Jharkhand High Court
The Tata Iron And Steel Company Ltd. vs The State Of Jharkhand And Ors. on 14 August, 2006
Equivalent citations: [2006(4)JCR37(JHR)], 2006 (3) AIR JHAR R 501, (2007) 1 JLJR 367, (2007) 2 JCR 480 (JHA), (2006) 4 JCR 37 (JHA)
Author: S.J. Mukhopadhaya
Bench: S.J. Mukhopadhaya, Narendra Nath Tiwari
ORDER S.J. Mukhopadhaya, A.C.J. 1. This writ petition has been preferred by the petitioner-Tata Iron & Steel Company Ltd. (hereinafter to be referred as TISCO) for the following relief: (i) To set aside the order, issued by the Commissioner, Commercial Taxes -cum- Secretary, Jharkhand, communicated vide letter No. -Sales Tax/02/2001-1970/Ranchi dated 30th July, 2004, whereby and whereunder, it has been directed to collect entry tax on "imported coal", pursuant to Notification No. S.O.88 dated 23rdMarch, 2002; (ii) To set aside part of Notification No. S.O.88 dated 23rdMarch, 2002, issued by the State of Jharkhand, whereby, 2% entry tax has been sought for to be levied on "imported coal"; (iii) To set aside the notice dated 27th August, 2004, issued by the Deputy Commissioner, Commercial Taxes, Jamshedpur Urban Circle, Jamshedpur, whereby and whereunder, the petitioner has been asked as to why penalty be not imposed on it since pursuant to Notification No. S.O.88 dated 23rdMarch, 2002 it has not deposited entry tax on "imported coal"; (iv) For declaration that the State Government is not empowered to impose any tax whatsoever on the goods, including "imported coal", imported from outside the country, as the trade and commerce with foreign countries is covered by Entry 41 List 1 of VIIth Schedule of the Constitution of India. Further declaration has been sought for that the imposition of entry tax on "imported coal" from outside the country is violative of Articles 286 and 301 of the Constitution of India; (v) For a declaration that "Entry Tax Act" is not compensatory in character, falling under Article 304 of the Constitution of India, and, as such, the said provision is violative of Article 304 of the Constitution of India; and (vi) For a declaration that in view of Notification No. S.O. 105 dated 1st November, 2002, the petitioner is not liable to pay any entry' tax on the "imported coal", which is used as raw material in the factory of the petitioner at Jamshedpur within the State of Jharkhand. 2. According to the petitioner, for the purposes of manufacturing activities, the Company is importing coal from Australia and New Zealand in pursuance of several foreign contracts, executed with the foreign parties. The "imported coal" is brought from Australia and New Zealand to Haldia (West Bengal) and Paradip (Orissa) ports in India from where the said coal is transported either by rail or road to Jamshedpur in the State of Jharkhand. The said coal is cent percent utilized in the Tata Iron & Steel Company Ltd., Jamshedpur (hereinafter to be referred as 'TISCO'). Further case of the petitioner is that the coal imported from outside the country is being used as raw material for manufacturing the steel products by the petitioner and the entire transaction is completed at Jamshedpur. within the State of Jharkhand. 3. It appears that in exercise of legislative power, conferred upon the State, pursuant to Entry 52 of List 2 of VIIthSchedule of the Constitution of India and under Article 213 of the Constitution of India, an ordinance, namely, 'Bihar Tax on entry of goods into the local areas for consumption, use or sale therein Ordinance, 1993' was promulgated and published on 22nd February 1993 in an Extraordinary Gazette of Bihar being Bihar Ordinance No. 11/1993. By a subsequent Notification S.O. No. 37 dated 25thFebruary, 1993 the 'entry tax' was introduced in the erstwhile State of Bihar and such notification was made effective since then. Bihar Ordinance No. 11 of 1993 having lapsed, another ordinance being 'Bihar Taxes on Entry of Goods into Local Areas for Consumption, Use or Sale thereof Ordinance, 1993' was issued. This second ordinance was made an Act in the name and style of 'Bihar Taxes on Entry of Goods into Local Areas for Consumption, Use or Sale thereof Act, 1993' (Bihar Act 16 of 1993). 4. Section 2(c) of the Entry Tax Act, 1993 while defines "entry of goods", Section 2(d) of the said Entry Tax Act, 1993 defines "importer", which are quoted hereunder: 2. Definitions. XX XX XX XX (c) Entry of goods" with all us grammatical variations and cognate expressions means Entry of goods into a local area from any place outside that local area or any place outside the State for consumption use, or sale therein. ["Provided that in case of such goods which are liable to tax under Section-12(1) of the Bihar Finance Act, 1981, entry of goods shall mean entry of goods into local area from any place outside the State for consumption, use or sale therein."] (d) "Importer" means a dealer or any other person who in any capacity brings or causes to be brought any scheduled goods into a local area for consumption, use or sale therein. 5. Section 3 of the. Entry Tax Act, 1993 is the charging section, which is the relevant one and reads as follows: 3. Charge Of Tax._(1) There shall be levied and collected a tax on entry of scheduled goods into a local area for consumption use or sale therein at such rate not exceeding 5 percentum of the import value of such goods 5 as may be specified by the State Government in a notification published in a official gazette subject to such conditions as may be prescribed. Provided different rates for different scheduled goods and different local areas may he specified by the State Government. (2) The tax leviable under this Act shall be paid by every dealer liable to pay lax under Bihar Finance Act. 1981 or any other person who brings or causes to be brought into the local areas such scheduled goods whether on his own account or on account of his principal or takes delivery or is entitled to lake delivery of such goods on such entry. Provided no tax shall be leviable in respect of entry of such scheduled goods effected by a person other than the dealer if, the value of such goods does not exceed 25 thousands in a year. ["Provided further, that where an importer of scheduled goods liable to pay tax under the Act, becomes liable to pay tax under the Bihar Finance Act. 1981 [Bihar Act 5, 1981] by virtue of sale of such scheduled goods, his liability to pay tax under the Bihar Finance Act. 1981 shall stand reduced to the extent of tax paid under the Act. " ["(3): The liability to pay tax in Scheduled goods shall only be at the point of first entry into a local area and any subsequent entry or entries into any other local area or areas of the said scheduled goods shall not be subject to tax provided the subsequent importing dealer produces before the assessing officer the original copy of the cash memo, invoice, bill or challan issued to him by the dealer from whom he purchased or received the said Scheduled goods, and files a true and complete declaration in the form and manner prescribed."] 6. According to the counsel for the petitioner, Section 3 is not applicable in the petitioner's case, which imports coal from outside the country, such as, Australia and New Zealand, which is directly delivered by the exporter to the petitioner's factory at Jamshedpur. The bill of lading shows the petitioner as the consignee. Although the goods is cleared from the ports at Paradip (Orissa) or Haldia (West Bengal) on payment of custom duties, the goods being part of the same contract and agreement is delivered from ports to the petitioner's factory at Jamshedpur. Learned Counsel for the petitioner submitted that as per the scheme of Entry Tax Act, 1993 it had never been the intention of the Legislature to impose entry tax upon the goods, which are imported from outside the country. Section 3 is not consistent with the object, scheme and provision of the Entry Tax Act, 1993. For ascertaining the import value on which alone the charge of entry tax is levied, it does not include the custom duties or import duties. The Legislature were conscious of the distinction between the import of goods from outside the State within the country and import of goods from outside the country. Had it been the intention of the Legislature to impose entry tax on imported goods from outside the country, there was no reason as to why for ascertaining the import value, custom duties and all other charges relating to import of goods from outside the country was not included, but only those duties and charges, which are levied inside the State from which goods are imported, are taken into account. 7. According to the counsel for the State, the definition of "import value" makes it clear that the import duty or custom duty and other charges, paid by the petitioner for clearing the goods for home consumption under Section 47 of the Customs Act, will be included in the import value of coal under the expression "all other charges incidental to the import of schedule goods" used in the definition clause of the 'import value' under Section 2(e) of the Entry Tax Act, In the alternative, the assessing officer can determine the import value under proviso to Section 2(e), if he is not satisfied with the value shown in the invoice. 8. It was also argued on behalf of the petitioner that the expression 'scheduled goods', as defined under Section 2(j) of the Entry Tax Act, means goods, specified in the schedule of the Entry Tax Act, 1993. Schedule to Entry Tax Act, 1993 was substituted by the State of Jharkhand vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002), published in the Extraordinary Gazette on 2nd January, 2002. Item No. 13 of the Schedule deals with 'coal', distinct from 'imported coal'. It was submitted that though description of goods in the schedule is 'coal', the Commissioner, Commercial Taxes, while issued notification being S.O. 88 dated 23rdFebruary, 2002 under Section 3(1) of the Entry Tax Act, 1993, fixing the rate at which entry tax is to be levied, the description of the goods have been changed to the 'imported coal' at serial No. 13. Therefore, the notification, issued by the Commissioner, Commercial Taxes-cum-Secretary, Jharkhand, being against item 13 of the schedule of the Act, 1993, the imposition of the entry tax on 'imported coal' is invalid and beyond the competence and jurisdiction. The Commissioner, Commercial Taxes, cannot impose entry tax on imported coal by altering the description of the goods (coal). 9. Counsel for the State referring to paragraph No. 13 of the supplementary counter affidavit submitted that the 'coal', including the coal imported from outside the country, is specified in the schedule of goods. 10. In this case it is not necessary to decide the question whether the 'coal' includes 'imported coal' for the purposes of Entry Tax Act, 1993 or not. Almost similar matter fell for consideration before a Division Bench of Kerala High Court in the case of FR. William Fernandez v. State of Kerala and Ors. reported in 115 S.T.C. page-591. That was a case where the appellants, non-resident Indians, who imported to India motor vehicles, they had used abroad, disputed the levy of entry tax in respect of their motor vehicles under the Kerala Tax on Entry of Goods into Local Areas Act, 1994. Having noticed the preamble and provisions in the Act i.e. Kerala Tax on Entry of Goods into Local Areas Act, 1994, which is almost similar to the present case, the Kerala High Court held as follows: 7. As it is clear from the object and reasons, the preamble and the provisions in the Act. it seeks to provide for the levy of tax on the entry of goods into local areas of the State from outside, that does not include entry from across the holders of the country. This seems to us to he clear from the several provisions we shall presently advert to Clause (d) defines "entry of goods into a local area", which means entry of goods from any place outside the State. Obviously the Legislature was aware when it used the words "from any place outside the State" they did not mean to convey outside the country from abroad since the distinction between them is so obvious as not to haw escaped notice. Again in Clause (n) of Section 2, while defining the purchase value, what has been directed to be taken into account is the value of goods as ascertained from the original notice. which includes insurance, excise duties, countervailing duties, sales tax, transport fee, freight charges and all other charges incidentally levied on the purchase of the goods and in the case of a motor vehicle includes the value of accessories fitted to the vehicle. Here again no reference is made to the customs and other duties that an importer has to pay for clearance of the goods, which is not indeed an omission without significance Obviously to determine the purchase value customs and other duties are not to he reckoned for levy of tax under the charging Section 3 of the Act. We must also notice that there is nothing in Clause (g) of Section 2 to indicate that it takes in a person who imports goods to local areas from abroad, to whom, in our view, the Act is inapplicable. They have not purchased vehicles from outside the State, hut from abroad, where there was no sales tax. They are not importers as defined. The submission to the contrary and what was stated in this behalf in the impugned judgment do not commend for acceptance. The Court declared that the vehicles brought from abroad are not liable to entry tax and allowed the appeals. 11. Similarly, the petitioner, having not purchased the coal from any other State of India but from abroad, where there is no sale tax and instead of sales tax having paid customs duties or import duties, cannot be held liable to pay entry tax in regard to the coal, imported from outside the country (either Australia or New Zealand), 12. The petitioner next contended that 'coal' is used as raw material in manufacturing steel product in its factory at Jamshedpur. When the coal is burnt for manufacturing steel products, the entire coal is not burnt but a part of the coal, so burnt, remains as carbon, which is an essential requirement for manufacturing the steel products and by notification being S.O.105 dated 1st November, 2002 (Annexure-4), the coal, being used as raw material for the final product, is exempted from entry tax. In this connection, reliance was placed on Supreme Court's decision in the case of Collector of Central Excise, New Delhi v. Ballarpur Industries Ltd. reported in 77 S.T.C. page 282, wherein, a question was raised whether the input of sodium sulphate in manufacture of paper would cease to be raw material by reason of the fact that in the course of chemical reaction such ingredients is consumed and burnt up. The Supreme Court having noticed the fact that the expression "raw material" has not been defined and the meaning to be given is the ordinary and well accepted connotation in parlance of those, who deal with that matter, observed that the ingredients used in manufacture of any end product, might comprise, amongst others, of those which may retain their dominance, individual identity and character throughout the process and also in the end product those which as a result of interaction with other chemicals and/or ingredients might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end product; those which like catalytic agent, while influencing and accelerating the chemical reaction however may themselves remain uninfluenced and unaltered and remain independent of and outside the end product; and those, which may be burnt up or consumed in the chemical reactions. 13. Admittedly, coal is used as a fuel in manufacture of the steel and it burnt up or consumed as fuel in manufacture. There is no material on record to support the claim of the petitioner that the coal is being used as raw material for manufacture of steel. In absence of any material on record to establish that the end product retains dominance and individual identity and character of coal or though it works as catalytic agent influencing and accelerating the chemical reaction, but remains uninfluenced and unaltered, it can not be accepted that the coal is being consumed as raw material for manufacture of steel. 14. It was further submitted that the instruction issued by the Commissioner, Commercial Taxes, vide letter No. Sales Tax/02/2001-1970/Ranchi dated 13th July, 2004, imposing entry tax on imported coal from outside India is beyond the power and competence of the said officer. We have also noticed the argument that the Commissioner or Secretary, Commercial Taxes Department, has no power or authority to direct the assessing authority in the matter of assessment proceeding, as held by the Patna High Court in the case of Nagendra Prasad v. Commissioner of Commercial Taxes reported in 129 STC page-361, However, as we have already held that the respondents cannot levy entry tax on the imported coal, it is not necessary to enter into and decide the said issue. 15. The petitioner has also challenged the vires of Section 3 of the Bihar Tax on Entry of Goods into Local Areas (for Consumption, use or sale therein) Act, 1993 on the ground that it violates Article 301 of the Constitution of India and is not saved by Article 304(b) of the Constitution of India. 16. The Section 3 of the Entry Tax Act, 1993 earlier fell for consideration before the Patna High Court in the case of Bihar Chamber of Commerce v. State of Bihar reported in 1995(1) P.L.J.R. 716. In the said case also similar challenge was made. On analysis of the provisions of Articles 301 to 304 of the Constitution of India, the following observation was made by the Patna High Court. 41. Keeping in view the above principles, if one analyses the provisions of Articles 301 in 304 of the Constitution, the following position emerges: a) Article 301 imposes a general limitation on all legislative power in order to ensure that trade, commerce and intercourse throughout India is free. This limitation on power is relaxed under Article 302 of the Constitution in favour of the Union Legislation in public interest. b) Restriction is, however, put on this relaxation under Article 303(1) which prohibits the Parliament from giving preference to one State over mother and making or authorizing the making of any discrimination between one State and another. c) Article 303(2) of the Constitution is an exception to the restriction imposed under Article 303(1) on the Parliament and that exception applies only to Parliament and to be resorted only in a specified situation indicated in Article 303(2) of the Constitution. d) Each Clause of Article 304 of the Constitution operates as a proviso to the provisions under Article 301 and 303 of the (Constitution in the following way: (i) Article 304(a) of the Constitution authorizes imposition of tax on the goods imported from the neighbouring State at par in such a manner as not to create any discrimination between similar goods manufactured and produced inside the State with regard to State taxation within the allocated field. (ii) Article 304(b) of the Constitution is analogous to Article 302 for it makes the State power contained in Article 304(b) of the Constitution free from the prohibition contained under Article 301 of the Constitution in view of the opening words of Article 304 of the Constitution. But there is also a difference between the power under Article 302 and those under Article 304. e) The difference is that under Article 302 of the Constitution restrictions are not subject to the test of reasonableness or is it coupled with the requirement of a previous sanction from the President as introduced in the proviso to Article 304(b) of the Constitution. The legislation mentioned in Article 304(b) of the Constitution is thus made subject to these requirements to test of reasonable restriction and (it) prior sanction of the President 17. A catena of judgments, rendered by the Supreme Court, including the judgments, rendered in the cases of Atiabari Tea Co. Ltd. v. State of Assam and Ors. and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan , were noticed and discussed. To decide the working test whether entry tax was compensatory or not, the Court noticed the grounds shown by the respondents to impose entry tax, The Deputy Commissioner, Commercial Taxes, Bihar, on behalf of the State, made the following assertions: 53. xx xx xx xx The Entry Tax Ordinance was thought to be promulgated in view of the loss of the revenue on cess due to decision rendered by the Hon'ble Supreme Court in the case of India Cement Ltd. as well as several decisions of the Hon'ble Patna High Court following that decision, (para 2) 18. Taking into consideration the aforesaid stand taken on behalf of the State of Bihar and the decisions, rendered by the Supreme Court, Patna High Court held that levy of entry tax, sought to be imposed under the said Act, cannot be said to be either compensatory or regulatory but it impedes the free flow of trade and commerce and does not satisfy the requirement under Article 304(b) of the Constitution, inasmuch as it was not a reasonable restriction within the meaning of Article 304(b) of the Constitution. The Patna High Court consequently declared Section 3 of the Bihar Tax on Entry of Goods into Local Areas (for Consumption, use or sale therein) Act, 1993 ultra vires to the provisions of Article 301 and 304(b) of the Constitution of India. 19. The aforesaid judgment, rendered by the Patna High Court, was, however, reversed by the Supreme Court in the case of State of Bihar v. Bihar Chamber of Commerce . The Supreme Court held that it was not necessary for Entry 52 of List-II of VIIthSchedule that the Act should provide for the revenues raised thereunder to be passed to the local authorities or being used for the purposes of such local authorities. Section 3(1) and Section 6 of the Act, 1993 were held to be intravires. 20. Initially when the case was heard, it was brought to the notice of the Court that a judgments rendered by the Supreme Court in the case of Bhagatram Rajeevkumar v. Commissioner of Sates Tax reported in 1995 Suppl. (1) S.C.C. page 673 and State of Bihar v. Bihar Chamber of Commerce having been doubted by the Supreme Court, were referred to a Constitution Bench in the case of 'Jindal Stainless Ltd. and Anr. v. State of Haryana and Ors. (Civil Appeal No. 3453 of 2002). The judgment in the case of Jindal Stainless Ltd. (supra) has now been rendered by the Supreme Court recently on 28thApril, 2006. 21. According to the petitioner, subject to other provisions of Part-XIII of the Constitution of India, as per Article 301 trade, commerce and intercourse throughout India should be free. It is not the freedom from all laws but freedom from such laws which restrict or affect activities of trade and commerce amongst the States. Although Article 301 is positively worded, in effect, it is negative, as freedom correspondingly creates general limitation on all legislative power to ensure that trade, commerce and intercourse throughout India shall be free. 22. In the case of Atiabari Tea Co. Ltd. (supra), it was held that taxing laws are not excluded from operation of Article 301, which means that tax laws can and do amount to restrictions on the freedom, guaranteed to trade under Part-XIII of the Constitution. However, the prohibition of restriction of free trade is not absolute one and it can avoid invalidation, if it complies with Article 304(b) of the Constitution of India. 23. In the case of Automobile Transport (Rajasthan) Ltd. (supra) it was held that only such taxes, as directly and immediately restrict trade, would fall within the purview of Article 301 and any restriction in the form of taxes imposed on the carriage of goods or their movement by the State Legislature can only be done after satisfying the requirements of Article 304(b) of the Constitution. In the case of Atiabari Tea Company (supra), the statute, which was challenged, was Assam taxation (on goods carried by road and inland Waterways) Act 1954. It was held by the Supreme Court that the Act had put a direct restriction on the freedom of trade and since the State Legislature had not complied with the provisions of Article 304(b) of the Constitution, the Act was declared void. The judgment of the Supreme Court in Atiabari Tea Company (supra) was delivered by the Constitution Bench of 5-Judges. In the case of Automobile Transport (Rajasthan) Ltd. (supra), the Supreme Court noticed the exception to Article 301, operation of which was judicially crafted. In that case, the challenge was to the Rajasthan Motor Vehicles Registration Act, 1951, but challenge under Article 301 was rejected by the Constitution Bench of 7-Judges, holding that "the taxes are compensatory taxes which instead of hindering trade, commerce and intercourse, facilitate them by providing roads and maintaining roads". It was observed that "if a statute fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be considered unimpaired". In the said case of Automobile Transport (Rajasthan) Ltd. (supra), the Court held that "a working test for deciding whether a tax is a compensatory or not is to enquire whether the trade is having the use of certain facilities for the better conduct of its business and paying not patently much more than what is required for providing the facilities". In the case of Bhagatram Rajeevkumar (supra), the working test, enunciated by the 7-Judge Bench in the case of Automobile Transport (Rajasthan) Ltd. (supra) was not applied and the Court went on to say that "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". The judgment in the case of Bhagatram Rajeevkumar (supra) was rendered by a Bench of 3-Judge. The proposition, laid down in the case of Bhagatram Rajeev Kumar (supra), was applied by a Bench of 2-Judge in the case of Bihar Chamber of Commerce (supra), which reiterated the position that "some connection" between the tax and the trading facilities extended to dealers directly or indirectly is sufficient to characterize it as compensatory tax. 24. In the case of Jindal Strips Ltd. and Anr. v. State of Haryana and Ors. reported in 134 S.T.C. page-303, a Constitution Bench further summed up the law, as laid down by the Supreme Court in the cases of Atiabari Tea Company (supra) and Automobile Transport (Rajasthan) Ltd. (supra). Before 1995 the decisions rendered by the Supreme Court emphasized that the imposition of tax must be with the definite purpose of meeting the expenses on account of providing or adding to the trading facilities either immediately or in future, provided the quantum of tax is based on reasonable relation to the actual or projected expenditure on the cost of service or facility. However, in two decisions, namely, the decision rendered in the cases of Bhagatram Rajeev kumar (supra) and Bihar Chamber of Commerce (supra), the Supreme Court held that if the purpose of imposition of tax is not merely to confer special advantage on the traders but to benefit the public in general including the traders, that levy can well be considered to be compensatory. In the case of Bihar Chamber of Commerce (supra) the Supreme Court further proceeded to observe that even indirect or incidental benefit to the traders by reason of stepping up the developmental activities in various local areas of the State can be brought within the concept of compensatory tax, the nexus between tax known as compensatory tax and the trading facilities not being necessarily either direct or specific. 25. The concept of "compensatory tax" has been judicially evolved as an exception to the provisions of Article 301. In the case of Jindal Strips Ltd. (supra), the matter was referred to a larger Bench for interpretation of Article 301 vis-a-vis compensatory tax, so that the legal position may be authoritatively laid down by the Constitution Bench. As a result of such reference, recent decision was rendered by the Supreme Court on 13thApril, 2006 in the case of Jindal Stainless Ltd. and Anr. v. State of Haryana and Ors. now . 26. The Constitution Bench, on analysis of the relevant provisions of Part XIII of the Constitution, considered the scope of Articles 301, 302 and 304 of the Constitution of India and observed as follows: Article 301 is binding upon the Union Legislature and the State Legislatures, but Parliament can get rid of the limitation imposed by Article 301 by enacting a law under Article 302. Similarly, a law made by the State Legislature in compliance with the conditions imposed by Article 304 shall not be hit by Article 301, Article 301 thus provides for freedom of inter-State as well as intra-State trade and commerce subject to other provisions of Part-XIII and correspondingly it imposes a general limitation on the legislative powers which limitation is relaxed under the following circumstances: a) Limitation is relaxed in favour of the Parliament under Article 302 in which case Parliament can impose restrictions in public interest Although the fetter is limited enabling the Parliament to impose by law restrictions on the freedom of trade in public interest under Article 302, nonetheless, it is clarified in Clause (1) of Article 303 that notwithstanding anything contained in Article 302, the Parliament is not authorized even in public interest, in the making of any law to give preterence State over another. However, the said clarification is subject to one exception and that too only in favour of the Parliament, where discrimination or preference is admissible to the Parliament in making of laws in case of scarcity. This is provided in Clause (2) of Article 303 b) As regards the State legislatures, apart from the limitation imposed by Article 301, Clause (1) of Article 303 imposes additional limitation, namely, that a must not give preference or make discrimination between one State or another in exercise of its powers relating to trade and commerce under Entry 26 of List-II or List-III. However, this limitation on the State Legislatures is lifted in two cases, namely, it may impose on goods imported from sister State(s) or Union Territories any tax to which similar goods manufactured in its own State are subjected but not so as to discriminate between the imported goods and the goods manufactured in the State [See Clause (a) of Article 304]. In other words, Clause (a) of Article 304 authorizes a State Legislature to impose a non-discriminatory tax on goods imported from sister State(s), even though it interferes with the freedom of trade and commerce guaranteed by Article 301. Secondly, the ban under Article 303(1) shall stand lifted even if discriminatory restrictions are imposed by the State Legislature provided they fulfill the following three conditions, namely, that such restrictions shall he in public interest; they shall be reasonable; and lastly, they shall be subject to the procurement of prior sanction of the President before introduction of the bill. Broadly, the above analysis of the scheme of Articles 301 to 304 shows that Article 304 relates to the State Legislature while Article 302 relates to the Parliament in the matter of lifting of limitation, which, as slated above, flows from the freedom of trade and commerce guaranteed under Article 301. 27. The Constitution Bench observed that the concept of compensatory tax is not there in the Constitution but is judicially evolved in the case of Automobile Transport (Rajasthan) Ltd. (supra), as a part of regulatory charge. Consequently, the Court will have to go into the 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 the case of Automobile Transport (Rajasthan) Ltd. (supra). 28. The Supreme Court analyzed the difference between exercise of taxing and regulatory power and held that in generic sense, tax, toll, subsidies etc. are manifestations of the exercise of the taxing power. The preliminary 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. 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 operation of such law is to impede the activity, then law is a restriction under Article 301. 29. 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. 30. The Supreme Court, thereafter, analyzed the parameters of compensatory tax. According to the Supreme Court, 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. In the case of a tax, there is no identification of 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 State's 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 tax is a payment where the special benefit, if any, is converted into common burden. 31. On the other hand, a fee is based on the "principle of equivalence". This principle is 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's action and even if such benefit results from the government's 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. 32. 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 benefits is represented by the costs, incurred in procuring the facilities/ services, which costs, in turn, become the basis of reimbursement/ recompense for the provider of the services/facilities. Compensatory tax is based on the principle of "pay for the value" or quid pro quo. It is a sub-class of "a fee". From this 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. Taxes may be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to the benefits. The compensatory tax is levied on an individual as a member of 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. 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 facilities/services. While overruling part of the judgment in the case of Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. reported in 96 STC 654 and in the case of State of Bihar v. Bihar Chamber of Commerce reported in 103 STC page 1 (SC), the Constitution Bench in the case of Jindal Stainless Ltd. (supra) made the following observations. BURDEN ON THE STATE: 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 or trade, it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of Article 304(b) [See: para 35 of the decision in the case of Khyerbari Tea Co. Ltd. v. State of Assam ]. 33. While dealing with the scope of Articles 301, 302 and 304 vis-a-vis compensatory tax in the case of Jindal Stainless Ltd. (supra), the Constitution Bench of the Supreme Court noticed the difference of power, conferred on Parliament and the State Legislature, and observed as follows: (a) While the power of Parliament under Article 302 is subject to the prohibition of preference and discrimination decreed by Article 303(1) unless Parliament makes the declaration under Article 303(2), the State power contained in Article 304(b) is made expressly free from the prohibition contained in Article 303(1) because the opening words of Article 304 contains a non-obstinate clause both to Article 301 and Article 303. (b) While the Parliament's power to impose restrictions under Article 302 is not subject to the requirement of reasonableness, the power of the State to impose restrictions under Article 304 is subject to the condition that they are reasonable. (c) An additional requisite for the exercise of the power under Article 304(b) by the State Legislature is that previous Presidential sanction is required for such legislation. 34. According to the counsel for the petitioner, the judgments rendered by the Supreme Court in the case of Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. reported in 96 S.T.C. 654 and in the case of State of Bihar v. Bihar Chamber of Commerce reported in 103 S.T.C. 1 (SC), have been overruled by the Constitution Bench of Supreme Court in the case of Jindal Stainless Ltd. (supra). On the other hand, according to the counsel for the State, the judgment rendered in the case of State of Bihar v. Bihar Chamber of Commerce/ reported in 103 S.T.C. 1(SC) has not been overruled in entirety but part of it has been held to be not a good law. It has been further submitted on behalf of the State that the judgment rendered in the case of Bihar Chamber of Commerce (supra) has been overruled to the extent it relates to compensatory tax and part of the judgment i.e. the finding that Bihar Entry Tax has been issued in public interest has not been overruled by the Supreme Court. 35. In the case of Bihar Chamber of Commerce, reported in 103 S.T.C. 1 (SC), the Supreme Court formulated two questions, as quoted hereunder: Question No. 1: Whether the impugned tax has been established to be compensatory or whether it can be treated as a regulatory measure? And Question No. 2: In case the impugned tax is not established to be compensatory-or a measure of regulatory-whether it is saved by virtue of the provision contained in Article 304(b) read with Article 255 of the Constitution? In other words (a) whether the Act has received the assent of the President as alleged by the State, (b) whether the levy of the said tax constitutes a reasonable restriction and (c) whether the said levy is conceived in public interest? 36. In the case of Jindal Stainless Ltd. (supra), 5-Judges Bench of Supreme Court noticed the concept of compensatory tax, as was propounded in the case of Automobile Transport (Rajasthan) Ltd. (supra), wherein, compensatory taxes were equated with regulatory taxes. In that case working test for deciding the question whether a tax is compensatory or not was laid down. The Constitution Bench having noticed the aforesaid judgment, held that the working test propounded in the case of Automobile Transport (Rajasthan) Ltd. (supra), stood disrupted in the cases of Bhagatram Rajeevkumar (supra) and Bihar Chamber of Commerce (supra). The following observations were made by the Supreme Court: As stated above, in the post 1995 era. the said working test propounded in the Automobile Transport stood disrupted when in Bhagatram's case, the 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 he 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 "same 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 Rajeevkumar v. Commissioner of Sales Tax, M.P. Ib and State of Bihar v. Bihar Chamber of Commerce stand overruled. 37. So far as Question No. 1, as was framed by the Supreme Court in the case of Bihar Chamber of Commerce [103 STC 1(SC)], is concerned, this much has not been controverted by the counsel for the respondents that in view of the judgment of Constitution Bench, rendered in the case of Jindal Stainless Ltd. (supra), the decision in the case of Bihar Chamber of Commerce (supra), to that extent, has been overruled. In fact, the Supreme court in the case of Bihar Chamber of Commerce (supra) answered the 1st question on the basis of the test of "some connection", as pronounced in Bhagatram Rajeevkumar's case, which is evident from the following quotation: 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, he different if (he 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 he 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, not 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 Rajeevkumar v. Commissioner of Sales Tax, Madhya Pradesh (1995) 96 STC 654, "The concept of compensatory nature of lax 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. 38. Therefore, it will be evident that the decision, rendered by the Supreme Court in the case of Bihar Chamber of Commerce (supra), so far as the question relating to compensatory tax is concerned, stands overruled by 5-Judges judgment of the Supreme Court in the case of Jindal Stainless Ltd. (supra). 39. So far as second question, as was framed and answered by the Supreme Court in the case of Bihar Chamber of Commerce (supra) is concerned, in regard to Question No. 2(a) i.e. "whether the Act has received the assent of the president, as alleged by the State", the petitioner has not disputed the fact that though the Bill was not introduced or moved in the Assembly with the previous sanction of the President, as required by Article 304(b), it was assented to by the President, as contemplated by Article 255 of the Constitution, and thereby, satisfied the required test. With regard to Question No. 2(c) i.e. "whether the said levy (entry tax) is in public interest", counsel for the petitioner has not disputed that the view of the Supreme Court's decision in this regard in the case of Bihar Chamber of Commerce (supra) has not been overruled by the Supreme Court in the case of Jindal Stainless Ltd. (supra). 40. The only question, which is to be looked into, is whether the decision of the Supreme Court in the case of the Bihar Chamber of Commerce with regard to Question No. 2(b) i.e. "whether the levy of entry tax constitutes a reasonable restriction" stands overruled by the Supreme Court's decision in the case of Jindal Stainless Ltd. (supra). 41. The Supreme Court in the case of Bihar Chamber of Commerce (supra) while deciding the question of reasonableness, referred to the observations, made by the Supreme Court in the case of Bhagatram Rajeevkumar (supra), as quoted hereunder: In this connection, it is necessary to notice a few decisions brought to our notice, In Bhagatram Rajeevkumar [1995] 96 STC 654, a three-judge Bench of this Court has rejected the argument that to he compensatory, the tax must facilitate the trade. The reason is obvious: if a measure facilitates the trade, it would not be a restriction on trade but an encouragement to it. It was observed: "... The submission of Shri Ashok Sen. learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of campensatory 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. The stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide municipal services more efficiently, which would help or ease free-flow of trade and commerce, because of which the impost has to he regarded as compensatory in nature, in view of what has been slated in the aforesaid decisions, more particularly in Hansa Corporation's case . (Emphasis supplied) xx xx xx xx ... Thus decision also points out that the fact that President has given assent to the Hill also raises a presumption that the President (Central Government) had applied his mind to the problem and had come to the conclusion that the proposed lax constitutes a reasonable restriction and is required to he imposed in public interest. It is true that these are only presumptions but taken together with other material, referred to above, they do firmly establish the said requirement in Article 304(b) 42. It will be, thus, evident that while considering the reasonableness of the impugned Bihar Taxes on Entry of Goods into Local Areas for Consumption, Use or sale thereof Act, 1993, the Supreme Court applied the test laid down in Bhagatram Rajeevkumar's case i.e. even if there is some link between the tax and facilities extended directly or indirectly, the levy cannot be impugned as valid. The concept of "some connection" or link between the levy and the services offered by the State has been completely overruled by the Constitution Bench in the case of Jindal Stainless Ltd. (supra). If the Bhagatram Rajeevkumar's case for the purposes of applying the test of reasonableness i.e. the principle of "some connection" is relied upon to find out the reasonableness, such basic principle having been overruled by the Constitution Bench of Supreme Court in the case of Jindal Stainless Ltd. (supra), the decision rendered in the case of Bihar Chamber of Commerce, so far as the question of reasonable restriction of Bihar Taxes on Entry of Goods into Local Areas for Consumption, Use or sale thereof Act, 1993 is concerned, stands impliedly overruled. Thus, it will be evident that Question No. 2(b) i.e. "whether the levy of Bihar Entry Tax constitutes a reasonable restriction or not, as decided by the Supreme Court in the case of Bihar Chamber of Commerce (supra), stands impliedly overruled by the Supreme Court's decision in the case of Jindal Stainless Ltd. (supra). 43. In this connection one may refer to a Supreme Court's decision in the case of Subhasis Bakshi v. W.B. Medical Council reported In , wherein, the Supreme Court having noticed, that an identical view, expressed by the Supreme Court in another decision on the same point has been overruled, held that another decision, based on overruled decision, stood impliedly overruled. From the aforesaid discussion and decision of the Constitution Bench in the case of Jindal Stainless Ltd. (supra), it will be evident that the judgment of the Supreme Court in the case of Bihar Chamber of Commerce (supra) stands overruled and held to be not a good law by the Constitution Bench. 44. Now the question arises whether the Entry Tax under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993, as adopted and modified by the Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001, satisfies the test of compensatory tax so as to come within the protection under Article 304(b) of the Constitution of India? The petitioner has specifically pleaded at paragraph No. 75 of the writ petition that the Entry Tax Act is not compensatory in nature, falling under Article 304 of the Constitution of India. The statement made in this paragraph has not been specifically denied by the respondents and it is stated that same will be replied and explained at the time of hearing of the case. 45. Admittedly, after reorganization of the State, Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 was adopted by the State of Jharkhand vide notification dated 15thDecember, 2000. Subsequently, amendment was made vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Act No. 01 of 2002). Patna High Court in the case of Bihar Chamber of Commerce v. State of Bihar reported in 1995 (1) P.L.J.R. 716 : 1997 STC S38 while dealing with Section 3 of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 noticed the object for which the said Act was introduced. It was introduced to collect funds for various different welfare schemes and to implement various financial recommendations of the State Government, as according to existing financial condition, taxation being highly essential. In the said case, it was also pleaded by the State of Bihar that with a view to fulfill the above object and to make the provisions of the Bihar Tax on Entry of Goods into Local Areas (for Consumption, Use or Sale therein) Act, 1993 more workable, it was essential to levy and collect tax on certain goods, entering the local areas of the State for consumption, use or sale. The Deputy Commissioner, Commercial Taxes, Bihar, in his affidavit made specific averments that the Entry Tax Ordinance was thought to be promulgated in view of the loss of revenue on cess, due to the decision rendered by the Supreme Court in the case of India Cement Ltd. as well as other decisions of Patna High Court. 46. It has not been brought to the notice of the Court that the State of Jharkahnd adopted Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993, vide notification dated 15thDecember, 2000 and/or amendment made vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001, on the "principle of equivalence". There is nothing on the record to show that proportionate benefit has been extended to any individual as a member of class or any service facility has been provided in lieu of the same. There is no material to indicate that the revenue, so collected by way of Entry Tax, is being recompensed to the service/facility provider, nor the impugned enactment facially or patently indicates the quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act does not disclose the benefit, which is quantifiable or measurable. On the other hand, in the affidavit, sworn by the officers of the State of Bihar in the case of Bihar Chamber of Commerce (supra), it has been admitted that the Entry Tax Ordinance was thought to be promulgated in view of the loss of the revenue on cess, due to the decisions, rendered by the Supreme Court and Patna High Court. In that case the State of Bihar had not even disclosed any material to show as to how the levying of entry tax, in any way, is of any benefit to the free flow of trade and commerce. Even in the present case, the respondents have not been able to show that the Bihar Taxes on Entry of Goods into Local Areas for Consumption, Use or Sale thereof Act, 1993, as adopted by the State of Jharkhand vide Notification dated 15thDecember, 2000 and amended vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002), is based on the "Principle of Equivalence". No basis has been shown to levy entry tax in the nature of compensatory tax to find out quantifiable and measurable benefits. Nothing has been indicated either in the "Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993, adopted by the State of Jharkhand, or in the "Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002), showing any quantifiable data or a benefit which is measurable. Thus, in our considered view the entry tax levied under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993, as adopted by the State of Jharkhand and amended by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002), is, thus, not based on the principle of equivalence and is not compensatory in nature. 47. So far as the other question "whether it Is saved by virtue of the provisions, contained in Article 304(b) of the Constitution of India is concerned, the respondents have neither made any statement in their affidavit nor have brought on record any data to suggest that the entry tax, imposed under Bihar Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale therein Act, 1993, as adopted and amended by the State of Jharkhand by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002), constitutes reasonable restriction. From the judgment, rendered by the Supreme Court in the case of Bihar Chamber of Commerce (supra), though it will be evident that the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 was assented to by the president and the said entry tax was levied in public interest, there is nothing on the record to suggest that Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002), so far it relates to further restriction on certain goods, as introduced by Amended Schedule, had prior sanction of the President, as required under proviso to Article 304(b), nor there is anything on the record to suggest that while amending the Schedule, assent of the President was obtained by the respondents, as contemplated by Article 255 of the Constitution of India. The respondents having failed to show that the entry tax, imposed by Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sate therein Act, 1993, as adopted by the State of Jharkhand and amended by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002), constitutes reasonable restriction, we are of the view that the entry tax imposed by Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993, as adopted by the State of Jharkhand and amended by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002), is also not saved by the provisions, contained in Article 304(b) of the Constitution of India. 48. Having regard to the facts and circumstances and in view of the decision, rendered by the Supreme Court in the case of Jindal Stainless Ltd. (supra) and the discussions, as made above, we hold that the provisions of Bihar Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale therein Act, 1993, as adopted by the State of Jharkhand vide notification dated 15thDecember, 2000 and as amended vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 02 of 2002) do not satisfy the requirement under Article 301 read with Article 304(b) of the Constitution of India and Section 3 of the said Act is ultra vires. 49. It is, thus, also held that the State-respondent cannot enforce the provisions of the aforesaid Act. Notification No. S.O. 88 dated 23rd March, 2002, issued under the provisions of the aforesaid Act, and Memo dated 13th July, 200-4, issued by the Commissioner of Commercial Taxes-cum-Special Secretary, Jharkhand, Ranchi, are held unsustainable and are, therefore, quashed. The writ petition is allowed in the terms indicated above. Narendra Natha Tiwari, J.
50. I agree.