Gauhati High Court
Itc Ltd. vs State Of Assam And Ors. on 17 November, 2006
Equivalent citations: (2007)9VST250(GAUHATI)
Author: I.A. Ansari
Bench: I.A. Ansari
JUDGMENT I.A. Ansari, J.
1. 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 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 movement of the goods were, if not completely removed, be, at least, reduced as much as possible.
2. 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.
3. By way of delegated legislation, whether the Legislature can leave the Executive with complete freedom to bring any kind of goods under a given taxing statute without prescribing any guidelines therefor or without clarifying the legislative policy as to how the Executive would choose a particular item of goods for the purpose of bringing the same within the ambit of such a taxing statute ? Can the Legislature, with the help of delegated legislation, empower the Executive to fix any rate of tax on any goods without prescribing any guidelines or upper ceiling limits in this regard? Is the law of taxation immune from, or not subject to, the freedom of trade, commerce and intercourse as guaranteed under Article 301 of the Constitution of India? Is the State Government, while making legislation under Entry 52 of the State List, bound by Part XIII of the Constitution of India and, particularly, Article 301 read with Article 304 contained therein? Does an enactment imposing entry tax, legislated under Entry 52, necessarily have a direct and immediate impact on the movement of goods and, if so, how to decide whether such an enactment falls within the ambit of the freedom of trade, commerce and intercourse guaranteed under Article 301 or not? Can an entry tax be sustained if the same is not compensatory in nature or are there any exceptions thereto? When does such legislation require President's sanction in terms of the proviso to Article 304(b)? Whether the Assam Entry Tax Act, 2001 (hereinafter referred to as "the AET Act, 2001"), notifications, issued under Section 3(4) thereof, imposing entry tax on goods, such as, biscuits, textiles and fabrics, crude oil, tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture, the Assam Entry Tax (Amendment) Ordinance, 2005 (hereinafter referred to as "the AET (Amendment) Ordinance, 2005") or the Assam Entry Tax (Amendment) Act 2005 (hereinafter referred to as "the AET (Amendment) Act, 2005") are compensatory in nature? What is the difference between tax simplicitor, on the one hand, and tax imposed for regulatory or compensatory purposes, on the other? Are the AET Act, 2001, notifications, issued under Section 3(4) thereof imposing entry tax on goods, such as, biscuits, textiles and fabrics, crude oil, tobacco including cigarette, cheroots, cigar, biri, zarda, khaini, sada and smoking mixture, the AET (Amendment) Ordinance, 2005, the AET (Amendment) Act, 2005, sustainable in law and, if not, why? Whether the AET Act, 2001, the notifications issued thereunder bringing goods, such as, biscuits, textiles and fabrics, crude oil, tobacco, including cigarette, cheroots, cigar, biri, zarda, khoini, sada and smoking mixture within the ambit of the AET Act, 2001, or the AET (Amendment) Ordinance, 2005, or the AET (Amendment) Act, 2005, suffer from the vice of discrimination and are, therefore, in violation of Article 304(a)? Is levy of entry tax, under the impugned enactment, violative of the provisions of the Central Sales Tax Act, 1956, and cannot, therefore, be enforced as against the goods, which have been declared as goods of special importance in the inter-State trade and commerce under Section 14 of the said Act? Is the levy of entry tax under the impugned Act, in violation of the provisions of the Additional Duty of Excise (Goods of Special Importance) Act, 1957? These are some of the prominent issues, which have arisen for determination in the present set of writ petitions.
Background facts:
4. The State Legislature of Assam enacted the AET Act, 2001, with a view to levying tax on the entry of goods into any local area, in Assam, for consumption, use and sale therein, the local areas having been defined in the Act itself, as the area comprised within the limits of a local authority including any area which has been or may hereafter be included in the Municipal Corporation of Guwahati, constituted under the Guwahati Municipal Corporation Act, 1969 (Assam Act K of 1973) or in the Municipality or Town Committee constituted under the Assam Municipal Act, 1956 or any area comprised within a Gaon Panchayat or an Anchalik Panchayat constituted under the Assam Panchayat Act of 1994. The entire State has, thus, been divided, under the AET Act, 2001, into local areas as aforesaid and this Act covers not only the vehicles bringing goods into the State, but also vehicles carrying goods from one local area of the State to another. However, those, who pay sales tax to the State, are exempted from payment of the entry tax. The entry tax, thus, falls only on those persons, who, such as the present writ petitioners, pay sales tax on the purchase of raw materials and sale of finished goods to States other than the State of Assam. Entry tax, under the AET Act, 2001, is a single point tax as the entry tax can be levied only at one stage. Once entry tax has been paid, or liability has been incurred, on the entry of any of the scheduled goods into any local area, the entry tax cannot be levied thereafter, though the goods, which have been so taxed, may be moved from one local area to another local area and so on irrespective of the fact whether the movement of the scheduled goods, out of a local area, is by way of stock transfer, inter-State sale or sale in the course of export or import. By impugned notifications, issued under Sub-section (4) of Section 3 of the AET Act, 2001, when the goods, namely, biscuits, textiles and fabrics, cude oil, tobacco including cigarette, choroots, cigar, biri, zarda, khoini, sada and smoking mixture, were added to the schedule of the goods under the AET Act, 2001, and were, thus, brought under the tax net of the said Act, these notifications were challenged by the present set of writ petitions, the grounds of challenge to these notifications being largely identical. As the present set of writ petitions have challenged the notifications and also the subsequent developments, which took place in connection with the matters thereunder, all the writ petitions, on the request of the learned Counsel for the parties, have been heard together and are being disposed of by this common judgment and order, particularly, because I find that the decision, in any of these writ petitions, would have a bearing on the out-come of the remaining writ petitions.
5. Before I come to the grounds of challenge posed to the impugned levy and the merit thereof, necessary it is to place, in chronological order, the material facts and various stages, which have led to the final hearing of the present set of writ petitions.
6. Prior to the enactment of the AET Act, 2001, the Assam Entry Tax Bill, 1998, was sent to the President of India for previous sanction as needed under Article 304(b) of the Constitution of India. This Bill, initially, sought to impose entry tax on as many as 10 items including the goods relating to Prasar Bharati and all kinds of textiles and fabrics. However, the President, admittedly, declined to accord sanction in respect of all the 10 items and directed the State Legislature to suitably modify the Bill exempting from the purview of entry tax the goods relating to Prasar Bharati and all kinds of textile and fabrics. The Bill was accordingly modified and the AET Act, 2001, came into force mentioning 6even specified goods in the Schedule to the Act. Thus, when this Act came into force on 1.10.2001, the entry tax was payable, under the Act, on only seven specified goods at the rates prescribed in the Schedule appended thereto. These goods did not, admittedly, include goods relating to Prasar Bharati or textiles and fabrics. These facts are also borne out of the letter, dated 1.9.2000, issued by the Government of India addressed to the Government of Assam, which read as follows:
With reference to your letter No. FTX. 31/99/Pt/23 dated 24th March, 1998, on the subject mentioned above I am directed to convey the previous sanction of the President under Article 304(b) of the Constitution of India as contained in the enclosed order No. 13/1/99-Judl., dated 30th August, 2000.
The State Government is requested to make necessary provisions in the Bill to exempt goods relating to "Prasar Bharti" and all kind of textiles and fabrics, as agreed to by them vide their letters No. (i) FTX. 31/89/Pt/ 93 dated 8th November, 1999 and (ii) FTX. 31/89/Pt/104 dated 30th March, 2000 before introduction of the Bill in the State Legislature.
(emphasis supplied)
7. Section 3 of the AET Act, 2001, is the charging Section and it provides that entry tax can be levied and collected on the entry of goods specified in the Schedule appended to the AET Act, 2001, into any local area for consumption, use or sale therein at the rate shown against each item in the Schedule and such tax shall be paid by every importer of such goods. Before Section 3 under went amendment and Sub-section (4) thereof was deleted, Sub-section (4) of Section 3 empowered the State Government, by publication of notification in the Official Gazette, to add to, delete, amend or otherwise modify the said Schedule and also to vary the rates of tax of the goods specified in the Schedule.
8. However, the amended Section 3, now, reads' as follows:
3. Levy of tax. - (1) There shall be levied and collected an entry tax on the entry of the goods specified in the Schedule into any local area for consumption, use or sale therein at the rates shown against each item in the said Schedule and such tax shall be paid by every importer of such goods. (2) The entry tax payable by an importer under this Act shall be charged on the purchase value of the goods specified in the Schedule at the rates as shown in the said Schedule:
Provided that no such tax shall be payable on the entry of the goods which are meant or the exclusive use or consumption of the Defence Department of the Government of India:
Provided further that no entry tax shall be levied on the entry of the goods into any local area for consumption or use therein which are the exclusive property of the Union Government:
Provided also that no such tax shall be payable on the entry of such goods which are brought for the purpose of sale or use under the Assam Public Distribution of Articles Order, 1982.
Provided further more that no tax shall be levied under this section on the entry of scheduled goods into a local area, if it is proved to the satisfaction of the assessing authority in such manner as may be prescribed, that such goods have already been subjected to entry tax or that the entry tax has been paid by the importer or any other person under the Act in respect of the same goods.
(3) The State Government may, by notification in the Official Gazette, grant exemption to any organization or undertaking of the Central Government or of the State Government in respect of such goods as may be specified in such notification, from payment of entry tax on entry of such goods into any local area for consumption or use therein provided that such goods are the exclusive property of such organization or undertaking.
(4) The State Government may, by notification in the Official Gazette, add to, delete, amend or otherwise modify the said Schedule and also may very the rates of tax of the goods specified in the Schedule and thereupon the said Schedule shall be deemed to have.
9. In exercise of its powers conferred by Sub-section (4) of Section 3, the Government had inserted some items, such as, biscuits, all varieties of textiles and fabrics, namely, cotton, woollen or silken including rayon, art silk and nylon textile, whether manufactured by handloom, powerloom or otherwise, crude oil and tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture, as specified goods to the Schedule of the said Act. By various other notifications, the Government, from time to time, included some other articles to the Schedule of the said Act.
10. The relevant dates of the notifications along with the numbers and dates thereof are, for the sake of convenience, quoted hereinbelow:
Biscuits - No. FTX. 90/2003/5
Dated 21.8.2003
All varieties of - FTX. 90/2003/5
textiles, viz.,X
cotton, woolen
or silken, including Dated 26.8.2003
rayon, art silk and
nylon textiles,
whether manufactured by
handloom, power loom or
otherwise.
Crude oil No. - FTX. 2694/2
Dated 29.9.2004
Tobacco including - No. FTX.89/2004/Pt/15
cigarette,
cheroots, cigar, biri, zarda Dated 28.2.2005
khoini, sada and smoking
mixture.
Bitumen - FTX 146/2001/5 dtd. 8.1.2002
Marble Tiles FTX. 146/2001/5 dtd. 8.1.2002
Marbles - FTX. 146/2001/5 dtd. 8.1.2002
Decorative slabs - FTX. 146/2001/5 dtd. 8.1.2002
Plant and
machineries - FTX. 146/2001/5 dtd. 8.1.2002
Light diesel oil - FTX. 146/2001/5 dtd. 8.1.2002
Furnace oil - FTX. 146/2001/5 dtd. 8.1.2002
Tiles - FTX. 146/2001/5 dtd. 8.1.2002
Pulses, cereals
in all forms - FTX. 146/2001/5 dtd. 8.1.2002
Medical equipment - FTX. 146/2001/5 dtd. 8.1.2002
Medical equipment
like ultra - FTX. 146/2001/5 dtd. 8.1.2002
sound scanner
Pharmaceutical - FTX. 146/2001/5 dtd. 8.1.2002
machinery,
equipments and construction
materials
Medical equipments - FTX. 146/2001/5 dtd. 8.1.2002
like C.T.
Scan machine, MRI machines,
X-ray machines and ultra sound
machines
Machinery generators 146/2001/5 dtd. 8.1.2002
and FTX.
machinery parts
Granites - FTX. 146/2001/5 dtd. 8.1.2002
11. I may also point out that when the notifications aforementioned were published levying entry tax on the goods aforementioned, the same were challenged by the present set of writ petitions and in some of the writ petitions, interim orders were passed suspending, in effect, the operation of the notifications so far as the writ petitioners were concerned. While the writ petitions were pending, the Government of Assam promulgated, vide Notification, dated 12.5.2005, the AET (Amended) Ordinance, 2005. By this Ordinance, Section 3(1) of the Assam Entry Tax Act, 2001, was amended and Section 3(4) thereof, which had empowered the State Government to add to, alter, delete and modify the Schedule to the Act and also to vary the rate of tax, was deleted. The newly amended Section 3(1), now, reads as follows:
(1) There shall be levied and collected an entry tax on the entry of goods specified in the Schedule into any local area for consumption, use or sale therein at such rate, no exceeding twenty per centum, as the State Government may, by notification, fix in this behalf and different rates may be fixed for different class or classes of specified goods and such tax shall be paid by every importer of such goods.
12. As the promulgation of the AET (Amended) Ordinance, 2005, was a development subsequent to the institution of the writ petitions, the writ petitions were amended by the petitioners incorporating challenge to the validity of the Ordinance too. It is necessary to point out that pursuant to the AET (Amendment) Ordinance, 2005, a notification was also issued bearing No. FTX. 90/2003/19, dated 12.5.2005, whereby the Governor of Assam, in exercise of powers conferred under Section 3(1) of the AET Act, 2001, fixed the rate of tax payable against each of the entries specified in the Schedule to the Act save and except entries made in Serial Nos. 54 and 55. As per the notification, dated 12.5.2005, aforesaid, the specified goods to which the present writ petitions relate are biscuits, all varieties of textiles, namely, cotton, woollen or silken including rayon, art silk and nylon textile, whether manufactured by handloom, power-loom or otherwise, crude oil and tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture, and fall under Serial Nos. 23, 25, 38 and 47(a) respectively.
13. In course of time, the AET Ordinance, 2005, was replaced by the AET (Second Amendment) Act, 2005, which, having received, on 7.9.2005, the assent of Governor of Assam, came into force with retrospective effect, i.e., with effect from 12.5.2005. What is, however, important to note is that apart from ratifying the AET Ordinance, 2005, the AET (Second Amendment) Act, 2005, also introduced three new sections to the AET Act, 2001, namely, Sections 3A, 8A and 8B, Section 3A having provided for composition of entry tax, Section 8A having made provisions for utilization of the fund, collected by way of entry tax, and Section 8B having made provisions for presumption that the incidence of entry tax has been passed on to the buyer.
14. Following the coming into force of the AET (Second Amendment) Act, 2005, the writ petitions were, once again, amended to include challenge to the validity of the amendments so brought in. In short, thus, the present set of writ petitions not only challenge the impugned Notifications, published, in exercise of the State Government's powers under Sub-section (4) of Section 3, between 21.8.2003 and 28.2.2005, but also pose challenge to the AET (Amendment) Ordinance, 2005, and the AET (Second Amendment) Act, 2005, on different grounds.
15. I have heard Mr. Shanti Bhusan, learned senior Counsel, Mr. G.K. Joshi, learned senior Counsel, Dr. A.K. Saraf, learned senior Counsel, and Dr. B.P. Todi, learned senior counsel, for the petitioners, and Mr. K.N. Choudhury, learned Additional Advocate General, Assam, appearing on behalf of the respondents. Other learned Counsel for the petitioners have broadly adopted the submissions made by Mr. Shanti Bhusan.
Whether imposition of entry tax prior to 12.05.2005 suffered from vice of excessive delegation?
16. While considering this aspect of the present writ petitions, what needs to be pointed out, at the cost of repetition, is that prior to the promulgation of the AET (Amendment) Ordinance, 2005, on 12.5.2005, as many as four different notifications were issued, as already indicated above, on 8.1.2002, 21.8.2006, 26.8.2003, 29.9.2004 and 28.2.2005 adding new items, namely, biscuits, all varieties of textiles, namely, cotton, wool or silk including rayon, art silk and nylon textile, whether manufactured by handloom, power-loom or otherwise, biscuits, crude oil, tobacco including cigarette, cheroots, cigar, biri, zarda, khaini, sada and smoking mixture to the Schedule of the AET Act, 2001, with rates of tax specified in these notifications and after these notifications already stood challenged in the present set of writ petitions, the AET (Amenment) Ordinance, 2005, was brought into force on 12.5.2005.
17. Contending that prior to 12.5.2005, when the AET (Amendment) Ordinance, 2005, was promulgated, imposition of entry tax, by way of notifications, issued under Section 3(4) of the AET Act, 2001, suffered from the vice of excessive delegation, Mr. Shanti Bhusan, learned senior Counsel, points out that prior to its amendment by the AET (Amendment) Ordinance, 2005, Sub-section (4) of Section 3 empowered the State Government to add any new item to the Schedule of the said Act without providing any guidelines therefor and also to vary the rates of tax without providing upper ceiling limits in this regard. Such delegation of primary power of taxation by the State Legislature to the State Government is, according to Mr. Shanti Bhusan, nothing, but abdication of the essential legislative function by the State Legislature, The power of taxation, submits Mr. Shanti Bhusan, cannot be delegated to the Government empowering it to tax any new item and to vary the rates of tax unless the Legislature provides to the Government the necessary guidelines in this regard. The power to impose tax, further submits Mr. Bhusan, is a substantive power and such substantive power cannot be delegated in the manner as has been done in the present case.
18. In support of his submission that by leaving the executive completely free to bring any new item within the purview of the AET Act, 2001, and also to fix the rate of the tax so imposed without providing the executive with any guidelines in this regard, the Legislature has abdicated its essential legislative function, Mr. Bhushan places reliance on Devi Das Gopal Krishnan v. State of Punjab and Ors. .
19. Reiterating his submission that the Legislature cannot leave the executive with complete freedom to select any item on which a levy can be imposed nor can the Legislature leave the executive with complete freedom to fix the rate of such levy, Mr. Shanti Bhusan places reliance on Sitaram Bishambher Dayal, etc. v. State of U.P. AIR 1972 SC 1168.
20. Relying on the decision of the Apex Court, in Agricultural Market Committee v. Shalimar Chemical Works Ltd. , Mr. Shanti Bhushan submits that the Legislature must retain, in its own hands, the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the legislative intendment, the legislative policy, the purposes and objects of the legislation. In this regard, Mr. Shanti Bhushan has invited the attention of this Court to the ruling of the Deputy Speaker, Lok Sabha, reported in Lok Sabha Debate, dated 12.5.1969, CC 163, 71-163 82. In his said decision, the Deputy Speaker, Lok Sabha, upheld the point of order raised by a member for deletion of a clause, which was similar to Section 3(4) of the AET Act, 2001. In his said decision, the Deputy Speaker, Lok Sabha, held that the taxation power is a substantive power and it is the prerogative of the Parliament to pass legislation for taxation and the same cannot be done by delegated legislation. Mr. Shanti Bhushan has also referred to the decisions, in Indian Express News Papers (Bombay) Pvt. Ltd. v. Union of India and Ors. and State of Kerala v. K.M. Charia and Abdulla and Co. to explain the concept of subordinate legislation and the role and powers of a delegated authority.
21. It is contended by Mr. Shanti Bhushan that imposition of entry tax by way of mere notification by the State Government is impermissible in law inasmuch as entry tax restricts the freedom of trade and commerce guaranteed under Article 301 and such restrictions cannot be imposed except by appropriate legislation. In support of his contention that when any restriction is sought to be placed on the freedom of trade and commerce guaranteed by Article 301, the restriction can be imposed only by Legislature and it cannot, as is the case at hand, be imposed by any executive action, Mr. Shanti Bhushan has relied on the decisions in District Collector of Hyderabad v. Ibrahim and Co. and Kalyani Stores v. State of Orissa , Mr. Shanti Bhushan also relies on State of Mysore v. H. Sanjeeuiah to demonstrate that no restrictions, on the freedom of trade and commerce, can be imposed by the executive under Article 304(b) in exercise of delegated authority.
22. The submissions made above by Mr. Shanti Bhusan on the question of excessive delegation have been adopted by the other learned Counsel, appearing on behalf of the various writ petitioners, in the present set of writ petitions. Moreover, Dr. B.P. Todi, learned senior Counsel for the petitioners, who are textile merchants, has further pointed out that the inclusion of all varieties of textiles by the impugned notification, dated 26.8.2003, clearly shows that though, at one stage, all kinds of textiles and fabrics were, in terms of the denial to accord sanction by the President, excluded from the ambit of the AET Act, 2001, while bringing into force the Act, on 1.10.2001, yet the State Government, subsequently, by making use of the unbridled powers vested in it by Sub-section (4) of Section 3, has issued the impugned notification, dated 26.8.2003, aforementioned, imposing entry tax on various goods including all varieties of textiles and fabrics.
23. Controverting the submissions made on behalf of the petitioners, Mr. K.N. Choudhury, learned Additional Advocate General, has submitted that it is not unconstitutional for the Legislature to leave it for the executive to determine the details relating to the working of a taxing statute, such as, selection of persons on whom tax has to be imposed, rates at which the tax has to be charged, etc. Reliance, in support of this submission, is placed by Mr. Choudhury on the decisions in Pandit Banarasi Das Bhanwahlol v. State of M.P. reported in (1958) 9 STC 288, and Sitaram Bishambher Dayal v. State of U.P. AIR 1972 SC 1168.
24. Though the. Legislature, agrees Mr. K.N. Choudhury, cannot abdicate its essential legislative functions, it can, nevertheless, lay down, according to Mr. Choudhury, the policy and provide necessary guidelines enabling the executive to select the goods on which levy may be imposed and also to choose the rates at which such levy shall be payable. Mr. Choudhury has further submitted that the AET Act, 2001, was passed after complying with the due procedural requirements of law and the same is a valid piece of legislation. The Legislature, in the present case, exercised, according to Mr. Choudhury, its essential legislative power to levy entry tax by enacting the AET Act, 2001, but whom to tax, what to tax and at what rate the tax shall be imposed was left, by virtue of Section 3(4) of the said Act, to the executive to decide. A legislation, such as the present one, is, contends Mr. Choudhury, a valid piece of legislation.
25. Mr. Choudhury has contended that the validity of the guidelines given by the Legislature to a delegated authority cannot be tested by any uniform rule and the same must depend on the object of the enactment giving the delegated authority the power to fix the rate of tax. In support of this contention, Mr. Choudhury seeks to derive strength from the decision in Corporation of Calcutta v. Liberty Cinema .
26. Reacting to the submissions made on behalf of the respondents, Mr. Shanti Bhushan has pointed out that there is no dispute that if the Legislature lays down the legislative policy and provides necessary guidelines, it can delegate to the executive the functions, such as, selection of persons on whom the tax shall be levied and the rates at which the tax shall be charged. The decision, in Pandit Banarasi Das Bhanwahlol v. State of M.P. (1958) 9 STC 258, has not, contends Mr. Shanti Bhushan, laid down the proposition that the Legislature, without providing guidelines, can delegate absolute power to the Government to impose tax on new items by way of notification and to vary the rate of tax without providing any upper ceiling limits in this regard.
27. Mr. Shanti Bhusan submits that the decision of Apex Court, in Sitaram Bishambher Dayal v. State of U.P. AIR 1972 SC 1168, in fact, supports the case of the petitioners inasmuch as the Apex Court, in Sitaram Bishambher Dayal (supra), has clearly held that if the Legislature provides necessary guidelines, the power to fix the rate of tax can be delegated to the executive. Similarly, submits Mr. Shanti Bhusan, in Hiralal Ratanlal v. State of U.P. reported in (1973) 31 STC 178, the Supreme Court has clearly held that the Legislature cannot delegate its essential legislative function.
28. Referring to the decision in Corporation of Calcutta v. Liberty Cinema , Mr. Shanti Bhushan has further submitted that the controversy, in the present case, with regard to fixation of rates of tax by the State Government, is as to whether the Legislature can delegate the power of fixation of rate of tax to the executive without giving any guidelines and without providing the upper ceiling limits. In the decisions, relied upon by the respondents, it has not been held, points out Mr. Shanti Bhushan, that without providing any guidelines and without providing any upper ceiling limits, the Legislature can delegate to the executive the power of fixation of the rate of tax ; whereas, in the decisions relied upon by the petitioner, it has been clearly held, points out Mr. Shanti Bhusan, that the substantive power of taxation cannot be delegated to the executive enabling the executive to impose tax on new items by way of notification unless necessary guidelines are provided to the executive by the Legislature in this regard, nor can, according to Mr. Shanti Bhushan, the State Government be allowed to vary the rate of tax without the Legislature having provided upper ceiling limits or guidelines in this regard. To the case at hand, therefore, the Liberty Cinema's case (supra) has, submits Mr. Shanti Bhusan, no application at all.
29. While considering the rival submissions noted hereinabove, it is pertinent to note that Sub-section (4) of Section 3 of the AET Act, 2001, (as the same stood prior to the coming into force, on 12.5.2005, the AET (Amendment) Ordinance, 2005 empowered the State Government to, inter alia, add any new item to the Schedule of the said Act and bring thereby such an item within the purview of the entry tax and also to choose or vary the rates of tax. For choosing any item for being added to the said Schedule or for selecting the rate of tax in respect of such an item or to vary the rates of tax already fixed in the Schedule to the AET Act, 2001, neither Sub-section (4) of Section 3 nor any other provisions of the said Act laid down any guidelines or any policy nor did the Act fix the upper ceiling limits for choosing the rate of tax. Can such a piece of legislation and the action taken pursuant thereto by the State Government be allowed to survive?
30. While considering the question posed above, it needs to be borne in mind that, as held by the Supreme Court, in Pandit Banarasi Das Bhanwahlol (supra), it is not unconstitutional for the Legislature to leave it to the executive to determine the details relating to the working of a taxing statute, such as, selection of persons on whom to impose tax, rates at which it is to be charged, etc. Such a liberty is given to the Legislature, because, the Legislature often finds it convenient and necessary to delegate subsidiary and auxiliary power to the delegatee to carry out the policy laid down by the legislation as a part of the administrative law. The Legislature must, however, in such a case, lay down the legislative policy and principles so as to afford the executive necessary guidelines enabling it to implement the policy. See Shalimar Chemical Works Ltd., In re .
31. In Avinder Singh v. State of Punjab , the Supreme Court laid down the tests for valid delegation of legislative power. These tests are:
1. That Legislature cannot efface itself;
2. It cannot delegate the plenary or the essential legislative function;
3. Even if there be delegation, Parliamentary control over delegated legislation should be a living continuity as a constitutional necessity.
It was further observed, in Avinder Singh v. State of Punjab (supra), thus:
While what constitutes an essential feature cannot be delineated in detail it certainly cannot include a change of policy. The Legislature is the master of legislative policy and if the delegated is free to switch policy it may be usurpation of legislative power itself.
32. From what has been laid down in Avindar Singh (supra), it becomes clear that the Legislature cannot delegate its plenary and essential functions and thereby, as correctly contends Mr. Shanti Bhusan, abdicate its essential legislative powers in favour of the delegatee. From Avindar Singh (supra), it also becomes crystal clear that the Legislature cannot leave the executive with the choice of changing policy, for, the Legislature must remain the master of the legislative policy and if, in a given case, a delegatee is given the freedom to switch or amend the policy, it will amount to usurpation of legislative power by the delegatee. The essential legislative function consists of determination of legislative policy and the Legislature cannot abdicate such essential legislative function in favour of another. To put it differently, while the power to make subsidiary legislation may be entrusted by the Legislature to another body of its choice, the Legislature must, before delegating the power, lay down the policy and the principles for guidance of the delegatee in order to enable the delegatee to implement Ihe legislation. The effect of such a delegation of power is that the delegatee has to work within the ambit of the guidelines and the policy, which the Legislature may have enunciated in the legislation concerned. Concluded, therefore, the Supreme Court, in Agricultural Market Committee v. Shalimar Chemical Works Ltd. (supra), as under:
The principle, which therefore, emerges out, is that the essential legislative function consists of the determination of the legislative policy and legislature cannot abdicate essential legislative function in favour of another. Power to make subsidiary legislation may be entrusted by the Legislature to another body of its choice, but the Legislature should before delegating enunciate either expressly or by implication, the policy and the principles for guidance of the delegates. These principles also apply to taxing statutes. The effect of these principles is that the delegatee which has been authorized to make subsidiary rules and regulations has to work within the scope of the Act or the policy laid down there under. It cannot in the grab of making rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act.
33. In the case at hand, while Sub-section (4) of Section 3, prior to its amendment by the AET (Amendment) Ordinance 2005, empowered the State Government to add new entries into the Schedule appended to the AET Act, 2001, and to vary the rates of tax on the goods, so included in the Schedule or which already stood included in the Schedule, what is of immense importance to note is that the Act, in question, gave no guidelines to the State Government as to how it would determine as to which item shall be brought within the ambit of the said Act nor did the Legislature lay down the upper ceiling limits of the rates at which such tax could have been imposed. The State Government was even left with complete freedom to bring any item of goods within the ambit of the AET Act, 2001. The State Legislature, thus, totally effaced itself by giving the State Government complete freedom to impose entry tax on any goods at any rate. No wonder, therefore, that while passing the enactment, though textile and fabrics were, on the specific direction of the President, once excluded, the same were brought in by way of impugned notification, dated 26.8.2003, as an item of the impugned levy. Not a word could be submitted, on behalf of the State, to justify the inclusion of textiles and fabrics within the ambit of the AET Act, 2001. When the Legislature has provided no guidelines to the executive and has formulated no policy whatsoever for determining as to how to choose an item for the purpose of bringing the same within the ambit of the said Act and when the Legislature has completely failed to either fix the upper ceiling limits or provide guidelines for choosing the rate of tax, one cannot help but hold, and I do hold, that while enacting Sub-section (4) of Section 3, empowering the State Government to add to the Schedule any item, the State Legislature abdicated its essential legislative function. What, therefore, logically follows is that the impugned notifications, dated 21.8.2003, 26.8.2003, 29.9.2004 and 28.2.2005, suffer from the vice of excessive delegation and must be treated as non est in law.
34. In Devi Das Gopal Krishnan (supra), the Apex Court held Section 5 of the Punjab General Sales Tax Act to be void, for, Section 5 was found to have conferred on the Government unconstitutional power to levy tax at such rates as the Government may direct. The Apex Court, in such circumstances, held that the Legislature has practically effaced itself in the matter of fixing of ceiling inasmuch as it did not give any guidelines either under Section 5 or any other provisions of the Act.
35. In fact, as correctly contended by Mr. Shanti Bhusan, the decision in Sitaram Bishambher Dayal (supra) supports the case of the petitioners inasmuch as the Supreme Court, in Sitaram Bishambher Dayal (supra), has held as follows:
It is true that the power to fix a rate of tax is a legislative power, but if a Legislature lays down the legislative policy and provides the necessary guidelines, this power can be delegated to the Executive. Though a tax is levied primarily for the purpose of gathering revenue, in selecting the objects to be taxed and in determining the rate of tax, various economic and social aspects, such as the availability of goods, administrative convenience, the extent of evasion, the impact of tax levied on the various section of the society etc., have to be considered. It can be used to achieve the economic and social goods of the State. For that reason, the power to tax must be flexible power. It must be capable of being modulated to meet the exigencies of the situation. In a Cabinet form of Government, the Executive is expected to reflect the views of the Legislature. In fact, in most matters it gives lead to the Legislature. Present position as regard the delegation of legislative power may not be ideal, but in absence of any better alternative there is no escape from it The Legislature has neither time nor the required detail information, nor even the mobility to deal in detail with innumerable problems arising time and again. In certain matters, they can only lay down the policy and guidelines in as clear a manner possible.
In the case of Hiralal Ratanlal v. State of U.P. reported in (1973) 31 STC 178 (sq, also, the Apex Court held that-
It is true that Legislature cannot delegate its legislative functions to any other body. But subject to that qualification, it is permissible for the Legislature to delegate the power to select the person on whom the tax is to be levied or the goods or the transactions on which the tax is to be levied.
36. As a matter of fact, even in Liberty Cinema's case (supra), though the Constitution Bench held that the validity of the guidance given by the Legislature to the executive, in the case a piece of delegated legislation, cannot be decided by a rigid uniform rule, the Constitution Bench observed, in no uncertain words, thus:
No doubt when the power to fix rates of tax is left to another body, the Legislature must provide guidance for such fixation.
37. In the face of the above observations made by the Constitution Bench in Liberty Cinema (supra), there can be no escape from the conclusion that when the Legislature does not provide any guidance to the executive in order to enable the latter to fix rate of tax, such legislation suffers from serious infirmity of law and cannot be sustained. Whether necessary guidance has been provided to the executive in a given case remains a question of fact. In the case at hand, there is absolutely nothing either in Sub-section (4) of Section 3 or in any other provisions of the AET Act, 2001, as to what parameters the State Government would use for determining the rate of tax. Viewed, thus, it is abundantly clear that Section 3(4) suffers from the vice of excessive delegation.
38. Though Mr. Shanti Bhusan has referred to Ibrahim & Co. (supra) and Kalyani Stores (supra) in support of his contention that an entry tax, being restrictive in nature, cannot be imposed by a delegated authority, this aspect of the matter needs no examination, when clear findings of this Court are that the impugned notifications suffer from the vice of excessive delegation and cannot, therefore, be sustained.
39. To sum up, Sub-section (4) of Section 3 of the AET Act, 2001, is, to the extent that the same empowers the State Government to add, by way of mere notification, new items in the Schedule for the purpose of levying entry tax on such items, is wholly impermissible in law and cannot be allowed to survive. In consequence thereof, the impugned notifications, dated 21.8.2003, 26.8.2003, 29.9.2004 and 28.2.2005, aforementioned cannot be sustained.
Whether the imposition of Entry Tax on the specified goods, namely, tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture and crude oil is in violation of Sections 14 and 15 of the Central Sales Tax Act, 1956, and/or of the provisions of Additional Duty of Excise (Goods of Special Importance) Act, 1957?
40. Referring to Article 286 of the Constitution of India, Dr. Saraf submits that same as Article 301, Article 286 also aims at preserving the economic unity of India and, hence, the Parliament has, by enacting the Central Sales Tax Act, 1956, made provisions therein to ensure that imposition of sales tax by the States does not cause hindrance to the inter-State trade and commerce or upset the economic unity of India. With this end in view, points out Dr. Saraf, Section 14 of the Central Sales Tax Act, 1956, declared certain goods to be of special importance in inter-State trade and commerce. Though tobacco, further points out Dr. Saraf, had not been included in the list, which appeared under Section 14, tobacco and its products were added to this list, in the year 1958, making tobacco and its products as goods of special importance in inter-State trade and commerce. Similarly, submits Dr. Saraf, crude oil was also added to this list of goods of special importance at a later stage. Dr. Saraf has also submitted that in order to ensure that no hindrance is caused by unreasonable imposition of local sales tax by States on these declared goods, Section 15 of the Central Sales Tax Act, 1956, requires that a tax, payable in respect of any sale or purchase of any declared goods, inside a State, shall not exceed 4 per cent of the sale or purchase price and that such a tax shall not be levied at more than one stage. In support of this submission, Dr. Saraf has referred to State of Madras v. N.K. Nataraja Mudaliar and Telengana Steel Industries v. State of Andhra Pradesh reported in (1994) Supp (2) SCC 259.
41. Referring to the Additional Duty of Excise (Goods of Specific Importance) Act, 1957, (in short, 'the ADE Act'), Dr. Saraf submits that having realized the importance of tobacco and its products in the realm of inter-State trade and commerce and also in consideration of the fact that these goods were subjected to a very high-level of taxation by the Centre, the States and the local bodies, an agreement was arrived at between the Centre and the States, whereby the States surrendered their right to levy various taxes on tobacco by whatever name called and, in lieu thereof, agreed to receive a share in the additional excise duty imposed on tobacco. The ADE Act, points out Dr. Saraf, incorporates this agreement in the form of the scheme of this enactment. Pointing out that the State of Assam takes its share from the revenue collected by imposition of additional excise duty under the ADE Act, Dr. Saraf submits that the State of Assam cannot impose any tax including entry tax, when it is collecting its share from the revenue collected by way of imposition of additional excise duty on tobacco, crude oil, etc. The impugned entry tax is, thus, according to Dr. Saraf, violative of the provisions of the ADE Act.
42. With regard to the above submissions made on behalf of the petitioners, Mr. K.N. Choudhury, learned Additional Advocate General, has submitted that after deletion of Article 272, the 11th Finance Commission has diluted the special significance of the additional duty of excise by making the additional duty of excise a part of the general revenue of the Central Government and, as a result thereof, the States have been deprived of the proceeds of the additional excise duty to a large extent. It is contended by Mr. Choudhury that after the 80th Amendment of the Constitution, the additional duty of excise is no longer a levy in lieu of sales tax. Upon deletion of Article 272 and because of the nature of the recommendations of the 11th Finance Commission, the States are, now, according to Mr. Choudhury, not only empowered to make laws under Entry 52 of the State List, such as, the present entry tax, but also to impose sales tax by taking recourse to Entry 54 of the State List.
43. Let me, now, consider the correctness or merit of the rival submissions made on the question as to whether, in the face of the fact that the Central Sales Tax Act, 1956, declares some goods, such as tobacco, crude oil, etc., as goods of special importance in the inter-State trade and commerce, the fact that the Central Sales Tax Act, 1957, imposes a ceiling on the maximum limit to which sales tax can be imposed on sale or purchase of such goods and also the fact that under the ADE Act, the States do take their share in the additional excise duty, whether the States are barred from levying entry tax. It is of utmost importance to note, in this regard, that Part XI of the Constitution of India, which embodies Articles 245 to 255, deals with the distribution of legislative powers of the Union and the States. The three lists of the Seventh Schedule to the Constitution of India are not powers of legislation, but fields of legislation. The entries in these lists are mere legislative heads of enabling character. These entries define and delimit the restrictive areas and legislative competence of the Union and State Legislatures. The power to legislate is, however, primarily, derived by the Union as well as the States from Articles 246 read with Article 245.
44. It is important to bear in mind that under Article 246(1), while the Parliament has exclusive power to make laws with respect to any of the matters enumerated in Union List in the Seventh Schedule, the State Legislature has, under Article 246(3), exclusive power to make laws for its State or any part thereof with respect to any of the matters enumerated in State List in the Seventh Schedule subject, however, to the powers of the Parliament given under Article 246(1) meaning thereby that no State Legislature can make laws setting at naught a piece of parliamentary legislation made under Article 246(1). As regards the Concurrent List, Article 246(2) makes it clear that while Parliament as well as State Legislatures have the power to make laws with respect to any of the matters enumerated in the Concurrent List, yet in case of any conflict between the two, it is the legislation made by the Parliament, which shall prevail.
45. Parliament or a State Legislature should keep within the domain assigned to it and should not trespass into the domain reserved for the other, and a law made by one - be it Union or State - trespasses into, or encroaches upon, the field of legislation assigned to the other is invalid. But before the legislation, with respect to a subject in one List and touching also a subject in another List, is declared to be void, the courts apply the rule of pith and substance. In determining whether an enactment is legislation "with respect to" a given power, what is relevant is not the consequence of the enactment on the subject-matter, but whether, in its pith and substance, it is a law upon the subject-matter in question. This was emphasized very clearly in Gallagher v. Lynn 1937 AC 863 at 870, in these words, "It is well established that you are to look at the 'true nature and character of legislation'; the 'pith and substance of the legislation'. If, on the view of the statute, as a whole, you find that the substance of the legislation is within the express powers, then, it is not invalidated if incidentally it affects matters, which are outside the authorized field."
46. The doctrine of 'pith and substance' has been developed in Canada. The leading Canadian cases on this doctrine are : Citizens. Insurance Co. v. Parsons 7 AC. 96; Russell v. The Queen 1882 7 AC. 829; Attorney General for Canada v. Attorney General for British Columbia 1930 AC. 111.
47. The Federal Court in AL.S.P.P.L. Subrahmanyam Chettiar v. Muattuswami Goundan AIR 1941 FC 47 followed the doctrine. In Prafulla Kumar Mukherjee v. Bank of Commerce Ltd. Khulna AIR 1947 PC 60, the Privy Council referred to Subramanayam Chettiar's case in dealing with the question of distribution of powers and laid down the test of pith and substance. The Privy Council, while referring to Subramanayam Chettiar's case, quoted Sir Gwyer, CJ, thus:
It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that a blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule, which has been evolved by the Judicial Committee, whereby the impugned statute is examined to ascertain its 'pith and substance' or 'its true nature and character' for the purpose of determining whether it is a legislation with respect to the matters in this list or in that.
48. The doctrine of "pith and substance", adopted by the Privy Council, was followed by the Supreme Court. In State of Bombay v. F.N. Balsara AIR 1951 SC 318, the Supreme Court held that if an enactment, when so viewed, substantially falls within the powers expressly conferred upon the Legislature, which enacted it, then, it cannot be held to be invalid merely because it, incidentally, encroaches on the matters, which have been assigned to another Legislature. In such matters of seeming conflict or encroachment of jurisdictions, what is more important is the true nature and character of the legislation. A necessary corollary of the doctrine of pith and substance is that once it is found that in pith and substance, the impugned enactment is a law on the permitted field, any incidental encroachment, into a forbidden field, does not affect the competence of the Legislature to enact the law.
49. The rule of pith and substance envisages that the legislation, as a whole, be examined to ascertain its "true nature and character" in order to determine in what List it falls. If according to its "true nature and character", the legislation substantially falls within the powers conferred on the Legislature, which has enacted it, then, it is not invalid merely because it "incidentally" trenches or encroaches on matters assigned to another Legislature. To ascertain the true character of a law, it must be looked into as an organic whole. It would be a wrong approach to view the statute as a mere collection of sections, to disintegrate it into parts, to examine under which entry each part would fall and, then, to determine which part of it is valid and which invalid. Instead, the enactment should be taken in one piece and, then, its true character determined. The doctrine of pith and substance saves the incidental encroachment if the law, in pith and substance, falls within an entry or within the legislative field of the particular Legislature, which has made it. Once it is found that in pith and substance, a law falls within the permitted field, any incidental encroachment by it on a forbidden field does not affect the competence of the Legislature to enact the law. Effect is not the same thing as subject-matter. If a State enactment, otherwise valid, has the effect on a matter in Union List, it does not cease to be a legislation with respect to an entry in State List or Concurrent List.
50. The doctrine of pith and substance introduces a degree of flexibility into the otherwise rigid scheme of distribution of powers. It gives an additional dimension to the powers of the Centre as well as the States. The reason behind the rule is that if every legislation were to be declared invalid, however slight or incidental the encroachment into the other field is, then, the power of each Legislature will be drastically circumscribed to deal effectively with the subjects entrusted to it. The doctrine gives quite a good deal of manoeuvrability to the courts and furnishes them with a tool to uphold legislation, for, it is for them to decide its true nature and character and, thus, they have a number of choices open to them and, most often, the courts by putting a favourable interpretation on the legislation, in question, use their power to support the same. Kannan Devan Hills Produce Co. Ltd. v. State of Kerala . Therefore, in deciding whether any particular enactment is within the purview of one legislature or the other, it is the pith and substance of the legislation, in question, that has to be looked into Synthetics and Chemicals Ltd. v. State of U.P. , Ujagar Prints (II) v. Union of India para 23, State of Karnataka v. Drive in Enterprises .
51. It is settled position of law that if the source of power of the State Legislature can be traced to an entry in the State List, the enactment, as a whole, will be valid even if there is incidental encroachment on the field covered by parliamentary legislation or reserved for legislation by Parliament unless both the enactments are of such a nature that none of the two can survive together. In such a situation, if the Parliamentary legislation can be traced to an entry in the Union List or Concurrent List, it is the parliamentary legislation, which must prevail. Reference may be made, in this regard, to Sudhir Chandra Nawr v. Wealth Tax Officer and Indu Bhushan Bose v. Rama Sundari Debi .
52. Laying down the principles of interpretation, when the validity of the legislations made under various entries are challenged, the Apex Court (per Y.K. Subbarwal, J, as his lordship then was) observed, in ITC v. Agricultural Produce Market Committee , as follows:
97. The principles of interpretation are well settled. There is no doubt that the entries in the lists in the Seventh Schedule do not provide competence or power to legislate on the Legislature for which the source of power is contained in Article 246 of the Constitution. In deciding question of legislative competence, it has to be kept in view that the Constitution is not required to be considered with a narrow or pedantic approach. It is not to be construed as a mere law but as a machinery by which laws are made. The interpretation should be broad and liberal. The entries only demarcate the legislative field of respective Legislature and do not confer legislative power as such and if it is found that some of the entries overlap or is conflict with the other, an attempt to reconcile such entries and bring about a harmonious construction is the duty of the court. When, however, reconciliation is not possible, as here, then the court will have to examine the entries in relation to legislative power in the Constitution.
(emphasis is added)
53. From the concurring judgment of Ruma Paul, J, in the ITC Ltd. (supra), it is clear that the majority accepted that the non-obstente clause in Article 246(1) and the words "subject to", in Articles 246 and 243, establish supremacy of Parliament and if any of the entries in the three Lists overlap, the entry in List I will prevail. Coupled with this, some entries in the State List have been expressly made subject to the power of the Parliament to legislate either under List I or under List III. This becomes clear from the following observations made in the ITC Limited (supra)(Per Ruma Paul, J) at para 129 and 130:
129. That the legislative power of Parliament in certain areas is paramount under the Constitution is not in dispute. What is in dispute is the limits of those areas as judicially defined broadly speaking parliamentary patrimony is provided under Articles 246 and 254 of the Constitution. The first three clauses of Article 246 of the Constitution relate to the demarcation of legislative power between the Parliament and the State Legislature under Clause (1), notwithstanding any thing contained in Clauses (2) and (3) Parliament has given exclusive power to make laws with respect to any of the matters enumerated in List I or the Union List in the Seventh Scheduled Clause (2) empowers the Parliament, and State Legislatures subject to the power of Parliament under Sub-clause (1) to make laws with respect to any of the matters enumerated in List III in the Seventh Scheduled in the Constitution as the "Concurrent List" notwithstanding anything contained in Sub-clause (3). The State Legislatures have been given exclusive powers in respect of matter enumerated in List II in the Seventh Schedule described as the 'State List' but subject to Clauses (1) and (2). The three lists while enumerating in detail, the legislative subjects carefully distributes the areas of Legislative Authority between Parliament (List I) and the State (List II). The supremacy of Parliament has been provided by the non-obstinate clause in Article 246(1) and the words 'subject to' in Article 246(2) and (3). Therefore, under Article 246(1) if any of the entries in the three lists overlap, the entry in List I will prevail. Additionally some of the entries in the State List have been made expressly subject to the power of Parliament to legislate either under List I of under List III. Entries in the List of the Seventh Schedule have been liberally interpreted; nevertheless Courts have been wary of upsetting this balance by a process of interpretation so as to deprive any entry of its content and reduce it to useless 'lumber'. The use of word 'exclusive' in Clause (3) denotes that within the legislative fields contained in List II, the State Legislatures exercise authority as plenary and ample as Parliament. The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis-a-vis the States does not mean that States are mere appendages of the Center. Within the sphere allotted to them, States are Supreme. The Centre cannot tamper with their powers. More particularly, the courts should not adopt an approach, an interpretation, which has the effect of or tends to have the effect of whittling down the powers reserved to the States.
130. Although Parliament cannot legislate on any of the entries in the State List, it may do so incidentally while essentially legislating within the entries under the Union List. Conversely, the State Legislatures may encroach on the Union List, when such an encroachment is merely ancillary to an exercise of powers intrinsically under the State List. The fact of encroachment does not affect the vires of the law even as regards the area of encroachment. This principle commonly known as the doctrine of pith and substance, does not amount to an extension of the Legislative fields. Therefore, such incidental encroachment in either event does not deprive the State Legislature in the first case or Parliament in the second of their exclusive powers under the entry so encroached upon. In the event the incidental encroachment conflicts with legislation actually enacted by the dominant power, the dominant legislation will prevail.
54. From a close reading of the above observations of the court (per Ruma Paul, J), it is clear that if any of the legislations made by the State with respect-to any entry in the State List collides with parliamentary legislation made with respect to any of the entries in the Union or Concurrent List and if a situation arises, where the two enactments, one made by the Parliament and the other by a State Legislature, cannot coexist together, then, it is the Parliamentary Legislation, which will prevail, if the same can be traced to the Union or Concurrent List. The Parliamentary legislation, in the I.T.C. Ltd.,(supra) was struck down, if I may point out, because the Parliamentary enactment was found to be not within the field set forth by the entries in the Union and/or the Concurrent Lists; whereas the State legislation could be traced to a field reserved for the States in the State List.
55. Bearing in mind the above scheme of distribution of legislative powers between the Parliament and Legislatures of the States, one has to determine the question as to whether the impugned entry tax is violative of Sections 14 and 15 of the CST Act, 1956.
56. While considering the question posed above, it may be pointed out that the Central Sales Tax Act, 1956, (in short, 'the CST Act'), is a legislation made by the Parliament with the help of its powers under Article 286 read with Entry 92A of the Union List; whereas the entry tax is imposed by a State by making law under Entry 52 of the State List. Thus, the fields of legislation in respect of the CST 'Act and the entry tax are entirely different. Unless, therefore, it can be shown that the legislation made under Entry 52 encroaches upon the field of legislation reserved for Parliament under any of the entries in the Union List or that the legislation made under Entry 52 entrenches upon a legislation made by Parliament under any of the entries in the Concurrent List, the court cannot interfere with the legislation made under Entry 52 of the State List if such legislation is, otherwise, in conformity with the provisions of the Constitution and the law in force. Merely because of the fact that in respect of some of the goods, such as, cigarettes, cheroots, cigars, biri, zarda, khaini, sada and smoking mixtures and crude oil, parliamentary legislations, such as, the CST Act and/or the ADE Act exists, such parliamentary legislations cannot be taken to have denuded the State of its legislative power under Entry 52 of the State list.
57. Bearing the above aspect of the matter in mind, it may be further pointed out that Article 286, as correctly contended by Dr. Saraf, seeks to preserve the economic unity of India. There can also be no doubt that the CST Act, enacted by the Parliament, in exercise of its powers under Article 286, are measures taken to ensure that imposition of sales tax by the States does not cause hindrance or obstruction in the inter-State trade and commerce and upset thereby the economic unity of the nation. Section 14 of the CST Act declares certain goods as goods of special importance in inter-State trade and commerce. This list of goods of special importance, admittedly, includes tobacco, its products and crude oil. If an entry tax is not a regulatory or compensatory in nature, it requires, amongst others, sanction of the President for the obvious reason that the Union Government has to ensure that the freedom of trade, commerce and intercourse throughout India is protected and a State is not allowed to impose such tax, which may burden the inter-State trade and commerce in respect of any of such declared goods.
58. Section 15 of the CST Act places some restrictions with regard to imposition of tax on sale or purchase of declared goods within the State, one of these restrictions being that a tax, payable in respect of any sale or purchase of any declared goods inside a State, shall not exceed 4 per cent of the sale or purchase price and that such a tax shall not be levied at more than one stage. These provisions serve the dual purpose of maintaining, on the one hand, the source of revenue of the States with the help of local sales tax and, at the same time, prevent, on the other hand, the States from subjecting transactions, in the course of inter-State trade and commerce, to such taxation, which obstructs free flow of trade by making goods, which are of special importance in inter-State trade and commerce, unduly expensive. In short, Section 15 aims at minimizing the tax burden on the declared goods, because of the special importance of these goods in inter-State trade and commerce. This position of law succinctly comes out of the observations made in N.K. Nataraja Mudaliar (supra) and Telengana Steel Industries (supra). In N.K. Nataraja Mudaliar (supra), the relevant observations proceed, thus:
Under the Constitution as originally framed, revenue from sales-tax was reserved to the States. But since the power of taxation could be exercised in a manner prejudicial to the larger public interests by the States it was found necessary to restrict the power of taxation in respect of transactions which had an inter-State content. Amendment of Article 286, and the Central Sales Tax Act, 1956, were all intended to serve a dual purpose to maintain the source of revenue from sales-tax to the States and at the same time to prevent the States from subjecting transactions in the course of inter-State trade so as to obstruct the free flow of trade by making commodities unduly expensive.
59. In Telengana Steel Industries (supra), the relevant observations are as under:
At this stage, we may note the object behind interdicting multiple-point tax on declared goods which follows from the mandate contained in Clause (a) of Section 15 of the Act. According to us, the purpose behind this provision is to minimize the tax burden on declared goods because of the special importance of these goods in inter-State trade and commerce.
60. What is, however, of immense importance to note, now, is that while Section 14 declares certain goods as goods of special importance in inter State trade and commerce and Section 15 put a cap on the legislative powers of the State to impose local sales tax on goods of special importance at a rate higher than 4 per cent of the sale or purchase price and at not more than one stage, the fact remains that a tax imposed under Entry 52 of the State List, such as the present entry tax, is not a sales tax. Logically, therefore, merely on the ground that a particular commodity is a commodity included in the list given under Section 14 of the CST Act, inclusion of such a commodity in such a list cannot be taken to have, and, in fact, has not, denuded the States of its legislative freedom to impose a tax in terms of Entry 52 of the State List. Thus, it is clear that the impugned entry tax is not in violation of Sections 14 and 15 of the CST Act, 1956.
61. Let me, now, consider if the impugned entry tax is violative of the ADE Act. If put in a narrow compass, Dr. Saraf's submissions on the subject of the ADE Act are, thus:
Since the ADE Act was a result of an agreement reached by the States with the Union Government and the ADE Act is intended to prevent levy of all forms of taxes leviable on the goods by the States, no State cannot, now, while receiving its share in the collection of additional duty of excise impose entry tax by taking recourse to Entry 52 of the State List.
62. While dealing with the question as to whether the impugned entry tax is in violation of Sections 14 and 15 of the CST Act, it has already been pointed out above that the impugned entry tax has been imposed under Entry 52 of the State List. What is, however, of paramount importance to note, now, is that under Entry 52, a tax can be imposed on the entry of goods into a local area for consumption, use or sale therein. Thus, the mere entry of goods into a local area is not enough to attract the levy of entry tax nor mere sale thereof within the local area unless the entry is for the purpose of sale, consumption or use within the local area. Hence, the levy imposed under Entry 52 of the State List is not a tax on mere sale unless the very entry of the goods into a local area is for any of the purposes indicated hereinbefore. Since the field reserved for the States under Entry 52 has not been limited by any other entries in the Union or Concurrent List, levy imposed, under Entry 52, cannot be said to be beyond the competence of the State Legislatures. In the case at hand, there is absolutely nothing on record to show that any of the parliamentary legislation is being encroached upon by the impugned tax. While considering as to whether the ADE Act was really meant as a substitute for tax on sale or purchase of scheduled commodities or whether the ADE Act was meant to be a substitute for all kinds of taxes, cess and fees, which the States are, otherwise, entitled to impose by virtue of various entries in the State List or by virtue of the Concurrent List, it is important to note that in exercise of its powers conferred by Section 6 of the ADE Act, the Central Government has framed rules under the ADE Act. Rule 2 reads as follows:-
During each of the financial years commencing on and after the 1st day of April, 1974, there shall be paid to each of the States specified in column 1 of the Table below such percentage of the net proceeds after deducting therefrom a sum equal to 1.41 per cent of the said proceeds as being attributable to Union Territories, as is set out against it in column 2:
Provided but if during the financial year there is levied and collected in any State a tax on the sale or purchase of sugar, tobacco, cotton fabrics, woollen fabrics, rayon or artificial silk fabrics or one or more of them by or under any law of that State, no sums shall be payable to that State under this paragraph in respect of that financial year unless the Central Government by special order otherwise directs.
63. A patient examination of the proviso to Rule 2 makes it clear that if, during a financial year, a State levies and collects a tax on the sale or purchase of any of the Scheduled goods by or under a law made by such a State, no sums shall be payable to such a State in respect of that financial year unless the Central Government, by special order, otherwise, directs. Thus, the ADE Act make no reference to any tax other than the tax on sale or purchase of goods. Viewed from this angle, there can be no escape from the conclusion that if an entry tax, by taking recourse to Entry 52 of the State List, imposed by a State is, otherwise, in conformity with the provisions of the Constitution, such a levy cannot be interfered with on the ground that the State receives its share of revenue under the ADE Act. The ADE Act, it needs to be borne in mind, has been enacted by Parliament under Entry 84 of the Union List; whereas the impugned Act has been made by the State concerned on the basis of the field of legislation reserved for the States under Entry 52 of the State List.
64. The Parliament is not competent to make any law with reference to Entry 52 or with reference to even Entry 54 of the State List. Article 252 of the Constitution, no doubt, empowers the Parliament to make a law even with respect to a matter, which appears in the State List, if two or more States pass resolution requesting the Parliament to make a law in that behalf. The ADE Act is, admittedly, not a piece of legislation made under Article 4 of the State List. The States' power to levy tax in terms of Entry 52 of the said List remains, thus, untouched and unaffected by the ADE Act. What the Parliament has done by enacting the ADE Act is that it has made the law for the purpose of levying additional duties of excise and make over a specified portion thereof to the States provided that the States do not levy taxes on the sale or purchase of the commodities, which appear in the Schedule of the ADE Act. If any State chooses to make a law on the sale or purchase of scheduled goods, the consequence is obvious and the consequence would be that the State would be deprived of its share of the proceeds of the additional duties of excise in respect of the financial year in which it imposes, 'by virtue of enactment made by it, tax on the sale or purchase of the goods within the State. Neither the Parliament could have, nor has it, prohibited any State from making any law or levying any tax, which a State is, otherwise, entitled to levy by virtue of the Entries in the State List.
65. A question similar to the one, which Dr. Saraf has raised, in the present case, with regard to the ADE Act, was raised in Bihar Chamber of Commerce (supra) and has been answered in the negative. This part of the decision of the Bihar Chamber of Commerce (supra) has not been overruled by the Constitution Bench in Jindal Stainless Steel Ltd. (supra). In Bihar Chamber of Commerce (supra), the Apex Court, having discussed the effect of the ADE Act on the State's power to impose levy under Entry 52 of the State List, has concluded, thus:
We are also of the opinion that the scope of the ADE Act cannot be extended by reference to anterior reports or correspondence between the Centre and the States, as the case may be, apart from the fact that the material referred to is not unambiguous. Para 32 at p. 126 of the Taxation Enquiry Commission (1953-54), the relevant portion whereof we have extracted hereinbefore, is more in the nature of a statement of fact coupled with a recommendation. All that it says is that the States had imposed several duties and other imposts upon tobacco which were casting an unduly heavy burden upon it and that, therefore, there should be coordination between different taxes on tobacco levied by the Central Government, the States and the local authorities. For that purpose, the Commission recommended the constitution of an Inter-State Taxation Council. Admittedly, no such Council has ever been constituted. Similarly, the letter of the then Finance Minister, Shri T.T. Krishnamachary, relied upon by Shri Ganesh, which we have set out hereinabove, is also not quite clear. The extract speaks, in the first instance, of "a complete exemption from sales tax or purchase tax or any other impost by whatever name called on these commodities under the respective State laws" but then it immediately proceeds to explain, what it means by the said expression, by saying, "(I) In other words, the State which does not exempt completely all these three commodities from its sales tax Act or any other similar legislation will not be entitled to partake in the distribution of the proceeds of the additional excise duties". Again, the fact that subsequent to the ADE Act, certain States withdrew certain enactments providing for levy of taxes/fees other than sales tax on the Scheduled commodities, in the light of the enactment of the ADE Act - assuming that it was for that reason alone - is not relevant on the meaning and interpretation of the ADE Act or for that matter, the proviso to Rule (2) in the Second Schedule thereto. So long as the language of the enactment is clear and unambiguous, it is not permissible to refer to the kind of material relied upon by Shri Ganesh for altering, expanding or modifying the meaning or scope of the provisions of the Act. We are, therefore, unable to say that by agreeing to take a share in the proceeds of the additional duties of excise, the State of Bihar has deprived itself of its power to levy entry tax under and by virtue of Entry 52 in List II in the Seventh Schedule to the Constitution. Indeed, it has not even forsaken its power to levy taxes on sale or purchase of tobacco or any other scheduled commodity ; if it does so, all that would happen is that the consequence provided in the proviso to Rule (2) in the Schedule to the ADE Act will follow and nothing more. The ADE Act does not affect the legislative competence of the State Legislature to make a law with reference to any of the entries in List II. The contention of Shri Ganesh on this score is accordingly rejected.
66. What emerges from the above discussion is that the impugned levy cannot be interfered on the ground that the same is violative of Sections 14 and 15 of the CST Act, 1956, and/or the ADE Act, 1957.
Whether the entry tax imposed on the goods, which form subject-matter of the present set of writ petitions, is violative of Article 301 read with Article 304(b)?
67. Contending that the AET Act, 2001, is in violation of Article 301 of the Constitution of India, Mr. Shanti Bhusan, learned senior Counsel, has pointed out that Article 301 guarantees freedom of trade, commerce and intercourse throughout the territory of India. Referring to Atiabari Tea Co. Ltd v. State of Assam , Mr. Shanti Bhusan has also pointed out that the law of taxation is not immune from guarantee of freedom of trade, commerce and intercourse, which Article 301 provides. At the same time, submits Mr. Shanti Bhusan, it is not every restriction, which can be treated as an infringement of the guarantee given by Article 301, but only those restrictions, which have direct and immediate impact on the freedom of trade and commerce. Placing reliance on the State of Karnataka v. Hansa Corporation and Jindal Strips Ltd. v. State of Haryana , Mr. Shanti Bhusan has contended that the entry tax, as originally, contemplated under the AET Act, 2001, and even after its subsequent amendment by the AET (Second Amendment) Act, 2005, is clearly a tax on the movement of goods into a local area and such tax has, therefore, a direct impact on the movement of goods.
68. Seeking to derive support from the decision in Automobile Transport Ltd. v. State of Rajasthan and Ors. and Jindal Stainless Ltd. and Ors. v. State of Haryana and Ors. , Mr. Shanti Bhusan submits that a tax, such as, the present entry tax, which impedes movement of goods can be saved only when it is either regulatory or compensatory in nature. In the case at hand, respondents contend, points out Mr. Shanti Bhusan, that the AET Act, 2001, is compensatory in nature, but a careful analysis of the provisions of this Act as well as the materials on record clearly reveals that while the tax, imposed under the impugned Act and the subsequent amendments made thereto, is restrictive in nature, it is not at all compensatory inasmuch as no trading facility is provided to the manufacturers or traders of tobacco and its products, as a class, affected by the impugned Act. The AET Act, 2001, nowhere, provides or indicates, emphasizes Mr. Shanti Bhusan, that revenue, realized byway of entry tax, will be utilized for facilitating, either directly or indirectly, trade and commerce. In fact, the State of Assam, submits Mr. Shanti Bhusan, has not provided to the manufacturers or traders of tobacco and its products any facility whatsoever, which can be termed as trading facility enabling the State to lawfully impose entry tax. Referring to Section 8A, inserted in the AET Act, 2001, by the AET (Second Amendment) Act, 2005, it is submitted by Mr. Shanti Bhusan that from a plain reading of Section 8A, it will be clear that the amount, realized by way of entry tax, can be used by the State for any purpose or for purposes, other than those, which may be required for providing trading facilities to the trading class, particularly, manufacturers of tobacco and its products. Hence, it is apparent, contends Mr. Shanti Bhusan, that the entry tax, imposed under the impugned Act, is not compensatory in nature. Reiterating his contention that the entry tax, in the present case, is not compensatory in nature, Mr. Shanti Bhusan, learned Senior Counsel, has submitted that the scheme of the impugned Act and subsequent amendments made thereto clearly reveals that the revenue, realized from entry tax, is, in fact, meant for augmenting general revenue of the State and not for providing any specific or particular facility to the traders of tobacco and its products, who are importing goods from the outside the State. The entry tax, in the present case, cannot, therefore, be regarded, according to Mr. Shanti Bhusan, as compensatory.
69. To support his contention that the entry tax, under the impugned Act, is not compensatory tax within the meaning of what a compensatory tax, in the light of the decision in Automobile Transport (Rajasthan) Ltd. (supra) means, Mr. Shanti Bhusan has referred to and relied upon, Sharma Transport v. Govt. of Andhra Pradesh , G.K. Krishnan v. State of Tamilnadu , International Tourist Corporation v. State of Haryana , and Kamaljit Singh v. Municipal Board, Pilkhowa .
70. Pointing out that the AET Act, 2001, not being compensatory, in nature, ought to have received, in the facts and circumstances of the present case, prior sanction from the President in accordance with the mandatory requirements of the proviso to Article 304(b), Mr. Shanti Bhusan submits that no sanction from the President was obtained, at any stage, for imposing entry tax on the import of tobacco and its products inasmuch as tobacco and its products had not been included in the Bill, which had received sanction of the President, when the same was, initially, sent to the President for obtaining his sanction in terms of Article 304(b). Even when these items, points out Mr. Shanti Bhusan, were subsequently added to the Schedule by way of the impugned notification issued under Sub-section (4) of Section 3 of the impugned Act or by way of impugned Ordinance or impugned AET (Second Amendment) Act, 2005, no fresh sanction from the President was sought and/or obtained. Mr. Shanti Bhusan submits that when any provision of the Constitution requires sanction or assent of the President, then, what conditions are required to be satisfied to show compliance of such requirement of the Constitution have been considered by the Constitution Bench in Kaiser-i-Hind (P.) Ltd. v. National Textile Corporation . Relying on the Apex Court's decision in Kaiser-i-Hind (supra), Mr. Shanti Bhusan submits that when the Constitution requires President's prior sanction to a Bill or assent to a Bill, the President needs to be informed as to what restrictions the State Legislature seeks to impose, on what goods such restrictions are sought to be imposed and what is the rate at which Legislature seeks to impose the tax so as to enable the President to effectively apply his mind and it is only after due application of mind that it will be open to the President to accord sanction to the introduction of such a Bill or to give assent thereto. Mr. Shanti Bhusan points out that the assent, if any, of the President obtained earlier is of no relevance inasmuch as Article 304(b) clearly provides that no Bill or amendment for the purpose of Clause (b) shall be introduced or moved in the Legislature of the States without previous sanction of the President. Pointing out to the fact that the original Bill, in the present case, had proposed textile in its schedule as an item for imposition of entry tax and the President granted his assent to the Bill on condition that textile would be removed from the purview of the entry tax, logical it is to infer that in respect of tobacco and tobacco products too, no sanction of the President exists, for, tobacco and its products, which are treated to be goods of special importance in the course of inter-State trade and commerce under the Central Sales Tax Act, 1956, had not been included in the Schedule to the original Bill nor did it appear in the AET Act, 2001, when the Act, initially, came into force. After the impugned Act had come into force, the Legislature of the State, in Assam, according to Mr. Shanti Bhusan, could not have added goods, such as, textile or even tobacco and its products, into the Schedule of the impugned Act without having obtained prior sanction from the President in terms of Article 304(b) of the Constitution. Contending that the impugned entry tax, not being compensatory, in nature, ought to have received President's prior sanction, but the same having not received, according to Mr. Shanti Bhusan, the requisite sanction of the President, the impugned Act is, submits-Mr. Shanti Bhusan, not sustainable in law.
71. Adopting the above arguments of Mr. Shanti Bhusan and lending support to the same, Dr. A.K. Saraf, learned senior Counsel, has put great emphasis on Section 5 of the impugned Act. Dr. Saraf has specifically pointed out not only to the provisions of Section 5 of the AET Act, 2001, (as the same stood under the AET Act, 2001), but also to the provisions of Section 5 as the same, now, stand under the AET (Second Amendment) Act, 2005, and submitted that the Preamble to the AET Act, 2001, the provisions contained in the enactment, the object and reasons therefor make it clear that the legislative intent is to arrest alleged evasion of local sales tax and also to augment general revenue of the State. The imposition of entry tax, contends Dr. Saraf, is, thus, a colourable exercise of power inasmuch as the Act never intended to impose entry tax as a compensatory measure for providing trading facilities ; rather, the Act, reiterates Dr. Saraf, aimed at augmenting the general revenue of the State. Reliance in support of this submission is also placed by Dr. Saraf on Jindal Stainless Ltd. (supra).
72. Coupled with the above, Dr. Saraf, drawing extensively attention of this Court to the averments made, at various stages, in their affidavits, by the State respondents justifying imposition of entry tax, particularly, paragraph 7 of the affidavit filed in WP(C) No. 5827/2002, paragraph 6 in WP(C) No. 8445/2003 and paragraph 23 in WP(C) No. 8445/2003, submits that the stand taken in these affidavits clearly show that collection of entry tax, in the present case, was never intended to be as a measure of compensation for providing any trading facility ; rather, the same was, contends Dr. Saraf, meant for augmenting the general revenue of the State and was, in fact, in the nature of advance payment of sales tax. Support for this submission is sought to be derived by Dr. Saraf from the case of Sree Krishna Marbles and Granites v. State of Kerala and Ors. reported in 137 STC 481 (Ker).
73. The entire case of the respondents, points out Dr. Saraf, rests on the law laid down in Mis. Bhagatram Rajeeb Kumar v. Commissioner of Sales Tax, Madhya Pradesh and Ors. reported in (1995) Supp 1 SCC 673, and State of Bihar and Ors. v. Bihar Chambers of Commerce and Ors. , wherein, deviating from the decision of the seven Judges Bench of the Supreme Court, in Automobile Transport (supra), that a tax, to be compensatory in nature must be such, which provides certain facilities for better conduct of business to the traders as a class and, at the same time, does not require the traders not to pay patently much more than what is required for providing such facilities to them, the court held that the concept of compensatory nature of tax has been widened and if there is some substantial link between the tax and the facilities extended to the dealers, levy cannot be regarded as invalid. Referring, particularly, to the views expressed, in Bihar Chamber of Commerce (supra), to the effect that so long as there is some connection between the tax imposed and facilities provided, levy is valid, Dr. Saraf has submitted that the respondents relied on the concept of some connection, as propounded in Bihar Chamber of Commerce (supra) and accordingly amended the AET Act, 2001, by adding Section 8A with the help of the AET (Second Amendment) Act, 2005. This Section (Section 8A), points out Dr. Saraf, clearly shows that even this section, which has been added to show utilization of the fund collected by way of entry tax, does not really promise, far less guarantee, that the fund, so collected, would be spent on providing facilities to the traders ; rather, Section 8A, contends Dr. Saraf, clearly provides that it is the State Government, which would determine as to what sums of the proceeds would be utilised for the purpose of development of trading facilities, maintenance of roads and other infrastructure in the local area. In the face of these provisions, contends Dr. Saraf, it is impossible to hold that the entry tax, imposed under the impugned Act, is a valid piece of legislation and since, according to Dr. Saraf, requisite sanction of the President is not available to the imposition of tax on the items, which have been included by way of amendment of the Schedule to the Act, such levy cannot be sustained.
74. While adopting the submissions made by Mr. Shanti Bhusan and Dr. A.K. Saraf, Dr. B.P. Todi, learned senior Counsel, appearing on behalf of the petitioners, who are textile merchants, has submitted that inclusion of all varieties of textile by the impugned notification, dated 26.8.2003, and also under the impugned Ordinance and the AET (Second Amendment) Act, 2005, clearly shows that on the President's declining to accord sanction to impose entry tax on all kinds of textiles and fabrics, the same were excluded from the ambit of the AET Act, 2001, but these very items were brought in by way of the impugned notification, dated 26.08.2003, the impugned Ordinance and the impugned AET (Second Amendment) Act, 2005. This shows, contends Dr. Todi, that though the President refused to give his sanction to the imposition of entry tax on textiles and fabrics, the impugned notification, the impugned Ordinance and the impugned AET (Second Amendment) Act, 2005, imposed entry tax on textiles and fabrics. Such imposition of tax, submits Dr. Todi, is wholly against the letter and spirit of the proviso to Article 304(b) and it clearly follows that the imposition of entry tax on all those items, in respect whereof President's sanction had not been obtained or did not exist, could not have been sneaked in by way of amendments of the provisions of the AET Act, 2001, as has been done in the present case and such a levy, contends Dr. Todi, is not sustainable in law.
75. Resisting the submissions made on behalf of the petitioners, Mr. K.N. Choudhury, learned Additional Advocate General, has advanced two alternative pleas. His first plea is that the impugned enactment is a legislation under Entry 52 of State List of the Seventh Schedule and since a State Legislature is competent to impose entry tax under Article 246(3) read with Entry 52 of the State List, such a tax cannot be said to be violative of Article 301 inasmuch as a tax, merely because it is an entry tax, does not cause any hindrance in the freedom of trade and commerce. Such legislation, therefore, does not require, according to the learned Additional Advocate General, previous sanction of the President. In the present case too, the imposition of entry tax, according to Mr. Choudhury, did not strictly speaking, require the President's sanction.
76. In the case at hand, contends the learned Additional Advocate General, the petitioners have miserably failed to specifically and pointedly show before this Court as to how an entry tax can be regarded as a levy, directly and immediately, impeding free flow of trade. In the absence of any such specific case having been made out, the petitioners, according to Mr. Choudhury, erroneously seek to get the AET Act, 2001, declared violative of Article 301. This apart, according to Mr. Choudhury, it is the specific stand of the respondents, as reflected from their consolidated affidavit-in-opposition, dated 3.3.2006, that the entry tax, in the present case, is compensatory in nature and, in fact, the State Government has been spending on development of infrastructure to facilitate trade and commerce within the territories of various local bodies and the amount, so spent, is higher than the amount collected by way of entry tax. In these circumstances, submits Mr. Choudhury, there can be no escape from the conclusion that the entry tax, in the present case, is compensatory in nature and since the levy is compensatory, the levy cannot be treated as a restriction and no prior sanction of the President was required in the present case.
77. Even assuming, contends Mr. K.N. Choudhury, learned Additional Advocate General, that the impugned notification and/or amendments made to the AET Act, 2001, needed previous sanction of the President, it is important to note that before the AET Act, 2001, came into force, the Bill was reserved for the previous sanction of the President and the President's sanction was accordingly received. The Act, which so received President's sanction, contained provisions, points out Mr. K.N. Choudhury, in the form of Sub-section (4) of Section 3, which empower the State Government to add any item to the Schedule appended to the Act. In such circumstances, introduction of any new item to the Schedule of the Act did not, according to Mr. K.N. Choudhury, require prior sanction of the President and the present levy cannot be said to be bad for having not received fresh sanction from the President. Referring to Syed Ahmed Aga v. State of Mysore , Subodhyya Chit Fund (P.) Ltd. v. Director of Chits, Madras reported in (1991) 2 Supp SCC 131, and Widia (India) Ltd. v. State of Karnataka , Mr. K.N. Choudhury contends that it is a settled position of law that sanction of the President is not a sine qua non for every amendment of an Act, which, originally, require President's prior sanction to the Bill or assent thereto.
78. Referring to Kaiser-i-Hind Pvt. Ltd. (supra), Mr. Choudhury submits that this decision is of no avail for adjudication of the issues involved in the present case inasmuch as Kaiser-i-Hind (P.) Ltd. (supra) is a decision arising out of a case in which inconsistency between the law made by the Parliament and the State Legislature was an issue. Since, according to Mr. Choudhury, no such issue has arisen in the present case and the settled position of law is that every decision is an authority for what it actually decides, it is clear, contends Mr. K.N. Choudhury, that since the principal Act, which introduced the impugned levy, had received President's sanction under Article 304(b), no fresh sanction is required when the amendments are made in the Schedule to the Act. The impugned notification, impugned Ordinance and/or the AET (Second Amendment) Act, 2005, have not created, according to Mr. K.N. Choudhury, any additional restriction as one can construe in the context of Article 301 of the Constitution and, hence, previous sanction of the President was not a necessity for the amendments, which have been subsequently introduced into the Schedule of the Act by way of impugned notification, dated 28.2.2005, or otherwise. Pointing out to the decision in Hansa Corporation (supra), Mr. Choudhury has submitted that this judgment has been sought to be used by the petitioners in support of their proposition that whenever a State Legislature has attempted to impose a tax on the movement of goods, it has always obtained President's sanction. As a matter of fact, points out Mr. Choudhury, assent of the President was subsequently obtained in respect of the legislation, which forms the subject-matter of Hansa Corporation (supra), and, hence, this decision is not an authority for the proposition that for every amendment of an Act, which had, otherwise, required previous sanction of the President, a fresh sanction has to be obtained.
79. Article 301, submits Mr. Choudhury, restrains a Legislature from enacting a law, which causes restrictions or impediments, directly and immediately, on the free flow of trade, commerce and intercourse. In the case at hand, the petitioners have not been able to show, insists Mr. Choudhury, that the entry tax is a tax, which impedes, directly or immediately, free flow of trade and commerce.
80. So long as the tax, in the present case, remains compensatory, it cannot, according to Mr. Choudhury, operate as a hindrance and, therefore, the petitioners' contention that the impugned levy seeks to restrict movement of trade is not well-founded. The object of the impugned levy, according to Mr. Choudhury, is development of trading facilities, maintenance of road and other infrastructure in the local areas and there is, contends Mr. Choudhury, sufficient nexus between the subject and object of the levy inasmuch as proceeds of collection of entry tax are being spent, according to Mr. Choudhury, for providing trading facilities as demonstrated in paragraph 9 of the affidavit-in-opposition, dated 3.3.2006. Even if the provisions of the impugned Act, according to Mr. Choudhury, do not facially indicate the compensatory nature of the levy, State has discharged its burden by placing materials with the help of its affidavit-in-opposition, dated 3.3.2006.
81. A tax, contends Mr. Choudhury, cannot be said to be not compensatory, in nature, merely because of the fact that the precise amount collected or the amount actually used to provide any facility has not been furnished. In support of this contention, reliance is placed by Mr. Choudhury on Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan and Ors. , Atiabari Tea Co. v. State of Assam , G.K. Krishnan v. State of Tamilnadu and International Tourist Corporation v. State of Haryana . Mr. Choudhury submits that the revenue, raised through the implementation of the impugned Act and other taxation laws, is utilized by the State in laying and maintaining roads, waterways, establishment and maintenance of market, etc. It is further submitted by Mr. Choudhury that after the decision of the Apex Court, in Godfrey Philips India Ltd. v. State of U.P. , declaring the levy of luxury tax as ultra vires, the State faced a sudden loss of large scale revenue hitherto collected from imposition of luxury tax on tobacco and tobacco products. Public interest, therefore, contends Mr. Choudhury, demanded immediate action on the part of the Government to find alternative source of revenue to keep its various welfare programmes and other Governmental function going. Merely because these facts were indicated in the affidavit filed by the respondents, it cannot be construed, submits Mr. Choudhury, that the impugned Act was passed solely for augmenting general revenue of the State. Mr. Choudhury further submits that assuming, while not admitting, that the impugned levy is not compensatory in character, still it would be open to the State of Assam to sustain the restriction, if any, on the ground that the tax is levied not merely to raise general revenue for the State, which itself is a public purpose, but that the tax is raised and utilized for the purposes indicated in Section 8A inserted by the AET (Second) Amendment Act, 2005. Referring to the decision of the Apex Court, in Jindal Stainless Ltd. v. State of Haryana {2006) 145 STC 544, Mr. Choudhury submits that the Constitution Bench in Jindal Stainless (supra) failed to notice the holding at para 39 in Khyerbari Tea Co. v. State of Assam , which laid down the test of "some relation" between the tax collected and the facilities provided in the realm of compensatory tax, which the decision in Bihar Chamber of Commerce (supra) speaks of.
82. In support of his plea that the respondents have successfully furnished materials to show the working relationship between the fund collected and the revenue utilized, making the present levy a levy of compensatory nature, Mr. K.N. Choudhury had, at one stage, relied heavily on Bhagatram Rajeeb Kumar (supra) and Bihar Chambers of Commerce (supra). However, confronted with the decision in Jindal Stainless Ltd. (supra), Mr. Choudhury, now, submits that even in the face of the decision in Jindal Stainless Ltd. (supra), the stand of the respondents is vindicated inasmuch as there are adequate materials on record showing that the impugned entry tax is compensatory in nature.
83. Lastly, it is submitted by Mr. Choudhury, relying on para 45 of the decision in Khyerbari Tea Co. (supra), that the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Articles 14, 19 and 301 has to be exercised with circumspection bearing in mind the fact that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense, it is the power of paramount character.
84. Reacting to the submissions made by the learned Additional Advocate General and drawing attention of this Court extensively to the observations made in Hansa Corporation (supra), Jindal Stripes Ltd. (supra) and Jindal Stainless Ltd. (supra), Mr. Shanti Bhusan has submitted that these decisions make it abundantly clear that because of the very nature of the restriction, winch an entry tax impose on entry of goods into a local area for the purpose of use, consumption or sale therein, such a levy has a direct and immediate impact on the movement of goods and can be saved only when the levy falls within the protective umbrella of Article 304(b). In the cast m hand, submits Mr. Shanti Bhusan, since the tax sought to be levied under the AET Act, 2001, is on the entry of goods into a local area, it directly operates as a restriction on the freedom of trade and commerce and such restrictions, being violative of Article 301, can stand only if the levy, in question, is proved to be either compensatory or is a levy imposed in conformity with the requirements of Article 304(b). In the present case, neither the levy, according to Mr. Shanti Bhusan, is compensatory in nature nor is the same in conformity with the provisions of Article 304(b) inasmuch as no sanction of the President for inclusion of tobacco and its other products, which have, now, been added by way of amendment of the Schedule to the impugned Act, was ever obtained. Mr. Shanti Bhusan has also submitted that the mere fact that the present levy is traceable to Entry 52 of the State List is no answer to the question, which has been raised by the writ petitioners contending that the impugned levy is in violation of Article 301. Whether a levy is under Entry 52 or under any other Entry, a levy imposed must, according to Mr. Shanti Bhusan, withstand the tests of Article 301.
85. Referring to the three decisions, namely, Syed Ahmed Aga (supra), Subodhya Chit Fund (supra) and Widia (India) Ltd. (supra), which the learned Additional Advocate General has relied upon to contend that every amendment of an enactment made under the proviso to Article 304(b) does not require President's prior sanction or assent, Mr. Shanti Bhusan has submitted that all these three cases have no application to the facts of the present case. In Syed Ahmed Aga (supra), points out Mr. Shanti Bhusan, the court has clearly held that it is only an additional restriction from the special point of view of Article 304(b), which requires President's sanction. When an amendment, contends Mr. Shanti Bhusan, does not bring any additional restriction, President's sanction under proviso to Article 304(b) is not necessary. Referring to Subodhya Chit Fund (supra), Mr. Shanti Bhusan has submitted that having found that the amended provisions merely varied the form of security to be given by the foremen of the Chit fund, which had already existed in the original Act, the Apex Court upheld the decision of the High Court that it was not necessary to obtain sanction of the President for making amendment in varying the form of security. Turning to Widia (India) Ltd. (supra), Mr. Shanti Bhusan has pointed out that in this case, the Apex Court found that the tax was compensatory in nature and, hence, Article 301 was not attracted and it was in consequence of this conclusion that the court held that the question of obtaining President's sanction under Section 304(b) did not arise at all.
86. It is also submitted by Mr. Shanti Bhusan that while considering the question as to whether the President's prior sanction was necessary in the present case, it needs to be noted that the proviso to Article 304(b) speaks not only of the Bill, but also of amendment thereto. In the present case, points out Mr. Shanti Bhusan, tobacco and tobacco products, which have been declared to be goods of special importance in inter-state trade and commerce, were not included in the Schedule to the original enactment, namely, the AET Act, 2001. Hence, no Presidential sanction existed for imposing the entry tax under the said Act on tobacco or tobacco products, which are goods of special importance. Thus, imposition of entry tax on tobacco and tobacco products being, according to Mr. Shanti Bhusan, a new restriction, or at any rate, an additional restriction, which was not contained in the original enactment, must satisfy the provisions of Article 304(b) and sanction of the President earlier obtained in respect of the original enactment is, insists Mr. Shanti Bhusan, of no relevance.
87. It is further submitted by Mr. Shanti Bhusan that since the present amendments made to the Act bringing in tobacco and tobacco products within the ambit of the Act are contrary to, and in clear violation of, the agreement, which had been reached by the State with the Central Government at the time of passing of the Bill and subject to which President's sanction to the original Bill was given, it would, now, be wrong to suggest, on the part of the respondents, that the amendments have not created any additional restriction under Article 301 of the Constitution. Seeking to draw support from the decision in Syed Ahmed Aga (supra), Mr. Shanti Bhusan submits that the present levy on tobacco and tobacco products is an additional restriction and this would require sanction of the President. For so contending, Mr. Shanti Bhusan places reliance on the observations made in Syed Ahmed Aga (supra), which run thus, "It is only an additional "restriction" from the special point of view of Article 304(b), which require President's sanction."
88. At any rate, submits Mr. Shanti Bhusan, the decision of the Constitution Bench, in Kaiser-i-Hind (supra), will prevail over the ratio of the decisions in all the three cases, which the learned Additional Advocate General has relied upon. In Kaiser-i-Hind (supra), points out Mr. Shanti Bhusan, the Constitution Bench has clearly held that the powers actually exercised by the President under Article 304(b) "are a special constituent power vested with the Head of the Union as the protector and defender of the Constitution and safety valve to safeguard the fundamental rights of the citizens and federal structure of country's polity as adopted in the Constitution."
89. The settled position of law, submits Mr. Shanti Bhusan, is that when a tax is imposed, which affects movement of goods, it is covered by Part XIII and such imposition of tax by State Legislature has to comply with the requirements of Article 304. Unless, therefore, the impugned levy is shown to be compensatory in nature, imposition of entry tax on import of goods into a local area of Assam, being impediment on the movement of goods, would require prior sanction of the President.
90. It has been further held, submits Mr. Shanti Bhusan, in Kaiser-i-Hind (supra) that the 'assent' envisaged in Articles 31A, 31C, 254(2) and 304(b) of the Constitution, is, by the very nature and character of the powers, a distinct class and category of their own different from the normal 'assent' envisaged under Article 111 of the Constitution.
91. Relying upon the ratio of the decision in Kaiser-i-Hind (supra), it is contended by Mr. Shanti Bhusan that as the entry tax, in the present case, is not compensatory in nature and the levy of the entry tax, because of its very nature, causes a direct impediment to the freedom of movement of goods guaranteed under Part XIII of the Constitution, no amendment to the AET Act, 2001, could have been validly made without obtaining President's prior sanction as mandated by Article 304(b). Pointing out to the fact that respondents rely on the fact that the luxury tax earlier imposed by the State Government had been struck down as ultra vires, the Legislature has, in replacement of the said luxury tax, introduced the levy of entry tax on tobacco and tobacco products, Mr. Shanti Bhusan submits that in Hansa Corporation (supra), State of Karnataka had been validly levying octroi in proper exercise of its legislative powers and it was replaced by entry tax under the same constitutional entry in order to relax the rigour of octroi, which was known to be obnoxious. In the case at hand, submits Mr. Shanti Bhusan, the State of Assam had levied the luxury tax, which was not within its legislative competence as has been held by the Supreme Court, and when such an illegal law has been set at naught by a judicial pronouncement, replacement of such an illegal levy by another levy, in the name of entry tax, cannot be claimed to be sustainable. There is obviously, contends Mr. Shanti Bhusan, no similarity between the facts of the two cases, namely, the Hansa Corporation (supra) and the present one. With the overruling of the decision rendered in Bhagatram Rajeeb Kumar (supra), it has, now, become transparent, submits Mr. Shanti Bhusan, that in order to save an entry tax, the State must satisfy that the tax, which it has imposed, is against providing certain facilities for better conduct of trade and commerce by persons on whom the tax is imposed. According to Mr. Shanti Bhusan, the respondents have, in the present case, miserably failed in showing that the entry tax was aimed at, or has, in any way, been utilized for providing trading facilities to the persons, who are affected by the impugned levy, the levy is not sustainable in law and the concept of some connection or relationship, which Bhagatram Rajeeb Kumar (supra) developed and which the decision in Bihar Chamber of Commerce (supra) followed, can be of no avail to the respondents in the present case.
92. Responding to the State 'respondents' contention that the tax levied under the AET Act, 2001, is in public interest and reasonable, Mr. Shanti Bhusan submits that the question as to whether the tax, levied under the impugned Act, imposes reasonable restriction or not and whether the same is in public interest or not is not material, when the impugned levy has not been shown to be compensatory in nature and when for the purpose of imposing entry tax on goods, such as, tobacco and tobacco products, no sanction of the President has been obtained. Reliance, in support of this submission, is placed by Mr. Shanti Bhusan on Shagir Ahmed and Anr. v. State of UP .
93. Let me, now, deal with the merit of the rival submissions made before me, on behalf of the parties, on the question as to whether the Assam Entry Tax Act, 2001, is in violation of Article 301 read with Article 304(b).
94. While considering the question posed above, what is pertinent to note is that Part III of the Constitution contains the constitutional scheme with regard to the conduct of trade, commerce and intercourse. In the present case apart from Articles 301 and 304, some reference to Articles 302 and 304 is unavoidable. Let me, therefore, quote, hereinbelow, Articles 301 to Article 304.
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 and 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 authorizing the giving of any preference to one State over another, or making, or authorizing 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 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.
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 or the 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 produces ; and
(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest:
Provided that no Bill or amendment for the purpose of Clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.
95. Article 1, if I may point out, conceives India as a Union of States and declares that the territory of India shall comprise of the territories of the States, the Union territories and such other territories as may be acquired.
96. 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 analyzed. 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 this 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.
97. I have already pointed out above that 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 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 into 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. 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. 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.
98. Before India achieved her independence, the western world, particularly, Europe was, as already indicated above, fragmented into small principalities having toll-barriers imposing toll taxes and these toll-barriers caused hindrance to the movement of goods resulting into obstructions to the growth of industries and commerce in those countries. Having realised that unless these trade barriers were removed, no real growth of industry was possible, these trade barriers were started being removed. Having noticed 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 and while making this scheme, they naturally considered and treated India as one economic unit. 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. 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 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 Co. Limited v. State of Assam , 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 t h-e 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 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., in C.A.F Seelig Inc. v. Charles H. Baldwin 294 U.S. 511, 523; 79 L. Ed. 1033, 1038 while he was dealing with the commerce clause contained in Article 1, Section 8, Clause 3 of the American Constitution. "This part of the Constitution", observed 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.
99. 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.
100. Pointing out that by granting freedom of trade throughout India, Article 301, primarily, aims at removing the barriers in the movement or transportation part of the goods, the Supreme Court, in Atiabari Tea Company Limited (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 Section 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 Article 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.
101. Alive to the fact that fiscal barriers impede free flow of goods and that the growth of trade or commerce is not 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. Addressing, therefore, the question as to whether tax laws are excluded from the provisions of Part XIII and whether tax laws were 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. 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, 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.
102. From the above observations made in Atiabari Tea Co. Limited (supra), it is clear that the Apex 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 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.
103. What, thus, surfaces from the above discussion, is that Article 301 guarantees freedom of trade, commerce and 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. 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.
104. 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 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 the situation arising from scarcity of goods in any part of the territory of India.
105. 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 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. 1b 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 procured by the State before introduction of the Bill or before making the legislation.
106. 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. 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. 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.
107. 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, 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 T&a 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 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).
108. 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 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.
109. 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:
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.
110. 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 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.
111. 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 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 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 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.
112. 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 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, 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 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.
113. 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 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.
114. 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 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:
* * * * 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 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 expanses 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.
115. Thus, Automobiles Transport (Rajasthan) Ltd. (supra) clearly takes the view that those taxes, which facilitate trade, commerce and intercourse, by providing roads or maintaining roads in a good state of repairs, are compensatory in nature. This decision also lays down a working test for answering the question as to whether a tax is compensatory or not, the working test being whether the people are having the use of certain facilities for better conduct of their business and paying "patently not much more than what is required for providing the facilities". In Atiabari Tea Co. Ltd. (supra), as the tax was found to have imposed restrictions on the freedom of trade, the enactment, in question, was declared void, for, the State Legislature had not complied with the mandatory provisions of Article 304(b). In Automobiles Transport (Rajasthan) Ltd. (supra), however, the court, as reflected from para 19 of the decision, on noticing that the taxes imposed was really compensatory in nature, upheld the levy. The Court further clarified, in Automobiles Transport (Rajasthan) Ltd. (supra), at para 21 of the decision "...If statute fixes a charge for a conveyance for service provided by the State or an agency of the State, and imposes it upon those, who choose to avail those services or conveniences, the freedom of trade and commerce may well be considered unimpaired." Thus, the concept of compensatory tax, which has not been specifically incorporated, in our Constitution, was judicially evolved in Automobiles Transport (Rajasthan) Ltd. (supra) as a part of the regulatory charge, the concept of compensatory tax being that the taxes, which would, otherwise, interfere with unfettered freedom under Article 301, will still be protected from the vice of unconstitutionality if such taxes are compensatory. In short, thus, the concept of compensatory tax is an exception to Article 301.
116. It is, now, pertinent to point out that a three Judges Bench of the Apex Court, in its later decision, in G.K. Krishnan and Ors. v. State of Tamilnadu and Ors. reported in (1995) 1 SCC 375, speaking through Mathew, J, observed that "the very idea of a compensatory tax is a service more or less commensurate with the tax levied." Thus, even in G.K. Krishnan (supra), the Apex Court took the view that compensatory tax is more or less commensurate with the services offered or facilities provided. However, in Bhagatram Rajeeb Kumar v. Commissioner of Sales Tax reported in (1995) Supp (1) SCC 673, though the State had demonstrated that the levy was compensatory, the court further observed thus: 'the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to dealers directly or indirectly, the levy cannot be impugned as invalid." For coming to this conclusion, the court, in Bhagatram Rajeeb Kumar (supra), it may be noted, placed reliance on Hansa Corporation (supra).
117. Thus, in Bhagatram Rajeeb Kumar (supra), the three Judges Bench took a view, which was glaringly different from what had been held in Automobiles Transport (Rajasthan) Ltd. (supra), for, while in Automobiles Transport (Rajasthan) Ltd. (supra), the working test laid down for determining whether a levy is compensatory or not was to enquire whether the traders, as a class, are having the use of certain facilities for better conduct of their business and paying not patently much more than what is required for providing facilities, the decision, in Bhagatram Rajeeb Kumar (supra), reflected that even if some 'link', direct or indirect, between the tax imposed and the facilities extended to the dealers, is established, the levy would still be treated compensatory. I may also pause here to point out that in Hansa Corporation (supra), which Bhagatram Rajeeb Kumar (supra) relies upon, though a challenge to the levy of entry tax was posed, the issue as to whether the tax, in question, was compensatory in nature or not had been decided, because Article 304(b) was found to have been complied with.
118. Be that as it may, a two Judges Bench of the Supreme Court, in Bihar Chamber of Commerce (supra), extended the concept of some 'link' between the tax imposed and the facilities provided, as propounded in Bhagatram Rajeeb Kumar (supra), by holding, thus:
12. It is not possible to deny the force of this submission. Where the local areas contemplated by the Act cover the entire State, the distinction between the State and the local areas practically disappears. (The situation would, no doubt, be different if the local areas are confined to a few cities or towns in the State and the levy is upon the entry of goods into those local areas alone. This is an important distinction which should be kept in mind while appreciating this aspect and also while examining the decisions of this Court rendered in "fifties and sixties".) The facilities provided in the State are the facilities provided in the local areas as well. Interests of the State and the interests of the local authorities are, in essence, no different. It is not and it cannot be stipulated that for the purpose of establishing the compensatory character of the tax, it is necessary to establish that every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities. It is enough if some connection is established between the tax and the trading facilities provided. The connection can be a direct one or an indirect one, as held by this Court in Bhagatram Rajeeb Kumar v. CST 1995 Supp (1) SCC 673: (1995) 96 STC 654 SCC p. 678, para 8 The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid.
Though not stated in the counter-affidavit, we can take notice of the fact that the State does provide several facilities to the trade including laying and maintenance of roads, waterways and markets, etc. As a matter of fact, since the levy is by the State, we must also look to the facilities provided by the State for ascertaining whether the State has established the compensatory character of the tax. On this basis, it must be held that the State has established that the impugned tax is compensatory in nature. This finding is by itself sufficient to negative the attack based on Article 301 but even if we assume that the State has not established the said fact, even so the result is no different. We proceed to elaborate.
119. In Bihar Chamber of Commerce (supra), the court, it may be noted, did not insist on the State to furnish the details of the facilities provided to the traders and the expenditure incurred or incurrable thereon, for, it took the view that for a levy to be compensatory, it is enough if some connection, direct or indirect, is established between the tax imposed and the facilities provided inasmuch as the facilities provided, in the State, are, "according to the court, in Bihar Chamber of Commerce (supra), the facilities provided in the local areas as well.
120. Thus, until G.K. Krishnan (supra), the view held by the Supreme Court, on the concept of compensatory tax, was that a compensatory tax must be, more or less, commensurate with the definite purpose of meeting the expenses on account of providing trading facilities or for making improvement in trading facilities and that there must be a reasonable relation between the actual and projected expenditure, on the one hand, and the services offered or facilities provided, on the other, so that the traders, as users of such facilites, shall not be required to pay patently much more than what is required to provide such facilities. However, in Bhagatram Rajeeb Kumar (supra) and Bihar Chamber of Commerce (supra), the court took the view that it is not-necessary for a levy, to be compensatory, that the purpose of the levy shall be to provide any specific service or facility to the traders and that for a levy to be compensatory, it is enough if the facilities are provided to the public, in general, and traders are incidentally beneficiaries of such facilities.
121. Confronted with the fact that the constitutionally held view as regards the compensatory tax has been departed from in Bhagatram Rajeeb Kumar (supra) and Bihar Chamber of Commerce (supra), a two Judges Bench, in Jindal Stripes Ltd. (supra), pointed out, at para 23, that if Bhagatram Rajeeb Kumar (supra) and Bihar Chamber of Commerce (supra) are taken to their logical conclusion, there will be no distinction left between a tax imposed for the purpose of revenue collection and a compensatory tax meant for a specific purpose of providing facilities or services to the persons subject to such tax. The relevant observations made, at para 23, of Jindal Stripes Ltd. (supra), runs, thus, It is contended by the appellants, with considerable force, that if the concept of compensatory tax has to be understood in the manner in which it has been viewed by the court in the decisions of Bhagat Ram and Bihar Chamber of Commerce, there will be no practical distinction between a tax raised for general revenue purposes and a compensatory tax meant for the specific purpose of providing facilities or service's to the persons subjected to the tax. All State revenues are presumably expended or at least are extendible only for the welfare of the nation or the State as a whole. This may result in a general economic up liftment and the betterment of all facets of life including ultimately and in an indirect sense the trading community. The approach in the two decisions noted does away with the difference between taxes in general and compensatory taxes. If that is the law then any tax could pass the test of compensatory tax judged from the standard applied. Then no tax can impinge on the freedom ordained by Article 301, a result which, it is pointed out, would go counter to the court's decision in Atiabari Tea and the long line of authorities referred to earlier starting with the Automobile Transport case.
122. Having, thus, noticed that the parameters of the concept of compensatory tax, which was judicially evolved in Automobiles Transport (Rajasthan) Ltd. (supra), as an exception to Article 301 has come to be blurred by the decisions, rendered in Bhagatram Rajib Kumar (supra) and Bihar Chamber of Commerce (supra), the court, in Jindal Stripes Ltd. (supra), referred the matter to a Constitution Bench for an authorative pronouncement on the subject. This can be easily discerned from the observations made in Jindal Stainless Ltd. (supra), which proceed, thus,
16. According to the referral order, since the concept of compensatory tax has been judicially evolved as an exception to the provisions of Article 301 and as the parameters of this judicially evolved concept are blurred, particularly, by reason of the decisions in Bhagatram's case and Bihar Chamber of Commerce, the court felt that the interpretation of Article 301 vis-a-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench under Article 145(3).
123. In Jindal Stainless Ltd. (supra), the Constitution Bench has, in fact, pointed out that Part XIII of our Constitution amalgamates two distinctly different concepts of freedom of trade as prevails, on the one hand, in the Constitution of the United States and, on the other, in the Constitution of Australia. The decision, in Jindal Stainless Ltd. (supra), points out that Section 8 of Article 1 of the U.S. Constitution, contains what is called "Commerce Clause", which regulates trade and commerce and in view of the dual form of government in the United States, the U.S. Supreme Court has held that the commercial power, embodied in the Commerce Clause, implies the power to regulate, that is, power to prescribe the rules by which the commerce has to be governed, but this commercial power prohibits, at the same time, the States from enacting any law, which impedes the very flow of trade between the States. As against the commercial power, which the U.S. Constitution envisages, Section 92 of the Australian Constitution provides for freedom of trade and commerce and does not seek to regulate commerce as in the case of Commerce Clause. However, notwithstanding the fact that the Australian Constitution provides for complete freedom of trade and commerce, the decisions of the Privy Council and Australian High Courts have taken the view that Section 92 leaves open the regulation of trade and commerce, at all events, until the regulations enacted provide that the regulation does not impede the true freedom of inter-State commerce. These decisions are based on the principle that all trade and commerce must be conducted subject to law. Thus, there lies, points out the Constitution Bench, in Jindal Stainless Ltd. (supra), a distinction between taxing laws and regulatory laws and that the regulatory laws give rise to regulatory charges and this is how the concept of payment for revenue and the concept for payment for regulation arose and it was from this point of view that the court, in Automobiles Transport (Rajasthan) Ltd. (supra), had taken the view that compensatory tax constitutes an exception to the freedom of trade, commerce and intercourse, which Article 301 guarantees. It has also been pointed out, in Jindal Stainless Ltd. (supra), that the concept of compensatory had not been discussed in Automobiles Transport (Rajasthan) Ltd. (supra) and that it is in Jindal Stainless Ltd. (supra) that their Lordships have explained the concept of compensatory tax. This aspect of the compensatory tax and its co-relation with Article 301 can be discerned from a careful reading of the observations made in Jindal Stainless Ltd. (supra), which read as follows:
Section 8 of Article 1 of the U.S. Constitution contains what is called "Commerce Clause", which regulates trade and commerce. Keeping in mind the dual form of government in USA and the concept of "Police Power" vis-a-vis the "Taxing Power", the U.S. Supreme Court has held that the commerce power embodied in the commerce clause implies the power to regulate ; that is the power to prescribe the rule by which commerce is to be governed (See: Constitutional Law by Stone). Section 8 of Article 1 is an authorization in favour of the Congress to enact laws for the protection and encouragement of commerce among the States. By its own force, it creates an area of trade free from interference by the States. Therefore, the commerce clause is per se a limitation upon the power of the States and is not dependent upon the law being enacted. It prohibits the States from enacting a law which impedes free flow of trade between the States.
On the other hand, Section 92 of the Australian Constitution provides for freedom of trade and commerce. It does not seek to regulate as in case of commerce clause. However, it has been held in numerous decisions of the Privy Council and the Australian High Courts that Section 92 leaves open the regulation of trade and commerce at all events until the regulation is enacted provided it does not impede the true freedom of inter-State commerce. This reasoning is based on the principle that all trade and commerce must be conducted subject to law. Thus, we have the difference between taxing and regulatory laws. This is how the concept of "regulatory charges" came about.
Article 301 is inspired by Section 92 of the Australian Constitution when it refers to freedom of trade and commerce, however, Article 301 is subject to limitations and conditions in Articles 302, 303 and 304 which are borrowed from the commerce clause under Article 1 of the US Constitution. Therefore, Part XIII is an amalgam of the United States and Australian Constitutions which brings out the difference between regulatory and taxing powers. This is how the concept of Payment for Revenue and concept of Payment for Regulation arose. This is how the regulatory power stood excluded from the taxing power and on that reasoning in Automobile Transport case, this Court took the view that compensatory taxes constitute an exception to Article 301. It is a judicially evolved concept. However, the basis of that concept was not discussed by this Court in that case which we have done in this case. Suffice it to state at this stage that the basis of special assessments, betterment charges, fees, regulatory charges is "recompense/reimbursement" of the cost or expenses incurred or incurrable for providing services/facilities based on the principle of equivalence unlike taxes whose basis is the concept of "burden" based on the principle of ability to pay. At this stage, ,we may clarify that in the above case of Automobile Transport, this Court has equated regulatory charges with compensatory taxes and since it is the view expressed by a Bench of seven Judges, we have to proceed on that basis. The fall-out is that compensatory tax becomes a sub-class of fees.
124. Having noted, in detail, the parameters of not only Article 301, but also of Articles 302,303 and 304, the Constitution Bench, in Jindal Stainless Ltd. (supra), pointed out, at para 34, "The concept of compensatory tax is not there in the Constitution but is judicially evolved in Automobile Transport as a part of regulatory charge. Consequently, we have to go into concepts and doctrines of taxing powers vis-a-vis regulatory powers, particularly when the concept of compensatory tax was judicially crafted as an exception to Article 301 in Automobile Transport.
125. The Constitution Bench, in Jindal Stainless Ltd. (supra), has also pointed out that primary purpose of a taxing statute is collection of revenue; whereas regulations are administrative actions, which produce regulatory effects on trade and commerce. The Constitution Bench reiterates, in Jindal Stainless Ltd. (supra), that there is a working test for deciding the question as to whether a given levy is the result of exercise of regulatory power or whether it is the product of exercise of taxing power, the working test being that if the impugned levy seeks to control the conditions under which an activity like trade has to take place, then, such a levy is regulatory ; but if the impugned tax chooses an activity, such as, movement or transportation of goods, as the criterion for its imposition and if the effect of such imposition of tax is to impede trading activities, then, the levy would be restrictive as conceived under Article 301. In short, if the law enacted is meant to enforce discipline or regulate conduct of the trade or commerce or if the payment is for regulation of conditions or incidence of trade or manufacture, then, the levy is regulatory. One may, in this regard, refer to the observations made, in Jindal Stainless Ltd. (supra), which proceed, at para 35, as under:
In the generic sense, tax, toll, subsidies etc. are manifestations of the exercise of the taxing power. The primary purpose of a taxing statute is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulatory power or whether it is the product of the exercise of the taxing power. If the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or non-taxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of the operation of such a law is to impede the activity, then the law is a restriction under Article 301. However, if the law enacted is to enforce discipline or conduct under which the trade has to perform or if the payment is for regulation of conditions or incidents of trade or manufacture then the levy is regulatory. This is the way of reconciling the concept of compensatory tax with the scheme of Articles 301, 302 and 304. For example, for installation of pipeline carrying gas from Gujarat to Rajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come in the category of manifestation of regulatory power. However, a tax levied on sale or purchase of gas which flows from that very pipe is a manifestation of exercise of the taxing power. This example indicates the difference between taxing and regulatory powers. See : Essays in Taxation by Seligman.
126. The Constitution Bench proceeds further to observe, in Jindal Stainless Ltd. (supra), as under:
37. Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the taxpayer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit, and even if such identification is there, it is not capable of direct measurement. In the case of a tax, a particular advantage, if it exists at all, is incidental to the States' action. It is assessed on certain elements of business, such as, manufacture, purchase, sale, consumption, use, capital, etc., but its payment is not a condition precedent. It is not a term or condition of a licence. A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden.
38. On the other hand, a fee is based on the "principle of equivalence". This principle is the converse of the "principle of ability" to pay. In the case of a fee or compensatory tax, the "principle of equivalence" applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the government action and even if such benefit results from the government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee Or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable.
39. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services which costs in turn become the basis of imbursement/recompense for the provider of the services/ facilities, compensatory tax is based on the principle of "pay for the value". It is a sub-class of "a fee". From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progressive or proportional to income, property, expenditure or any other test of ability or capacity (principle of ability). Taxes may be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to benefits. They are based on the principle of equivalence. However, a compensatory tax is levied on an individual as a member of a class, whereas a fee is levied on an individual as such. If one keeps in mind the "principle of ability" vis-a-vis the "principle of equivalence", then the difference between a tax on one hand and a fee or a compensatory tax on the other hand can be easily spelt out. Ability or capacity to pay is measurable by property or rental value. Local rates are often charged according to ability to pay. Reimbursement or recompense are the closest equivalence to the cost incurred by the provider of the services/facilities. The theory of compensatory tax is that it rests upon the principle that if the government by some positive action confers upon individual(s), a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it. The basic difference between a tax on one hand and a fee/compensatory tax on the other hand is that the former is based on the concept of burden whereas compensatory tax/fee is based on the concept of recompense/reimbursement. For a tax to be compensatory, there must be some link between the quantum of tax and the facility/services. Every benefit is measured in terms of cost which has to be reimbursed by compensatory tax or in the form of compensatory tax. In other words, compensatory tax is a recompense/reimbursement.
127. What emerges from the above discussion is that a tax is levied as a part of common burden, the basis of tax being the ability or capability of the taxpayer to pay. In the case of a tax, there may not be any identifiable benefit, and even if there is some benefit, it may not be directly measurable. A tax is, thus, a payment for the special benefit, if any, converted into a common burden ; whereas a fee is based on the principle of equivalence, the principle of equivalence being the converse of the principle of ability and in the case of a compensatory tax, it is the principle of equivalence, which is applicable. Hence, the basis of a compensatory tax is quantifiable and measurable benefit.; whereas in the case of tax, benefit, if any, is incidental, indirect and immeasurable. A tax can be progressive ; whereas a compensatory tax has to broadly proportional and not progressive. The concept of compensatory tax is based on the principle of "pay for the value" and from the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of the trade and commerce, which does not happen in the case of tax. A compensatory tax is levied on an individual as a member of a class ; whereas a fee is levied on an individual as such. Reimbursement or recompense are the closest equivalence to the cost incurred by the provider of the services/facilities. The principle of compensatory tax is that if the Government, by some positive action, confers upon individuals, as a class, a particular measurable advantage, it is only fair that those, who receive such benefit, pay for the same.
128. Firmly laying down the parameters of compensatory tax, the court, in Jindal Stainleh Ltd. (supra), observed,
40. In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net-revenue to the government but that circumstance is not an essential ingredient of compensatory tax.
129. Having, thus, made it clear as to how a compensatory tax differs from a tax imposed as a measure of collection of general revenue, the court, in Jindal Stainless Ltd. (supra), has pointed out that whenever a tax law is impugned as violative of Article 301, the court has to determine its effect on the operation of the impugned law on the inter-State and intra-State movement of goods, for, movement or transportation of goods constitutes an integral part of trade. If the court finds, on such examination, that the tax imposed is causing impediment, it cannot survive unless it complies with the provisions of Article 304(b) ; but if the tax, so imposed, facilitates trade instead of causing hindrance thereto and it is for providing such facility to the traders, as a class, that the tax has been imposed, then, such imposition of tax would be compensatory. Laying down the law, so indicated, the Supreme Court, in Jindal Stainless Ltd. (supra), further observed, at para 43,
43. Applying the above tests/parameters, whenever a law is impugned as violative of Article 301 of the Constitution, the court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. If the provisions are ambiguous or even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/ facility provider to show by placing the material before the court, that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to its payer(s). As soon as it is shown that the Act invades freedom of trade it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of Article 304(b) See: para 35 of the decision in the case of Khyerbari Tea Co. Ltd. and Anr. v. State of Assam and Ors. .
130. Having analyzed the concept of compensatory tax, which was judicially propounded in Automobile Transport (Rajasthan) Ltd. (supra), the Constitution Bench, in Jindal Stainless Ltd. (supra), has pointed out,
46. The concept of compensatory taxes was propounded in the case of Automobile Transport in which compensatory taxes were equated with regulatory taxes. In that case, a working test for deciding whether a tax is compensatory or not was laid down. In that judgment, it was observed that one has to enquire whether the trade as a class is having the use of certain facilities for the better conduct of the trade/business. This working test remains unaltered even today. "Having, thus, adhered to the working test of compensatory tax, which was laid down in. Automobiles Transport (Rajasthan) Ltd. (supra), the Constitution Bench, in Jindal Stainless Ltd. (supra), commented on the decisions, rendered in Bhagatram Rajeeb Kumar (supra) and Bihar Chamber of Commerce (supra), in the following words:
47. As stated above, in the post 1995 era, the said working test propounded in the Automobile Transport stood disrupted when in Bhagatram's case, a Bench of three Judges enunciated the test of "some connection" saying that even if there is some link between the tax and the facilities extended to the trade directly or indirectly, the levy cannot be impugned as invalid. In our view, this test of "some connection" enunciated in Bhagatram's case is not only contrary to the working test propounded in Automobile Transport's case but it obliterates the very basis of compensatory tax. We may reiterate that when a tax is imposed in the regulation or as a part of regulatory measure the controlling factor of the levy shifts from burden to reimbursement/recompense. The working test propounded by a Bench of seven Judges in the case of Automobile Transport and the test of "some connection" enunciated by a Bench of three Judges in Bhagatram's case cannot stand together. Therefore, in our view, the test of "some connection" as propounded in Bhagatram's case is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeeb Kumar v. Commissioner of Sales Tax, M.P. and State of Bihar v. Bihar Chamber of Commerce stand overruled.
131. From what have been observed, at para 47, in Jindal Stainless Ltd. (supra), there remains no escape from the conclusion that whenever a tax is impugned as violative of Article 301, the court has to, first, determine if the tax is causing restriction. If the tax is restrictive in nature, it must not only be shown to be reasonable and in public interest, but it must also be shown to have been imposed after obtaining prior sanction of the President and satisfy thereby the mandatory requirements of Article 304(b). Even when the tax may facially appear to be restrictive or impeding movement of goods, yet, when such restrictions are imposed as a measure of regulation or as a measure of compensation, the imposition would be valid, for, regulatory measures or compensatory taxes do not impede, but facilitate trade. If a tax is claimed to be compensatory in nature, some kind of working connection between the tax collected and facilities provided would not be enough ; rather, the State must establish that the tax imposed is not for general revenue, but as a measure of reimbursement or to re-compensate the services offered or facilities provided, for, the compensatory tax is founded on the principle of equivalence and is based on the concept of re-imbursement. The parameters of compensatory tax, as laid down in Jindal Stainless Ltd. (supra), are summarized hereinbelow:
(a) The, 'principle of equivalance', which is converse of the 'principle of ability to pay, applies to a case of compensatory tax;
(b) The benefits, under a compensatory tax, are quantifiable and measurable;
(c) A compensatory tax has to be broadly proportional and not progressive;
(d) A compensatory tax is based on the principle of pay for the value';
(e) Reimbursement or recompense are the closest equivalance to the cost incurred by the provider of the services/facilities;
(f) Compensatory tax is based on the concept of recompense/ reimbursement;
(g) Compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the cost of regulation or facilities or special advantages provided to trade, commerce and intercourse.
(h) The burden of showing that the tax is compensatoiy in nature lies on the State.
132. Put in the briefest of words, one can safely say that the Constitution Bench, in Jindal Stainless Ltd. (supra), made it clear that the law laid down, in Bhagatram Rajeeb Kumar (supra), and Bihar Chamber of Commerce (supra), are contrary to what Automobile Transport (Rajasthan) Ltd. (supra) had laid down meaning thereby that the State must satisfy, when a levy is challenged as violative of Article 301, that what the traders are required to pay is not "patently much more than what is required for providing the facilities".
133. Coupled with the above, what also needs to be clarified is that when a tax is imposed on the entry of goods into a local area for the purpose of use, consumption or sale therein, it has an immediate impact on the movement of the goods. That such a measure would fall within the ambit of Article 301 is clearly indicated by the Constitution Bench, in Hansa Corporation (supra), when it observed,
32. The next limb of the contention is that the impugned tax being leviable on the entry of goods into a local area will have a direct and immediate impact on the movement of goods and consequently would infringe freedom of inter-State trade guaranteed by Article 301. To the extent the impugned tax is levied on the entry of goods in a local area it cannot be gainsaid that its immediate impact would be on movement of goods and the measure would fall within the inhibition of Article 301.
(emphasis is supplied)
134. In Jindal Stripes Ltd. (supra), too, the court, while making the reference, observed, "the tax levied upon the entry of goods into a local area for the purpose of use, consumption or sale therein has a direct effect on the movement of goods and therefore it can be saved only if the levy is in the nature of compensatory tax for the use of trading facilities or it comes under the protective umbrella of Article 304. "Thus, even Jindal Stripes Ltd. (supra), makes it abundantly clear that a tax, levied upon the entry of goods into a local area for the purpose of use, consumption and sale therein, has a direct effect on the movement of goods and can be saved only if the levy is in the nature of compensatory tax for the use of trading facilities or if it satisfies the requirements of Article 304(b).
135. In short, when a tax is imposed on the entry of goods into a local area, its immediate impact would be on the movement of goods affecting the trade. Such a measure of taxation, commonly called entry tax, can be saved only if it is shown that either the tax imposed is compensatory in nature or is protected under Article 304(b).
136. Bearing in mind the ambit of Article 301 vis-a-vis the law of taxation, when one reverts to the impugned Act, it clearly transpires that the impugned Act seeks to impose tax on the very entry of goods into a local area. Irrespective of the fact as to whether the tax, so imposed, is discriminatory or not, the fact remains that the immediate impact of such a tax is on the movement or transportation of goods. Thus, an enactment, such as, the one, impugned in the present set of writ petitions, which seeks to levy tax upon entry of goods into a local area for the purpose of use, consumption or sale therein and has a direct and immediate effect on the movement of goods can be saved only if the levy is found to be in the nature of compensatory tax for the use of trading facilities or if the levy comes under the protective umbrella of Article 304(b); otherwise, such a tax cannot be allowed to survive.
137. For what have been pointed out above, let me, now, ascertain if the impugned levy is as a compensatory measure for providing trading facilities to the petitioners as a trading class. While considering this aspect of the matter, it is necessary to take note of not only the Preamble and the Statement of the object and the reasons of the impugned Act, but also of the scheme of taxation, embodied in the impugned Act, as regards the levy, collection and utilization of entry tax.
PREAMBLE:
1. Whereas it is expedient to provide for an imposition of a tax on the entry of goods into any local area in Assam for consumption, use or sale therein and for matters connected therewith.
Statement pf Objects and Reasons It has come to the notice of the Government that many bulk consumers such as tea companies, oil companies, etc., take recourse to inter-State purchase several items required for their own consumption with a view to availing benefit of lower rate of tax under the Central Sales Tax Act. This practice deprives the State of a substantial amount of revenue.
2. Further it is observed that due to disparity in the rate of tax in different States, motor vehicles are purchased outside the State and then brought into the State for use.
3. In order to curb such losses of revenue and thereby mobilize additional; resources, the Govt has decided to levy tax on entry of selected items, including motor vehicles, which are imported into Assam from other States for own use and consumption.
This Bill seeks to achieve above objects.
138. From a careful reading of the Preamble to the Assam Entry Tax, 2001, the Statement of Object and Reasons of the Act and also the provisions, contained, as a whole, in the Act, it transpires that the Act was envisaged as a taxing statute for augmenting revenue of the State and the tax levied thereunder was not specifically meant for providing any trading facility nor are the provisions of the impugned Act regulatory in nature. In short, thus, the scheme and object of the impugned levy, in the light of what the Preamble, the Statement of Object and Reasons of the impugned Act and the unamended provisions of Act reflect, was neither regulatory nor compensatory in nature.
139. It is of paramount importance to note that while the Notifications imposing entry tax already stood challenged, in the present set of writ petitions, the Legislature introduced, under the Assam Entry Tax (Second Amendment) Act, 2005, Section8Aby means of the impugned Notification, dated 9.9.2005. Section 8A, is, however, retrospective, for, it comes into force with effect from 12.5.2005. Section 8A reads as follows:
8A. Subject to such condition as may be prescribed such sum of the proceeds of the tax as may be determined by the State Government shall be spent by the State Government for the purpose of development of trading facilities, maintenance of roads and other infra-structures in the local area.
140. As would shortly transpire, the insertion of Section 8A appears to be a result of the legislative anxiety to prove or show that the Assam Entry Tax Act, 2001, is compensatory in nature and would, therefore, fall outside the purview of Article 301.
141. What is, now, of paramount importance to note is that a microscopic reading of Section 8A reveals that the impugned Act, including subsequent amendments made thereto, do not specify how much of the revenue realized, by way of entry tax, will be utilized for facilitating trade and commerce. Section 8A, which relates to utilization of the proceeds of the entry tax, merely states that subject to such conditions, as may be prescribed, the State Government may determine such sum of the proceeds of the tax, which shall be spent for the purpose of development of trading facilities, maintenance of roads and infrastructures of the local area. The State Government has, admittedly, not prescribed any conditions as envisaged under Section 8A. There is also nothing under Section 8A, or in the Act as a whole, to show as to what standard or criteria would be applied by the State Government to determine as to what portion of the proceeds of the entry tax would be utilized for the purpose of development of trading facilities like maintenance of roads and other infrastructure in the local areas. In fact, a dispassionate and close scrutiny of the contents of Section 8A makes it abundantly clear that the Statute does even not make it obligatory for the State Government to utilize the revenue, collected by imposition of entry tax, for the purpose of providing trading facilities only, because Section 8A, if taken to logical conclusion, permits the State Government to spend an insignificant part of the total revenue, collected by way of entry tax, for development of trading facilities. Thus, the revenue, realized by imposition of entry tax, can be used, would be used, and has, in fact, been used for the purposes other than providing trading facilities. To be precise, and if I may repeat, the impugned Act does not clearly spell out what trading facilities have been provided or would be provided to those, who pay entry tax. The State Government, for the purpose of proving that the entry tax is compensatory in nature, relies on para 9 of their affidavit filed on 3.3.2006. The relevant portion of para 9 of the affidavit is, therefore, reproduced herein below:
9. * * * * * * That the deponent, further, states that the State Government has been transferring sufficient funds to the aforesaid local bodies for development of infrastructure to facilitate trade and commerce in the local areas. The quantum of such transfer is commensurate with the amount of Entry Tax collected by the State Government. The following table will illustrate the amount Entry Tax collected year wise by the State Govt. beginning from 2001-02 when the Entry Tax came into force and amount of transfers to various local bodies in the State for developmental activities. Over and above this, the State Government is also spending substantial amount of fund for maintenance of roads within the territories of various local bodies. For example, Rs. 80 crore has been earmarked for this purpose during the current year 2005-06. Similarly, substantial amoubt of funds are also being transferred by the State Government to the A.S.E.B. for development of electricity network in both urban and rural areas of the State. The quantum of such support has been at an average of around Rs. 100 crore per year.
TABLE ________________________________________________________ Year Amount of Entry Tax Amount released to Collected Local Bodies (Rs. in crores) __________________________________________________________ 2001-02 7.84 67.48 2002-03 28.34 90.29 2003-04 28.81 97.48 2004-05 106.50 176.56 From the above, it is clear that the amount being spent by the State Government on development of infrastructure facilities to facilitate trade and commerce within the territories of various local bodies is substantially higher than the amount of entry tax collected. Because of the existence of several layers and categories of local bodies in the State, it has been found administratively expedient to resort to the above compensatory mechanism for facilitating trade and commerce in the local areas of various urban local bodies, Panchayati Raj Institutions and Autonomous Councils.
142. From what have been averred in para 9 of the said affidavit, it becomes transparent that the State Government has not been able to give any clear and categorical answer to the queries raised by this Court as to what specific facilities are being provided by the State Government to the traders or importers of goods into the local areas or what facilities are proposed to be provided to the traders, in future, so as to justify the imposition of the entry tax. The averments made, in the affidavit, are wholly vague inasmuch as these averments reveal, at best, the total grants, which the State Government has made to the local bodies. These grants would obviously include grants for expenses incurred in the local areas not only for the facilities, which may have been, incidentally, provided to the traders or importers of goods in the State of Assam, but also to the public at large. The State Government merely avers, in its affidavit, that the revenue realized from the entry tax is utilized for development of infrastructure to facilitate trade and commerce in the local areas. These averments do not, however, indicate as to what infrastructural developments have been made or are being made to facilitate trade and commerce in the local areas. In fact, the State Government's affidavit heavily relies on the concept of compensatory tax as had been propounded in Bhagatram Rajeeb Kumar (supra) and followed and amplified in Bihar Chamber of Commerce (supra). In fact, before the decision in Jindal Stainless Ltd. (supra) was rendered, the State Government's stand had been that so long as the traders were receiving, along with the public, some facilities and advantages, the realization of entry tax from them shall be regarded as compensatory and such a levy is, therefore, sustainable. As against this, Automobile Transport (Rajasthan) Ltd. (supra) had made it clear that when the levy is challenged as violative of Article 301, the State must satisfy the court that for the special benefits, which the traders are claimed to have been provided with, the traders are not paying "patently much more than what is required for providing facilities". This test has been adhered even in Jindal Stainless Ltd. (supra). In a case of present nature, the State Government ought to have, therefore, shown as to what trading facilities it has really provided to the traders, what expenses are incurred for providing such facilities and how much amount, realized from the imposition of the entry tax, is being utilized for providing the trading facilities so that this Court could feel satisfied that the traders are paying, for the facilities, if any, provided to them, patently not much more than what is required for providing the facilities. No such thing has been done. Situated thus, it is clear that the State Government has not discharged its burden of showing that the entry tax, in the present case, is compensatory in nature.
143. I may, at this stage, pause here to point out that Dr. Saraf has made pointed submissions to show that so far as movement of crude oil is concerned, no facility of any kind is provided to the petitioners, who are involved in the business of marketing crude oil in the State of Assam. In para 1 of their writ petition, the petitioner in WP(C) No. 4775 of 2005, has averred, thus:
xi... The petitioner-company receives Crude Oil from Oil and Natural Gas Corporation Ltd. (for short 'ONGC') and also from Oil India Ltd. (for short 'OIL') through the pipelines owned by OIL. The crude oil of OIL is injected into the pipeline starting from Duliajan. It is also relevant herein to mention that the Crude Oil is also injected at places like Moran and Jorhat on its way to Guwahati through the Pipelines. The pipelines enter into the refinery of the petitioner-company at Guwahati and the crude is received at the tanks of the petitioner-company. The accounting of crude delivered is done based upon the joint dipping of the crude tanks of the petitioner-company. The petitioner Company is responsible for payment only in respect to the crude delivered to the tanks of the petitioner-company. It may be further relevant to state herein that any loss of crude in transit is to be borne by ONGC/OIL and custody and transfer takes place only after delivery of crude to the tanks belonging to the petitioner-company. It is further stated that before delivery of the crude into the tanks of the petitioner the title remains with OIL/ONGC. It is only after the crude oil delivered is ascertained by the joint dipping inspection that the title of the crude is transferred to the petitioner-company.
xiii. It may be relevant herein to mention that in respect to crude oil the State does not provide any facility whatsoever. It is stated that no road or public facility is use for the transportation of crude oil which moves entirely through pipe lines installed by oil companies at considerable expense on land on which they have acquired right of way at their own expense and which are policed and maintained by oil companies entirely at their own expense. The State provides no facility and incurs no expense whatsoever in facilitating the trade or movement of crude oil from the oil fields to the refineries through pipe lines."
xiv... It is further submitted that the costs imposed by the impugned enactment includes not only the tax but also the refining losses, i.e., the difference between the quantity of crude oil brought in and the quantity of finished products. In addition it includes the taxes imposed on the tax and the losses in the form of Excise Duty, Sales Tax, Cess, etc., on this additional costs. On a rough estimate, if this was to be passed on to the ultimate consumer it would entail an additional cost of at least between Rs. 3 to Rs. 4 a litre of diesel and Rs. 5 to Rs. 6 per litre of petrol. If this additional cost is borne by the company (as it presently is) it would entail an equivalent loss to the company. In either event, it imposes an additional cost on the petroleum products of the refineries in Assam which makes them much more expensive in comparison to similar products produced in refineries in other states where there is no entry tax (e.g., West Bengal) and, therefore, far less competitive.
144. From the above averments made in WP(C) No. 4775/2005, it clearly transpires that according to the petitioners, the movement or transportation of crude oil, through pipelines, is entirely at the expenses of the petitioners. Even pipelines are laid on the land, which the petitioners have acquired at their own expenses, and that the same are maintained by the oil companies themselves. In short, according to 3the petitioners, the State provides no facility and incurs no expenses in the movement of crude oil, which takes place. The respondents have not been able to refute the averments so made by the oil companies. In these circumstances, the entry tax cannot be regarded as compensatory tax and one has no option, but to hold that imposition of entry tax on the movement of crude oil is nothing, but a restriction imposed on the freedom of movement of trade and commerce guaranteed under Article 301.
145. What surfaces from the discussions held above, as a whole, is that the impugned levy is as a measure of collection of general revenue for the State and the same is not specifically meant for facilitating trade or commerce, but is raised for augmenting the general revenue of the State.
146. There is yet another facet of the impugned levy, which requires cool and dispassionate consideration. Section 5 of the impugned Act embodies provisions for exemption. This Section states as follows:
Section 5 Notwithstanding anything contained in Section 3 and Section 4 and subject to production of documentary proof, no tax under this Act shall be levied in respect of the specified goods which are also subject to levy of taxes under the provisions of the Assam Value Added Tax Act, 2003 Assam Act VIII of 2005.
(i) If the sale of such specified goods inside the State, made by an importer are sales within the meaning of Clauses (43) of Section 2 of the said Act, excepting sales falling under Sub-clauses (ii), (iii) and (iv) of the said clause and if he is liable to pay tax on such sales as a registered dealer under the Assam Value Added Tax Act, 2003 (Assam Act No. VIII of 2005)
(ii) If the sale of such specified goods are made by the importer in the course of inter-state trade or commerce or in the course of export out of the territory of India or such goods are otherwise dispatched outside the State by way of stock transfer and if he is registered dealer under the Central Sales Tax Act, 1956 (Central Act 74 of 1956).
147. It may be noted that prior to the amendment of Section 5 of the Assam Entry Tax Act, 2001, it read as follows:
5. Reduction in tax liability Where an importer who has paid tax under this Act becomes liable to pay tax under the Assam General Sales Tax Act, 1993 in respect of the same goods then the amount of tax payable under the Assam General Sales Tax Act, 1993 shall be reduced by the amount of tax paid under this Act. Assam Act XII of 1993).
148. When the provisions of Section 5 is carefully read, in the light of the object and reasons behind the enactment of the impugned Act, it becomes clear that the legislative intent behind imposition of the impugned levy is to arrest evasion of sales tax, which has, now, been replaced by the Assam Value Added Tax Act, 2003. Though Assam Entry Tax Act, 2001, and the Assam Value Added Tax Act, 2003, have been enacted on two distinctly separate footings, the former having been enacted for the purpose of levy of tax on entry of goods into any local area, in Assam, for consumption, use or sale therein, this power being traceable to Entry 52 of the State List, the latter is enacted for the purpose of levy of tax on sale or purchase of goods in Assam, the subsequent legislation being traceable to Entry 54 of the State List, yet the common and broad objective, in both the enactments, are to earn revenue for the State. One can also not ignore the grievances expressed, on behalf of the petitioners, that the respondents have, time and again, placed before this Court not only varied, but self-conflicting and contradictory reasons for enactment of the impugned Act. In this regard, it can be noted that at para 5 of their affidavit, filed in WP(C) No. 5827/2002, the respondents have clearly admitted that the impugned enactment is aimed at preventing or checking evasion of tax. This affidavit reads as follows:
7. That as regards the statements made in paragraph 6 of the writ petition, it is stated that Entry Tax is only levied to check the evasion of tax. The Entry Tax is also imposed on "Pulse & Cereals", "eggs", "UHT Milk" and "natural flowers" which are not taxable under the Assam General Sales Tax Act, 1993 and hence there is no question of evasion of tax.
149. Broadly in tune with their above averments and also asserting that the impugned levy has been imposed in order to broaden the tax base and to obtain additional resources, the respondents, in paragraph 6 of their affidavit, in WP(C) No.8445/2003, have averred as follows:
6. That with regard to the statements made in paragraph 5 of the writ petition, the deponent respectfully begs to state that a plain reading of the Preamble of the Act of 2001 makes it abundantly clear that the Assam Entry Tax Act, 2001 has been enacted to levy tax on entry of goods into any local area in Assam for consumption, use or sale therein and for matters connected therewith. The prime intendment behind the enactment is broadening the tax base and seeking additional resources to increase the tax yield.
150. In paragraph 23 of the above affidavit, the respondents further clarified the intention behind the enactment of the impugned Act in the following words:
The same as discernible from the preamble as well as other provisions of the Act which is to broaden the tax base and to seek additional resources to increase the tax yield.
151. The stand, now, taken by the State respondents that the levy is compensatory in nature is noticeably different from what the stand the respondents had taken earlier in their affidavits as indicated hereinabove.
152. Thus, the above averments, made, in their affidavit, by the State respondents, clearly indicate that the entry tax has been imposed, under the impugned Act, for the purpose of checking evasion of tax and to broaden tax base and not as against any specific or identifiable advantage being given to the traders, as a class, in order to facilitate or help growth of their trade or their commercial activities. That apart, a careful reading of Section 5 also indicates that the imposition of entry tax is aimed at realizing State sales tax, which the State is unable to impose in the form of Assam Value Added Tax Act, 2003. Coupled with this, it is also of immense importance to note that one, who pays sales tax or Assam Value Added Tax, is exempted from payment of entry tax. Viewed from this angle, I find considerable force in the submissions, made on behalf of the petitioners, by Dr. A. Saraf that the impugned levy is a colourable exercise of power and that though the entry tax is, now, being claimed to be compensatory in nature, the legislative object and the scheme of the impugned enactment are to really realize payment of sales tax in advance inasmuch as those, who pay entry tax, would be exempted from payment of State sales tax or Value Added Tax. Reliance placed, on behalf of the petitioners, on the decision in Sri Krishna Marbles and Granites v. State of Kerala and Ors. reported in 137 STC 481 (Ker.), to show that the impugned levy is nothing, but an advance payment of sales tax cannot be said to wholly unjustified. The relevant observations, made in Sri Krishna Marbles and Granites (supra), read as follows:
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.
153. The State respondents, it may also be pointed out, relies on the fact that the Apex Court has struck down the levy of luxury tax as ultra vires and that the impugned levy had to be imposed by the State in replacement of the States luxury tax. In order to justify imposition of entry tax, as a replacement of luxury tax, the State cites the decision in Hansa Corporation (supra), wherein the Supreme Court, having held that the entry tax imposed therein is in replacement of octroi, upheld such levy. While considering this aspect of the matter, it needs to be noted that in Hansa Corporation (supra), the State of Kerala had been validly levying octroi in proper exercise of its legislative powers ; but since the levy of octroi was being misused, it abolished octroi and imposed entry tax. As the enactment, imposing entry tax, had received assent of the President, the Supreme Court held the imposition of the tax as valid. The facts of the case, in Hansa Corporation (supra), were, thus, not similar to the ones at hand. This apart, in the case at hand, the luxury tax was struck down by the Apex Court as ultra vires and in such circumstances, when the State has imposed entry tax, it must either satisfy that the entry tax is compensatory in nature or falls under the protective umbrella of Article 304(b). At this stage, one may pause to peep into the events, which led to the striking down of the luxury tax, particularly, in respect of tobacco and its products. The State of Assam, like some other States, had imposed luxury tax on tobacco and tobacco products, in the State of Assam, with the help of the Assam Taxation (Luxury) Act, 1997. Following a challenge to the imposition of luxury tax, the Apex Court, in Godfrey Philips India Ltd. v. State of UP , declared the levy of luxury tax-to be beyond the legislative competence and ultra vires. Having, thus, failed to sustain the luxury tax on tobacco and its products, which had been imposed @ 10 paisa at a rupee under the Assam Taxation (Luxury) Act, 1997, the State Government, as delegated authority, under the AET Act, 2001, issued notification, dated 28.2.2005, inserting tobacco and tobacco products, in the Schedule to the Act, making tobacco and its products taxable at the same rate at which the luxury tax had been imposed on these items under the Assam Taxation (Luxury) Act, 1997. From these glaringly noticeable facts, there can be no escape from the conclusion that the impugned notification, dated 28.2.2005, aforementioned is in colourable exercise of power to levy and collect tax, under the AET Act, 2001, on items on which the State could not have, otherwise, imposed luxury tax. When the State is unable to show that the entry tax, in question, is compensatory in nature, there can be really no escape from the conclusion that the imposition of entry tax, in the case of, at least, tobacco and tobacco products, is nothing, but sales tax imposed by the State, for, the State cannot realise sales tax from these importers.
154. While discussing the question as to whether the entry tax is or is not proved to be compensatory in nature, this Court has already held above that the State respondents have not been able to convincingly show that the impugned levy is compensatory in nature.
155. I may also pause here to point out that though the State respondents have taken the plea that since the imposition of entry tax is in exercise of its powers under Entry 52 of the State List, it is constitutionally valid, what needs to be carefully noted, in this regard, is that the various entries, in the three Lists of the Seventh Schedule to the Constitution, are not really powers of legislation, but fields of legislation. The entries, in these Lists, are mere legislative heads or fields of legislation and these entries are, thus, of an enabling character ; whereas the powers to legislate are given to the Union and the State Legislatures under Articles 245 to 255, the entries are designed to define and delimit the respective areas and legislative competence of the Union and the State Legislatures. See Calcutta Gas Co. Proprietory) Ltd. v. State of West Bengal Harakchand Rattanchand Banthia v. Union of India Union of India v. H.S. Dhillon , and State of Bihar v. Kameswar Singh .
156. Thus, Entry 52 of the State List does not, in itself, give the power to the State Legislatures to make enactment of entry tax, the power to legislate entry tax arise from Article 246(2) read with Entry 52, for, while Article 246(2) empowers the State Legislature to legislate on the subjects enlisted in the State List, Entry 52 allows the State to impose entry tax. However, the power, contained under Article 246, has to be read subject to other provisions of the Constitution. It is worth noticing that Article 301 is not subject to provisions other than Part XIII of the Constitution. Consequently, Article 301 cannot be read subject to Article 246 ; rather, Article 246 is subject to Article 301. Hence, the power to legislate, under Article 246, has to be read subject to the provisions of Article 301.
157. It clearly follows, therefore, that while exercising the powers under Article 246, Legislature cannot enact a law, which impinges or violates Article 301. To put it differently, entry tax cannot be imposed in violation of the freedom of trade and commerce guaranteed under Article 301. It is, therefore, no answer to the question that an entry tax, being a legislation under Entry 52 of the State List, is a valid piece of legislation even if the imposition of entry tax is found to be violative of Article 301.
158. What crystallizes from the above discussion is that the impugned levy could not be proved to be compensatory in nature. One of the possible ways, therefore, of sustaining the impugned levy would be to ascertain if the levy, as contemplated under the impugned notifications, AET (Amendment) Ordinance, 2005, and the AET (Second) Amendment Act, 2005, fall under the protective umbrella of Article 304(b).
159. While considering the question as to whether the impugned levy falls within the protective umbrella of Article 304(b) or not, what needs to be noted is that the impugned levy, in order to withstand the tests of Article 304(b), must be shown to be not only reasonable and in public interest, but it must also be proved to have been enacted with the prior sanction of the President.
160. When Article 301 guarantees freedom of trade, commerce and intercourse throughout the territory of India and when the levy is not found to be regulatory or compensatory in nature, a heavy burden lies on the State to show that the levy is reasonable and in public interest. As I have already indicated above, Article 301, according to the pronouncements of the Supreme Court, in Atiabari Tka Co. Ltd. (supra), Automobile Transport Corporation (Rajasthan) Ltd. (supra) and Jindal Stainless Ltd. (supra), aims at making India economically strong entity and since an economically strong India cannot be sustained without freedom of movement of trade and commerce, a restriction, imposed on the freedom of such movements, cannot be lightly sustained unless such restriction is shown to be reasonable and in public interest. In the present case, levy could not be proved to be regulatory or compensatory in nature. Heavy burden, therefore, rested on the State respondents to ! show that the levy is reasonable and in public interest. The respondents have not been able to discharge this duty inasmuch as they have not been able to show as to how the imposition of the impugned levy can be said to be reasonable and/or in public interest. The analysis of the provisions of the impugned Act clearly shows that this Act is nothing, but an enactment aimed at augmenting the general revenue of the State. A legislation made aiming at augmenting revenue of the State cannot, by itself, be said to be in public interest or a reasonable restriction.
161. Be that as it may, even if one does not go into the question as to whether the impugned tax imposes reasonable restriction or not, and whether such a levy is in public interest or not, it must, at least, be shown by the State that the levy satisfies the proviso to Article 304(b), namely, that the levy has been imposed with the prior sanction of the President.
162. Let us, now, ascertain the scope of the proviso to Article 304(b) and the reason as to why our Constitution-makers have imposed the condition that when a levy is not regulatory or compensatory, President's assent, even before the Bill, proposing such an enactment is introduced in the Legislature of any State, must be obtained. The anxiety of the Constitution-makers was obviously to ensure that the freedom of trade, commerce and intercourse, which Article 301 seeks to guarantee, is not diluted or set at naught unless, for compelling reasons, a State has to make an enactment levying a tax, which though restrictive of Article 301, is, nevertheless, indispensable in the interest of the State concerned. Since the Parliament, in exercise of its various legislative powers, such as, Article 286, has made various legislations in order to generate revenue and, at the same time, ensure growth of trade and commerce throughout India, President is required to apply his mind to ascertain if a tax, which is restrictive in nature and is sought to be imposed by a State, can be permitted in the national interest and in the interest of the State concerned. The power given to the President under Article 304(b) is, therefore, a special constituent power as protector and defender of the Constitution and as a person, who has the responsibility to safeguard fundamental rights of the citizens and federal structure of the country's polity as conceived in our Constitution. The concept of the role and powers of the President, as perceived by the proviso to Article 304(b), has been explained by a Constitution Bench, in Kaiser-i-Hind Put. Ltd. (supra), at paragraph 77, in these words:
77. ...The powers actually exercised by the President, at any rate under Articles 31A, 31C, 254(2) and 304(b) are special constituent power vested with the Head of the Union as the protector and defender of the Constitution and safety valve to safeguard the fundamental rights of citizens and federal structure of the country's polity as adopted in the Constitution. A genuine, real and effective consideration would depend upon specific and sufficient information being provided to him inviting, at any rate, his attention to the Central law with which the State law is considered or apprehended to be repugnant, and in the absence of any effort or exercise shown to have been undertaken, when questioned before courts, the State law cannot be permitted or allowed to have predominance or an overriding effect over the Central enactment of Parliament to which no specific reference of the President at all has been invited to. This, in my view, is a must and an essential requirement to be satisfied, in the absence of which the "consideration" claimed would be one in a vacuum and really oblivious to the hoard of legislations falling under the Concurrent List in force in the country and enacted by Parliament. To uphold as valid the claim for any such blanket assent or all-round predominance over any and every such law whether brought to the notice of the President or not, would amount to legitimization of what was not even in the contemplation or consideration on the basis of some assumed "consideration." In order to find out the real state of affairs as to whether the "assent" in a given case was after a due and proper application of mind and effective "consideration" as envisaged by the Constitution, this Court as well as the High Court exercising powers of judicial review are entitled to call for the relevant records and look into the same.
(emphasis supplied)
163. While considering the decision in Kaiser-i-Hind (P.) Ltd. (supra), it needs to be borne in mind, as rightly pointed out by the learned Addl. Advocate General, that in Kaiser-i-Hind (P.) Ltd. (supra), there was a conflict between two enactments, Central and State, and it is in the context of such a conflict between the two that the decision, in Kaiser-i-Hind (P.) Ltd. (supra) was rendered. What is, however, imperative to note is that Article 254(2) requires that law made by the State Legislature, which is repugnant to any of the provisions of any law made by the Parliament, must be reserved for consideration of the President and must have received his assent. If it has not been considered by the President and has not received his assent, the law will not be valid. Though in Kaiser-i-Hind (P.) Ltd. (supra), it was conflict between two enactments, which was an issue, the fact remains that the object and parameters of the powers, vested in the President under the proviso to Article 304(b), has been held to be same as the power under Article 254(2). The reference made by Mr. Shanti Bhusan to Kaiser-i-Hind (Put.) Ltd. (supra) cannot, therefore, be said to be misplaced.
164. Under the proviso to Clause (b) of Article 304, not only a Bill containing restrictive provisions, but even the amendments sought to be made thereto cannot be introduced in the Legislature of a State without the previous sanction of the President.
165. The power given to the President under Article 304(b), same as Article 254(2), is, in the light of the authoritative pronouncement in Kaiser-i-Hind (P.) Ltd. (supra), not a mere formal exercise of power, but a special constituent power, which the Constitution has vested in the President as protector and defender of the Constitution and as a person, who has the responsibility to safeguard the fundamental rights of the citizens and the federal structure of the country's polity. Thus, obtaining of sanction from the President is not a mere formality. The principle behind laying so much of emphasis on the powers of the President under the proviso to Article 304(b) is that a legislation, which. would, otherwise, be violative of Article 301, can be made valid if the President's sanction under the proviso to Article 304(b) is received. Thus, the power vested in the President, under the proviso to Article 304(b), is a momentous power and cannot be lightly dealt with. Viewed thus, I find considerable force in the submission of Mr. Shanti Bhusan that when the Constitution requires President's prior sanction to a Bill, such as, the present one, the President needs to be informed as to what restrictions a State Legislature seeks to impose, on what goods such restrictions are sought to be imposed and what is the rate at which the State Legislature seeks to impose the tax so that the President can effectively apply his mind and after due and effective application of mind, it will be open to the President to either accord sanction to the introduction of such a Bill or decline the same. In fact, in Kaiser-i-Hind (P.) Ltd. (supra), the Constitution Bench has pointed out that unless pointed attention of the President is drawn to the item on which the tax is sought to be imposed, the mandatory requirement of the proviso to Article 304(b) would not be satisfied.
166. When any provision of law requires sanction, granting of sanction cannot be treated as a mere formality, but an active exercise of mind based on consideration of all the relevant materials. Thus, when a Bill, imposing restrictions on the movement or transportation of a particular item of goods has received President's sanction under the proviso to Article 304(b), it will not absolve the State Legislature from obtaining President's specific sanction if an item, which had not been, originally, included in the Bill, when it had received the sanction of the President, is sought to be subsequently included. The President's sanction, under Article 304(b), is sine qua non for the validity of a legislative enactment. As has been pointed out, in Kaiser-i-Hind (P.) Ltd. (supra), a genuine, real and effective consideration would depend upon specific information having been provided to the President inviting his attention to every item, which is sought to be taxed.
167. In the present case, the original Bill, as already discussed above, had proposed textile, in its schedule, as an item for imposition of entry tax, but the President granted his assent to the Bill on condition that textile would be removed from the purview of the entry tax. Same as tobacco and tobacco products, textiles are goods of special importance under the Central Sales Tax Act, 1956. Hence, the goods, such as, tobacco and tobacco products, could not have been introduced into the Schedule of the impugned Act without the President's prior sanction having been obtained thereto in terms of Article 304(b). If the submissions, made on behalf of the State respondents, are taken to their logical conclusion, then, it would mean that in the Bill presented to the President in the case at hand, one was not even required to mention the goods on which entry tax was sought to be imposed. However, the State Legislature had to inform the President as to what were the items on which entry tax was sought to be imposed and at what rate such tax would be imposed on what item of goods. It was on consideration of every item on which, and the rate at which, the tax was sought to be imposed that the President had granted sanction in respect of the items other than textile and materials relating to Prasar Bharati. In such circumstance, whenever a new item of goods is required to be included within the ambit of the impugned Act, such insertion cannot be done except by way of amendment and such amendment would not be permissible unless the President has an opportunity of applying his mind as to whether or not a tax, which is restrictive in nature, can be imposed in the case of a proposed item and/or at the rate at which the State Legislature proposes to impose such a tax.
168. It is the submission of Mr. Choudhury that since the Act empowers the State Legislature to amend the Schedule by adding any item thereto, no further sanction of the President is necessary if any item is, now, required to be added to the Schedule.
169. While considering this argument, it needs to be noted, as already pointed out above, that sanction granted by the President under Article 304(b) is not a mere formality ; but a constitutional requirement. In such circumstances, the power, given under the impugned Act, to add new items to the Schedule has to be read subject to the condition that such addition is possible only with the sanction of the President. If such requirement is not read into the provisions of the impugned Act, nothing can legally stop the State Legislature from introducing any item into the Schedule, which may not be, in the national interest, to do. No wonder, therefore, that the State has imposed entry tax, even on textile, which the President had specifically declined. Such a blanket power, which may have the effect of effacing the mandatory requirement of sanction, as envisaged under Article 304(b), cannot be inferred in favour of either the State or in favour of the State Legislature.
170. Turning to the three decisions, namely, Syed Ahmed Aga (supra), Subodyya Chit Fund (supra) and Widia (India) Ltd. (supra), which Mr. K.N. Cliuudhury has relied upon to contend that every amendment of an enactment does not require President's prior sanction or assent, it may be noted that in Syed Ahmed Aga (supra), the Apex Court has pointed out that it is only an additional restriction from the special point of view of Article 304(b), which requires President's sanction. In other words, when an amendment does not bring any additional restriction, President's sanction, under the proviso to Article 304(b), is not necessary. Naturally, therefore, when an amendment imposes an additional restriction, the obtaining of the President's sanction would become indispensable. In the present case, there was no entry tax on any item except on those seven items in respect whereof, the President had granted sanction. Inclusion of any additional item within such a tax net would be nothing, but an additional restriction from the special point of Article 304(b) and any such inclusion without President's sanction would be impermissible. In Subodyya Chit Fund (supra), it was merely the form of security, which was sought to be amended, and it is in respect of such an imbecile amendment that the Apex Court held that President's fresh sanction was not required. Neither the decision in Syed Ahmed Aga (supra) nor the decision in Subodyya Chit Fund (supra), is, therefore, applicable to the facts of the present case.
171. Coming to Widia (India) Ltd. (supra), it may be noted that the court's specific finding was that the tax was compensatory in nature. In such circumstances, Article 301 was not attracted and, hence, the question of obtaining of President's sanction under Article 304(b) had not arisen in the said case. Thus, the decision in Widia (India) Ltd. (supra), too, has no application to the facts of the present case. In fact, Syed Ahmed Age's case (supra) supports the case of the petitioners inasmuch as in Syed Ahmed Aga (supra), it has been made clear that if the amendment seeks to impose any additional restriction, which was not, originally, there in the Bill, such a restriction cannot be imposed without President's sanction. Viewed, thus, when an item, which was not included for the purpose of receiving sanction of the President, is sought to be subsequently included, it would require President's active application of mind and granting of prior sanction. The imposition of entry tax on the items, which were not included in the Bill, are nothing, but new restrictions or, at any rate, additional restrictions and such restrictions cannot survive unless President's sanction is obtained for this purpose.
172. Because of what have been discussed and pointed out above, there remains absolutely no doubt that the impugned amendment introduced by way of the impugned notifications, dated 21.8.2003, 26.8.2003, 29.9.2004 and 28.2.2005, impugned Ordinance, 2005, and the AET (Second) Amendment Act, 2005, which have included, in the Schedule to the impugned Act, the goods, which form the subject-matter of this set of writ petitions, is not sustainable, for, the State Legislature has not obtained the President's sanction thereto.
Whether the Assam Entry Tax Act, 2001, is in violation of Articles 14 and 304(a) of the Constitution of India?
173. Drawing attention of this Court to the provisions of Section 5 of the AET Act, 2001, Mr. Shanti Bhushan submits that Section 5 grants exemption from payment of entry tax in respect of goods, which are produced or manufactured within the State of Assam, even if such goods enter from one local area of the State into another local area for the purpose of consumption, use or sale therein, the ground of such exemption being that sale of these goods are taxable under the Assam Value Added Tax, 2003, whereas those goods, which are produced or manufactured outside the State of Assam and, then, imported into the State of Assam, are liable to payment of entry tax, when these goods enter into any local area of Assam for use, consumption and sale therein. Section 5 is, thus, according to Mr. Shanti Bhushan, in clear violation of Article 304(a) of the Constitution, for, points out Mr. Shanti Bhusan, Article 304(a) prohibits the States from making, while imposing a tax, any discrimination between the goods, which are manufactured or produced within the State, and the goods, which are manufactured or produced outside the State. Such a discrimination is also, contends Mr. Shanti Bhusan, a violation of the guarantee of equality, which Article 14 of the Constitution provides. Mr. Shanti Bhusan further submits that even prior to the amendment of Section 5, this section granted exemption from payment of entry tax on those goods, which were liable to payment of levy under the Assam General Sales Tax Act, 1993, whereas import of the goods from outside the State of Assam was liable to payment of levy under the Assam General Sales Tax Act, 1993. Thus, even the unamended Section 5, contends Mr. Shanti Bhushan, was discriminatory in nature.
174. The discrimination may be made, points out Mr. Shanti Bhushan, either by taxing goods at different rates of tax or by completely exempting goods, produced in a State, from the payment of tax. The form in which discrimination is brought about is not material; what is material, according to Mr. Shanti Bhushan, is that the law must be making a discrimination and when the law is discriminatory, it must be held, submits Mr. Shanti Bhushan, violative of Article 304(a). In the case of entry tax, points out Mr. Shanti Bhushan, the tax is levied on the entry of goods into a local area. In such circumstances, necessary it is, contends Mr. Shanti Bhushan, that the law, which imposes entry tax, must not discriminate between the goods, which are produced inside the State of Assam, and the goods, which are produced outside the State, but imported into a local area of the State for consumption, use or sale therein, for, in either case, the taxable event, according to Mr. Shanti Bhushan, is entry of goods into a local area. Thus, the taxable event, in either case, being entry of goods into a local area, the State of Assam, submits Mr. Shanti Bhushan, cannot discriminate, while levying entry tax, between the goods, which are imported into a local area from outside the State, and the goods, which are imported into one local area from another local area of the State, merely because of the fact that in the former category of cases, the goods are produced or manufactured outside the State of Assam and in the latter category of cases, the goods are produced or manufactured inside the State of Assam.
175. In support of his submission that the AET Act, 2001, is discriminatory and violative of Article 304(a), Mr. Shanti Bhushan places reliance on Anand Commercial Agencies v. C.T.O., Hyderabad See paragraph Nos. 1 and 6 to 28, Shree Mahavir Oil Mills and Anr. v. State of J & K (paragraph No. 8), State of U.P. v. Laxmi Paper Mart (paragraph No. 2) and Firm A.T.B. Mehtab Majid and Co. v. State of Madras (paragraph Nos. 11 and 19).
176. The above submissions of Mr. Shanti Bhusan have been substantially adopted by other learned Counsel appearing for the parties.
177.Controverting the submissions made on behalf of the petitioners, Mr. K.N. Choudhury, learned Advocate General, has submitted that the challenge to the entry tax by the manufacturer of tobacco and tobacco products is not tenable, for, these items are not subject to sales tax or Value Added Tax in Assam. The tobacco products, points out Mr. K.N. Choudhury, suffer from no discrimination inasmuch as tobacco and tobacco products are not subject to local sales tax or Value Added Tax in Assam.
178. The impugned Act, according to Mr. Choudhury, makes no discrimination between imported goods and the locally manufactured goods. The exemption under Section 5 has been granted, contends Mr. K.N. Choudhury, solely with a view to avoiding double taxation. The levy of entry tax, on the specified goods, into a local area of the State and the sales tax levied, on the subsequent sale or purchase thereof inside the State, are, according to Mr. Choudhury, two distinct levies and independent of each other. In such circumstances, submits Mr. Choudhury, when the Legislature has chosen, in its wisdom, to exempt from payment of entry tax those goods, which are subject to local sales tax, such an exemption cannot be regarded as discriminatory, for, as far as charging Section, i.e., Section 3, is concerned, the same makes, points out Mr. K.N. Choudhury, no discrimination and microscopic discrimination, if any, is not relevant. Mr. Choudhury also contends that since both the importers as well as manufacturers of specified goods within the State are equally liable to pay entry tax, the question of the impugned levy being violative of Article 301 does not arise at all.
179. Referring to, and relying upon, the decisions, in V. Guruviah Naidu & Sons v. State of Tamilnadu , and Ratanlal and Co. v. Assessing Authority Patiala , Mr. K.N. Choudhury submits that when the rate, applicable to the goods locally made and those imported from other States, is same, nothing more is required to be shown to dispel the argument of discrimination under Article 304(a) even though the resultant tax levied on imported goods may be different from the ones manufactured or produced inside the State of Assam. Referring to Widia (India) Ltd. v. State of Karnataka, , Mr. K.N. Choudhury has pointed out that a State may levy tax on goods imported from other States and so long as such levy remains similar for goods, which are manufactured inside the State, and the ones, which are manufactured outside the State, the levy cannot be to be discriminatory in law. In the present case, submits Mr. K.N. Choudhury, the impugned Act makes no discrimination between manufacturers of tobacco, tobacco products, biscuits, etc., whose goods are imported into the State of Assam, and the manufacturers of these goods inside the State of Assam. It is also contended by Mr. K.N. Choudhury that the decisions, relied upon by the petitioners, to show that the impugned levy is discriminatory, in nature, are not applicable to the facts of the case at hand. The impugned Act makes, reiterates Mr. K.N. Choudhury, no discrimination between the goods, which are produced outside the State of Assam, and the similar goods, produced within the State of Assam, so far as the import of such goods from one local area of the State into another local area of the State is concerned.
180. Mr. K.N. Choudhury has also contended that under the impugned Act, the importers of goods as well as manufacturers or producers of similar goods, within the State, are liable to pay equal rate of entry tax. In such a situation, the question of the impugned levy being violative of Article 301 does not arise at all. To buttress his argument, Mr. Choudhury relies on Andhra Sugar Mills v. State of Andhra Pradesh .
181. Referring to Anand Commercial Agencies (supra), which Mr. Shanti Bhushan has relied upon, Mr. Choudhury submits that in Ananth Commercial Agencies (supra), the manufacturer of groundnut oil, within the State of Andhra Pradesh, were given the benefit of lower rate of tax than the importers of groundnut oil. Such levy being clearly discriminatory was, submits Mr. K.N. Choudhury, interfered with by the court as discriminatory. Similarly, contends Mr. Choudhury, in Shree Mahabir Oil Mills (supra), edible oil manufacturers of other States were required to pay tax, whereas local manufacturers were exempted from tax and it was for this reason that the levy was held to be discriminatory. The remaining authorities, relied upon, on behalf of the petitioners, are also similarly distinguishable on facts and not applicable to the facts of the present case ; so contends Mr. Choudhury.
182. Countering the submissions made on behalf of the respondents, Mr. Shanti Bhushan has submitted that when a tax is imposed on the movement of goods, no exemption can be granted in respect of such a levy on the ground that these goods are subjected to sales tax in the State. From the decisions, relied upon by the petitioners, it is clear, contends Mr. Shanti Bhushan, that so long as there" is discrimination in imposition of tax, it does not matter how the discrimination is made out. It is reiterated by Mr. Shanti Bhushan that the imposition of entry tax on goods, when they are imported into a local area, must be same irrespective of the fact whether such goods are produced within the State or outside the State, because the taxable event, in either case, is entry of goods into a local area and if no tax is imposed on the local goods imported into a local area, it would amount to clear violation of Article 304(a) if similar goods are made subject to entry tax merely on the ground that these goods are not manufactured or produced within the State of Assam.
183. While considering the question as to whether the impugned levy is or is not discriminatory in nature, one needs to bear in mind the constitutional scheme as reflected by Articles 301, 302, 303 and 304. A careful and combined reading of all these articles shows that while guaranteeing, with the help of Article 301, freedom of trade, commerce and intercourse throughout the territory of India and thereby putting a limitation, on the part of the Parliament as well as Legislatures of the States, not to make law, creating fiscal barriers, which would cause impediment in the free flow of goods, Article 302 relaxes this limitation in favour of Parliament by allowing the Parliament to impose restrictions in public interest. While so allowing the Parliament to impose, in public interest, restrictions on the freedom of movement of goods, Clause (1) of Article 303 restricts the Parliament from making any law, even in public interest, if such law gives preference to one State over another. This restriction is, however, subject to one exception, the exception being that the Parliament can make law, which may even be discriminatory or which may give preference to one State over another, if such discriminatory law is aimed at meeting the scarcity of the goods, in question, in any part of the territory of India. As far as the State Legislatures are concerned, Clause (1) of Article 303 imposes one additional limitation, the limitation being that a State Legislature cannot make law giving preference or making discrimination between one State and another. What is, now, extremely important to note is that the limitation, on the part of the State Legislatures, to impose tax, which interferes with the freedom of the trade, commerce and intercourse, is lifted by Article 304(a) by allowing the Legislature of a State to 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.
184. Thus, Clause (a) of Article 304 authorizes a State Legislature to impose non-discriminatory tax on goods imported from sister States even if imposition of such tax interferes with the freedom of trade and commerce guaranteed by Article 301. The principle behind the making of the provisions of Article 304(a) is that no State shall impose a tax, which discriminates between inter-State trade and commerce by providing a direct commercial advantage to the local traders. A tax will be discriminatory if it operates as a disadvantage to the importers of a specified class of goods into a State vis-a-vis the producers or manufacturers of such goods within the State. The discrimination may occur for a variety of reasons, such as, variation in the rate of tax between the imported goods and the locally manufactured ones or exemption of local goods from payment of a tax to which similar imported goods are subjected. The discrimination may also arise when a State imposes tax on an item of goods imported into its State from a sister State if no such goods are manufactured or produced at all by the State, which imposes the tax. This position of law becomes clear if the facts of the case in Kalyani Stores (supra) and the decision pronounced therein are kept in mind. In Kalyani Stores (supra), the question was whether the State of Orissa was entitled to impose a particular class of tax on foreign liquor, which were imported into the State of Orissa, when foreign liquour was not being manufactured or produced within the State of Orissa. Made the Constitution Bench, in Kalyani Stores (supra), clear, in no uncertain words, the position of law in these words,
4... It seems, therefore, that countervailing duties are meant to equalize the burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcoholic liquors manufactured or produced in the State. If no alcoholic liquors similar to those produced or manufactured imported into the State are produced or manufactured, the right to impose counterbalancing duties of excise levied on the goods manufactured in the State will not arise. It may therefore be accepted that countervailing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being levied.
185. From the above observations made in Kalyani Stores (supra), it becomes abundantly clear that no State can impose a tax on import of goods into its State unless similar goods are actually produced or manufactured in the State, which so imposes the tax.
186. The Apex Court made the above position of law clearer, when it observed at para 7, in Kalyani Stores (supra), thus,
7. Article 301 has declared freedom of trade, commerce and intercourse throughout the territory of India, and restriction on that freedom may only be justified if it falls within Article 304. Reasonableness of the restriction would have to be adjudged in the light of the purpose for which the restriction is imposed, that is "as may be required in the public interest". Without entering upon an exhaustive categorization of what may be deemed "required in the public interest", it may be said that restrictions which may validly be imposed under Article 304(b) are those which seek to protect public health, safety, morals and property within the territory. Exercise of the power under Article 304(a) can only be effective if he tax or duty imposed on goods imported from other States and the tax or duty imposed on similar goods manufactured or produced in that State are such that there is no discrimination against imported goods. As no foreign liquor is produced or manufactured in the State of Orissa the power to legislate given by Article 304 is not available and the restriction which is declared on the freedom of trade, commerce or intercourse by Article 304 of the Constitution remains unfettered.
187. From the decision of Kalyani Stores (supra), what becomes transparent is that when a commodity is not manufactured or produced within a State, such a State cannot impose a tax on such a commodity, when the commodity is imported into the State. For the purpose of meeting a challenge to a levy as discriminatory, it must be shown by the State, which is accused of levying a discriminatory tax, that the State is imposing the levy on a commodity, which is produced or manufactured in its State too and that such locally produced or manufactured commodity too is subject to the tax, which the State is imposing on the import of similar commodity. Thus, from the decision of Kalyani Stores (supra), it also becomes clear that the question of discrimination has to be examined on the basis of a particular item of goods, which is the subject of an impugned levy. Viewed, thus, it is clear that for the purpose of ascertaining if the imposition of entry tax, in the present case, suffers from discrimination, the test would be whether the imposition of the impugned entry tax makes any discrimination between the goods, which are produced within the State, and the goods, which are imported into the State. A challenge to the violation of Article 304(a) can be sustained only when it is shown that the discrimination is in respect of a given item of goods and the challenge can be met if it can be shown that the item, in question, suffers from no discrimination.
188. In short, under Article 304(a), the tax, sought to be imposed, must not make any discrimination between the goods, which are imported from sister States, and the goods, which are produced or manufactured within the State. If the goods, similar to the ones, which are imported into the State, but not manufactured or produced in the State, such a State cannot impose a tax on such imported goods, for, the State, in such a case, cannot impose such a tax on similar goods within the State, because of non-production of similar goods within its State. The tests, therefore, are as to whether the State, which imposes a levy, produces or not the goods, which it seeks to tax on import of such goods into the State and whether the law, enacted by the State, discriminates between the goods imported into the State and the similar goods, which are manufactured or produced within the State. It is in this backdrop that the scheme of the AET Act, 2001, and, particularly, Section 5 thereof need to be examined.
189. Section 5 of the AET Act, 2001, reads as follows :
Section 5. Notwithstanding anything contained in Section 3 and Section 4 and subject to production of documentary proof, no tax under this Act shall be levied in respect of the specified goods which are also subject to levy of taxes under the provisions of the Assam Value Added Tax Act, 2003 Assam Act VIII of 2005.
(iii) If the sale of such specified goods inside the State, made by an importer are sales within the meaning of Clauses (43) of Section 2 of the said Act, excepting sales falling under Sub-clauses (ii), (iii) and (iv) of the said clause and if he is liable to pay tax on such sales as a registered dealer under the Assam Value Added Tax Act, 2003 Assam Act No. VIII of 2005
(iv) If the sale of such specified goods are made by the importer in the course of inter-state trade or commerce or in the course of export out of the territory of India or such goods are otherwise dispatched outside the State by way of stock transfer and if he is registered dealer under the Central Sales Tax Act, 1956 Central Act 74 of 1956.
190. From a bare reading of Section 5, it is clear that when the goods, produced within the State, enter into a local area from another local area of the State and are sold there and if such sale amounts to a sale within the meaning of the local sales tax laws, no entry tax is payable in respect of sale of such goods. Is this exemption discriminatory in the question?
191. Let me, therefore, determine, in the light of the provisions of Section 5, if the payment of entry tax on the specified goods, which are subject-matter of the present set of writ petitions, suffer from any discrimination. The test, in the present case, will be as to whether the State of Assam has imposed entry tax on any of the imported goods, which form subject-matter of the present set of writ petitions, without levying entry tax on similar goods produced or manufactured in the State of Assam.
192. In the present set of writ petitions, there is a large number of commodities, which are subject to entry tax. Some of these commodities are exempted from payment of local sales tax. Let us, therefore, take, for a moment, the case of those goods, which are exempted from payment of local sales tax while considering these aspect of the matter, what needs to be pointed out is that the levy of entry tax is, admittedly, on the entry of goods into a local area from outside the State as well as on the entry of goods from one local area of the State into another local area of the State. Thus, when the goods, which are exempted from payment of local sales tax enter into, on being imported from outside the State, a local area of the State, the same becomes liable to payment of entry tax. Similar is the position as regard the goods, produced or manufactured within the State, but are not liable to payment of local sales tax, for, even when such goods, though produced or manufactured within the State, enter into a local area from another local area, the same becomes liable to payment of entry tax. As regard the goods taxable under the local sales tax, it is noteworthy that when such goods, manufactured or produced within the State, go out of a local area and enter into another local area, such entry is subject to the levy of entry tax, but if, upon such entry, the goods are sold and if such sale is subject to local sales tax, the entry tax is not leviable. Similarly, such goods, which are taxable under local sales tax enactment, enter into a local area, on being imported into the State, the same becomes liable to payment of entry tax ; but when, after entering into a local area, such goods are sold within that local area and since such sale is subject to local sales tax, no entry tax is, eventually, payable. It is, thus, clear that in respect of goods, which are exempted from payment of sales tax, the levy of entry tax is on the entry of goods into a local area irrespective of the fact whether such entry is from outside the State into a local area or from one local area of the State to another local area of the State. Similar is the position of the goods, which are subject to local sales tax, for, the goods, which are produced outside the State but taxable under the local sales tax, suffer from no payment of entry tax, when such goods enter into a local area from outside the State. It is also not the pleaded case of the petitioners that goods, similar to the ones, the goods, which form the subject matter of the present set of writ petitions, are not produced or manufactured within the State of Assam.
193. From the discussions held above, it becomes abundantly clear that the State has not made any discrimination between the imported goods and the goods, manufactured or produced within the State, inasmuch as both the imported goods as well as the goods, produced or manufactured within the State, have been treated at par by the State so far as the levy of entry tax is concerned. The decisions, relied upon by the petitioners, have no application to the facts of the present case.
194. Because of what have been discussed and pointed above, levy of impugned entry tax cannot be said to be in violation of Article 304(a) of the Constitution of India and, hence, this contention of the petitioners must fail and is accordingly rejected.
Conclusions:
195. What crystallizes from the discussions held above, as a whole, is that the tax sought to be levied, under Section 3 of the impugned Act, on the goods specified in the Schedule as modified by the impugned notifications, issued under Sub-section (4) of Section 3 of the AET Act, 2001, the impugned Ordinance, 2005, the Assam Entry Tax (Amendment) Act, 2005, are all ultra vires, unconstitutional, null and void to the extent that the same impose entry tax on those specified goods, which form the subject-matter of the present set of writ petitions. The demand for payment of entry tax raised against the petitioners cannot, therefore, be sustained.
196. There is yet another aspect of this case, which needs some observation by this Court. In WP(C) No. 2650/05, an interim direction was passed to the effect that the petitioners shall file return under the AET Act, 2001, in respect of the goods, which form the subject-matter of their writ petition and that, in tune with the liability of tax payable by the petitioners, the petitioners shall furnish to the respondents/authorities concerned bank guarantee of such amount(s) of entry tax, which is leviable under the impugned notification. Even after the amendments were made, these directions were continued.
197. Aggrieved by the interim directions, given by this Court as indicated hereinabove, the respondents preferred an appeal, which gave rise to writ Appeal No. 412/05. On 22.6.2005, while admitting the appeal, the operation of the interim directions, passed in the said writ petition, was stayed. The relevant observations made and the directions given, in this regard, by a Division Bench of this Court, in WA No. 412/05, on 22.6.2005, read, thus:
Mr. K.N. Choudhury, learned Addl. Advocate General, Assam, undertakes that in case the respondent succeeds before this Court then the payment of Entry tax shall be refunded by the appellant.
In view of the undertaking recorded as above, we stay the operation of the order under appeal.
198. On 5.1.2006, W.A. No. 412/05 aforementioned was disposed of along with W.A. No. 306/05 and W.A. No. 479/05. This order reads as follows:
It is brought to our notice that the main writ petition itself is being heard and in fact learned Additional Advocate General has already completed his submission and what remains is the reply to be given by the learned senior counsel appearing on behalf of the writ petitioner. It is also brought to our notice hat the matter is in the list for hearing before the learned Single Judge today.
In such view of the matter no further order as such is required to be passed in this writ appeal. It is needless to reiterate that in case the writ petition is allowed all consequences in accordance with law including refund of the Entry tax stated to have been collected by the State from the writ petitioners shall follow including interest in accordance with law.
With the above observations, the writ appeals are closed.
199. From the orders, dated 5.1.2006, what clearly emerges is that the State respondents had given an undertaking, in the appeal, that the entry tax, to be collected by them from the petitioners, in WP(C) No, 2650/2005, would be refunded to the petitioners if the said petitioners succeed in their writ petitions and it was on the basis of this undertaking that the court stayed the operation of the interim directions passed in the said writ petition. While disposing of the appeals, the Division Bench made it clear that the consequences in accordance with law, including refund of entry tax, with interest, which may accrue thereon, shall follow. Viewed thus, it is clear that since this Court finds that the impugned notifications, dated 21.8.2003, 26.8.2003, 29.9.2004 and 28.2.2005, the impugned Ordinance and the AET (Amendment) Act, 1005, are, to the extent as indicated hereinabove, not sustainable in law, it logically follows that the respondents shall, now, refund the amount or amounts, which they have, in the meanwhile, collected by way of entry tax from the petitioners aforementioned.
200. In the result, and for the reasons discussed above, these writ petitions succeed. The impugned notifications, issued under Sub-section (41 of Section 3 of the AET Act, 2001, dated 8.1.2002, 21.8.2003, 26.8.2003, 29.9.2004 and 28.2.2005, the impugned Ordinance, 2005, the Assam Entry Tax (Amendment) Act, 2005, are all held ultra vires, unconstitutional, null and void to the extent that the same impose entry tax on the specified goods, which form the subject-matter of the present set of writ petitions. The demands for payment of entry tax raised against the present petitioners are hereby set aside and quashed. The respondents are directed not to insist on payment of entry tax by the present petitioners. The entry tax, if any, already collected from any of the petitioners, shall be refunded within a period of two months from today.
201. With the above observations and directions, this writ petition shall stands disposed of.
202. No order as to costs.