Madhya Pradesh High Court
Mysore Cement Ltd. And Anr. And M.P. ... vs State Of Madhya Pradesh And Ors. on 8 September, 2003
Equivalent citations: [2006]143STC432(MP)
Author: Dipak Misra
Bench: Dipak Misra
ORDER Dipak Misra, J.
1. In these writ petitions the question of law being common they were heard analogously and are disposed of by this common order. For the sake of clarity and convenience we shall adumbrate the facts of W.P. No. 669 of 2002.
2. The petitioner No. 1 is a public limited company having its cement manufacturing unit at Narasinghgarh, District Damoh. The petitioner No. 2 is the Joint President of the petitioner No. 1 company. The petitioner No. 1 company has a captive power plant for generation of power for use in the cement manufacturing plants. The diesel is one of the raw materials for generation of power and also for use in machineries in quarrying limestone. Diesel is specified as raw material in the registration certificate granted to the petitioner under the Madhya Pradesh Commercial Tax Act, 1994 (in short, "the 1994 Act") and under the Central Sales Tax Act, 1956 (in short, "the 1956 Act").
3. Under Section 3 of the Entry Tax Act the entry tax on diesel is payable at the rate of one per cent under entry No. 24 of Schedule II appended to the Act, if such goods are brought into the local area for consumption, use or sale therein. The petitioner has been made liable to pay entry tax on diesel oil at the rate of one per cent whether it was brought from outside the State or from oil companies such as Indian Oil Corporation or Bharat Petroleum Products, etc. As the oil companies are registered dealers they paid the entry tax at the rate of one per cent on the diesel oil brought by them from outside the State and this tax burden of one per cent is being passed on to the purchasing dealers like the petitioner on the purchases made by them within the State. The entry tax of one per cent was being charged whether the diesel oil purchased within the State or brought from outside the State in the local area of Narsinghgarh either directly or indirectly. When the matter stood thus, the State Government brought out a Notification No. A-3-99-2001-ST-V (107) dated December 26, 2001 enhancing the rate of entry tax on diesel furnace oil and hexane from a place outside the State of Madhya Pradesh for use in generation of electrical energy or in the manufacture of other goods. Reference has been made to Sub-section (1) of Section 3 of the Entry Tax Act which provides levy of entry tax in general. Section 4 provides for the rate at which the entry tax is to be charged. Sub-section (1) thereof provides that the entry tax shall be charged at the rate specified in Schedule II and Schedule III and the proviso thereto provides that even if the rate of entry tax under the Schedule be higher the tax on raw material shall be one per cent. Section 4-A enables the State Government to issue a notification directing charging of entry tax at a rate not exceeding ten per cent as may be specified in respect of any local area or goods in the notification issued by it.
4. According to the writ petitioner the notification issued on December 26, 2001 is violative of Articles 301, 303, 304 and 19(1)(g) of the Constitution of India which provide for freedom of trade, commerce and intercourse throughout the territory of India and stipulate restrictions of the legislative powers of the State with regard to trade and commerce. A reference has been made to proviso to Article 304 to highlight that the said provision prohibits amendment in the Act without the Bill or Amendment being introduced without the previous sanction of the President. It is contended that the notification issued by the State Government is a delegated piece of legislation and, therefore, it is ultra vires, void and non est. It is further put forth that Section 4-A of the Entry Tax Act delegating power to the State Government for levying of entry tax on raw material used or consumed in the manufacture of other goods at a rate higher than the general rate of tax on sale to consumer is without any policy and bereft of the guidelines and hence, violative of Article 14 of the Constitution. There is no rationale or justification in conferring such unbridled power to the State Government and same smacks of arbitrariness, unreasonableness and exposes unguided nature of delegation of power.
5. According to the writ petitioner there is a perceptible policy running through the 1994 Act and the Central Sales Tax Act providing for concessional rate of tax on raw materials so that there may not be cascading effect on the value of manufacture of goods. Section 4 itself embodies the policy in clear cut terms that the entry tax on the raw material which is consumed or used in the manufacture of other goods shall be lower and, therefore, the notification fixing higher rate and that too not by the State Legislature is totally unsustainable being founded on unguided power. It is contended that the entire matter is left to the whim and caprice of the State Government to levy whatever rate of tax it chooses and, therefore, the unguided power is wholly writ large. It is contended that the levy of entry tax at the rate of ten per cent seriously affects the business of the petitioner and offends Article 19(1)(g) of the Constitution.
6. In the aforesaid factual backdrop a prayer has been made to declare Section 4-A of the Entry Tax Act as ultra vires and further to declare the notification contained in annexure P-1 providing for levy of entry tax at the enhanced rate of ten per cent on diesel brought from a place outside the State of Madhya Pradesh for use in generation of electrical energy as wholly ultra vires the powers of the State Government being violative of Articles 301, 303, 304 and 19(1)(g) of the Constitution and to issue a writ of certiorari for quashing of the same.
7. A counter-affidavit has been filed by the respondents contending, inter alia, that Section 3 of the Entry Tax Act postulates that the entry tax is payable on the entry of goods specified, which enter into each local area for consumption, use or sale therein, etc. Section 4 provides for rate at which entry tax is to be charged and Section 4-A carves out an exception with regard to rate of tax as provided in Section 4 and by virtue of the provision contained in Section 4-A the State Government is authorised to provide within the maximum limit, the enhanced rate of entry tax on the specified goods. Notification has been issued by the State Government in exercise of powers conferred by Section 4-A and hence, sustainable. It is also put forth that similar notification which was issued in respect of limestone imported into each local area from outside the State of M.P. was unsuccessfully challenged before this Court. It is put forth that the contention of the petitioners that they are liable to pay entry tax on the diesel at the rate of one per cent of the goods brought from outside the State or purchased from the oil companies is totally unsound and liable to be rejected.
8. According to the respondents in the State of Madhya Pradesh there is no petroleum refinery. All refineries are located out side the State. When the dealer is registered under the M.P. Commercial Tax Act as well as under the Central Sales Tax Act he purchases diesel or any other petroleum produce in the course of inter-State sale and, therefore, is liable to pay only four per cent of the Central sales tax by using form C in the State where sale transaction has taken place. There are only four nationalised oil companies which have been authorised to deal in petroleum product throughout India. These companies are Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited and I.B.P. Limited. It is set forth that recently huge scam involving illegal import of petroleum products by the industrial units for the purposes of illegal sale in the open market was detected, as a result of which the State exchequer suffered huge loss of revenue. On a deeper probe it was revealed that so many registered dealers were either misusing form C for the purpose of import or were using bogus form C instead of purchasing petroleum products from the same nationalised companies in the State of Madhya Pradesh. This was done to avoid payment of commercial tax, as provided under the 1994 Act. It is also urged in the return that to curb the tendency in the larger public interest and to see that the State exchequer does not suffer the State Government in exercise of powers conferred on it by Section 4-A of the Entry Tax Act issued the notification in question providing for ten per cent rate of entry tax whenever diesel or other petroleum products as specified in the notification are imported into the local area from outside the State of M.P. for industrial units for use as raw material or in the generation of the electricity. The facility to import in bulk quantity is only available to industrial units and not to any individual. The petitioner was importing the diesel from outside the State and was consuming within the State but no benefit was being derived by the State Government in the shape of public revenue. Keeping in view all these factors including the demand made by the industrial organisation to reduce the rate of commercial tax the Commissioner of Commercial Tax submitted a proposal to the State Government to levy higher rate of entry tax in exercise of powers conferred under Section 4-A. In this background the notification vide annexure P-1 was issued enhancing the rate of entry tax on diesel. It is put forth that the impugned notification does not affect the nature and freedom of trade and commerce throughout the territory of India nor does it act as a trade barrier. It is contended that the State Government by notification dated March 30, 2001 has reduced the rate of commercial tax in respect of high speed diesel, light diesel, oil and petrol to six per cent when these specified goods are sold by one of the nationalised companies to a registered dealer for use of raw material for manufacturing of other goods for sale or for use in generation of electrical energy in a captive power plant, but the requisite declaration is furnished by the purchasing dealer to effect the goods which have been purchased or used as raw material in the manufacture of other goods or in the generation of electrical energy in the State of M.P. or in the course of inter-State trade or commerce. The said notification has been brought on record as annexure R-4. It is put forth that total burden of tax, if the dealer has purchased within the State of M.P. from the nationalised companies is only six per cent. It is also urged that if the dealer wants to buy diesel outside the State, then to compensate the loss of revenue he is required to pay ten per cent entry tax on the enhanced rate pursuant to the notification issued by the State Government. It is contended that the notification has been issued in public interest by the State Government so that there should not be undue loss of revenue to it. It is also put forth that the notification does not offend Articles 14 and 19(1)(g) of the Constitution of India inasmuch as there is no discrimination as regards the nationalised companies are concerned and the dealer is free to purchase diesel from the nearest depot of nationalised company within the State of M.P. and furnish requisite declaration so as to pay commercial tax only at the rate of six per cent. As far as the breach of Article 19(1)(g) is concerned a stand has been taken that no restriction has been imposed to carry out trade or business within the State of M.P.
9. We have heard Mr. H.S. Shrivastava, learned Senior Counsel and Mr. Sumit Nema for the petitioners and Mr. Hemant Shrivastava, learned Government Advocate for the respondents.
10. It is submitted by Mr. Shrivastava and Mr. Sumit Nema, learned Counsel for the petitioners, that the imposition of entry tax violates the free-flow of trade and commerce and thereby offends the essential facet of Articles 301, 303 and 304 of the Constitution. It is put forth by them that Section 4-A is absolutely unconstitutional as there is no guidance and no economic principle is inherent therein and, therefore, the same being wholly irrational and unreasonable is hit by Article 14 of the Constitution. It is also urged by them that the notification which has been brought into existence is a piece of delegated legislation and by delegated legislation the rate could not have been fixed and, therefore, the notification suffers from constitutional vice. It is propounded by them that no public purpose is subserved and, therefore, the notification is bad in law. It is their further submission that the State Government could not have fixed the rate in an arbitrary manner at ten per cent without any bedrock or foundation and hence, such fixation violates the second limb of Article 14. To bolster his submission the learned Counsel for the petitioners have placed reliance on the decision rendered in the case of Indian Cement Ltd. v. State of Andhra Pradesh , Devi Dass Gopal Krishan v. State of Punjab , Vasantlal Manganbhai Sanjanwala v. State of Bombay , Amit Paper Products v. State of M.P. [1988] 110 STC 125 (MP) and Shree Digvijay Cement Co. Ltd. v. State of Rajasthan .
11. Mr. Hemant Shrivastave, learned Government Advocate, in support of the notification has submitted that the same has been issued in consonance with Section 4-A of the Entry Tax Act and, therefore, it cannot be said that it suffers from excessive delegation. It is contended by him that notification does not violate either Article 301 or 304(a) of the Constitution inasmuch as the notification has been issued in public interest and as per the law of the land the presidential assent for issue of notification of this nature is not a prerequisite. It is urged by him that there is ample guidance in Section 4-A and by no stretch of imagination it can be said that the said provision offends Article 14 of the Constitution. It is highlighted by him that the entry tax is a compensatory tax and, therefore, it cannot come with the purview of sales tax or tax which affects or creates a remora in the inter-State field of commerce. It is urged by him that there is no restriction for carrying on trade and, therefore, the colossal complaint made with regard to violation of Article 19(1)(g) is based on total misconception of law.
12. To appreciate the rival submissions raised at the Bar it is appropriate to refer to Section 4-A of the Entry Tax Act which reads as under :
4-A. Provision for entry tax at enhanced rate on certain goods consumed or used in manufacture of other goods.--(1) The State Government may, by notification, specify the local area or areas and the goods which are used or consumed in such local area or areas mainly for the manufacture of other goods and may direct that as from the date specified in the notification and in such manner as may be prescribed, the entry tax payable by a dealer under this Act shall be charged on his taxable quantum relating to such goods at a rates not exceeding ten per centum as may be specified in such notification notwithstanding anything to the contrary contained in Section 4.
(2) On the issue of the notification under Sub-section (1), entry tax shall not be chargeable and payable on such goods at any other rate mentioned in any other provision of the Act.
It is put forth that there is no guidance or economic principle involved and, therefore, the provision is hit by Article 14 of the Constitution of India. It is submitted by Mr. Shrivastava that there is excessive delegation without any guidance in the provision and, therefore, the provision is vitiated in the eye of law. It is urged by him that the discretion which has been vested in the executive smacks of arbitrariness and suffers irrationally. To appreciate the aforesaid submission of the learned Counsel for the petitioner we have carefully perused the aforesaid provision and bestowed our anxious consideration. On proper scrutiny, we find that the provision inheres in it the maximum limit to which the entry tax can travel, the local area has a role in it and that apart the entry tax is based upon the concept of development of local area, quite apart from the above, all the goods are not covered and the enhanced rate is attracted on certain goods only. In view of the aforesaid we do not perceive absence of guidance to attract the frown of second limb of Article 14 of the Constitution. It is worthwhile to mention here that it is not mandatory that on every item or goods it is to be ten per cent. In the absence of such mandate it would be inappropriate to declare the provision to be arbitrary on the ground of imposition of tax at an exorbitant rate.
13. As we have indicated earlier apart from challenging the aforesaid provision what is also challenged is the notification issued on December 26, 2001 in exercise of powers conferred by Sub-section (1) of Section 4-A of the 1976 Act. There is a Schedule appended to the notification. It is specified in the notification that the goods mentioned in column (3) of the Schedule cover only those goods which are used or consumed in the said local area mainly for the manufacture of other goods. It is relevant to reproduce the Schedule :
SCHEDULE ________________________________________________________________________ S.No. Local area Goods Date Rate of tax (1) (2) (3) (4) (5) ________________________________________________________________________
1. All local areas Diesel, furnace oil From the 10 per cent.
in the State of and hexane date of
Madhya Pradesh brought from a publica-
place outside the tion of
State of Madhya this noti-
Pradesh for use in fication
the generation of
electrical energy or
in the manufacture
of other goods
________________________________________________________________________
14. Challenging the notification many a contention have been raised. Basically they are three-folds. The first ground of attack is that the notification offends free-flow of trade. In this context the learned Counsel for the petitioners have placed heavy reliance on the decision rendered in the case of Amit Paper Products [1998] 110 STC 125 wherein the division Bench of this Court referred to the decisions rendered in the case of Atiabari Tea Co. Ltd. v. State of Assam , Firm A.T.B. Mehtab Majid & Co. v. State of Madras , Shree Mahavir Oil Mills v. State of Jammu and Kashmir , Loharn Steel Industries Ltd. v. State of Andhra Pradesh and came to hold that the purchases of raw material inside the State to achieve the end-product cannot be a basis to justify exemption. In the aforesaid decision the division Bench held that if a dealer has utilised the paper purchased from outside State he is not entitled to exemption and grant of such exemption offends the conscience of the provisions of Articles 301 and 304(a) of the Constitution. To appreciate the scenario in proper perspective it is proper to refer to Articles 301, 303 and 304(a) of the Constitution as the same have been pressed into service by Mr. Shrivastava. They read as under :
301. Subject to the other provisions of this Part, trade, commerce, and intercourse throughout the territory of India shall be free.
*** *** ***
303. (1) Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule.
(2) Nothing in Clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India.
304. 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 that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced ; and
15. While pressing into service the aforesaid constitutional provisions the learned Counsel have submitted that there is discrimination inasmuch as if the diesel furnace oil and hexane are brought from outside the State of Madhya Pradesh and rate of tax is ten percent but rate of tax is less than ten per cent if the raw material when required for use by registered dealer. Submission of learned Government Advocate is that similar notification issued in respect of limestone was unsuccessfully challenged before this Court. It is also urged that the notification pertains to entry tax and has nothing to do with the sales tax and in any case fixing of different rates are permissible.
16. In the case of Associated Cement Companies Ltd. v. State of M.P. it has been expressed thus :
18. But the position is entirely different in the present case. The State does not trace its legislative competence to entry 23 of List II of the Seventh Schedule to the Constitution. The State Act has been enacted under entry 52 of List II which reads thus :
Taxes on the entry of goods, into a local area for consumption, use or sale therein.
Tax on entry of minerals into a local area for consumption, use or sale therein cannot, by any stretch of imagination, fall under the activity of regulation of mines and mineral development. Entry tax does not stand on the same footing as mineral area development cess contemplated by the M.P. Karadhan Adhiniyam, 1982 or Upkar covered by M.P. Upkar Abhiniyam, 1981, nor is it a tax on mineral right covered by entry 50 of List II in which case also, it will be subject to limitation imposed by Parliament by law relating to mineral development. The Act of 1957 does contain limitation on imposition of tax on mineral rights but entry tax is not a tax on mineral right and, therefore, is not covered by the limitations imposed by the Act of 1957. The decision in India Cement Limited is not applicable to the present case ; so also is the position regarding the decisions in Orissa Cement Limited and Synthetics and Chemicals Limited v. State of U.P. .
17. In view of the aforesaid enunciation of law made herein and the concept of entry tax, as has been understood, from the decision rendered in the case of Associated Cement Companies We do not find that the same creates any barrier in trade.
18. We may notice another contention raised by the learned Counsel for the petitioners that the presidential assent was necessary. It is urged that the Government could not have empowered to notify. It was submitted that for the same presidential assent is necessary and it could not have been delegated. In this context we may profitably refer to the Constitution Bench decision rendered in the case of Shree Digvijay Cement [2000] 117 STC 395 wherein the decisions rendered in the cases of Indian Cement Ltd. and Shri Digvijay Cement Co. v. State of Rajasthan [1997] 106 STC 11 (SC) : (1997) 5 SCC 406 were overruled and their Lordships while dealing with the notification issued under Section 8(5) of the Central Sales Tax Act upheld the same. In the said case the law laid down in the case of Video Electronics Pvt. Ltd. v. State of Punjab was approved. It is worth noting here as the entry tax has a different colour and does not create a free-flow in trade and the notification has been issued under the statute, in our considered view, the conception enshrined under Articles 301 to 304 of the Constitution of India is not attracted. Thus, we do not find any error in issue of the said notification.
19. The next ground relates to public interest. We find adequate reasons have been given in the return to substantiate the public interest. That apart, the entry tax has a different connotation. The local factors have been taken into consideration. We have also taken into consideration that public interest is inherent in the notification.
20. Another facet which requires to be dealt with is that the rate fixed in the notification is exorbitant and portrays arbitrariness. It is worth noting here that the stand of the petitioner that he is liable to pay entry tax on the diesel at the rate of one per cent on the goods brought from outside the State or purchased from the oil companies is incorrect. It is also canvassed that there is no petroleum refinery in the State of Madhya Pradesh and all refineries are located outside the State of M.P. When a dealer is registered under the M.P. Commercial Tax Act as well as under the Central Sales Tax Act and purchases diesel or any other petroleum product in the course of inter-State sale he is also liable to pay four per cent Central sales tax by using form C in the State where the sale transaction has taken place. It is also stated that it came to the notice of the Government that so many registered dealers were either misusing form C for the purposes of import or were using bogus form C instead of purchasing petroleum products from the same nationalised companies in the State of M.P. Keeping in view the aforesaid the concept of levy of entry tax was introduced and the notification was issued. This has a wholesome purpose. It is also submitted by Mr. Yadav that bulk quantity of diesel are brought inside the local area by industrial units for use as raw material for generation of electricity. As import of bulk quantity is only available to industrial units, not to any individual and the individual has to buy the petroleum products only from the authorised petrol pump which purchases petroleum products from regional depots of nationalised companies situated within the State of M.P. It is also put forth by him that keeping in view the collective good and to avoid the evasion of tax, the notification in question has been issued. Taking note of the aforesaid stand we are of the considered opinion that the notification does not suffer from the vice of arbitrariness and we unhesitatingly give the stamp of approval to the same.
21. Consequently, we hold that the writ petitions being devoid of substance are liable to be dismissed and accordingly we so direct. However, there shall be no order as to costs.