scarcity of goods in any part of the
territory of India. As such, while making any discrimination
between one State and another or giving preference to one
State over another, Parliament alone can make such a law only
when it is necessary to do so for the purpose dealing with a
situation arising out of scarcity of goods in any part of the
territory of India. No such liberty has, however, been granted
to the State legislature under any circumstances to give
preference to one State over another or making any
discrimination between one State and another.
75. Article 304 has two parts. Whereas Article 304(a)
deals with discrimination, 304(b) deals with restrictions. Since
Article 303 (1) totally prohibits the State from making any
discrimination between two States or giving preference to one
State over another, Article 304(a) gives some relaxation to the
State legislature by declaring that notwithstanding anything in
Article 301 or 303, the State legislature may, by law, impose
on goods imported from other States or Union territories any
tax to which similar goods manufactured or produced in the
State are, subject, so, however, as not to discriminate between
goods so imported and goods so manufactured or produced. As
such, if the State legislature imposes on goods imported from
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other States or Union territories, any tax to which similar
goods, manufactured or produced in the State, are, subject, so,
however, not to discriminate between goods so imported and
goods so manufactured or produced within the State, the same
will not amount to discrimination as contemplated in Article
303(1) of the Constitution of India.
76. However, if the State imposes any tax on the
goods imported from other States or Union Territories to which
similar goods manufactured or produced in the State are not
subject to, then, the same will not be permissible inasmuch as
the same would amount to discrimination and/or giving
preference to one State over another, which, now Article
303(1) of the Constitution, totally stands prohibited as far as
State legislatures are concerned. Article 304(b) deals with
restrictions.
77. Although Article 302 empowers only the
Parliament to impose such restrictions on freedom of trade,
commerce and intercourse as may be required in public
interest, 304 (b) gives certain relaxation to the State
legislature inasmuch as Article 304(b) provides that the State
legislature may impose such reasonable restrictions on freedom
of trade, commerce and intercourse in view of public interest
with a condition that no Bill or amendment for the purpose of
imposing restrictions on the freedom of trade, commerce and
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intercourse shall be introduced or moved in the State
legislature without the previous sanction of the President.
78. Article 304(b) does not, thus, deal with
discrimination between two States or giving preference to one
State over another, which is totally prohibited by Article 303(1)
of the Constitution subject to relaxation provided in Article
304(a) of the Constitution. Hence, to save any law from being
violative of Article 301 of the Constitution, the fiscal State
legislation must not be discriminatory meaning thereby it
should not discriminate between two States or give preference
to one State over another and, by virtue of Article 304(a) of
the Constitution, must not impose tax on the goods imported
from other States or Union territories, when similar goods
manufactured or produced in the State, are not subject to such
tax so as to discriminate between goods manufactured and
produced within the State and also not to put restrictions on
the movement of goods except when such restrictions are
reasonable or in public interest subject to the condition that
previous assent of the President is taken before any
amendment or Bill is introduced.
79. Although a compensatory tax may not amount to
restriction on freedom of trade, commerce and intercourse, yet
the same may be discriminatory if the State imposes any tax
on the goods imported from other States, while not imposing
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tax on goods manufactured and produced within the State and
thereby making a discrimination between the goods imported
and goods manufactured and produced within the State.
80. A microscopic examination of scheme of Article
301 to 304 of the Constitution of India will clearly reveal that
the framers of our Constitution never intended that under the
guise of imposing compensatory tax, the State can discriminate
between goods imported from outside the State and goods
manufactured and produced within the State by imposing a
discriminatory tax. If that is made permissible, then, the State
can impose taxes on goods imported from other States and
Union territories, while not imposing such tax on the goods
manufactured and produced within the State on the ground
that such tax is for the purpose of providing trading facility and
the same is compensatory in nature. If that is permitted,
Article 303 (1) and 304(a) of the Constitution shall become
nugatory.
81. It needs to be further noted that Article 304
clearly provides that in order to save a law from being not
violative of Article 301 or 303 of Constitution of India, both the
conditions of Article 304(a) and 304(b) are required to be
fulfilled. Whereas condition of Article 304(a) relates to Article
303, the conditions of Article 304(b) relate to Article 301.
82. If a compensatory tax is imposed, which is
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discriminatory in nature and violative of Article 304(a) of the
Constitution, such a compensatory tax will not be sustainable,
being violative of Article 303(1) of the Constitution.
Consequently, such a discriminatory compensatory tax cannot
be saved from being declared ultra vires simply on the ground
that the same is compensatory in nature. It is only non-
discriminatory tax, which imposes reasonable restrictions on
the freedom of trade, commerce and intercourse and which is
in public interest and while imposing such tax, the Bill or
amendment introduced in the State legislature has received the
previous assent of the President, then, the same can be said to
be valid.
83. A discriminatory tax, in our view, even if
compensatory in nature, cannot be said to be intra vires
inasmuch as the same shall be violative of Article 303(1) of the
Constitution of India. The matter can be explained from
another angle. When even the Parliament has no power to
discriminate between one State and another or give preference
to one State over another except in a limited case, how the
State legislature can be permitted to make such discrimination
or give preference to one State over another only on the
ground that the said taxes are compensatory in nature.
84. This Court, in Indian Oil Corporation (supra),
has not decided the issue as to whether the State can impose
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discriminatory taxes only on the ground that the same is
compensatory in nature. This Court, in Indian Oil
Corporation (supra), held that after the 2006 Amendment,
the levy, under the 1993 Act, acquired the nature of
compensatory tax. Though it was held that amendments
introduced in the 1993 Act by the Act of 2001 and 2004, were
bad, because the same were violative of Article 304(a) of the
Constitution of India; when both the amendments were made
without the prior assent of the President. Since the period
involved in the Writ petition was from 2001 to 2006, the Court
has not examined the issue as to whether the levy, in question,
has acquired the nature of compensatory tax after the 2006
amendment, and whether the levy can be valid, though the
same was violative of Article 304(a) of the Constitution of India
for being discriminatory. Hence, the decision of this Court, in
Indian Oil Corporation (supra), shall not come in the way of
deciding the issue raised in the present writ application.
85. While examining the provisions of the 1993 Act
and the amendment introduced by the Finance Act of 2015,
what appears from the statement, object and reasons of 2015
is that the Amendment of 2015 was introduced as a measure of
augmenting the revenue of the State. Though the 1993 Act was
enacted for the purpose of levy of tax on entry of goods into
local area in the State of Bihar for consumption, use or sale
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therein in exercise of powers traceable to Entry 52 of the State
List, the fact remains that the Bihar VAT Act, 2005, was
enacted to levy tax on sale and purchase of goods in the State
of Bihar, which is a legislation traceable to Entry 54 of the
State List, yet the common and broad objectives of both the
amendments appear to be to earn revenue for the State, which
is apparent from the provisions of Section 7(iii) of the 1993
Act, which makes provision for set off of Entry tax against the
VAT payable on the said goods in the State.
86. It is of immense importance to note that the
amount of entry tax paid by an importer, while importing goods
from the outside the State to the State of Bihar, is liable to be
set off against the VAT payable in the State. Viewed from this
angle, we find considerable force, in the submission made by
Dr. Saraf, learned Senior Counsel for the petitioner, that the
levy is a colourable exercise of powers and though entry tax is,
now, claimed to be compensatory in nature, the legislative
objective and scheme of the enactment is to be realize sales
tax/VAT, in advance, inasmuch as the payment of entry tax so
made is liable to be set off against the VAT payable inside the
State.
87. With regard to the above, the decision of the
Kerala High Court, in Sri Krishna Marbles and Granites v.
State of Kerala, 137 STC 481, may be referred to, wherein it
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was held as under:
―It is clear from the operation of Section 4
that once the item brought in respect of which
entry tax is paid is sold in Kerala, the dealer who is
liable to pay sales tax need pay so much of the
sales tax after reducing the entry tax paid on the
very same item. In other words, the payment of
entry tax goes to reduce the petitioner's sales tax
liability to the extent of the amount of entry tax
paid. The payment of sales tax is essentially
governed by final determination in the form of
assessment and entry tax paid goes only as a credit
towards liability for sales tax or in other works,
sales tax is demanded after reducing the entry tax
paid by the petitioner. Therefore the entry tax
collected at the check-post is virtually in the form of
advance payment of sales tax and there is no need
to determine the entry tax liability in respect of
goods brought by a registered dealer for resale in
the State.‖
88. We are in respectful agreement with the decision
of the Kerala High Court in Sri Krishna Marbles and
Granites v. State of Kerala (supra). The same view has been
taken by the Gauhati High Court in ITC Limited (supra)
decided by one of us {Chief Justice}. We respectfully agree
with the observations made, conclusions arrived at and the
decision rendered in ITC Limited (supra).
89. While examining the contention of the petitioner
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that the levy of the entry tax on goods brought into the State
of Bihar, on account of e-commerce transaction, is
discriminatory and violative of Article 304(a) of the Constitution
of India compared to the goods, which are brought into the
State of Bihar for sale or consumption in the manufacture of
goods, it is to be noted that a set off is provided against the
payment of entry tax against the VAT liability to ensure that
there is only single incidence of tax. However, such set off has
not been made available, when the goods, on the basis of
transaction through e-commerce portal, are imported from
outside the State to the State of Bihar for the purpose of
personal use or consumption.
90. On account of non-availability of set off in terms
of the second Proviso to Section 3(2) of the 1993 Act, the
imposition of entry tax, by way of the impugned provisions,
leads to a higher burden of tax on such goods, which are
brought into the State of Bihar by the petitioners for personal
use or consumption of individual consumer, which are
transacted using e-commerce portal. The goods, purchased by
an individual consumer into the State of Bihar using e-
commerce portal, will be liable to suffer higher rate of tax and
thereby becomes costlier for the consumer as compared to the
same goods, when purchased from a local dealer in the State
of Bihar.
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91. Situated thus, the artificial distinction and
discrimination against the said goods, purchased through an
e-commerce portal, arises on account of the second Proviso to
Section 3(2), which restricts the set off of entry tax paid on
such goods only to a dealer, who is liable to pay VAT under the
Bihar VAT Act.
92. It is crystal clear that the second Proviso to
Section 3(2) is not applicable to a transaction undertaken by e-
commerce portal inasmuch as the goods, brought in by the
petitioners, are only for personal use or consumption and not
for being sold, when the individual consumers are not dealer
and do not have liability under the Bihar VAT Act, the payment
of Entry tax, on such transaction will be an additional cost on
such goods. Similar situations had been dealt with, in Indian
Oil Corporation (supra), where, in the case of one of the
petitioners, it was held by this Court as under :
―53. But Mr. K.N. Jain appearing for M/s
Harinagar Sugar Mills Limited submitted that the
Advocate-General's submission was only with
reference to goods that were brought into a local
area for sale whereas entry tax was leviable also on
goods brought into a local area not for sale but for
consumption or use, He further submitted that
consumption or use may be in two days. The goods
brought into a local area may be used as raw
material for producing a new commodity for sale or
they may be consumed as they are, as in the case
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of his client, the petitioner in C.W.J.C. No. 6540 of
2002. In these two cases, the provision of set-off in
the sales tax liability would not apply and in these
two cases, therefore, the Act was quite
discriminatory with regard to the goods imported
from other States. The submission of Mr. Jain
cannot be said to be without substance. Therefore,
while agreeing with the submission of the Advocate-
General that there was no discrimination against
goods imported from other States insofar as those
goods were brought for resale, it has to be held that
there was an apparent discrimination against goods
imported from other States for the purpose of
consumption or use. I., therefore,, conclude that
the amendment in the definition of ―entry of goods‖
with effect from November 5, 2001 did introduce
an element of discrimination against goods
imported from other States that were brought to
the local area for consumption or use.‖
93. Again, this Court, in Food Corporation of India
(supra), held that in the event the imported goods are found to
be taxed at a higher rate than the local goods, the same will be
discriminatory. The relevant observations, appearing, in this
regard, in Food Corporation of India (supra), read as
follows:
8. It is to be noted that only six goods
were listed under the schedule to the Parent Act,
1993 and paddy, rice and wheat (the subject of the
levy in this case) were not among the scheduled
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goods. Paddy, rice and wheat were not included in
the schedule even when it was expanded
by Amending Act 10 of 2001 (with effect from
5.11.2001) and further by Amending Act 9 of 2003 (with effect from 22.08.2003). But the second Amendment Act (Act 9 of 2003) inserted Section 3A that empowered the State Government to amend or alter the Page 0770 schedule of the Act or to add anything in it by issuing a notification. In exercise of the power under Section 3A of the Act, the State Government issued notification No. SO 34, dated 1.4.2006 by which paddy, rice, wheat, pulses, flour, atta, maida, suji and besan were added at Serial No. 25 of the Schedule. On the same date, the State Government issued another notification bearing No. SO 32 in exercise of the power under Section 3(1) of the Act fixing the rate of entry tax on paddy, rice, wheat etc. at 4% of their value. It is an admitted position that at that time the rate of sales tax on paddy, rice, wheat etc. was 1%. In other words, the rate of entry tax on the goods in question was higher then the rate of sales tax by 3%.
9. Here, it may be recalled that in M/s Indian Oil Corporation Ltd. and M/s Harinagar Sugar Mills Ltd., it was argued that following the amendment in the definition of 'Entry of Goods' with effect from 5.11.2001 (by Amending Act 10 of 2001), the Act had become discriminatory against goods imported from outside the State. The Advocate General rebutted the contention submitting that the charge of discrimination Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 75/89 overlooked the fact that simultaneously with the amendment in the definition of 'Entry of Goods', a provision was introduced (vide second proviso to Sub-section 2 of Section 3) for giving credit for entry tax levied and collected towards the sales tax payable on the sale of those goods. He submitted that the Act was provided with an internal balancing mechanism that saved it from being discriminatory against goods imported from other States. In that case, it was pointed out that atleast in case of paddy, wheat and rice, the rate of entry tax was higher than the rate of sales tax with the result that paddy, rice and wheat imported from outside the State suffered a higher incidence of tax compared to paddy, rice and wheat procured from within the State. The Advocate General countered the submission by taking the stand that if for some goods the rate of entry tax was higher than the rate of sales tax then that might be a ground to challenge the notification fixing the rate of entry tax under Sub-section (i) of Section 3 of the Entry tax Act but on that basis, it could not be argued that the Act was itself discriminatory or violative of Article 304(a) of the Constitution. It thus becomes plain and clear that in order to save the Act from the vice of discrimination against paddy, wheat and rice imported from outside the State, the notification No. SO 32, dated 1.4.2006 fixing the rate of entry tax on those goods at 4% of their value must be struck down for being higher than the rate of sales tax on those goods. This is another important ground on which this writ petition is bound to succeed.
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94. In the light of law, which we have discussed above, especially, the decisions, in Indian Oil Corporation (supra) and Food Corporation of India (supra), it becomes apparent that no set-off is available, when goods are brought in, on transactions of e-commerce portal, for personal use or consumption of individual consumer as per the second Proviso to Section 3(2) of the 1993 Act. Consequently, such goods will face a higher burden of tax and, accordingly, it will be discriminatory against the goods brought from other States to the State of Bihar. Such discrimination will directly contravene Article 304(a) read with Article 303 of the Constitution of India.
95. The creation of tax barrier and imposition of higher rate of tax on the goods from other States, as compared to locally sold goods, has been dealt with by the Supreme Court in a catena of decisions. Shree Mahavir Oil Mills vs. State of J&K, (1996) 11 SCC 39, is a case, wherein, on account of a series of notifications, the manufacturers of edible oil, in other States, were liable to pay sales tax at 8% on sale affected by them in the State of J & K, while the local manufacturers were fully exempted, the Supreme Court, while quashing the said exemption on the ground of being violative of the provisions embodied in Article 301 and Article 304(a), held as under:
―Article 301 declares that "subject to the Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 77/89 other provisions of this part, trade, commerce and intercourse throughout the territory of India shall be free". An exception is, however, provided in favour of Parliament by Article 302 which says that "Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India, as may be required in the public interest". The power conferred upon the Parliament by Article 302 is, however, qualified by a rider provided in clause (1) of Article 303 which says that the power conferred upon the Parliament by Article 302 shall not however, empower the Parliament - or the legislature of State - "to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the mating of any discrimination between one State or another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule".* Clause (2) of Article 303, is in the It is not very clear why clause (1) of Article 303 uses the words "nor the legislature of a State" when Article 302 does not refer to the legislature of a State at all. Probably, the idea was to declare affirmatively in the interest of removing any doubt - that even a legislature of a State shall not have the power to make any law giving or authorizing the giving of any preference to one estate over another or making or authorising the making of any discrimination between one state and another by virtue of their power to make a law with reference to the entries relating to trade and commerce in the Seventh schedule. Further, the Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 78/89 additional of words "by virtue of any entry relating to trade and commerce of any of the Lists in the Seventh Schedule" at the end of the clause have also given rise to a good amount of controversy, which we shall refer to later, to the extent relevant nature of a classification. It says that "nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India". Article 304 deals with the power of the State legislatures. It begins with a non-obstante clause "Notwithstanding anything in article 301 or article 303". Article 303 was also referred to in this non-obstante clause evidently for the reason that clause (1) of Article 303 refers to "the legislature of a State" besides referring to Parliament. Article 304 contains two clauses. Clause
(a) states that "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". The wording of this clause is of crucial significance. The first half of the clause would make it appear at first flush that it merely states the obvious: one may indeed say that the power to levy tax on goods imported from other States or Union territories flows from Article 246 read with Lists II and III in the Seventh Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 79/89 Schedule and not from this clause. That is of course so, but then there is a meaning and a very significant principle underlying the clauses if one reads it in its entirety. The idea was not really to empower the State legislatures to levy tax on goods imported from other States and Union territories -
that they are already empowered by other provisions in the Constitution - but to declare that power shall not be so exercised to discriminate against the imported goods vis-a- vis locally manufactured goods. The clauses though worded in positive language has 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 barrier", 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 301. As we shall presently point out, this clause does not prevent in any manner the States from encouraging or promoting the local industries in such manner as they think fit so long as they do not use the weapon of taxation to discriminate against the imported goods vis-a-vis the locally manufactured goods. To repeat, the clause bars the Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 80/89 States from creating tax barriers - or fiscal barriers, as they can be called - around themselves and/or insulate themselves from the remaining territories of India by erecting such 'tariff walls'. Part-XIII is premised upon the assumption that so long as a State taxes its residents and the residents of other States uniformly, there is no infringement of the freedom guaranteed by Article 301; no State would tax its people at a higher level merely with a view to tax the people of other States at that level. And it is this clause which has a crucial bearing on this case. Now coming to clause (b), it empowers the legislature of the State to make a law and "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 Dill 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". (This proviso has, of course, to be read along with Article 255 which says that if the Act receives the assent of the Presidents the non-compliance with the requirement of obtaining the previous sanction to the introduction of the Bill is cured.) Though in appearance this clause reads like conferring on the State Legislatures a power akin to the power conferred upon the Parliament by Article 302, there are certain distinctions. Firstly, while Article 302, does not use the expression "reasonable" before the word "restrictions," this clause does. Secondly, this power can be exercised by the State Legislature only with the "previous sanction" of the President- Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 81/89 which means the Union Ministry, or with the assent of the President, as explained above. It is probably our history which impelled the founding fathers to lay store by the Central Government in the matter of imposing restrictions, or reasonable restrictions, as the case may be on the freedom guaranteed, it is worthy of notice, is "throughout the territory of India" and not merely between the States as such; the emphasis is upon the oneness of the territory of India. Part-XIII starts with this concept of oneness but then it provides exceptions to that rule, as stated above, to meet certain emerging situations. As a matter of fact, it can well be said that clause
(a) of Article 304 is not really an exception to Article 301, notwithstanding the non-obstante clause in Article 304 and that it is but a re-statement of a facet of the very freedom guaranteed by Article 301, viz., power of taxation by the States. (We need not refer to the other articles in Part-XIII for the purposes of this case).‖
96. Again, in Jaiprakash Associates (supra), wherein the Notifications, under the Uttar Pradesh Trade Tax Act, 1948, granting rebate of tax to goods manufactured, in the State of Uttar Pradesh, were challenged on the ground of being discriminatory against goods imported from neighbouring States and violating Article 301 and 304(a), the Supreme Court had this to say:
―38. Article 304(a) ensures only equal rate of tax for incoming goods. So if such goods are Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 82/89 taxed at a higher rate or where they are taxed at any rate when indigenous goods enjoy concessional rate of tax, article 304(a) is attracted. They are simple cases of hostile discrimination. Therefore, whether a particular tax is discriminatory within the meaning of this clause, the effect of the tax on the flow of goods from outside the taxing State has to be taken into consideration and, if the overall effects of rebate of tax is such that they fall within the meaning concessional rate of tax. A detailed discussion on the effects and scope of rebate is done in the following paragraphs under the head Issue 2 in the judgment.
....
46. Article 304(a) is a provision that deals with taxation. It places goods imported from sister States on a par with similar goods manufactured or produced within the State in regard to State taxation in the allocated field. The object of article 304(a) was to limit the power of taxation by States so as to prevent discrimination against imported goods by imposing taxes on such goods as a higher rate than is borne by indigenous goods. The tax referred to in article 304(a) is a ‗tax on goods'.
....
52. Exemption as we normally understand has two-fold impact. First, exemptions/ concessional rate of tax affect consumer choice by impacting relative pricing and, thus, materially altering the economic balance. It is because consumption will tend to shift towards untaxed items, the prices of Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 83/89 those items and the items used to produce them will increase while the prices of taxed items will decrease relatively. Second, such exemptions unfairly burden some businesses either within the same industry or in other competing industries.
.....
54. Therefore, the test to be applied to determine whether rebate is within the realm of tax defined in article 304(a) of the Constitution of India so as to say that it discriminates between the two class of goods: locally manufactured goods and the imported goods when both the class of dealers meet the conditions required to qualify for the grant of rebate i.e. the use of fly-ash, is the overall effect or impact of such rebate on the manufacturer.
...
56. The above principle was re-iterated in the case of W.B. Hosiery Association and others v. State of Bihar; (1988) 4 SCC 134 and in the case of H. Anraj v Government of Tamil Nadu; (1986) 1 SCC 414; wherein the effect of an exemption was discussed. The issue before the Court was that the locally manufactured goods within the State were exempted but those manufactured in other States and imported into the State were subjected to a high rate of tax. The hosiery manufacturers and dealers in the State of West Bengal in their prayer in the writ petition asked for a direction asking the respondents to forbear from levying or imposing or collecting any sales tax on the sale of hosiery goods imported into Bihar from other States. The State Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 84/89 Government by a notification exempted dealers from sales tax of hosiery goods manufactured and produced in the State of Bihar whereas levied sales tax on the dealers outside the State. This Court opined that from the commercial or normal point of view, such a discriminatory levy of sales tax would have an effect that would be bound to affect the free flow of hosiery goods from outside State into the State of Bihar and would therefore violate article 301 read with article 304(a) of the Constitution of India.
...
62. The exemption or rebate of tax is therefore within the purview of taxation. In the instant case, if the grant of rebate of tax by the State Government under Section 5 of the Act is to the full amount of tax levied, then for the dealers manufacturing cement using fly-ash outside the State of Uttar Pradesh but selling it in Uttar Pradesh, though the State Government contends that the rate of tax is same for the dealers inside Uttar Pradesh and outside Uttar Pradesh, but the overall effect is that there is no tax levied on the net turnover after deductions being made from the gross turnover but, on the other hand, the dealers manufacturing or producing cement using fly-ash outside Uttar Pradesh are taxed at the rate of 12.5%. Therefore, it can be said that the rebate of tax is in the nature of exemption and the instant case can be decided on the basis of catena of decisions of this Court where blanket exemption without reasons are said to be discriminatory and Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 85/89 violating article 304(a) of the Constitution of India.
97. It needs to be borne in mind that in Jaiprakash Associates (supra), the Supreme Court held that the object of Article 304(a) of the Constitution is to prevent imported goods being discriminated by imposing a higher tax thereon than on local goods. It has been held that what Article 304(a) demands is that the rate of taxation on local goods as well as imported goods must be the same. This is designed to discourage the State from creating the State barriers or fiscal barriers at its boundaries.
98. The Supreme Court has, in no uncertain words clarified, in Jaiprakash Associates (supra), that the principle of "non-discriminatory tax", as provided in Article 304(a) of the Constitution of India, is a sine qua non to free movement of goods between nation/States in several jurisdictions and also in international trade and policy.
99. Discrimination is spoken of in terms of effect and intention behind such discrimination. The Supreme Court has held, in Jaiprakash Associates (supra), that effect of a tax should not such that two like goods are given discriminatory treatment. The powers given to the State legislature are not unrestricted and are bound to function within limitations stipulated under Article 304(a) of the Constitution of India. Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 86/89
100. When Article 304(a) ensures only equal rate for incoming goods, if such goods are taxed at a higher rate or where they are taxed at any rate, when indigenous goods enjoy concessional rate of tax, Article 304(a) gets attracted.
These are simple cases of hostile discrimination. However, one has to determine whether a particular tax is discriminatory or not within the meaning of Article 304(a), the effect of the tax, on the flow of goods from outside the taxing State, has to be taken into consideration and if the overall effect of rebate of tax is such that they fall within the meaning of concessional rates of tax so as to discriminate between imported goods and local goods, the same would amount to discrimination within the meaning of 304(a) of the Constitution. The set off, as given in Section 3(2) of the 1993 Act, cannot be used as a device or weapon so as to make a discrimination in the rate of tax by repaying or by allowing set off to one class of local dealers of the entry tax paid against the VAT payable and not allowing the benefit of set off to outside dealers. Such a situation squarely falls within the ambit of Article 304(a) of the Constitution of India.
101. By giving set off under second Proviso to Section 3(2) of the 1993 Act, a favourable treatment is given to one class of dealers within the State, barring the dealers, similarly placed outside the State, supplying goods to the State of Bihar Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 87/89 in course of inter-State trade and commerce, the effect whereof is that no entry tax is payable by a dealer making resale of the said goods inside the State, but, on the other hand, the dealers, who are supplying goods from outside the State to consumers, have to pay full entry tax as well as central sales tax. The net effect of the impugned provisions is that the cumulative burden of taxes, on goods imported from outside the State, is higher than the said goods produced within the State. This is what is known as fiscal barrier and such fiscal barrier has a direct and immediate effect of ensuring that goods are brought in from outside the State of Bihar for personal use or consumption on payment of CST and thereby making a discrimination between the dealers of one State and another, which is clearly violative of Article 304(a) of the Constitution.
102. In the present case, respondents have not disputed that there is a higher burden of tax on goods brought in by the petitioners for individual consumers through e-
commerce transactions; but the State has tried to defend the same by contending that since the levy is compensatory in nature, the State has the power to impose such discriminatory tax.
103. As discussed in the preceding paragraphs of this judgment, we are unable to agree with the effect of the Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 88/89 submissions of the learned Principal Additional Advocate General that in case of compensatory tax, the State has the power to resort to discrimination. Even if the levy is compensatory in nature, the compensation cannot be demanded more from an outside dealer than a local dealer.
There cannot be any discrimination between an outside dealer and a local dealer. Since the impugned provisions clearly discriminate between an outside dealer and local dealer by imposing higher burden of tax on goods supplied by outside dealer than a local dealer, the same is clearly hit by Article 304(a) of the Constitution of India.
104. Since we have already held the impugned provisions to be discriminatory and violative of Article 304(a) of the Constitution of India read with Article 303 of Constitution of India, it is not necessary to examine the other contentions advanced on behalf of the petitioner.
105. In the result and for the forgoing reasons, these writ petitions are allowed. The impugned provisions of the Bihar Finance Act, 2015 (Bihar Act 9 of 2015), amending the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 and the Rules made thereunder and Notifications S.O. 176 & 18 both, dated 20.01.2016, are declared as ultra vires to the Constitution and are accordingly quashed. We hold that no tax can be levied on entry of goods Patna High Court CWJC No.6155 of 2016 dt.27-09-2016 89/89 into local areas, in terms of the impugned provisions, over the transactions, made on e-commerce portals, for personal use or consumption of individual consumer.
106. However, there shall be no order as to costs.
(I. A. Ansari, CJ) Chakradhari Sharan Singh, J:
I agree.
(Chakradhari Sharan Singh, J) Pawan/-
AFR/NAFR AFR
CAV DATE 30.06.2016
Uploading 28.09.2016
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