Calcutta High Court (Appellete Side)
Tata Steel Limited & Anr vs The State Of West Bengal & Ors on 24 June, 2013
Author: Indira Banerjee
Bench: Indira Banerjee
IN THE HIGH COURT AT CALCUTTA
CONSTITUTIONAL WRIT JURISDICTION
APPELLATE SIDE
W.P. No. 11407 (W) of 2012
Tata Steel Limited & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 12179(W) of 2012
Hindalco Industries Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 15617 (W) of 2012
Shakambari Overseas Trades Pvt. Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 15619 (W) of 2012
Gagan Ferrotech Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 15621 (W) of 2012
Shakambari Ispat & Power Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 15623 (W) of 2012
Maan Steel & Power Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 15625 (W) of 2012
Maan Concast (P) Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 15627 (W) of 2012
Dhanbad Fuels Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 16621 (W) of 2012
Tamra Dhatu Udyog Pvt. Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 16622 (W) of 2012
Mittal Technopack Pvt. Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 16623 (W) of 2012
Sumo Metallic Pvt. Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 17085 (W) of 2012
Linc Pen & Plastics Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 17270 (W) of 2012
Usha Martin Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 17273 (W) of 2012
M/s Blue Moon Commercial Pvt. Ltd. & Ors.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 17904 (W) of 2012
Sova Electro Casting Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 17905 (W) of 2012
Kunj Behari Steel Pvt. Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 17906 (W) of 2012
Jaishree Steels Pvt. Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 18073 (W) of 2012
Ankit Metal & Power Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 18139 (W) of 2012
Vikram India Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 18140 (W) of 2012
Vikram Solar Pvt. Ltd. & Anr.
Vs.
The State of West Bengal & Ors.
With
W.P. No. 18582 (W) of 2012
Camco Multi Metal Ltd. & Anr.
Vs.
Joint Commissioner, Commercial Tax & Ors.
With
W.P. No. 18585 (W) of 2012
Century Aluminum Manufacturing Co. Ltd. & Anr.
Vs.
Joint commissioner, Commercial Tax & Ors.
With
W.P. No. 19079 (W) of 2012
West Bengal Sponge Iron Manufacturers Association & Ors.
Vs.
The State of West Bengal & Ors.
BEFORE:
The Hon'ble Justice INDIRA BANERJEE
Judgment on : 24.06.2013
INDIRA BANERJEE, J. : In these writ petitions the writ petitioners, who are
required, in connection with their business, to bring goods from all parts of
India or abroad, into various local areas in West Bengal for sale, use or
consumption therein, have challenged the validity of the West Bengal Tax on
Entry of Goods into Local Areas Act, 2012 (hereinafter referred to as the
'impugned Entry Tax Act'). As all these writ petitioners involve a common
question of law, they were heard together along with similar writ applications
in the Original Side and are now being disposed of by this common judgment
and order. One of the Writ Petitioners is an export oriented unit, having its
factory at the Falta Special Economic Zone.
The object of the impugned Act, as stated in its preamble is to provide
for the levy and collection of taxes on the entry of certain goods into local
areas of the State of West Bengal for consumption, use or sale therein and to
provide for matters connected therewith or incidental thereto for the purpose
of creating a compensatory Entry Tax Fund.
Some of the definitions in Section 2 of the impugned Act, relevant for
the purpose of this writ application are as follows:-
"Section 2(1) (g) "dealer" means a dealer under the West Bengal Value
Added Tax Act, 2003, or under the West Bengal Sales Tax Act 1994, as the
case may be, and includes-- West Ben. Act XLIX of 1994.
(i) a handling or delivery agent or an agent acting in any manner
on behalf of the principal, or any other person who takes delivery or
is entitled to take delivery of goods on behalf of a dealer on its entry
into a local area,
(ii) Where specified goods entering any local area have been
dispatched to such local area by rail, road, water, air or post, and
the consignee of such specified goods does not take delivery of such
goods upon entry and such specified goods are sold under the
provisions of any other law, the purchaser or any other person who
takes livery of such goods on his behalf;
Section 2(1) (h) "entry of goods", with all its grammatical variations and
cognate expressions, means bringing of goods into a local area from any place
outside that local area or any place outside the State or from outside India, for
consumption, use or sale therein, whether by a dealer or an importer other
than a dealer himself or by any other person;
Section 2(1) (i) "Fund" means thç West Bengal Compensatory Entry Tax
Fund established under sub-section (1) of section 15;
Section 2(1) (j) "goods" includes all kinds of movable property other than
actionable claims, stocks, shares or securities;
Section 2(1) (k) "importer' includes a person who in any capacity brings, or
causes entry of, any specified goods into a local area for consumption or use
therein /and a dealer;
Section 2(1) (1) "import value", in respect of a consignment of specified
goods upon entry of such goods in a local area by or on behalf of a dealer or
an importer other than a dealer, means--
(a) the price or cost at which the dealer or importer other than a
dealer has purchased or procured or acquired or obtained the
specified goods, as shown in the original tax invoice, invoice or bill
or stock transfer advice or document of like nature; or
(b) where the tax invoice, invoice or bill or stock transfer advice or
document of like nature is not available or is not produced, or where
the price or cost of such specified goods is not separately mentioned
therein, or where the tax invoice, invoice or bill or stock transfer
advice or document of like nature produced is proved to be false or
the information furnished therein is found to be incorrect, the
prevailing market price of such specified "goods in the local area;
Section 2(1) (m) "local area" means the areas within the limits of a
Municipal Corporation or any municipality or Gram Panchayat or Notified Area
Council or any other local authority, by whatever name called, constituted or
continued in the State of West Bengal by any law for the time being in force;
Section 2(1) (o) "person" includes any company or association or body of
individuals whether incorporated or not and also a Hindu undivided family, a
firm, a local authority, Government of India, the Government of any State or
Union Territory, a statutory body, a trust or other body corporatre, a
society including a co-operative society, a factor, a broker, a commission agent,
a del credere agent, an auctioneer, an agent for handling or transporting of
goods or handling of document of title to goods, or any other mercantile agent,
by whatever name called, an educational institution, any bank, any hospital or
nursing home or diagnostic centre, a joint-venture company, and a limited
liability partnership or other juristic person;
Section 2(1) (y) "turnover of imports", used in relation to any registered
dealer with reference to a period of time, means the aggregate of the import
value of specified goods which the dealer brings or receives in any local area
during the period for consumption, use or sale therein, and used in relation to
an unregistered dealer or importer other than a dealer, means the import value
of a consignment of specified goods brought or received in any local area for
consumption, use or sale therein, whether by the dealer or the importer other
than a dealer himself or by any other person;"
Section 2(2) of the impugned Act interalia provides that words and
expressions used but not defined in the impugned Act but defined in the West
Bengal Sales Tax Act, 1994 or the West Bengal Value Added Tax, 2003 would
have the same meanings as assigned to them in those Acts to the extent they
are not inconsistent with the impugned Act and the Rules made thereunder.
The relevant Sections of the impugned Act are set out hereinbelow for
convenience.
"Section 4. Incidence and levy of tax-- (1) Subject to the-provisions of
this Act, there shall be levied a tax under this Act which shall be payable
by a dealer or an importer other than a dealer, on the entry of all or any
specified goods into a local area for consumption, use or sale therein, on
his taxable turnover of imports or on the quantity or weight of any
specific goods as may be notified by the State Government at such rate or
rates as may be specified under sub-section (2).
Explanation.-- Where any specified goods are consumed, used or sold
in a local area by a dealer or an importer other than a dealer, it shall be
presumed, unless the contrary is proved by him, that such goods had
entered into that local area for consumption, use or sale therein.
(2) The State Government may, by notification, specify the rate of tax
levied under this Act, which shall not exceed five per centurm when such
tax is levied on taxable turnover of imports, and. different rate or rates of
tax may be specified in respect of different specified goods, or for the
different categories of consumption or use or sale of such specified
goods, or for different local areas.
(3) The State Government shall have regard to financial needs for
development and facilitation of trade, commerce and industry in the local
areas of the State while specifying the rate or rates of tax under sub-
section (2).
(4) Subject to such restrictions and conditions as may be prescribed,
no tax. under this Act shall be levied, and accordingly the import value
of goods shall not be included in turnover of imports of a dealer or an
importer other than a dealer, in respect of-
(0a) entry of specified goods dispatched, at the time of entry into a
local area, directly to a place for immediate export of such goods out
of the territory of India within the meaning of sub-section (1) of section
5 of the Central Sales Tax Act. 1956. from such place in the same form
in which such goods have been entered into the local area; 74 of 1956.
(b) entry of specified goods dispatched at the time of entry into a
local area directly to a place outside the State in the same form in
which such goods have been entered into the local area; and
(c) such other entry of goods, either in full or in part, as may be
prescribed.
(5) The expression "taxable turnover of imports" as stated in sub-
section (1) shall mean, in respect of a dealer or an importer other than a
dealer liable to pay tax on the entry of specified goods into a local area
for consumption, use or sale therein, that part of his turnover of imports
which remains after deducting therefrom--
(a) turnover of imports relating to entry of specified goods into a
local area, if it is proved to the satisfaction of the Commissioner
that such goods have already been subjected to tax under this Act
in the same form;
(b) turnover of imports relating to entry of specified goods into a
local area, if it is proved to the satisfaction of the Commissioner
that such goods have been purchased in the same form against a
tax invoice, or invoice, or bill issued under the West Bengal Value
Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, by
a dealer registered under the West of Bengal Value Added Tax Act,
2003, or the West Bengal Sales Tax Act, 1994, as the case may
be; (West Ben. Act XXXVII of 2003 West Ben. Act XLIX of 1994)
(c) turnover of imports relating to entry of specified goods into a
local area where it is proved to the satisfaction of the
Commissioner that such goods have been transported from within
West Bengal from another place of business of such dealer or
importer other than a dealer;
(d) such other turnover of imports, either in full or in part, as
may be prescribed."
"Section 5. Power of State Government to amend Schedule - The
State Government, after giving by notification not less than fourteen
days' notice of its intention so to do, may, by like notification, with
prospective or retrospective effect, add to, amend, or alter any Schedule
to this Act."
"Section 6. Power to exempt tax - (1) The State Government may, if it
is necessary so to do in public interest, by notification, exempt, either in
full or in part, the tax payable under this Act by any specified class of
dealers or importers other than a dealer or on any class of specified
goods.
(2) Any exemption notified under sub-section (1) may be subject to such
restrictions and conditions as may be specified in the notification.
(3) The State Government may, by notifiation, withdraw, cancel or vary
any notification issued under sub-section (1), with prospective or
retrospective effect."
"Section 8. Declaration to be made by a dealer or an importer
other than a dealer for entry of goods - (1) In respect of entry of any
consignment of specified goods into a local area by or on behalf of a
dealer or an importer other than a dealer for consumption, use or sale
therein, the dealer or the importer other than a dealer shall make a
declaration in such form, in such manner and containing such
particulars relating to entry of such goods, as may be prescribed and
such a declaration shall be carried along with the specified goods till
such goods reach the destination within the local area.
(2) The declaration referred to in sub-section (1) shall be produced under
such circumstances, and in such manner, as may be prescribed, upon
demand by the Commissioner or by such other person authorized by the
Commissioner in this behalf, at any place within a local area."
"Section 9. Return and payment of tax by registered dealers - (1)
Every registered dealer shall, either electronically or manually, submit a
return in such form containing such particulars, to such authority, within
such period, in such manner and along with such documents, as may be
prescribed.
(2) A registered dealer shall pay into the appropriate Government
Treasury in the prescribed manner and within the prescribed date the
full amount of tax payable by him under this Act on the basis of the
return to be submitted under sub-section (1) and shall furnish along with
such return satisfactory proof of the payment of such tax.
(3) Where the Commissioner is satisfied that a registered dealer has
defaulted in, or has attempted to evade, payment of tax under this Act,
he may, for reasons to be recorded in writing, demand from such
registered dealer an amount towards security for safeguarding revenue
in respect of the tax payable under this Act, either for a single
consignment or for tax payable for a particular period, and such security
shall be adjusted against the tax payable under this Act for that
consignment or that period, as the case may be."
"Section 15. Establishment of fund - (1) There shall be
established for the purposes of this Act, a fund to be called the West
Bengal Compensatory Entry Tax Fund.
(2) The fund shall be under the control of the State Government and
there shall be credited thereto -
(a) any sum of money credited under section 16;
(b) any sum of money credited under section 17;
(c) any sum realised by the State Government in carrying out
its function under this Act or in the administration of this
Act;
(d) any fund provided by the Central Government for the
development or facilitating the trade, commerce and
industry in the State as mentioned in section 18.
(3) The balance to the credit of the Fund shall not lapse at the end of
the financial year."
"Section 16. Crediting of proceeds to the Fund - The proceeds of
the levy under this Act shall first be credited to the Consolidated Fund of
West Bengal, and the State Government may, if the State Legislature by
appropriation made by law in this behalf so provides, credit such
proceeds to the Fund from time to time, after deducting the expenses of
collection for being utilized exclusively for the purposes of this Act."
"Section 17. Grants and loans by state Government - The State
Government may, after due appropriation made by the State Legislature
by law in this fore, credit in the Fund, by way of grants or loans, such
sums or money as the State Government may consider necessary."
"Section 18. Utilization of proceeds of levy - (1) The proceeds of
the levy under this Act, net of the cost of collection and incidental
expenses, shall be utilized for the development or facilitating the trade,
commerce and industry in the State which shall include the following:-
(a) construction, development and maintenance of roads and
bridges for linking the market and industrial areas;
(b) construction, development and maintenance of transport
hubs and cold storage facilities wherever possible;
(c) construction, development and maintenance of linking the
markets and industrial areas to railway stations, ports,
waterways and airports, wherever possible;
(d) construction, development and maintenance of railway over-
bridges and sub-ways;
(e) creating infrastructure for supply of electricity and water to
industries and other commercial complexes;
(f) creating, development and maintenance of other
infrastructure for the furtherance of trade, commerce and industry
in general;
(g) providing finance, aids, grants and subsidies for creating,
developing and maintaining pollution free environment in the
concerned areas;
(h) any other purpose connected with the development of trade,
commerce and industry or for facilities relating thereto;
(i) providing finance, aids, grants and subsidies to local bodies
and State Government agencies for the purposes specified above.
(2) The State Government shall -
(a) ensure that the proceeds of tax collected under this Act, net
of the cost of collection and incidental expenses, are utilized for
facilitating trade, commerce and industry in the State;
(b) identify the areas which require immediate development or
maintenance of infrastructure and other facilities and allot
proceeds of tax under this Act for the purposes specified in sub-
section (1);
(c) ensure that the proceeds of tax collected under this Act, net
of the cost of collection and incidental expenses, are not-much
more than the amount actually required for development of local
areas for facilitating trade, commerce and industry in the State."
"Section 19. Maintenance of accounts - The State Government
shall maintain proper accounts and other records, such forms in and in
such manner, as may be prescribed."
"Section 20. Administration of Fund - The State Government shall
administer the Fund and take such decisions regarding investment in
the development or facilitating the trade, commerce and industry in the
State."
"Section 22. Power of State Government to make rules - (1) The
State Government may, by notification, make rules, with prospective or
retrospective effect, for carrying out the purposes of this Act.
(2) In particular and without prejudice to the generality of the
foregoing power, such rules may provide for all or any of the matters
which under any provision of this Act are required to be prescribed, or to
be provided for, by rules.
(3) In making any rules under this section the State Government may
direct that a breach thereof shall be punishable with fine not exceeding
one thousand rupees and, when the offence is a continuing one, with a
daily fine not exceeding one hundred rupees during the continuance of
such offence."
Mr. Binod Poddar, Senior Advocate appearing with Mr. Sumeet Gadodia
and Mr. Somak Basu, on behalf of the petitioners, in W.P. No.11407 (W) of
2012, Tata Steel Ltd. Vs. State of West Bengal, Mr. S.K. Kapur, Senior
Advocate appearing on behalf of the petitioners in W.P. 464 of 2012, Bharti
Airtel Vs. State of West Bengal and three other writ petitioners. Mr. J.P.
Khaitan appearing on behalf of the writ petitioners in W.P. 509 of 2012, ACC
Ltd. & Anr. Vs. State of West Bengal & Ors. and five other writ petitioners
along with Mr. Somak Basu, Mr. Sourabh Bagaria and Ms. Sutapa Roy
Chowdhury, Mr. Samit Talukdar appearing on behalf of the Writ Petition in
W.P. No.18582 (W) of 2012 Camco Multi Metal Ltd. & Anr. Vs. The State of
West Bengal & Ors. and Mr. Mainak Bose appearing on behalf of the writ
petitioner No. W.P. 562 of 2012 Godrej Consumer Products Ltd. Vs. The State
of West Bengal & Ors. and six other writ petitions, strenuously argued that
the impugned Entry Tax Act is violative of Article 301 read with Article 304 (a)
and (b) of the Constitution of India.
Mr. Poddar submitted that the impugned Entry Tax Act is violative of
Article 301 of the Constitution of India, which guarantees free trade,
commerce and intercourse throughout the territory of India, read with Article
304 of the Constitution of India which enables the state to impose on goods
imported from other States or Union Territories, any tax to which similar
goods manufactured or produced in that State are subject, so that there is no
discrimination between goods so manufactured or produced in the State and
those brought from outside the State and also to impose restrictions on
freedom of trade or commerce in public interest.
Mr. Poddar submitted and rightly that the impugned Entry Tax does not
seek to impose tax to which similar goods manufactured or produced in the
State of West Bengal are subject, to place goods manufactured or produced in
the State at the same level with goods brought from outside the State.
Mr. Poddar argued that in the absence of prior sanction of the President
of India, the impugned Entry Tax Act was hit by Article 304(b) of the
Constitution of India, since no Bill for enactment or amendment in law to
impose restrictions on freedom of trade, commerce or intercourse with or
within the State could be introduced or moved without the previous sanction
of the President, if such enactment or amendment was proposed in public
interest.
Mr. Poddar submitted that taxing laws are not excluded from the
operation of Article 301 of the Constitution of India. Mr. Poddar submitted
that a taxing law which purports to impose a tax on inter-State or inter-
regional trade, commerce and intercourse can interfere with the right of
freedom of trade, commerce and intercourse throughout the territory of India
guaranteed under Article 301 of the Constitution of India.
In support of his submission that taxing laws amount to restrictions on
the freedom of trade, commerce and intercourse throughout the territory of
India. Mr. Poddar cited the judgement of Constitutional Bench of the Supreme
Court in Atia Bari Tea Company Limited Vs. State of Assam reported in
AIR 1961 SC 232.
Mr. Poddar submitted that the freedom of trade, commerce and
intercourse guaranteed under Article 301 is subject to the restrictions of
Article 304 of the Constitution of India. Thus, notwithstanding anything in
Article 301 or 303, the legislature of a State may by law impose on goods
imported from other States or Union Territories, any tax to which similar
goods manufactured or produced in that State are subject, so as not to
discriminate between goods so imported and goods manufactured or produced
within the State.
The State Legislature is also empowered, notwithstanding anything in
Article 301 or 303, to impose reasonable restrictions on freedom of trade,
commerce or intercourse within that State as may be required in the public
interest. However, reasonable restrictions, as may be required in public
interest, cannot be introduced unless the Bill or amendment for the purpose
is introduced or moved in the legislature with the previous sanction of the
President of India.
Citing the judgment of a Seven Judge Bench of the Supreme Court in
Automobile Transport (Rajasthan) Limited Vs. State of Rajasthan
reported in AIR 1962 SC 1402, Mr. Poddar argued that a taxing law may not
be hit by Article 301 read with Article 304 if the tax sought to be imposed is
compensatory in nature. Mr. Poddar argued that the Supreme Court had
judicially crafted an exception to the provisions of Article 301 in Automobile
Transport (Rajasthan Limited) Vs. State of Rajasthan (Supra). The
Supreme Court held that a taxing statute can be protected from the vice of
unconstitutionality, if the tax is compensatory in nature.
Mr. Poddar submitted that, in Bhagatram Rajiv Kumar Vs.
Commissioner of Sales Tax, Madhya Pradesh reported in (1995) Supp. 1
SCC 673 the Supreme Court held that if there was substantial or even some
link between a tax imposed and the facilities intended to dealers, directly or
indirectly, the levy could not be impugned as invalid.
The Supreme Court reiterated this view in State of Bihar Vs. Bihar
Chamber of Commerce reported in (1996) 9 SCC 136. In the aforesaid case
the Supreme Court held that "Some Connection" between the tax and the
trading facilities extended to dealers directly or indirectly, would be sufficient
to characterize it as compensatory tax. In Jindal Strips Ltd. (1) Vs. State of
Haryana reported in (2003) 8 SCC 136 a Bench of the Supreme Court
doubted the correctness of the law enunciated in Bhagatram Rajeev Kumar
(supra) and Bihar Chamber of Commerce (supra) and referred to the
Constitutional Bench, the specific question of whether the theory of some
connection, as propounded in Bhagat Ram's case, and applied in Bihar
Chamber of Commerce case, was contrary to law and the working test laid
down in the case of Automobile Transport Ltd. (supra).
Mr. Poddar also cited the decision of the Constitution Bench of the
Supreme Court in Jindal Stainless Ltd. (2) & Ors. Vs. State of Haryana &
Ors. reported in (2006) 7 SCC 241 where the aforesaid question was
answered. The Constitutional Bench of the Supreme Court disapproved the
view taken in the earlier judgements of the Supreme Court in Bhagatram
Rajiv Kumar (Supra) and Bihar Chamber of Commerce (Supra) and held
that the working test for deciding whether a tax is 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.
The Constitution Bench of the Supreme Court answered the question
referred to it in the following words:
"16. To sum up the pre-1995 decisions held that an
exaction to reimburse/recompense the State the cost of an existing
facility made available to the traders or the cost of a specific facility
planned to be provided to the traders is compensatory tax and that
it is implicit in such a levy that it is must, more or less, be
commensurate with the cost of the service or facility. Those
decisions 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 a reasonable relation to
the actual or projected expenditure on the cost of the service or
facility. However, the post - 1995 decisions in Bhagatram case and
in Bihar Chamber of Commerce now say that even if the purpose of
imposition of the tax is not merely to confer a special advantage on
the traders but to benefit the public in general including the
traders, that levy can still be considered to be compensatory.
According to this view, an indirect or incidental benefit to 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 the tax known as
compensatory tax and the trading facilities not being necessarily
either direct or specific."
The Supreme Court specifically overruled the theory as propounded in
Bhagat Ram's case (Supra) and in Bihar Chamber of Commerce case
(Supra) that some connection would make a levy compensatory.
Mr. Poddar submitted that the Constitution Bench of the Supreme
Court has, in Jindal Stainless Ltd. (2) (supra) pronounced the law relating
to imposition of entry tax by State Legislature and the validity of the
impugned Entry Tax Act has to be adjudicated in view the law laid down by
the Supreme Court in Jindal Stainless Ltd. (2) (supra).
Mr. Poddar strenuously contended that the impugned Entry Tax Act is
not compensatory in nature. Mr. Poddar argued that the amount of Entry Tax
collected is credited to the Consolidated Fund of West Bengal under Section
16 of the Act and the same is to be appropriated by the State Legislature.
Thus the Act is for augmenting the general revenue and cannot be treated to
be compensatory.
Mr. Poddar submitted that the basic difference between a tax and a fee
or a compensatory tax was, that the former was based on the concept of
burden, whereas the latter was based on the concept of recompense and/or
reimbursement. For a tax to be compensatory, there had to be some link
between the quantum of tax and the facilities or services for which the tax
was being imposed.
Mr. Poddar submitted that whenever a law is impugned as violative of
Article 301 of the Constitution of India, 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 the proportionality of the tax imposed, with the quantifiable
benefit.
Mr. Poddar further argued that Entry Tax levied in respect of a
particular area is not identified for being spent in that local area itself and
thus, the theory of "principle of equivalence", "measurable/quantifiable
benefit" and "direct and immediate effect" are not applicable. The Act is thus
not compensatory.
Mr. Poddar submitted that Section 18 of the impugned Entry Tax Act
prescribes the purposes for which proceeds of levy under the impugned Entry
Tax Act might be utilized. According to Mr. Poddar a perusal of the aforesaid
provision would demonstrate that the State, while creating the fund and
providing the purposes for which the proceeds of the fund would be spent,
has completely ignored the principle of compensatory tax by way of
'recompense and reimbursement".
Mr. Poddar argued that the creation of a fund and the purpose for
which the proceeds would be utilized, could not be said to be for the benefit
and/or interest of the trading people of the local area in which the Entry Tax
was sought to be levied. Mr. Poddar argued that the construction,
development and maintenance of roads, as contemplated under Section 18 of
the impugned Entry Tax Act could not be treated to be compensatory in
nature, so as to construe any special advantage to trade, commerce and
intercourse.
Mr. Poddar submitted that the State is bestowed with the responsibility
of providing good roads and bridges for tax paying citizens. The providing of
roads and bridges as contemplated in Section 18 of the Entry Tax Act cannot
be said to be for the benefit of the trading people of the local area who are
subjected to the levy. The maintenance and construction of roads and bridges
are met from the general revenue of the State. Irrespective of whether the
goods are transported into the State from some other State or abroad, the
State has the duty to provide facilities such as roads, bridges etc., which are
not enjoyed just by persons who bring the notified goods, but by the public in
general. No exclusive or special advantage is provided to the trading people.
Mr. Poddar next argued that the provision in Section 18(1)(i) of the
Entry Tax Act for providing financial aid, grants and subsidies to local bodies
and State Government agencies is totally vague and devoid of any particulars.
Mr. Poddar submitted that creation development and maintenance of
infrastructure for supply of electrical energy and water to industries,
contemplated in Section 18(1) (c) of the Entry Tax Act is also a common
burden and responsibility of a welfare State and cannot be held to be
compensatory for meeting the expenses incurred for the outlay for providing
any special advantage to trade, commerce and intercourse.
Mr. Poddar argued that in Jindal Stainless Ltd. (2) (supra) the
Constitution Bench of the Supreme Court categorically held that exaction to
reimburse and/or recompense the State, the cost of an existing facility made
available to the traders or the cost of a specific facility planned to be provided
to the traders, would be compensatory tax and that it was implicit in such a
levy that the tax must be more or less commensurate to the cost of the service
or the facility.
Mr. Poddar emphatically argued that the proposition of law enunciated
in Bhagatram Rajiv Kumar's case (Supra) and in State of Bihar Vs. Bihar
Chamber of Commerce that indirect or incidental benefit to traders would
suffice, has specifically been overruled in Jindal Stainless Steel Ltd.
(supra).
Mr. Poddar, thus, argued that the purpose for which the proceeds of
Entry Tax was sought to be spent could not be treated as compensatory in
nature. Mr. Poddar reiterated that the Entry Tax Act does not patently
indicate the quantifiable data, on the basis of which Entry Tax is sought to be
levied. In the circumstances, the burden was on the State, as the
service/facility provider to show by placing materials before the Court, that
the payment of compensatory tax is reimbursement and/or recompense for
the quantifiable/measurable benefit provided or to be provided to its payers.
Mr. Poddar argued that the State of West Bengal has miserably failed to
discharge its burden. No data has been provided. No attempt has been made
by the State to demonstrate, by placing cogent materials, or even facts and
figures to show any quantifiable and measurable benefit to the trading people.
Mr. Poddar argued that no attempt has been made by the State to produce
data on the proposed expenditure to demonstrate that the tax levied is a
measure of reimbursement/recompense for quantifiable and measurable
benefits to be provided to the trading people.
Mr. Poddar pointed out that there is no whisper of the proposed
expenditure, in the affidavit-in-opposition filed on behalf of the State. Mr.
Poddar argued that the contention of learned counsel appearing for the State,
Mr. Avratosh Mazumdar, that it was not possible for the State to produce
data, since the West Bengal Entry Tax Act, was a new enactment and no
Entry Tax had been collected and the State would be able to justify the Entry
Tax Act after its implementation, by showing that the State had, in fact,
utilized the fund for development of trade and commerce for the benefit of
others, was wholly fallacous.
Mr. Poddar argued that it was not material that the Entry Tax Act was a
new Act. It was open for the State to place data which could have been in the
form of field project report, for levy of tax and utilization of its fund upon
assessment of collection of tax. Mr. Poddar submitted that the State has not
furnished particulars of even a single proposed project report or conceived
idea where the amount of Entry Tax collected would be spent. The State had,
thus, failed to discharge its burden as enunciated in the judgement of the
Constitution Bench of the Supreme Court in Jindal Stainless Steel Ltd.
(supra), as it had not placed any material before the Court to demonstrate
that payment of Entry Tax was for the reimbursement/recompense for the
quantifiable, measurable benefit that "provided ought to be provided" to its
tax payers.
Mr. Poddar strenuously contended that the Entry Tax Act not being
compensatory in nature was violative of Article 301 of the Constitution of
India and liable to be struck down. Admittedly the Act had not been
introduced after obtaining prior approval of the President of India. In support
of his submission that the impugned Entry Tax Act was not compensatory in
nature, Mr. Poddar cited the following judgements:-
(i) R. Gandhi Vs. State of Tamilnadu reported in (2008) 13 VST
390;
(ii) Thressiamma L. Chirayil Vs. State of Kerala & Anr. reported
in (2007) 7 VST 293;
(iii) ITC Limited Vs. State of Tamil Nadu & Ors. reported in (2007)
7 VST 367 (Mad);
(iv) Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors.
reported in (2008) 12 VST 149;
(v) Bharat Earth Movers Ltd. Vs. State of Karnataka reported in
(2007) 8 VST 60 (Karn).
(vi) Unreported judgement of the Jharkhand High Court in Tata
Steel Limited Vs. State of Jharkhand & Ors. dated 3rd April, 2012.
Mr. Poddar further argued that under Section 16 of the Entry Tax Act
the proceeds of the levy under the Entry Tax Act are to be credited to the
consolidated fund of the State of West Bengal.
Referring to Section 16 of the Entry Tax Act, Mr. Poddar submitted that
the Entry Tax credited to the consolidated fund of the State of West Bengal
could only be credited to the Compensatory Entry Tax fund created under
Section 16 of the Entry Tax Act, only if the State Legislature by appropriation
made by law in that behalf, so provides.
Mr. Poddar submitted that Article 266 of the Constitution of India
provides for the Consolidated Fund of the State. Referring to Article 266, Mr.
Poddar submitted that the amount collected under the following heads shall
form the Consolidated Fund of the State
(i) all revenue received by the State Government;
(ii) all loans raised by the State Government by issue of treasury
bills/loans or any other ways or means;
(iii) all money received by the Government in repayment of loans.
Mr. Poddar argued that the provision of Article 266 of the Constitution
of India, read with Section 16 of the Entry Tax Act makes it amply clear that
the proceeds under the Entry Tax Act are to be treated by the State
Government as revenue received by it. This fact is sufficient to declare the levy
as not compensatory in nature, as it loses the character of 'fee' and assumes
the character of 'tax'.
Mr. Poddar submitted that the proceeds of Entry Tax could be
appropriated to the West Bengal Compensatory Entry Tax Fund only if the
State Legislature enacted any law for such appropriation. Under Article
199(1)(d) of the Constitution of India, any appropriation of money out of the
Consolidated Fund of the State had to be done by way of Money Bill. Thus,
the Entry Tax collected by the State is to be treated as general revenue at the
hand of the State, at the first instance, and is to be credited into the State
Consolidated Fund. Its utilisation would directly be dependent upon
budgetary allocation to be made by the State Legislature by way of 'Money
Bill".
Mr. Poddar submitted that the State Legislature cannot be compelled to
make the budgetary allocation of the proceeds of the Entry Tax for any
specific purpose as the independence of the State Legislature in passing a
'Money Bill' cannot be restricted by virtue of any provision in the Entry Tax
Act. Thus the theory of "quid pro quo" as enunciated in the judgement in
Jindal Stainless Steel Ltd. (supra) for determining the levy to be
compensatory in nature is completely absent.
Mr. Poddar submitted that the notification issued by Government of
West Bengal, Finance Department, Budget Branch, for constitution of a
committee consisting of the Heads of various departments of the Government
of West Bengal, inter alia provides that the provisions for the expenses from
the Fund shall be made under the budgets of the respective departments as
per the decision of the Committee.
Mr. Poddar argued that the notification was completely contrary to
Section 16 of the Entry Tax Act and also contrary to the Constitution of India,
particularly Articles 266(3) and 199(1)(d) thereof. Mr. Poddar submitted that it
was unimaginable how the committee comprising of secretaries of the
Government of West Bengal could determine the budget provision and usurp
jurisdiction of appropriation of money from the Consolidated Fund of the
State which is exclusively reserved to the State Legislature.
Mr. Poddar submitted that apart from Clause 5.3 two other Clauses i.e.
5.1 and 5.2 would demonstrate that the amount of Entry Tax collected under
the Entry Tax Act was to be mixed with the general tax collected and forming
part of the Consolidated Fund of the State.
Mr. Poddar submitted that the notification further demonstrates that
the Entry Tax collected is to be spent for general development and welfare
activities. The Entry Tax Act read with the notification dated 24th July, 2012
cannot be said to be compensatory in nature. Mr. Poddar emphasized that
compensatory tax is equivalent to fee based on the principle of 'equivalence'.
Mr. Poddar submitted that for determining whether tax was
compensatory or not, the "principle of direct and immediate effect" was to be
considered. The court would have to examine what were the facilities for
which tax was being imposed and whether the trading people were not being
made to pay patently more for the cost of the facility/service provided and/or
to be provided.
Mr. Poddar submitted that applying the aforesaid principle in the
context of the power of the State Legislature to impose Entry Tax under Entry
52 of List II of the Seventh Schedule, it would be evident that Entry Tax levied
and collected from one local area had to be spent for the benefit of the trading
people of the said local area itself in order to make the levy compensatory.
Mr. Poddar argued that the Government is entitled to enact a law
levying Tax on entry of Goods into a local area. The power of the State
Legislature to charge under Entry 52 of List II was in case of entry of goods
into a local area. The court is, thus, required to examine the effect of the
charging provision vis-à-vis the utilisation of Fund. Entry Tax can be treated
to be compensatory only and only if the Entry Tax collected is spent only for
the benefit of the trading people of the said local area.
By way of illustrative example, Mr. Poddar submitted that if Entry Tax
amounting to Rs.10 crore was collected from a particular local area which is
the local area under the Kolkata Municipal Corporation, the amount of Rs.10
crore would have to be spent for the benefit of trading people within the area
of Kolkata Municipal Corporation. However, if out of Rs. 10 crore collected
from the Kolkata Municipal Corporation area Rs. 5 crore was spent for
providing trading facilities to the traders of other local areas the principle of
equivalence and direct and immediate benefit to payers of Entry Tax of
Kolkata Municipal Corporation area cannot be achieved and thus the
provision cannot be termed as compensatory in nature. Mr. Poddar pointed
out that it had been admitted by the State that it would be open for the State
Government to spend the amount collected from one local area for another
local area.
Mr. Poddar finally submitted that the provisions of the Entry Tax Act
also violated Article 304(A) of the Constitution of India in as much in the
matter of levy of Entry Tax as the Entry Tax Act discriminates between goods
brought into a local area from outside the State or outside the country and
goods brought into a local area from with the State. If goods enter one local
area of the State from another local area, there is no tax payable.
Mr. Poddar finally argued that if goods have been subjected to tax
under the West Bengal Value Added Tax Act 2003 or the Bengal Sales Tax
Act, 1994, such goods, on their entry into a local area, would not be liable to
Entry Tax. The Section, thus, patently discriminates between goods imported
from outside the State and goods manufactured within the State. In the
matter of levy of Entry Tax, for example, if any of the writ petitioners bring
raw materials to West Bengal from outside the State, they will be liable to pay
Entry Tax. However, if they produce the same raw materials within the State
they would not be required to pay Entry Tax. Such discrimination is also
patent in Sub-section (c) of Section 4 which provides that if goods are
transported from one place of business of a dealer to another place of
business then no Entry Tax would be payable on such transfer.
According to Mr. Poddar, this Sub-section also patently discriminates
between the imported goods from outside the State vis-à-vis goods
manufactured within the State, of West Bengal. For example, in case of stock
transfers from outside the State liability to pay Entry Tax would accrue but
Stock transfers in case of goods manufactured in West Bengal to another
place would not attract Entry Tax. In support of his submission that Entry
Tax Act was discriminatory Mr. Poddar cited following judgements:-
(i) ITC Limited Vs. State of Tamil Nadu & Anr. reported in (2007)
7 VST 367 (Mad.);
(ii) Bharat Earth Movers Ltd. Vs. State of Karnataka & Ors.
reported in (2007) 8 VST 60 (Karn.);
(iii) West Bengal Hosiery Association & Ors. Vs. State of Bihar
& Ors. reported in (1988) 4 SCC 134;
(iv) Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & kashmir
reported in (1996) 11 SCC 39.
Mr. Poddar finally argued that under Section 2 (h) of the Entry Tax Act,
the term entry of goods has been defined. The Entry Tax Act provides for levy
of tax on entry of goods from outside the country into any local area within
the State of West Bengal. By providing for levy of Entry Tax on entry of goods
from outside the country, the State Legislature has acted beyond its legislative
competence and has transgressed the power of the Parliament. In the context
of his argument, Mr. Poddar referred to Article 286 of the Constitution of India
which prevents the State Legislature from imposing tax on sale or purchase of
goods, when such sale or purchase takes place in course of the import of
goods into or export of goods out of the territory of India.
Mr. Poddar also referred to Entries 41 and 83 of List I in the Seventh
Schedule in terms whereof the Union legislature is empowered to legislate in
relation to trade and commerce with foreign countries, import and export
across customs frontiers and definition of customs frontiers and also in
connection with duties of customs including export duties.
Mr. Poddar argued that it was evident from the aforesaid entries that
Parliament had exclusive jurisdiction in the matter of levy of duties on the
export and import and to frame laws in respect of trade and commerce with
foreign countries including import and export across, customs frontiers.
Mr. Poddar submitted that if an importer imported any goods from
outside, the importer would required to pay import duty and again Entry Tax
under the impugned Entry Tax Act, Entry Tax for delivery of such imported
goods in factories, godowns etc. in the State of West Bengal. Thus, in a
transaction which was in course of import the importer would have to pay
Entry Tax over and above import duty.
In support of his argument Entry Tax transgressed Article 286 of the
Constitution of India. Mr. Poddar cited the following judgements:-
(i) Re Sea Customs Act reported in (1964) 3 SCR 787;
(ii) Godfrey Phillips India Ltd. Vs. State of U.P. reported in (2005)
2 SCC 515;
Mr. Poddar submitted that, in enacting the impugned Entry Tax Act,
the State Legislature had nullified the effect of the judgement dated 22nd
November, 2007 of the West Bengal Taxation Tribunal in case of National
Hydro Power Corporation Limited Vs. ACCT Siliguri Circle reported in
2008 (15) VST 158 (WBTT) whereby the West Bengal Taxation Tribunal had
struck down the West Bengal State Taxes on Consumption or Use of Goods
Act 2001. Without removing the defects pointed out by the West Bengal
Taxation Tribunal, in the said Act of 2001, the legislature re-enacted the law
which was not permissible. Poddar cited the judgement of Supreme Court in
State of Tamil Nadu Vs. K. Shyam Sunder reported in (2011) 8 SCC 737
where the Supreme Court relying on its earlier judgements in Shri Prithvi
Cotton Mills Ltd. Vs. Broach Borough Municipality reported in (1969) 2
SCC 283; S.R. Bhagwat Vs. State of Mysore reported in (1995) 6 SCC 16;
Cauvery Water Disputes Tribunal reported in AIR 1992 SC 522; G.C.
Kanungo Vs. State of Orissa reported in (1995) 5 SCC 96; Madan Mohan
Pathak Vs. Union of India reported in (1978) 2 SCC 50 and K. Sankaran
Nair Vs. Devaki Amma Malathy Amma reported in (1996) 11 SCC 428
held as follows:-
"65. In view of the above, the law on the issue can be
summarised to the effect that a judicial pronouncement of a
competent court cannot be annulled by the legislature in exercise of
its legislative powers for any reason whatsoever. The legislature, in
order to revalidate the law, can reframe the conditions existing prior
to the judgment on the basis of which certain statutory provisions
had been declared ultra vires and unconstitutional."
Mr. S.K. Kapur, Senior Advocate appeared with Mr. Ananda Sen on
behalf of the Writ Petitioners W.P. No.464 of 2012 Bharti Bharti Airtel Limited
vs. State of West Bengal & Ors., W.P. No.465 of 2012 Bharti Telemedia
Limited Vs. State of West Bengal and W.P. 615 of 2012 Tata Teleservices
Ltd. Vs. State of West Bengal & Ors. in the Original Side adopted the
arguments advanced by Mr. Poddar and also made further arguments at
length.
Mr. Kapur reiterated that whenever a law was impugned it was the
burden of State to prove and the duty of the Court to see whether the
impugned enactment "facially or patently" indicates quantifiable data on the
basis of the which compensatory tax is to be levied and the Act must facially
indicated the benefit which is quantifiable or measurable. In Jindal
Stainless Steel Ltd. (supra) the Supreme Court held that the
abovementioned principles would apply to "any legislation under challenge
whether it be a taxation law or non-taxation law violating Article 301".
Mr. Kapur submitted that it was well-settled that State legislature had
the power to introduce a compensatory tax because this was a judicially
designed exception to the legislation normally applicable under Section 301 of
the Constitution of India. However, Jindal Stainless Steel Ltd. (supra)
provided that any compensatory tax would have to meet certain parameters
and fulfil certain mandatory requirements. Briefly summarized these
parameters are:-
(i) the payment of compensatory tax is not for revenue but as
reimbursement/re-compense for the special services/facility provided by the
State;
(ii) the Act must facially indicate the benefits to the payers which
should be quantifiable and measurable;
(iii) the Act must facially or patently indicate quantifiable data on the
basis of which the compensatory taxes ought to be levied;
(iv) the Act must indicate proportionality between the levied tax and
the benefit;
(v) if the Act does not indicate the above features facially then the
burden is on the State to establish by placing full data and material before the
Court that the levy of the tax is a reimbursement or recompense for the
quantifiable/measurable benefit provided to is payers;
(vi) the Court has to examine the pith and substance of the levy to
see its effect and operation. In other words, the Court has to see, what is the
scope of the operation of law;
(vii) it is not enough to say that the levy can be shown to have "some
connection" with the facilities provided to the payers;
(viii) the rule is that "direct and immediate effect" has to be established
in respect of the levy, otherwise it will fail on the question of constitutional
validity.
In support of his submissions Mr. Kapur cited following judgements:-
(i) R. Gandhi Vs. State of Tamil Nadu reported in 13 VST 390 at
pg 401;
(ii) National Aluminium Co. Ltd. Vs. State of Orissa & Ors.
reported in 15 VST 296;
(iii) Dinesh Pouches Ltd. Vs. State of Rajasthan reported in 16
VST 387 ;
(iv) Jindal Strips vs. State of Haryana reported in 12 VST 149 ;
(v) Indian Oil Corporation Ltd. Vs. State of U.P. reported in 10
VST 282.
Mr. Kapur reiterated the submission of Mr. Poddar that no data had
been produced by the State. Mr. Kapur also argued that Section 16 provides
that proceeds of the levy under the Act would firstly be credited to the
Consolidated Fund of West Bengal. This means that from the beginning the
entry tax proceeds will be mixed up with the other funds of the State.
According to Mr. Poddar as well as Mr. Kapur this provision contravenes the
settled rule that no entry tax can be levied to augment the revenue of the
State. By making a provision that the tax realized under the Entry Tax Act
would be credited to the Consolidated Fund of West Bengal clearly offends the
rule that such a tax ought not to be levied as a means of increasing the
revenue of the State.
Mr. Kapur argued that there were grammatical errors in Section 17,
which render it unintelligible and meaningless. If the Act contains mistakes it
is not for the Court to supply the omissions. But, even leaving the
unintelligible parts aside, the use of the word 'may' in express terms confers
an option upon the State to direct that levy of Entry Tax may be credited to
the compensatory fund.
Mr. Kapur further submitted that the legislature had neither legislative
authoirity nor any legislative power to reserve to itself a choice or right to elect
whether it would make a credit to the fund or not. Since the fund had to be
utilized only to provide a service/facility to the payers thereof, the mandate of
the Act should have been that all and any realizations of Entry Tax - would all
necessarily be required to be transferred to the Compensatory Fund in full.
Mr. Kapur submitted that by giving an option or right to elect to the
State Government whether or not to send the levy to the compensatory fund
and, if so, the time, the amount or the proportion clearly demonstrates that
the levy would be unrecognizably mixed up with the consolidated fund of the
State and thereafter would cease to be identifiable or available or used to
provide the service/facility to the payers, which is a mandatory requirement.
Mr. Kapur submitted that the Act ought not to have left any choice to
the Government to transfer the full amount of the levy to the compensatory
fund. Rather, the Act should have facially provided/mandate and
unquestionably shown that such disbursement was to be done on the face of
the statute.
Mr. Kapur submitted that the very terms of Section 18 of the Act make
it clear that the proceeds of the levy are not intended to be used to directly
provide service/facilities to the payers, which is the fundamental basis for
realization of compensatory taxes. Sub-section 1 clearly indicates by use of
the word 'may' in two places that the State has again reserved to itself
alternatives or preferences to do whatever it may choose to do with the levy at
its absolute discretion.
Mr. Kapur emphatically argued that entry tax realized could not
generally be utilized for development or facilitating trade, commerce and
industry in the State. The application of funds had to be for the benefit of the
payers in the local areas. Mr. Kapur finally argued that the broad objects stay
out in Sub-section 9 of Section 18. There was no regard for the requirement of
proportionality or quantifiable benefit to the payers.
Mr. Kapur argued that the purposes mentioned in Section 18 are
inextricably associated with one and another. It is noteworthy that these
purposes are expressly stated to be "inclusive in nature and not exclusive". In
other words, the State might change the purposes to which the tax realized
might be applied including even discarding these provisions altogether.
Referring to the West Bengal Compensatory Entry Tax Fund Rules 2012
produced at the time of hearing, Mr. Kapur submitted that it was settled law
that the provisions of the parent Act must prevail and the Rules cannot
supplant or replace the provisions of the Act. In any case rules only reiterated
that utilization of the proceeds shall be in accordance with Section 18 which
is otiose and unnecessary. Rule 4 evidences that the parameters will not be
followed because it envisages that "the criteria as well as the amounts for
allocation among concerned departments of the State Government" shall be
determined by a Committee.
Mr. Kapur further submitted that the details and what should be
facially apparent from the Act is not even to be found in the purported Rules
which are redundant and do not advance the State's argument at all.
Mr. J.P. Khaitan appearing on behalf of the petitioners in W.P. No.509
of 2012 ACCT Ltd. & Anr. Vs. the State of West Bengal and several other writ
petitioners in the Original Side, adopted the submissions made by Mr. Poddar
and Mr. Kapur, emphasized that unlike the impugned Entry Tax Act earlier
entry tax laws such as Tax on Entry of Goods into Local Areas Act, 1962 and
Taxes on Entry of Goods into Calcutta Metropolitant Area, 1972 were enacted
after obtaining previous sanction of the President of India.
Mr. Khaitan argued that the Entry Tax Act is not compliant with clause
(a) of Article 304 since similar similar goods manufactured or produced in the
State of West Bengal are not subject to Entry Tax.
In terms of clause (b) of Section 4(5) of the impugned Entry Tax Act,
goods purchased from a registered dealer, against a tax invoice or invoice or
bill, issued under the West Bengal Value Added Tax Act, 2003, or the West
Bengal Sales Tax Act, 1994, are not liable to pay Entry Tax under the
impugned Entry Tax Act.
Mr. Khaitan further submitted that under the Value Added Tax Act, an
importer-dealer is compulsorily liable to obtain registration and pay tax in
respect of all his sales. A manufacturer/producer or a re-seller has to
compulsorily obtain registration and pay tax as soon as his turnover exceeds
Rs.5 lakhs, a petty amount, in the present day and age. A
manufacturer/producer or re-seller also has the option to obtain voluntary
registration even before he becomes liable to pay tax. Thus every dealer,
unless he is a petty trader, is required to be registered under the Value Added
Tax Act or the Sales Tax Act, as applicable.
Mr. Khaitan submitted that the goods manufactured or produced in the
State of West Bengal sold by a dealer registered under the VAT Act or the
Sales Tax Act on a tax invoice or invoice or bill are not liable for entry tax
upon entry into any local area, within the State of West Bengal.
Mr. Khaitan submitted that in terms of clause (b) of rule 6(1) of the
West Bengal Tax on Entry of Goods into Local Areas Rules 2012, hereinafter
referred to as the Entry Tax Rules, goods manufactured in a local area of West
Bengal, using goods on which tax is paid or payable under the Act, are not
liable for tax on entry into another local area in the State. In other words,
goods manufactured in the State of West Bengal using any raw material,
plant, machinery, equipment, etc. on which entry tax is paid/payable are not
subject to entry tax upon entry into any local area in the State.
Mr. Khaitan submitted that the effect of Rule 6(1)(b) of the Entry Tax
Rules is that goods manufactured or produced in the State of West Bengal are
not subject to Entry Tax. Such manufactured goods would invariably be a
new commercial commodity distinct and different from the imported raw
material, plant, machinery, equipment, etc. on which entry tax is paid.
Payment of Entry Tax on raw materials, etc. is not payment of tax on
manufactured goods.
Mr. Khaitan submitted that it is thus evident that the provisions of the
impugned Entry Tax Act clearly discriminate between imported goods and
goods manufactured or produced in the State of West Bengal. The former are
subject to tax whereas the latter are not. The provisions of the Act are not
saved by clause (a) of Article 304.
Mr. Khaitan further submitted that that Rule 5(u) of the West Bengal
Compensatory Entry Tax Fund Rules, 2012 is ultra vires the Entry Tax Act
and the constitution of India.
Mr. Khaitan submitted that in terms of section 16 of the Act, the
proceeds of the levy shall first be credited to the Consolidated Fund of West
Bengal and the State Government may, "if the State Legislature by
appropriation made by law in this behalf so provides', credit such proceeds to
the West Bengal Compensatory Entry Tax Fund ("the Entry Tax Fund") from
time to time after deducting the expenses of collection, for being utilised exclusively
for the purposes of the Act.
Mr. Khaitan submitted that in exercise of the rule making power
conferred by section 22 of the Entry Tax Act, by a Notification bearing No.
766-F.B. dated July 24, 2012, the Governor of the State made the West
Bengal Compensatory Entry Tax Fund Rules, 2012 ('the Entry Tax Fund
Rules"). Rule 5(1 1) provides that the total annual receipt of Entry Tax in the
Consolidated Fund of the State shall be appropriated to the Entry Tax Fund
in the Public Account.
Mr. Khaitan submitted that Section 22 of the Entry Tax Act enables the
making of rules for carrying out the purposes of the said Act. When the Act
provides that appropriation out of the Consolidated Fund shall be made by
the State Legislature by law for credit to the Entry Tax Fund, any rule made
in exercise of the power under section 22 of the Act cannot provide for such
appropriation. Rule 5(u) of the Entry Tax Fund Rules is ultra vires the
provisions of the Entry Tax Act and also ultra vires the provisions of the
Constitution.
Mr. Khaitan further submitted that Chapter III of Part VI of the
Constitution contains provisions relating to State Legislature. Articles 196 to
200 in the said Chapter contain provisions relating to "Legislative Procedure"
and Articles 202 to 207 contain provisions relating to Procedure in Financial
Matters.
Mr. Khaitan submitted that Article 196 contains provisions as to
introduction and passing of Bills. Article 197 provides for restriction on
powers of Legislative Council as to Bills other than Money Bills. Sub-article (3)
of Article 197 provides that nothing in Article 197 shall apply to a Money Bill.
Article 198 provides for the special procedure in respect of Money Bills. Article
199 defines Money Bills. In terms of clause (d) of sub-article (1) of Article 199,
a Bill containing only provisions dealing with the appropriation of moneys out
of the Consolidated Fund of the State shall be deemed to be a Money Bill.
Article 204 deals with Appropriation Bills. Sub-article (3) of Article 204 reads
as follows:-
"(3) Subject to the provisions of articles 205 and 206, no
money shall be withdrawn from the Consolidated Fund of the
State except under appropriation made by law passed in
accordance with the provisions of this article."
Mr. Khaitan submitted that Article 266 contains provisions in respect of
Consolidated Funds and public accounts of India and of the States. Sub-
article (3) of Article 266 reads as follows :-
"(3) No moneys out of the Consolidated Fund of India or
the Consolidated Fund of a State shall be appropriated except
in accordance with law and for the purposes and in the manner
provided in this Constitution."
Mr. Khaitan submitted that Article 283 is a miscellaneous financial
provision and deals with custody, etc. of Consolidated Funds, Contingency
Funds and moneys credited to the public accounts. Sub-article (2) of Article
283 reads as under: -
"(2) The custody of the Consolidated Fund of the State
and the Contingency Fund of a State, the payment of moneys
into such Funds, the withdrawal of moneys therefrom, the
custody of public moneys other than those credited to such
Funds received by or on behalf of the Government of the State,
their payment into the public account of the State and
withdrawal of moneys from such account and all other matters
connected with or ancillary to matters aforesaid shall be
regulated by law made by the Legislature of the State, and,
until provision in that behalf is so made, shall be regulated by
rules made by the Governor of the State."
Mr. Khaitan submitted that Article 283 does not deal with appropriation
of moneys out of the Consolidated Fund of the State. Detailed provisions in
respect of appropriation are contained in Chapter III of Part VI of the
Constitution adverted to hereinbefore. Article 283 deals with custody of the
Consolidated Fund, payment of moneys into and withdrawal of moneys
therefrom, which is to be regulated by law made by the State Legislature.
Until the State Legislature makes such law, the Governor of the State can
make rules for such regulation.
Mr. Khaitan submitted that "withdrawal is not the same as
'appropriation'. It is only after appropriation by the State Legislature by law
that withdrawal of money can take place. This is evident from the provisions
of sub-article (3) of Article 204 extracted hereinabove.
Mr. Khaitan submitted that Article 283 dealing with regulation of
custody of the Consolidated Fund and payment of moneys into and
withdrawal of moneys therefrom is clearly not meant to give a go by to the
entire legislative procedure relating to appropriation contained in the
Constitution. The Governor of the State is not empowered by Article 283 to
appropriate any moneys out of the Consolidated Fund of the State by making
rules. Further, the Entry Tax Fund Rules are not stated to have been made in
terms of Article 283 but only in exercise of the rule making power granted by
section 22 of the Act.
Mr. Khaitan submitted that the act does not provide for compulsory!
mandatory appropriation of the proceeds of the levy to the Entry Tax fund.
Mr. Khaitan submitted that the scheme of the Act is that the proceeds of the
levy will first be credited to the Consolidated Fund. Then the State Legislature
has to appropriate moneys out of the Consolidated Fund for credit to the
Entry Tax Fund and thereafter the moneys credited to the Entry Tax Fund
shall be utilised for the purposes specified under section 18 of the Act. The
utilisation cannot take place if the State Legislature does not appropriate by
law any money for credit to the Entry Tax Fund. Whether or not the proceeds
of the levy under the Act shall be credited to the Entry Tax Fund is dependent
entirely on the State Legislature. The State Legislature which has made the
Act, has reserved to itself the power to decide whether the proceeds of the levy
under the Act or any part thereof shall be appropriated out of the
Consolidated Fund for credit to the Entry Tax Fund.
Mr. Khaitan submitted that Credit to the Entry Tax Fund and therefore,
utilisation is entirely dependent on appropriation by law by the State
Legislature. It is settled law that there is no estoppel against the Legislature.
It is clear that the Act does not contain any compulsory/ mandatory provision
for credit of the proceeds of the levy to the Entry Tax. Fund to ensure its
utilisation for the purposes enumerated in section 18. The levy under the Act
is not compensatory.
Mr. Khaitan also submitted that in order to qualify as a compensatory
tax, it must be shown by the State that payment of entry tax is a
reimbursement/ recompense for a quantifiable/ measurable benefit provided
or to be provided to its payers. The State has not furnished any data or details
whatsoever. States plea is that the levy is a new imposition is no answer. The
State has not even come up with any projection of any kind.
Mr. Khaitan submitted that the burden of the levy falls entirely on
goods imported from outside the State. Goods manufactured or produced in
the State are not subject to the levy. Assuming for the sake of argument that
the proceeds of the levy shall be utilised for the development or facilitating the
trade, commerce and industry in the State, the entire burden thereof has to
be borne by the persons who import the goods into the State of West Bengal.
However, the benefit of any development or facilitation shall be enjoyed
equally by manufacturers/ producers in the State who do not have to make
any imports. The assumption of the State that every manufacturer/ producer
in the State makes imports is unfounded. It is submitted that in the said
scheme of things, where the entire burden of the levy falls upon the importers,
the tax is clearly discriminatory and cannot be said to be compensatory by
way of reimbursement/ recompense in so far as the importers are concerned.
Mr. Khaitant submitted that the impugned levy also constitutes an
unreasonable restriction on the right to carry on business guaranteed by
Article 19(1)(g) of the Constitution, and is violative of the said Article.
Mr. Khaitan submitted that Goods manufactured in the State are sold
not only within the State but also in the other States and are also exported
outside the country.
Mr. Khaitan submitted that all the States do not impose entry tax. If the
burden of the levy is taken into account, the cost of goods manufactured in
West Bengal by using raw materials, plant, machinery, equipment, etc.
imported from outside the State would obviously be higher as compared to the
cost incurred by a similarly placed manufacturer/ producer in a State which
does not impose any entry tax. Thus, if the manufacturer/ producer in the
State of West Bengal were to pass on the burden of the levy as part of the
price Of his finished goods, his goods would become costlier aid
uncompetitive. Such a manufacturer/ producer faces the prospect of losing
his market outside the State.
Mr. Khaitan submitted that an importer-manufacturer in West Bengal
also stands to lose his market in other States which do not impose any entry
tax because buyers in such States would prefer to import their requirements
from outside the country without the burden of entry tax rather than buy
costlier goods manufactured/ produced in the State of West Bengal.
Mr. Khaitan submitted that Similar prospect of loss of market is faced
by a manufacturer/producer in the State who imports raw materials, plant,
machinery equipment, etc. and exports outside the country final products
manufactured by using the same. It has been the policy of the Government of
India to promote exports and towards that end, provisions have been made in
the tax laws and export promotion schemes have been formulated so that
export goods manufactured/ produced in the country are not burdened with
any tax levy. For example, advance import licences are issued so that raw
materials required for export production can be imported duty free. Even
indigenous raw materials can be procured duty-free. There are also special
schemes granting export benefits for exports to South East Asian countries.
Again, units located in Special Economic and/or Export Zones and/or 100%
Export Oriented Undertakings are not liable to pay any entry tax and enjoy a
distinct cost advantage. The object of all such provisions/ schemes made by
the Government of India is to ensure that Indian goods are competitively
priced and can stand in competition in the international market. It is
submitted that the levy under the Act is entirely counter-productive since it
makes the goods manufactured/ produced in the State of West Bengal by an
importer-manufacturer costlier and uncompetitive.
Mr. Khaitan submitted that thus, manufacturers/ producers in the
State of West Bengal who import raw materials, plant, machinery, equipment,
etc. from outside the State for their manufacture/ production activity face the
prospect of losing their business outside the State as also in the international
market and would ultimately have to shut down their manufacture/
production facilities in the State.
Counsel appearing for some of the other writ petitioners namely Mr.
Samit Talukdar and Mr. Moinak Bose adopted and elaborated on the
submissions made by Mr. Poddar, Mr. Kapur and Mr. Khaitan, and as such
their arguments are not separately recorded, to avoid repetition and prolixity.
Mr. Bose cited International Tourist Corporation Vs. State of
Haryana reported in (1981) 2 SCC 318 and the judgement of the Division
Bench in Central Coalfields Ltd. Vs. the State of Jharkhand. Mr. Bose
further argued that a fee is compensatory if that particular fee improves the
flow of trade, and if so, it would be outside the purview of Article 301.
Mr. Abhratosh Mazumdar appearing on behalf of the State traced the
historical background leading to the incorporation of the Part XIII of the
Constitution of India. Mr. Mazumdar submitted that after India achieved
freedom in 1947, and before the Constitution was adopted, the process of
merger and integration of the Indian States with the rest of the country had
been accomplished, so that when the Constitution was first passed the
territory of India consisted of 'Part A' States, which broadly stated,
represented the provinces in British India, and 'Part B' States which were
made up of Indian States.
Mr. Mazumdar submitted that there were trade barriers raised by the
Indian States in exercise of their legislative powers and the Constitution-
makers had to make provisions with regard to those trade barriers as well.
The evolution of a federal structure or a quasi-federal structure necessitated
distribution of powers and basic part of our Constitution relates to that
distribution with the three legislative lists in the Seventh Schedule as noticed
in Automobile Transport (Rajasthan) Ltd. Vs. State of Rajasthan reported
in (1963) 1 SCR 491.
The object of Part XIII was to maintain the economic unity of the nation.
Part XIII of the Constitution, which contains the provisions relating to trade,
commerce and intercourse within the territory of India. Article 301 of the
Constitution guarantees the freedom of trade, commerce and intercourse
embodies the Constitutional philosophy 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.
As observed by the Supreme Court in Atiabari (supra) the makers of
the Constitution had the occasion to consider the plinth and amplitude of
Section 297 of the Government of India Act, 1935, which read as follows:-
"297.(1) No Provincial Legislature or Government shall -
(a) by virtue of the entry in the Provincial Legislative List
relating to trade and commerce within the Province, or the entry
in that List relating to the production, supply, and distribution
of commodities, have power to pass any law or take any
executive action prohibiting or restricting the entry into, or
export from the Province of goods of any class or description; or
(b) by virtue of anything in this Act have power to impose
any tax, cess, toll, or due which, as between goods
manufactured or produced in the Province and similar goods
not so manufactured or produced, discriminates in favour of the
former, or which, in the case of goods manufactured or
produced outside the Province, discriminates between goods
manufactured or produced in one locality and similar goods
manufactured or produced in another locality.
(2) Any law passed in contravention of this section shall, to
the extent of the contravention, be invalid."
Mr. Mazumdar pointed out that the founding fathers of the Constitution
while incorporating commerce clause in Part XIII of the Constitution were also
inspired by commerce clause contained in Section 92 of the Australian
Constitution, which reads thus:-
"On the imposition of uniform duties of customs, trade,
commerce, and intercourse among the States, whether by
means of internal carriage or ocean navigation, shall be
absolutely free."
In this historical milieu the makers of the Constitution having regard to
the economic unity and stability of the nation incorporated Part XIII in the
Constitution. Mr. Mazumdar referred to Articles 301, 302, 303 and 304 of the
Constitution of India.
In Atiabari (supra) the constitutionality of the Assam Taxation (on
Goods Carried by Roads or Indian Watherways) Act, (Assam Act 13 of 1954)
was the subject matter of challenge. The purpose of the Act was to levy taxes
on certain goods carried by road or inland waterways in the State of Assam
including goods in transit.
The Supreme Court, inter alia held that the content of freedom provided
by Article 301 is larger than the freedom contemplated by Section 297 of the
Constitution Act of 1935. If the transport or the movement of goods is taxed
solely on the basis that the goods are thus carried or transported that directly
affects the freedom of trade as contemplated by Article 301.
The Supreme Court held in Atiabari (supra) 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 Part XIII of the Constitution of India. The Supreme Court, however,
clarified that only taxes which directly and immediately restricted trade would
fall within the purview of Article 301. The Constitution Bench of the Supreme
Court followed the ratio laid down by Privy Council in Commonwealth of
Australia Vs. Bank of New South Wales wherein it was held in the context
of Section 92 of the Australian Constitution that regulation of trade,
commerce and intercourse among the State is compatible with its absolute
freedom, and that Section 92 is violated only when a legislative or executive
act operates to restrict such trade, commerce and intercourse directly and
immediately as distinct from creating some indirect or consequential
impediment which may fairly be regarded as remote.
Mr. Mazumdar submitted that in Cole v Whitfield ("Tasmanian
Lobster case") [1988] HCA 18; (1988) 165 CLR 360; (1988) 78 ALR 42;
(1988) 62 ALJR 303, the Full Bench of the High Court of Australia revisited
the law laid down in Commonwealth of Australia -v- Bank of New South
Wales (Banking case), which propounded the theory of direct and immediate
restriction on trade and commerce and formed the sheet anchor of the
judgement in Atiabari (supra) and held that the doctrine of "direct and
immediate effect" is highly artificial.
It appears that the judgement in Atiabari (supra) has been referred for
reconstruction to a Larger Bench. However, no decision has yet been taken by
the Larger Bench. The law laid down in Atiabari (supra) is binding on this
Court and this Court cannot take any contrary view only because a foreign
judgement relied upon in Atiabari (supra) has been reversed.
Mr. Mazumdar argued that the ration laid down in Atiabari (supra)
was revisited by Seven Judges Constitution Bench in Automobile Transport
(supra). The Constitution Bench judicially evolved the concept of
compensatory and/or regulatory taxes as exception to Article 301. Mr.
Mazumdar submitted that the ratio laid down in Automobile Transport
(supra) can be culled out as follows:-
"(a.) The conception of freedom of trade, commerce and
intercourse in a community regulated by law presupposes some
degree of restriction upon the individual, that freedom must
necessarily be delimited by considerations of social orderliness.
(b) The collection of a toll or a tax for the use of a road or for the
use of a bridge or for the use of aerodrome is no barrier or burden
or deterrent to traders who, in their absence, may have to take a
longer or less convenient or more expensive route. Such
compensatory taxes are no hindrance to anybody's freedom so
long as they remain reasonable.
(c) For the tax to become a prohibited tax it has to be a direct
tax the effect of which is to hinder the movement part of trade. So
long as a tax remains compensatory or regulatory it cannot
operate as hindrance.
(d) Regulatory measures which 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 provisions
of Part XIII of the Constitution for the simple reason that they do
not hamper trade, commerce and intercourse but rather facilitate
them.
(e) 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.
(f) 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 not cannot be made to
depend on the preamble of the statute imposing it. it would not be
right to say that a tax is not compensatory because the precise or
specific amount collected is not actually used in providing any
facilities.
(g) 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.
(h) Creation of separate fund would not be necessary. The
Constitution Bench held that-
"Nor do we think that it will make any difference that the
money collected from the tax is not put into a separate fund
so long as facilities for the trades people who pay the tax
are provided and the expenses incurred in providing them
are borne by the State out of whatever source it may be."
The issue of compensatory tax is a judicially crafted exception to Article
301 came up for consideration before the Hon'ble Supreme Court in the
matter of Jindal Strips Vs. State of Haryana reported in (2003) 8 SCC 60
(Jindal 1). The Supreme Court referred the matter to a Constitution Bench
with the following observations:-
"Since the concept of compensatory tax has been judicially
evolved as any exception to the provisions of Article 301 and as
the parameters of this judicial concept are blurred particularly by
reason of the decisions in Bhagat Ram (supra) and Bihar Chamber
of Commerce (supra), we are of the view that the interpretation of
Article 301 vis-à-vis compensatory tax should be authoritatively
laid down with certitude by the Constitution Bench under Article
145."
In Jindal Stainless Vs. State of Haryana reported in (2006) 7 SCC
241 (Jindal) the Supreme Court enunciated the following judicial principles
with regard to the interpretation of Article 301 vis-à-vis the concept of
compensatory tax:-
"(i) Taxing laws are not excluded from the operation of Article
301, which means tax laws do amount to restriction as held in
Atiabari (supra). It has to be examined whether such tax laws
directly and immediately restricts trade and commerce.
(paragraphs 6 & 47).
(ii) Compensatory taxes constitute an exception to Article 301. It
is a judicially evolved concept in Automobile Transport case as a
part of regulatory charge. (paragraphs 31).
(iii) Whenever any law is impugned as violative of Article 301,
the Courts will have to examine the effect of the operation of the
impugned law on the inter-State and the intra-State movement of
goods, which movement constitutes an integral part of trade.
(paragraphs 47).
(iv) For a tax to be compensatory, there must be some link
between the quantum of tax and the facility/services. (paragraphs
42).
(v) 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. (paragraphs 43).
(vi) Such compensatory tax may incidentally bring in net-
revenue to the government but that circumstance is not an
essential ingredient of compensatory tax. (paragraphs 43).
(vii) The act, impugned as being violative of Article 301 of the
Constitution of India, must facially indicate the benefit which is
quantifiable or measurable. It must broadly indicate
proportionality to the quantifiable benefit. (paragraphs 46).
(viii) 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. (paragraphs 46).
(ix) The 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 as held by the Constitution Bench in Automobile
Transport case. (paragraphs 49).
(x) The doctrine of 'direct and immediate effect' of a law on
trade and commerce under Article 301 as propounded in Atiabari
(supra) and the working test enunciated in Automobile Transport
(supra) for deciding whether a tax is compensatory or not vide
paragraph 19 of the Report (AIR), would continue to apply and the
test of 'some connection' indicated in paragraph 8 (of SCC) of the
judgment in Bhagatram Rajeevkumar (surpa) and followed in
State of Bihar v. Bihar Chamber of Commerce (supra) was in the
opinion of the Constitution Bench not good law. (paragraphs 53).
(xi) The constitutional validity of various local enactments,
which were the subject matters of pending appeals, special leave
petitions and writ petitions, were directed to be disposed of in the
light of this judgement. (paragraphs 53)."
Mr. Mazumdar appearing on behalf of the State submitted that there
could be no doubt that Article 301 guaranteed free trade, commerce and
intercourse throughout the territory of India. Mr. Mazumdar also agreed that
the question of whether a tax on movement of goods would amount to
restriction of free trade, commerce and intercourse guaranteed by Article 301
is no longer open in view of the judgements of the Supreme Court in Atia
Bari Tea Company Limited Vs. State of Assam (supra), Automobile
Transport (Rajasthan) Limited Vs. State of Rajasthan (supra), Jindal
Stainless Steel Ltd. (supra) and numerous other judgements of the
Supreme Court and different High Courts many of which have been cited on
behalf of the respective writ petitions.
Mr. Mazumdar could not dispute that a tax of any kind that related to
movement of goods from one part of the territory of India to another would
amount to a restriction on the right to free trade, commerce and intercourse
throughout the territory of India guaranteed by Article 301. Mr. Mazumdar,
however, argued that the tax imposed by the impugned Entry Tax Act being a
compensatory tax, it was outside the purview of Article 301 of the
Constitution of India. Mr. Mazumdar emphatically argued that the proposition
that a compensatory tax would not impede free flow of trade, commerce and
intercourse and would not offend Article 301 of the Constitution of India, as
evolved in Automobile Transport (Rajasthan) Ltd. and confirmed in Jindal
Stainless Steel Ltd. (supra) was well established. There was, thus, no
requirement for prior Presidential sanction before passing of the impugned
Entry Tax Act.
Mr. Mazumdar argued that impugned Entry Tax Act itself provides for
creation of a compensatory Entry Tax Fund for deposit and utilization of the
proceeds of Entry Tax realized under the impugned Entry Tax Act for
facilitating trade and commerce. Mr. Mazumdar referred to the various Sub-
sections of Section 18 where the purposes for which the proceeds of Entry Tax
are to be utilized have been enumerated. Mr. Mazumdar emphatically argued
that the services and/or facilitate set forth in Section 18 of the impugned
Entry Tax Act facilitate trade and commerce. The purposes stipulated are only
illustrative and not exhaustive.
Mr. Mazumdar argued that the purposes specified in Section 18 of the
impugned Entry Tax Act are intrinsically linked with the development of trade
and commerce. The residuary purpose in Section 18(1)(h) has to be read in
the light of the other specific purposes, by applying the principle of an
ejusdemgeneris. Mr. Mazumdar argued that Sections 9 and 20 of the
impugned Entry Tax Act read with the West Bengal Compensatory Entry Tax
Fund Rules, 2012, hereinafter referred to as the 'Compensatory Fund Rules',
notified on 24th July, 2012 vests the Accountant General of West Bengal with
the authority to manage the Compensatory Fund.
Mr. Mazumdar submitted that the proceeds of the levy of Entry Tax
under the impugned Entry Tax Act are wholly to be utilized for the purposes
of adumbrated in Section 18 of the impugned Entry Tax Act. Thus, the
impugned Entry Tax Act satisfies the working test of a compensatory tax as
enunciated in Automobile Transport (Rajasthan) Limited (Supra).
Mr. Mazumdar pointed out that in Jindal Stainless Steel Ltd. 2
(supra) the Constitutional Bench decided the questions of law referred to it.
The various pending appeals were, however directed to be remanded to the
respective High Courts for hearing and adjudication in the light of the
principles enunciated in Jindal Stainless Ltd. 2 (supra) by an order
reported in 2006 (7) SCC 271.
Mr. Mazumdar pointed out that pursuant to the directions of the
Supreme Court in Jindal (3) various appeals pending in the Supreme Court
were remanded to the High Courts for adjudication in the light of the law as
enunciated in Jindal Stainless Steel Ltd. (Supra). Unlike in the instant
case, where the impugned Entry Tax Act specifies the purposes for which the
proceeds of the levy of entry tax might be utilized the encasements which were
struck down as ultra vires could not show that the proceeds would be utilized
for facilitating trade development. After the judgement of the Supreme Court
in Jindal Stainless Steel Ltd. (Supra) the various states enacted statues,
enacted validation Act and effected amendments to existing Acts to bring
similar compliance with the law as enunciated in Jindal Stainless Steel Ltd.
(Supra). Most of these Enactments /Validation Acts/Amendments have been
upheld by different High Courts.
Mr. Mazumdar submitted that no data was required to be submitted in
the instant case since, the impugned Entry Tax is facially and patently
compensatory as earlier argued. In terms of the judgement of the Supreme
Court in Jindal (3) only those states in which the impugned encactments
were in operation for more than one financial year were required to furnish
data. The impugned Entry Tax being in a nascent stage it was not possible to
furnish data until and unless the tax was realized.
Referring to Automobile Transport (Rajasthan) Limited (supra) Mr.
Mazumdar submitted that it was immaterial that the proceeds of the tax
would be deposed in the Consolidated Fund of the State. In Automobile
Transport (Rajasthan) Limited (supra) the Supreme Court, in fact, held that
the creation of separate fund was not necessary and deposit of proceeds in the
Consolidated Fund would not vitiate the levy. Mr. Mazumdar submitted that
the levy was not discriminatory.
Mr. Mazumdar further argued that the impugned Entry Tax Act
provides for uniform, non-discriminatory rate of taxation in respect of all
goods brought from outside the State and goods manufactured/produced
locally and therefor in compliance with Article 304(a) of the Constitution of
India. In support of his submission Mr. Mazumdar cited the following
judgements:-
(i) State of Madras Vs. Nataraja Mudaliar reported in AIR 1969
SC 147;
(ii) Rattan Lal & Co. Vs. Assessing Authority, Patiala reported in
AIR 1970 SC 1742;
(iii) M/s Associated Tanners. Vizianagaram, Andhra Pradesh Vs.
Commercial Tax Officer, Vizianagaram, Andhra Pradesh And Ors.
reported in (1986) 2 SCC 479;
The aforesaid judgements cited by Mr. Mazumdar are not, however,
relevant since those judgements pertain to sales tax and other taxes which do
not directly affect movement of goods and, therefore, did not hit Article 301 of
the Constitution of India. It is immaterial that the rate of tax which is 1%, is
reasonable, as submitted by Mr. Mazumdar. It is also immaterial that the
goods are subjected to Entry Tax only once and that finished products cannot
be subjected to Entry Tax if Entry Tax has been paid on raw materials.
Mr. Mazumdar finally argued that Article 286 is not applicable to the
impugned tax on entry of goods into local Areas for consumption or use
therein under Entry 52, List II of the Seventh Schedule. Only the power to tax,
sales are subject to the restrictions of Article 286. Imposition of Entry Tax
under the impugned Act does not tantamount to tax on sale. Mr. Mazumdar
submitted once the goods are cleared from warehouse the importation is
complete.
Applying the principles of law enunciated by the Supreme Court in
Automobile Transport (Rajasthan) Ltd. (supra) as reiterated in Jindal
Stainless Steel Ltd. (supra).
Distinguishing the judgments of the various High Court in R. Gandhi
Vs. State of Tamilnadu (supra); Thressiamma L. Chirayil Vs. State of
Kerala & Anr. (supra); ITC Limited Vs. State of Tamil Nadu & Ors.
(supra); Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors. (supra);
Bharat Earth Movers Ltd. Vs. State of Karnataka (supra); Tata Steel
Limited Vs. State of Jharkhand & Ors. (supra); National Aluminium Co.
Ltd. Vs. State of Orissa & Ors. (supra); Dinesh Pouches Ltd. Vs. State of
Rajasthan (supra); Indian Oil Corporation Ltd. Vs. State of U.P. (supra);
cited by Mr. Poddar and Mr. Kapur, Mr. Mazumdar argued that the
enactments impugned in the aforesaid cases, did not facially indicate that the
tax imposed was 'compensatory', as in the case of the impugned Entry Tax
Act. Unlike the impugned Entry, the enactments impugned in those cases did
not spell out the purposes for which the proceeds of the levy could be utilized.
Mr. Mazumdar argued that the trend of the decisions of the various
High Courts, after pronouncement of the judgement in Jindal Stainless Ltd.
(supra) show that existing enactments for imposition of taxes on movement of
goods, which did not facially indicate the corresponding advantages to the
taxpayers, as a class, were mostly set aside but post Jindal Stainless Ltd.
(2) enactments and/or amendments where the purposes for which the
proceeds of the levy could be utilized were mostly upheld.
Mr. Mazumdar submitted that the impugned Entry Tax Act provided for
the imposition of a levy which is compensatory, to be used for purposes
specified therein, by creation of a compensatory Entry Tax Fund, which would
facilitate trade and commerce in the State.
In support of his submission that the impugned Entry Tax Act should
be construed as compensatory, Mr. Mazumdar cited the following judgements.
10 VST 140; Godfrey Philips India Ltd. Vs. State of Madhya Pradesh &
Ors. reported in (2008) 17 VST 467 (M.P.), 21 VST 76; Steel Authority of
India Ltd. Vs. The State of Chhattisgarh reported in 45 VST 483;
Municipal Academy of Higher Education Vs. State of Karnataka reported
in (2008) 13 VST 377 (Karnataka); 48 VST 28.
The parliament and the State Legislatures derive their power to legislate
from inter alia the provisions of Part XI of the Constitution of India, and in
particular Article 246 contained in the said part, which provides as follows:-
"246. Subject-matter of laws made by Parliament and by the
Legislatures of States. - (1) Notwithstanding anything in clauses
(2) and (3), Parliament has exclusive power to make laws with
respect to any of the matters enumerated in List I in the Seventh
Schedule (in this Constitution referred to as the "Union List").
(2) Notwithstanding anything in clause (3), Parliament
and, subject to clause (1), the Legislature of any State also, have
power to make laws with respect to any of the matters enumerated
in List III in the Seventh Schedule (in this Constitution referred to as
the "Concurrent List").
(3) Subject to clause (1) and (2), the Legislature of any
State has exclusive power to make laws for such State or any part
thereof with respect to any of the matters enumerated in List II in
the Seventh Schedule (in this Constitution referred to as the 'State
List').
(4) Parliament has power to make laws with respect to
any matter for any part of the territory of India not included [in a
State] notwithstanding that such matter is a matter enumerated in
the State List."
Article 246 demarcates the legislative fields of Parliament and the
Legislatures of States. While the Parliament has exclusive power to make laws
in respect of any of the matters enumerated in List I of the Seventh Schedule
of the Constitution, the State Legislatures have exclusive power to make laws
in respect of any of the matters enumerated in List II of the Seventh Schedule.
In respect of matters enumerated in List III of the Seventh Schedule, which is
the Concurrent List, both Parliament and the Legislatures of States have
power to legislate.
Entry 52 of List II in the Seventh Schedule empowers the State
Legislature to enact laws with regard to taxes on entry of goods into a local
area for consumption, use or sale therein. The power to enact a law imposing
a tax on the entry of goods into local areas, for consumption or for sale or for
use in those areas, can only be exercised by the State Legislature.
The power of Parliament and Legislatures to enact laws is subject to the
other provisions of the Constitution of India including in particular Chapter III
of the Constitution of India relating to fundamental rights and Part XIII of the
Constitution of India which guarantees freedom of trade, commerce and
intercourse anywhere within the territory of India.
Articles 286(1) and (2) of the Constitution provide as follows:-
"286. Restrictions as to imposition of tax on the sale or
purchase of goods.-
(1) No law of a State shall impose, or authorise the imposition of,
a tax on the sale or purchase of goods where such sale or purchase
takes place-
(a) outside the State; or
(b) in the course of the import of the goods into, or export of
the goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining
when a sale or purchase of goods takes place in any of the ways
mentioned in clause (1).
Parliament alone has the power to enact laws in respect of trade and
commerce with foreign countries, Inter-State trade and commerce and duties
of customs on import and export. The relevant entries in this regard are
Entries 41, 42 and 83 of List I. Entry 41 of List I relates to "trade and
commerce with foreign countries; import and export across customs frontiers;
definition of customs frontiers". Entry 42 of List I relates to Inter-State trade
and Commerce" and Entry 83 of List I relates to "duties of customs including
export duties".
Article 286(1)(b) of the Constitution clearly provides that no law of a
State shall impose or authorise the imposition of a tax on the sale or purchase
of goods where such sale or purchase takes place outside the State, or in the
course of import of goods into or export of goods out of the territory of India."
There can, therefore, be no doubt that no State tax can be imposed on
'sale' or 'purchase' of goods, where sale or purchase takes place in course of
import of goods into or export of goods out of India. However, the question is
whether the impugned Entry Tax Act in so far as the same purports to impose
a tax on entry of goods imported from abroad into local areas, for
consumption use or sale therein is violative of Article 286(1)(b) of the
Constitution of India as emphatically argued by Mr. Kapur.
'Tax on the sale or purchase of goods' has been defined in Article 366
(29-A) of the Constitution of India, set out hereinbelow:-
"366(29A) Tax on the sale or purchase of goods" includes-
(a) a tax on the transfer, otherwise than in pursuance of a
contract, of property in any goods for cash, deferred payment or
other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or
in the some other form) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire-purchase or any system
of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any
purpose (whether or not for a specified period) for cash, deferred
payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated
association or body of persons to a member thereof for cash,
deferred payment or othervaluable consideration;
(f) a tax on the supply, by way of or as part of any service or in
any other manner whatsoever, of goods, being food or any other
article for human consumption or any drink (whether or not
intoxicating), where such supply or service, is for cash, deferred
payment or other valuable consideration,
and such transfer, delivery or supply of any goods shall be deemed
to be a sale of those goods by the person making the transfer,
delivery or supply and a purchase of those goods by the person to
whom such transfer, delivery or supply is made;"
The definition of 'tax on the sale or purchase of goods' in Article
366(29A) of the Constiuttion is indeed extermely wide, as argued by Mr.
Kapur, but in my view, not wide enough to include tax on entry of goods into
a local area, which is covered by Entry 52 of List II.
In Godfrey Phillips India Ltd. (supra), cited by Mr. Kapur, the
Constitution Bench of the Supreme Court held:-
67. However, while widening the scope of Entry 54 of List II, the
powers of the States to levy such tax are subjected to a
corresponding restriction as a consequence of the constitutional
curbs imposed on sales tax under Article 286 read with Sections 14
and 15 of the Central Sales Tax Act, 1956 and the ADE Act, 1957.
The tax leviable by virtue of sub-clause (a) of clause (29-A) of Article
366 of the Constitution thus becomes subject to the same discipline
to .which any levy under Entry 54 of the State List is made subject
to under the Constitution. The Position is the same when we look at
Article 286 of the Constitution. If any declared goods which are
referred to in Section 14 of the Central Sales Tax Act, 1956 are
involved in such transfer, supply or delivery, which is referred to in
clause (29-A) of Article 366, the sales tax law of a State which
provides for levy of sales tax thereon will have to comply with the
restrictions mentioned in Section 15 of the Central Sales Tax Act,
1956.
68. No State can therefore by describing an item as a luxury, seek
to levy tax on its supply. It cannot be disputed that as far as U.P.
and A.P. are concerned, were it not for their interpretation of Entry
62 of List II, the tax would be referable only to Entry 54 List II. If
Entry 62 List II does not allow the taxation of goods, the levy would
not be constitutionally sustainable.
69. In our opinion, to read Entry 62 List II as including articles of
luxury cannot allow all these constitutional restrictions to be
bypassed allowing States to levy tax on the supply of goods by
describing them as luxury goods. As has been rightly contended by
Mr Parasaran appearing for the Union of India, the supply of luxury
is nothing but the supply of goods since the goods themselves
constitute the luxury"
"93. Given the language of Entry 62 and the legislative history we
hold that Entry 62 of the List II does not permit the levy of tax on
goods or articles. In our judgment, the word "luxuries" in the entry
refers to activities of indulgence, enjoyment or pleasure. Inasmuch
as none of the impugned statues seek to tax any activity and
admittedly seek to tax goods described as luxury goods, they must
be and are declared to be legislatively incompetent."
In Godfrey Phillips India Ltd. (supra) the Constitution Bench of the
Supreme Court was not concerned with imposition of any tax on entry of
goods into local areas, in exercise of legislative power under Entry 52 of List II
but with legislative power under Entries 54 and 62 of List II of the Seventh
Schedule to the constitution, which respectively dealt with taxes on sale and
purchase of goods and taxes on luxuries including entertainment amusement
etc. The Supreme Court found that the word 'luxuries' in Entry 62 of List II
referred to activities of indulgence, enjoyment or pleasure, and did not permit
levy of tax on goods or articles by describing the same as luxury goods, as had
been done by the State of Uttar Pradesh. The tax on luxury articles was held
to be referable to Entry 54 of List II, which empowered the State to enact law
on sale of goods subject to the provisions of Entry 92A of List I of the Seventh
Schedule, and thus violative of Article 286(a)(b) of the Constiuttion.
In Godfrey Phillips India Ltd. (supra), the Supreme Court held that
"taxing entries must be construed with clarity and precision so as to maintain
exclusivity, and a construction of a taxation entry which may lead to
overlapping must be eschewed". Thus, where an entry describes the object of
a tax, "all taxable funds pertaining to the object are within that field of
legislation unless the fund is specifically provided for elsewhere under a
different head".
Mr. Avrotosh Mazumdar appearing on behalf of the State cited the
judgement of the Supreme Court in J.V. Gokal & Co. Pvt. Ltd. Vs. Assistant
Collector of Sales Tax (Inspection), reported in (1960) 11 STC 186 (SC)
where the Supreme Court held :-
"What does the phrase "in the course of the import of the goods into
the territory of India" convey? The crucial words of the phrase are
"import" and "in the course of". To import goods into the territory of
India Therefore means to bring into the territory of India goods from
abroad. The words 'course' means "progress from one point to
point". The course of import, therefore, starts from one point and
ends at another. It starts when the goods cross the customs barrier
in a foreign country and ends when they cross the customs barrier
in the importing Country."
In Kiran Spinning Mills Vs. Collector of Customs reported in 1999
(113) ELT 753 (SC) cited by Mr. Mazumdar the Supreme Court held:-
"Attractive, as the argument is, we are afraid that we do not
find any merit in the same. It has now been held by this court in
Hyderabad Industries Ltd. and Anr. v. Union of India and Others
[1999 (108) E.L.T. 321 (SC) = JT 1999 (4) SC 95] that for the purpose
of levy of additional duty Section 3 of the Tariff Act is a charging
section. Section 3 sub-section 96) makes the provision of the
Customs Act applicable. This would bring into play the provisions of
Section 15 of the Customs Act which, inter alia, provides that the
rate of duty which will be payable would be on the day when the
goods are removed from the bonded warehouse. That apart, this
Court has held in Sea Customs Act, SCR at p. 803 that in the case of
duty of customs the taxable event is the import of goods within the
customs barriers. In other words, the taxable event occurs when the
customs barriers is crossed. In the case of goods which are in the
warehouse the customs barriers would be crossed when they are
sought to be taken out of the customs and brought to the mass of
goods in the country...."
Mr. Mazumdar referred to recent judgement of the Division Bench of
Orissa High Court in the case of Tata Steel Ltd. [W.P.(C) 15519 of 2010]
reported in 58 VST 484 heard along with various other writ petitions. The
question in issue in the aforesaid writ applications was, whether Entry Tax
under the Orissa Entry Tax Act, 1999 could be levied on goods imported by
the petitioners from outside the country. The High Court held that the
enactment of law, in exercise of the power of the State Legislature under Entry
52 of the List II of the Seventh Schedule for imposition of entry tax on goods
purchased from outside the country, would not violate Article 286 of the
Constitution.
The Orissa High Court distinguishing the judgement of the
Supreme Court in Godfrey Phillips India Ltd. Vs. State of Uttar
Pradesh (supra) held that in case of entry tax the taxable event was
entry of goods into the local area whereas in case of customs duty the
taxable event was on import of the goods into territory of India.
In Primus Imaging Pvt. Ltd. Vs. State of Assam cited by Mr.
Mazumdar reported in (2007) 9 VST 528 the Gauhati High Court held:-
"From a reading of Article 286 of the Constitution, it becomes clear
that this article does not permit States to levy tax on the sale or
purchase of goods, which takes place in the course of import into, or
export out of the territory of India. The restriction, imposed on the
State, is, thus, in respect of levy of tax on the sale or purchase of
goods, which takes place in the course of import into, or export out
of, the territory of India. The power to levy sales tax is derived from
entry 54 of List II of the Seventh Schedule to the Constitution of
India; whereas the power to levy entry tax is derived by entry 52 of
the List II of the Seventh Schedule to the Constitution. Under entry
54, the point of levy is purchase or sale, but under entry 52, the
point of levy is the point of entry into a local area. Therefore, taxable
event under the Entry Tax Act is entry of specific goods into a local
area for consumption, use or sale therein. Viewed thus, it is clear
that levy of tax on sale or purchase, on the one hand, and the levy of
tax on entry of goods into a local area, on the other, are covered by
different entries in the Constitution and the incidence of taxation in
both the cases is different. The restriction, imposed by article
286(1)(b) of the Constitution, is in respect of the levy of tax on sale or
purchase of goods and not as regards entry of the goods into a local
area for consumption, use or sale therein and, hence, the contention
of the petitioners that levy of entry tax on goods imported from
outside the State is hit by article 286(1)(b) of the Constitution of India
has no force and is misconceived......"
In Gulabdas Jagannath Vs. The State of Rajasthan reported in
AIR 1995 Rajasthan 225 cited by Mr. Mazumdar the imposition of
Octroi Duty levied under Entry 52 of List II of the Seventh Schedule to
the Constitution on goods imported from outside the country, was held
to be valid.
In William Fernandez Vs. State of Kerala reported in (1999) 115
STC 591 (Ker) cited by Mr. Kapur the Kerala High Court found that the
impugned Act did not impose any tax on goods imported from outside the
country. The High Court, thus, held that the limitations in Article 286 had not
been surmounted and as such the Act was inapplicable to the appellants, who
had imported vehicles from abroad. The judgment has no relevance to the
issue of whether imposition of a tax on entry of imported goods into a local
area for consumption use, or sale therein, contravenes Article 286 of the
Constitution.
Entry 52 of List II relating to taxes on the entry of goods into a local
area for consumption, use or sale therein, is distinct from Entry 26 of the said
list relating to trade and commerce within the State, subject to Entry 33 of
List III, Entry 27 relating to production, supply and distribution of goods and
Entry 54 relating to sale and purchase of goods.
Tax on entry of goods into local areas for consumption use or sale
therein, imposed in exercise of legislative power under Entry 52 of List II, is
distinct from tax on trade and commerce with foreign countries, import and
export across customs frontiers, inter-state trade and commerce, taxes on
sale or purchase goods or taxes on consignment of goods etc in course of
inter-state trade or commerce and sale or purchase of newspapers etc.
covered by Entries 41, 42, 92, 92A, 92B of List I of the Seventh Schedule to
the Constitution of India. While import takes place as soon as the goods cross
into the Indian customs territory, in case of Entry Tax, the taxable event is
the entry into the local area after coming out of the customs area. Tax on
entry of goods cannot be equated to tax on sale or purchase and is, therefore,
not hit by Article 286(1)(b) of the Constitution.
Articles 301, 302, 303 and 304 of the Constitution of India, relevant in
the context of the challenge to the impugned Entry Tax Act, are set out
hereinbelow for convenience:-
"301. Freedom of trade, commerce and intercourse. - Subject
to the other provisions of this Part, trade, commerce and intercourse
throughout the territory of India shall be free.
302. Power of Parliament to impose restrictions on trade,
commerce and intercourse.- Parliament may by law impose such
restrictions on the freedom of trade, commerce or intercourse
between one State and another or within any part of the territory of
India as may be required in the public interest.
303. Restrictions on the legislative powers of the Union and
of the States with regard to trade and commerce.- (1)
Notwithstanding anything in article 302, neither Parliament nor the
Legislature of a State shall have power to make any law giving, or
authorising the giving of, any preference to one State over another,
or making, or authorising the making of, any discrimination
between one State and another, by virtue of any entry relating to
trade and commerce in any of the Lists in the Seventh Schedule.
(2) Nothing in clause (1) shall prevent Parliament from making
any law giving, or 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. Restrictions on trade, commerce and intercourse
among States.- Notwithstanding anything in article 301, 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
(b) impose such reasonable restrictions on the freedom of
trade, commerce or intercourse with or within that State as
may be required in the public interest:
Provided that no Bill or amendment for the purposes of
clause (b) shall be introduced or moved in the Legislature of a State
without the previous sanction of the President."
Article 301 in Part XIII of the Constitution guarantees free trade,
commerce and intercourse, throughout the territory of India, subject,
however, to the other provisions of Part XIII of the Constitution. The
Constitution makers have, in their wisdom, made the absolute freedom of
trade, commerce and intercourse throughout the territory of India,
guaranteed under Article 301, subject only to the other provisions of Part XIII,
that is, subject to Articles 302 to 307 of the Constitution, but not any other
provision of the Constitution of India.
Article 302 enables the Parliament to impose by law, such restrictions
on the freedom of trade commerce or intercourse between one state and
another, or within any part of the territory of India, as may be required in
public interest. Thus, Parliament might enact law imposing such restrictions
on the freedom of trade, commerce or intercourse between one State and
another, or within any part of the territory of India, as may be required in
public interest. However, the power under Article 302 of the Constitution to
impose restrictions is conditional, the condition precedent for exercise of such
power being the requirement to impose the restrictions, in public interest and
this power can only be exercised by Parliament and not the State Legislatures.
The power of Parliament under Article 302, to impose by law, restrictions on
free trade, commerce and intercourse in public interest, is subject to the other
provisions of the Constitution including in particular Article 303 thereof.
Article 303 of the Constitution imposes a complete embargo on the
enactment of any law, either by the Parliament or by any State Legislature,
that either gives, or authorizes the giving of any preference to one State over
another, or makes or authorizes 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. Any law which either gives or allows preference
to or discrimination against a State in matters relating to trade, commerce
and intercourse is liable to be struck down as violative of Article 303 of the
Constitution. However, in exceptional circumstances, for the sole purpose of
preventing the scarcity of goods in any part of the territory of India,
Parliament might by law give preference to or authorize discrimination against
any State, provided the law declares that such preference and/or
discrimination is necessary for dealing with a situation, arising from the
scarcity of goods in some part of India.
The impugned Entry Tax Act has also been attacked as violative of
Article 303 and 304(a) of the Constitution of India, on the ground of
discrimination between States and discrimination between goods which enter
into a local area from another area within the State and those which enter the
local area from outside the State which are liable to tax.
In ITC Limited Vs. State of Tamil Nadu & Ors (supra) the Division
Bench of Madras High Court found that the impugned legislation was
discriminatory, since Entry Tax was only levied on goods imported into the
State of Tamil Nadu from outside the State, for consumption, use or sale
within the State. The Division Bench found that goods which were produced
or obtained within the State did not attract any Entry Tax at all, on their entry
into a local area within the State. The Division Bench, thus, held that the
impugned legislation was violative of Article 303(1) of the Constitution of India
in that it discriminated against States and/or gave preference to the State of
Tamil Nadu.
In Bharat Earth Movers Ltd. Vs. State of Karnataka (supra) the validity
of the Karnataka Special Tax on Entry of Certain Goods Act, 2004 was
challenged before the Karanataka High Court. The Karnataka High Court
observed:-
"......We also notice, the State is also discriminating between
traders who bring goods from outside the State or country to a local
area as defined under section 2(1)(h) read with section 2(1)(d) and
person who brings goods from an area within the State to a local
area in the State. Facts would indicate that on the introduction of
entry tax, manufacturers have opted to purchase raw materials from
within the State because they are less costlier since the levy of entry
tax has definitely created a tax barrier affecting the free-flow of
trade, commerce and intercourse, such a tax violates article 301 of
the Constitution and therefore liable to be declared as
unconstitutional. The apex court in Vijayalashmi Rice Mill's case
[2006] 147 STC 609; [2006] 6 SCC 763 held that even in the case of
imposing cess for providing facilities like roads, bridges and storage
facilities in rural areas, there must be a broad correlation between
the fee being realised and the services rendered, even for traders
who do their business in the State of Andhra Pradesh. Entry tax in
Kerala, it may be noticed, is being collected only from persons who
bring goods from outside the State while persons within the State
are not burdened with the levy which is discriminatory and violative
of article 14 of the Constitution of India. The decision in Rajan's case
[2003] 133 STC 598 (Ker); [1995] 2 KLT 369, in our view, is contrary
to the principle laid down by the apex court in Jindal's case [2006]
145 STC 544 (SC); [2006] 7 SCC 241 and Vijayalashmi Rice Mill's
case [2006] 147 STC 609; [2006] 6 SCC 763 and is no longer good
law."
In West Bengal Hosiery Association & Ors. Vs. State of Bihar &
Ors. reported in (1988) 4 SCC 134, cited by Mr. Poddar, the Supreme Court
held that Notification No.SO934 dated 1st August, 1984 exempting hosiery
industries in Bihar from the levy of sales tax was discriminatory and violative
of Article 301 read with Article 304(a) of the Constitution of India.
In Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & Kashmir
reported in (1996) 11 SCC 39, cited by Mr. Poddar, the Supreme Court held
that the power of the States to levy sales tax on goods imported from other
States/union territories cannot be exercised to effect discrimination between
imported goods and similar goods manufactured or produced locally.
Article 303 provides that neither the Parliament nor the Legislature of a
State shall have the 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 State and another, by virtue of any
entry relating to trade and commerce in any of the Lists in the Seventh
Schedule.
Entry Tax is not levied under any entry relating to trade or commerce in
any of the List in the Seventh Schedule. There is a distinct entry relating to
Entry Tax i.e. Entry 52 of List II as observed hereinabove. The judgements of
the Supreme Court in West Bengal Hosiery Association & Ors. Vs. State
of Bihar & Ors. (supra) and Sri Mahavir Oil Mills & Ors. Vs. State of
Jammu & Kashmir (supra) relate to entries regarding sale or purchase
and/or trade or commerce.
Article 304(a) enables the legislature of a State to impose on goods
imported from other State or Union Territories, any tax to which similar goods
manufactured or produced in that State are subject, so that there is no
discrimination between goods so manufactured or produced in the State and
those brought from outside the State.
The condition precedent for exercise of power by the State Legislature,
to enact a law under Article 304(a) of the Constitution of India is (i) similar
goods manufactured or produced in the State should be subject to tax; (ii)
there should be no such tax and/or tax at lower rate on the goods in the
State/Union territory from which the goods are imported; and (iii) the object of
the imposition should be to prevent discrimination between imported goods
and similar goods manufactured or produced within the State.
To cite an example, if the Excise Duty on wines liqueurs and other
alcoholic beverages is lower in the neighbouring State of Sikkim, than in the
State of West Bengal, or if there is no excise duty at all in Sikkim on wines,
liqueurs and other alcoholic beverages, it would be permissible for the West
Bengal State Legislature to impose a tax that covers the difference in the
excise duty, in exercise of power under Article 304(a) of the Constitution, to
prevent discrimination in the State of West Bengal between wines liqueurs
and other alcoholic beverages produced in West Bengal and those of similar
quality imported from Sikkim, which would sell cheaper and thus affect
adversely the market for locally produced wines, liqueurs and other alcoholic
beverages.
The object of the Entry Tax Act, as stated in its preamble is to provide
for levy and collection of taxes on the entry of certain goods into a local area of
the State of West Bengal, for consumption use or sale therein and to provide
for matters connected therewith, or incidental thereto, for the purpose of
creating a Compensatory Entry Tax Fund.
From the preamble to the impugned Entry Tax Act, as well as its recital,
which is almost a verbatim reproduction of the preamble, it is patently clear
that the Entry Tax Act has not been enacted in exercise of power under Article
304(a) of the Constitution. This is also evident from the other provisions of the
impugned Entry Tax Act, apart from its preamble and recital, particularly, the
charging Section, that is, Section 4, in terms whereof a uniform tax is leviable
on goods entering into local areas, irrespective of the State or Union Territory
from which the goods originate, and irrespective of the prevalent duties and
taxes on similar goods at the place from which the goods originate.
Section 4(2) of the impugned Entry Tax Act empowers the State
Government, by notification, to specify the rate of tax to be levied under the
impugned Entry Tax Act, which is not to exceed 5% when such tax is levied
on the taxable turnover of imports, and different rate or rates of tax may be
specified, in respect of different specified goods, or for the different categories
of consumption or use or sale of such specified goods, or for different local
areas. The State Government is not authorized to fix different rates depending
on the place of origin of the goods, taking into account the prevalent rates of
various applicable taxes in that place. The impugned Entry Tax Act is not
protected by Article 304(a) of the Constitution.
Under Article 304(b), a State Legislature may impose such reasonable
restrictions on the freedom of trade, commerce or intercourse with or within
that State, as may be required in public interest. However, no Bill or
amendment to impose restrictions on the freedom of trade, commerce or
intercourse, with or within the State, is to be introduced or moved in the
Legislature of a State, without the previous sanction of the President of India,
even though the same may be in public interest. In this case admittedly the
Bill was introduced without the previous sanction of the President of India.
It is true, that a Five Judge Bench of the Supreme Court has referred
the issue of whether Article 304(a) and 304(b) of the Constitution are
conjunctive or disjunctive, to a larger Bench, as pointed out by Mr.
Mazumdar. However, there is no order of the Supreme Court, of stay of
proceedings, in which the aforesaid issue may be of relevance.
There is no authoritative pronouncement of the larger Bench of the
Supreme Court, on the issue of whether Clause (a) and Clause (b) of the
impugned Entry Tax Act are disjunctive or conjunctive. Having regard to the
language and tenor of the proviso to Article 301(b), which provides that no Bill
or amendment for the purposes of Clause (b) shall be introduced or moved in
the Legislature of a State, without previous sanction of the President, this
Court is of the view that clauses (a) and (b) of Article 304 of the Constitution,
are to be construed as disjunctive.
Had Clauses (a) and (b) of Article 304 been intended to be conjunctive,
legislation in relation to the purposes of Clause (b) alone, would not have been
subject to the specific restriction of previous sanction of the President. The
Constitution makers have, in their wisdom, consciously not included Clause
(a) in the proviso.
It is well settled that the word 'and' may be construed disjunctively and
read as 'or' to carry out the intention of the Legislature, as held by the
Supreme Court in S. Krishnan Vs. State of Madras reported in AIR 1951
SC 301 and in Ishwar Singh Bindra Vs. The State of Uttar Pradesh
reported in AIR 1968 SC 1450, and certainly, when there is compelling
reason to do so.
None of the counsel appearing on behalf of the writ petitioners have
seriously argued that Clauses (a) and (b) of Article 304 are conjunctive and
not disjunctive. If this Court were to take a contrary view, any statute enacted
in public interest, imposing the most reasonable restrictions on free
movement of trade and commerce, with the previous sanction of the
President, would be exposed to attack on the ground of non-conformity with
Article 304(a). In this case too, this Court has found that the impugned Entry
Tax Act is not in furtherance of Article 304(b).
In Atiabari Tea Company Ltd. Vs. State of Assam reported in AIR
1961 SC 232 the majority of the Constitution Bench of the Supreme Court
held as follows:-
"50. ...On a careful examination of the relevant provision 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 Art. 301 was larger than the freedom contemplated by S.297
of the Constitution Act of 1935, and whatever else it may or may not
include, it certainly includes movement of trade which is of the very
essence of all trade and is its integral part. If the transport or the
movement of goods is taxed solely on the basis that the goods are
thus carried or transported that, in our opinion, directly affects the
freedom of trade as contemplated by Art. 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 Art. 301 would turn to be illusory. When Art.
301 provides that trade shall be free throughout the territory of India
primarily it is the movement part of the trade that it has in mind and
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...."
"54. ...We are dealing in the present case with an Act passed by
the State Legislature which imposes a restriction in the form of
taxation on the carriage or movement of goods, and we hold that
such a restriction can be imposed by the State Legislature only if the
relevant Act is passed in the manner prescribed by Art. 304(b)."
As per the law pronounced by the Supreme Court in Atiabari Tea
Company Ltd. (supra), a tax which affects movement of goods from one part of
the territory of India, to another, directly affects free trade, commerce and
intercourse, throughout the territory of India, guaranteed by Article 301 of the
Constitution of India.
Under Entry 52 of List II, the State Legislature has the exclusive
legislative competence to enact law imposing taxes on the entry of goods into
local areas, for consumption, use or sale therein. A tax on entry of goods into
a local area, however, restricts free trade, commerce and intercourse, even
though the same may be in public interest. Thus, a State law imposing tax on
entry of goods into local areas, can only be enacted by the State Legislature, in
compliance with the requirement of the proviso to Article 304(b) of the
Constitution, of previous sanction of the President of India, unless such tax
falls within the judicially evolved exception of 'compensatory tax' enunciated
in Automobile Transport (Rajasthan) Ltd. (supra) and reiterated and
explained in Jindal Stainless Ltd. (2) (supra).
In Automobile Transport (Rajasthan) Ltd. (supra) a Seven Judge
Constitution Bench of the Supreme Court decided the question of validity of
the Rajasthan Motor Vehicles Taxation Act, 1951, Section 4 whereof provided
as follows:-
"4. Imposition of tax. - (I) Save as otherwise provided by
this Act or by rules made thereunder or by any other law for the time
being in force, no motor vehicle shall be used in any public place or
kept for use in Rajasthan unless the owner thereof has paid in
respect of it, a tax at the appropriate rate specified in the Schedules
to this Act within the time allowed by Section 5 and, save as
hereinafter specified, such tax shall be payable annually
notwithstanding that the motor vehicle may from time to time cease
to be used."
The question before the Supreme Court was, whether Section 4
constituted a direct and immediate restriction on the movement of trade and
commerce with and within the State of Rajasthan. The Supreme Court held:-
"...The interpretation which was accepted by the majority in
the Atiabari Tea Co. case, (1961) 1 SCR 809; (AIR 1961 SC 232) 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 Art. 301 and such measures need not comply with
the requirements of the proviso to Art. 304(b) of the Constitution."
"...Whether a tax is compensatory or not 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 in
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 Art 301 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."
The parameters laid down in Automobile Transport (Rajasthan) Ltd.
(supra) for determining whether any tax was compensatory or not, were
broadened in Bhagatram Rajiv Kumar (supra) where the Supreme Court
held that if there was substantial or even some link between tax and the
facilities extended to dealers directly or indirectly, the levy could not be
impugned as invalid.
In State of Bihar Vs. Bihar Chamber of Commerce (supra), the
Supreme Court followed its earlier judgement in Bhagatram Rajiv Kumar
(supra) and reiterated that some connection between the tax and the trading
facilities extended to dealers directly or indirectly, would be sufficient to
characterize the tax as a compensatory tax.
However, as observed above, in Jindal Strips Ltd. (1) (supra) a two
judge Bench of the Supreme Court doubted the correctness of the proposition
of some connection laid down in Bhagatram Rajiv Kumar (supra) and State
of Bihar Vs. Bihar Chamber of Commerce (supra) and referred to a
Constitutional Bench the question of whether the theory of 'some connection'
enunciated in the aforesaid judgments was correct or not.
The judgements in Bhagatram Rajiv Kumar (supra) and State of
Bihar Vs. Bihar Chamber of Commerce (supra) were overruled by the Five
Judge Constitution Bench in Jindal Stainless Ltd. (2) (supra), to the extent
those judgements propounded the proposition that some connection between
the tax and the trading facilities, whether direct or indirect would be sufficient
to characterize the tax as compensatory.
In Jindal Stainless Ltd. (2) (supra), the Five Judge Constitution
Bench inter alia, held :-
"34. Article 301 is binding upon the Union Legislature and the
Legislature, 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...."
"38. 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 Taxationby Seligman)."
"41. 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."
"42. ....In the principle of equivalence, which is the foundation of a
compensatory tax as well as a fee, the value of the questionable benefit
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"....From the point of view of the
Government, a compensatory tax is a charge for offering trading
facilities.........Compensatory taxes, like fees, are always proportional to
benefits. They are based on the principle of equivalence. ......... 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."
"43. 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 cost 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."
"46. ......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)"
After the judgement of the Constitution Bench was pronounced in
Jindal Stainless Ltd. (2) (supra) the pending appeals were listed before a
two judge Bench of the Supreme Court for adjudication in the light of the law
as enunciated by the Constitution Bench. In Jindal Stainles Ltd. (3) Vs. The
State of Haryana reported in (2006) 7 SCC 271. The Supreme Court found
that data had not been placed before the High Courts to determine whether
the impugned levies were 'compensatory' as per the requirements laid down in
Jindal Stainless Ltd. (2) (supra), and accordingly remitted the respective
writ petitions to the concerned High Courts for adjudication. The parties were
permitted to bring relevant facts on record in the writ petition in the High
Court.
In Jaiprakash Associates Limited Vs. State of Madhya Pradesh &
Ors. reported in (2009) 7 Supreme Court Cases 339 Dr. Arijit Pasayat and
S.H. Kapadia, JJ., considering the importance of the issues relating to Article
301 and 304 and Part XIII of the Constitution, referred the following questions
to a larger bench in terms of Article 345(3) of the Constitution:-
"(1) Whether the State enactments relating to levy of entry tax
have to be tested with reference to both clauses (a) and (b) of Article
304 of the Constitution for determining their validity and whether
clause (a) of Article 304 is conjunctive with or separate from clause
(b) of Article 304?
(2) Whether imposition of entry tax levied in terms of Entry 52
List 11 of the Schedule VII is violative of Article 301 of the
Constitution? If the answer is in the affirmative whether such levy
can be protected if entry tax is compensatory in character and if the
answer to the aforesaid question is in the affirmative what are the
yardsticks to be applied to determine the compensatory character of
the entry tax?
.............
(8) Whether the non-discriminatory indirect State tax which is capable of being passed on and has been passed on by traders to the consumers infringes Article 301 of the Constitution? .............
(10) Whether a levy under Entry 52 List II, even if held to be in the nature of a compensatory levy, must, on the principle of equivalence demonstrate that the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services (which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities) to be provided in the "local area"
concerned and Whether the entire State or a part thereof can be comprehended as local area for the purpose of entry tax?
In Jindal Stainless Ltd. and Anr. (4) Vs. State of Haryana reported in (2010) 4 SCC 595, the States whose Entry Tax Laws had been challenged, contended that the tests propounded in Atia Bari Tea Company Limited (supra) and Automobile Transport (Rajasthan) Limited (supra) had failed to strike a balance between the freedom of trade and commerce under Article 301 of the Constitution of India, and the authority of the States to levy taxes under Article 245 and 246 of the Constitution, read with the appropriate legislative entries in the Seventh Schedule to the Constitution of India. The States sought reconsideration of the decisions of the Supreme Court in Atia Bari Tea Company Limited (supra) and Automobile Transport (Rajasthan) Limited (supra) by a larger bench.
The Supreme Court was of the view that certain aspects which needed the consideration of a larger Bench of the Supreme Court were interplay and interrelationship between Article 304(a) and 304(b); the significance of the non obstante clause in Article 304; the balancing of freedom of trade and commerce under Article 301 vis a vis the authority of the State Legislature to levy taxes under Article 245 and 246 of the Constitution of India, read with the appropriate legislative entries in the Seventh Schedule, particularly in the context of movement of trade and commerce. The Five Judge Bench directed that the batch of cases be placed before the Chief Justice of India for constituting a larger bench for reconsideration of the judgements of the Supreme Court in Atia Bari Tea Company Limited (supra) and Automobile Transport (Rajasthan) Limited (supra).
The questions referred to the larger bench of the Supreme Court are yet to be answered. Even though there is no authoritative decision of the Supreme Court directly dealing with the issue of applicability of Articles 301 and 304 of the Constitution of India to a State law imposing a reasonable Entry Tax in exercise of its legislative power under Entry 52 of List II of the Seventh Schedule to the Constitution, the law laid down inter alia in Atiabari Tea Company Ltd. (supra), Automobile Trnasport (Rajasthan) Ltd. (supra) and Jindal Stainless Ltd. (2) (supra) relating to taxes which affect movement of goods still prevail.
The validity of the impugned Entry Tax Act, therefore, has to be decided on the basis of the law pronounced by the Supreme Court in Jindal Stainless Steel Ltd. (supra), and the other important judgments of the Supreme Court, including the judgement of the Supreme Court in Atia Bari Tea Company Limited (supra) and Automobile Transport (Rajasthan) Limited (supra).
Mr. Avrotosh Mazudar submitted that the writ petitions were sketchily drafted. In the absence of detailed pleadings, the writ petitions were liable to be dismissed, since presumption is in favour of the constitutionality of a Statute and the burden is on those questioning the Act, to show that the Act is ultra vires and invalid.
In support of his aforesaid submission, Mr. Mazumdar cited R. Samthil Babu Vs. State of Tamilnadu reported (2009) 2 SCC 309, where the Constitutional validity of the Tamilnadu Motor Vehicles Taxation (Amendment) Act, 1998, increasing the rate of tax in respect of contract carriage from Rs.1,500/- per seat per quarter to Rs.2,000/- per seat per quarter and later to Rs.3,000/- per seat per quarter, was under challenge.
In R. Samthil Babu Vs. State of Tamilnadu (supra) the challenge rested on the ground that tax had been imposed indiscriminately, to cross subsidise stage carriage, and uneven burden had been placed on the owners of contract carriage, which had no nexus with the services or amenities provided. The levy was impugned as discriminatory and violative of Article 14 of the Constitution of India. The Supreme Court held that in a matter of that nature, quantifiable data formed the basis of the challenge, as otherwise, the challenge to the impugned levy, on the ground of irrationality of the levy, could not be decided. The Supreme Court found that the appellants had not been able to discharge the initial burden, as the writ petitions were sketchy and lacking in material particulars and accordingly, allowed the writ petitions to be withdrawn, with liberty to file a proper writ petition, if so advised.
Where the challenge to an action is required to be adjudicated on the basis of factual data the burden would be on those attacking the action to disclose sufficient facts to substantiate their case. For example, where an action is challenged as violative of Article 19(1)(g) of the Constitution of India, the burden would be on the writ petitioner to establish that the Act would constitute an infringement on the fundamental right guaranteed under Article 19(1)(g) of the Constitution of India. Similarly, when an action is challenged as discriminatory, a case of discrimination will have to be made out.
However, when a statute is challenged on the ground of lack of legislative competence or on the ground of an apparent infringement of a constitutional provision, as in this case, factual details may not be necessary. A tax on movement of goods, having judicially been construed as a restriction on the right to free trade, commerce and intercourse, if any Statute imposing such tax is challenged on the ground of non-compliance of the requisites of Section 304(b), the State would have to disclose data to establish that the tax was compensatory and hence beyond the net of Articles 301 to 304 of the Constitution of India. The State would have to disclose quantifiable data, to establish that the tax sought to be raised is more or less commensurate with the benefits provided and/or to be provided to the tax payers as a class.
In Saghir Ahmad Vs. The State of U.P. reported in AIR 1954 SC 728 the Supreme Court observed that, when an enactment, on the face of it was found to violate a fundamental right guaranteed under Article 19(1)(g), it must be held to be invalid, unless those who support the legislation can bring it within the purview of the exception laid down in Clause (6) of Article 19.
In Khyerbari Tea Company Vs. State of Assam reported in AIR 1964 SC 925, the Supreme Court relying on Saghir Ahmad (supra), held that once infringement of a fundamental right under Article 19(1) was proved, the State would have to justify its case under Clause (6) which is in the nature of an exception to the main provisions contained in Article 19(1). The position with regard to the onus would be the same in dealing with law passed under Article 304(b). The Supreme Court observed that in the case of such a law, the position is somewhat stronger in favour of the citizen, because the very fact that a law is passed under Article 304(b) means that it purports to restrict the freedom of trade. That being so, the Supreme Court was of the view that as soon as it was shown that the Act invaded the right of freedom of trade, it would be necessary to enquire whether the State had proved that the restrictions imposed by it by way of taxation were reasonable and in the public interest within the meaning of Article 304(b).
As submitted by Mr. Khaitan, the entire burden of the levy under the impugned Entry Tax Act, has to be borne by persons, who import goods including raw materials into the State. May be, the cost of goods manufactured in West Bengal, using raw materials imported from other States or from abroad, would be higher in comparison to the costs of similar goods manufacture in a State, which does not impose any Entry Tax, and thereby adversely affect sales of such goods, as argued by Mr. Khaitan. Some of the writ petitioners might also rightly be aggrieved by imposition of the levy, only on goods imported from outside the State, since the benefit of the development, if any, would be enjoyed equally by manufacturers/producers in the State who do not have to make any imports. However, hardship, inconvenience or irrationality are no grounds to sustain a challenge to a Statute enacted by legislature, in exercise of power conferred by the Constitution, unless the Statute infringes some provision of the Constitution itself.
In Khyerbari Tea Company (supra) the Supreme Court has said that a principle which has to be borne in mind, in examining the constitutionality of a statute is, that it must be assumed that the legislature understands and appreciates the needs of the people, and the laws it enacts are directed to problems which are made manifest by experience, and that the elected representatives assembled in a legislature enact laws which they consider to be reasonable for the purpose for which they are enacted.
As pointed out by Mr. Khaitan, earlier Entry Tax Laws enacted in the State of West Bengal, such as Tax on Entry of Goods into Local Areas Act, 1962 and Tax on Entry of Goods into Calcutta Metropolitan Area Act, 1972 were enacted with the previous sanction of the President of India.
The West Bengal State Taxes on Consumption or Use of Goods Act, 2001, which had not been enacted with previous sanction of the President of India, had been struck down by the West Bengal Taxation Tribunal in the case of National Hydro Power Corporation Limited Vs. ACTT Siliguri reported in 2008 (15) VST 158.
It is immaterial that the State Legislature might have earlier, in exercise of legislative power conferred under Entry 52 of List II of the Seventh Schedule to the Constitution, enacted law with the previous sanction of the President of India, in conformity with Article 304(b) of the Constitution of India.
There can be no estoppel against exercise of legislative power conferred by the Constitution. The West Bengal Legislature has legislative power to enact law imposing Entry Tax. A Compensatory Entry Tax does not infringe Article 301 and is, therefore, not vitiated or invalidated for want of the previous sanction of the President of India, in view of the law laid down by the Supreme Court in Automobile Transport (Rajasthan) Limited (supra), and reiterated in Jindal Stainless Ltd. (2) (supra).
Th the proposition of law propounded in the judgements of the Supreme Court in State of Tamil Nadu Vs. K. Shyam Sunder (supra), Shri Prithvi Cotton Mills Ltd. (supra), S.R. Bhagwat Vs. State of Mysore (supra), Cauvery Water Disputes Tribunal (supra), G.C. Kanungo Vs. State of Orissa (supra), Madan Mohan Pathak Vs. Union of India (supra), K. Sankaran Nair Vs. Devaki Amma Malathy Amma (supra) cited by Mr. Poddar, that the effect of a judicial pronouncement of a competent Court cannot be nullified by the legislature in exercise of its legislative powers, for any reason whatsoever, is unexceptionable. The Legislature can, however, validate any law, that has been declared ultra vires, by re-framing it, removing the infirmities, which led to the law being declared ultra vires.
In enacting the impugned Entry Tax Act, the West Bengal State Legislature has not nullified any judicial pronouncement. The State Legislature has not merely re-enacted a new law retaining unaltered the provisions of the Act of 2001, which had been struck down by the West Bengal Taxation Tribunal. An attempt has been made by the State Legislature to reframe the law and cure the defects in the Act of 2001, that existed prior to the judgement of the West Bengal Taxation Tribunal in National Hydro Power Corporation Limited (supra) that rendered the Act of 2001 unconstitutional.
As observed above, the object of the impugned Entry Tax Act, as declared in its preamble, is to set up a Compensatory Entry Tax Fund. The recital of the impugned Entry Tax Act also states that the levy and collection of Taxes on entry of certain goods, for consumption, use or sale in the local area and matters connected therewith and incidental thereto, is for the purpose of creating a Compensatory Entry Tax Fund.
Section 4(3) casts an obligation on the State Government to specify the rates of tax under Sub-section (2) of Section 4, having regard to the financial needs for development and facilitation of trade, commerce and industry in the local areas of the State. Section 15 provides for establishment of the West Bengal Compensatory Entry Tax Fund. Section 16 provides for the manner in which the proceeds of Entry Tax are first to be credited to the West Bengal State Consolidated Fund, and thereafter, by appropriation, if law enacted by the State Legislature so provides, be credited to the Compensatory Entry Tax Fund, after deduction of expenses. Section 18 restricts the purposes for which the proceeds of the levy under the impugned Entry Tax Act might be utilised. The question is whether the impugned Entry Tax Act as enacted is in effect and substance a compensatory tax, applying the tests laid down in Jindal Stainless Ltd. (2) (supra).
In view of the law laid down by the Constitution Bench of the Supreme Court in Jindal Stainless Ltd. (2) (supra), whenever a law is impugned as violative of Article 301, in that it restricts free movement of goods, by imposing a tax on entry of goods into any particular area or areas, the Court would have to examine whether the law complies with the requisites of Article 304, and if not, whether the tax is a compensatory tax.
Since the concept of compensatory has judicially been evolved, in deciding whether a tax is compensatory, the Court would have to carefully apply the tests laid down in Jindal Stainless Ltd. (2) (supra) and satisfy itself that facially and patently, there is sufficient indication in the impugned enactment, of the quantifiable and measurable benefit provided and/or to be provided in lieu of the levy, to the class of persons on whom the levy is imposed, and that the amount expected to be raised by imposition is more or less equivalent to the value of the quantifiable measurable benefit.
As held in Jindal Stainless Ltd. (supra), for a tax to be compensatory there must be a link between the quantum of tax and the cost of the facility and/or facilities for which the tax is imposed, which must be indicated in the enactment impugned. If the impugned enactment does not facially disclose sufficient data to establish the proportionality of the levy to the quantifiable benefit, or if the provisions are ambiguous or vague, it would still be open to the State, as service provider, to show, by placing materials before the Court, that payment of compensatory tax is a recompense and/or reimbursement for the specific, tangible, measurable, quantifiable benefits provided or to be provided to its payers.
In Kamaljeet Singh & Ors. Vs. Municipal Board Pilkhwa and Ors. reported in (1986) 4 SCC 174, the valdidity of imposition of a toll tax imposed by the Municipal Board Pilkhwa, on vehicles and other conveyances, animals and laden collies entering the Pilkhwa Municipal area, under Section 128(1)(viii) of the U.P. Municipalities Act, 1916, upheld by the High Court was questioned before the Supreme Court.
The Supreme Court held:-
"......The High Court has upheld the levy of the toll tax relying upon the decision of this Court in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan as being compensatory in nature. In Automobile Transport case, the majority held that regulatory measures imposing compensatory taxes for the use of trading facilities do not hamper trade, commerce or intercourse, but rather facilitate them and therefore are not hit by freedom of trade and commerce guaranteed by Article 301 of the Constitution. The toll tax in question however cannot be treated to be a compensatory tax for the use of trading facilties. The Municipal Board provides no facilities whatever to the owners of vehicles like stage carriages making use of National Highway No. 24. The township of Pilkhwa is off the national highway and is quite at some distance. It is connected by a road and a part of the national highway has been included within the municipal limits. Merely because stage carriage operators like the appellant play their stage carriages on permits issued on the inter-statal route Delhi-Garhmukteshwar which falls on the national highway and stop their buses for the facility of passengers going to and coming from Pilkhwa, or that the Municipal Board has set out two electric poles at the toll barriers for facility of collection of the toll tax, does not justify the imposition of a toll tax. Usually, the consideration for a toll is some amenity, service, benefit or advantage which the person entitled to the toll undertakes to provide for the public in general, or the persons liable to pay the toll. The national highway is being maintained by the government and the approach road built by the Public Works Department. There is a nallah constructed by the Municipal Board for flow of the sewage water from the town of Pilkhwa, but that does not entitle the Board to levy a toll tax on stage carriage operators like the appellants as a compensatory tax. Even assuming that the Municipal Board has to incur expenditure on maintenance of the connecting road and the nallah, but they are facilities provided for the residents of the town for which it recovers various taxes. Furthermore, maintenance of roads, bridges etc. are statutory duties of the Municipal Board under Section 7 of the Act. The levy of the toll tax by the Municipal Board must therefore be struck down as ultra vires."
In R. Gandhi Vs. State of Tamil Nadu & Ors. (supra) cited by Mr. Poddar the constitutional validity of the Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act, 1990, was under challenge mainly on the ground of infringement of Articles 301 and 304 of the Constitution. The question before the Division Bench was, whether the levy of Entry Tax under the said Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act, 1990 could be justified as a compensatory tax. The aforesaid question was answered in the negative. The Division Bench held that there was no connection or nexus between the collection of Entry Tax, and its utilization for the benefit of traders/manufacturers from whom such tax was collected and consequently the levy of Entry Tax was unauthorized and violative of Article 301 of the Constitution.
The Division Bench observed as follows:-
"The essence of compensatory tax is that the services rendered or facilities provided should be more or less commensurate with the tax levied. Services provided will have a direct co-relation with the trade. The main basis of compensatory tax is the quantifiable and measurable benefit represented by the cost incurred in procuring the facilities/services. The cost in turn becomes the basis of reimbursement/recompense for provider of services/facilities. As held in Jindal's case [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the compensatory tax is a charge for offering trade facilities and they are based on the principle of equivalence. Applying the above test, we are of the opinion that maintaining of roads, providing bridges, etc., cannot be said to be compensatory in nature so as to constitute special advantage to trade, commerce and intercourse. Even otherwise, a welfare State is bestowed with the responsibilities of providing good roads and bridges for the benefit of the tax-paying citizens and hence to contend that the impugned levy is being raised only for the said purpose is not justified. Maintenance of roads, bridges, etc., are generally met from the general funds or revenue. Whether goods are transported into the State from outside the State or abroad, the State has got a duty to provide facilities like roads, bridges, etc., which are being enjoyed not only by the persons who bring the goods notified for levy of entry tax, but also by others."
In Thressiamma L. Chirayil Vs. State of Kerala & Anr. (supra) cited by Mr. Poddar, a Division Bench of Kerala High Court considered the Constitutional Validity of Kerala Tax on Entry of Goods into Local Areas Act, 1994. Applying the principle of equivalence laid down by the Supreme Court in Jindal Stainless Steel Ltd. (supra), the Division Bench found that there was no connection or nexus with the collection of Entry Tax under the Kerala Entry Tax Act, 1990 and its utilization for the benefit of traders/manufacturers from whom such tax was collected and consequently the levy of Entry Tax was unauthorized and violative of Article 301 of the Constitution of India. The Division Bench held:-
"...If the provision of the Act does not indicate facially the quantifiable benefit, burden is on the State as a service/facility provider to show by placing the materials before the court that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to the payer. We have already found that the compensatory character of tax is not self-evident from the Kerala Entry Tax Act...."
".......Essence of compensatory tax is that the services rendered or facilities provided should be more or less commensurate with the tax levied. Services provided will have a direct co-relation with the trade. The main basis of a compensatory tax is the quantifiable and measurable benefit, represented by the costs incurred in procuring the facility/service. The cost, in turn, became the basis of reimbursement/recompense for the provider of services/facilities. From the point of view of Government, as stated by the apex court in Jindal Stainless Ltd.'s case [2006] 145 STC 544 (SC); [2006] 7 SCC 241, a compensatory tax is a charge for offering trading facilities and they are based on the principles of equivalence.
Applying the above test, it cannot be said that maintaining of roads, providing bridges, etc., is compensatory in nature so as to meet the outlay incurred for some special advantage to trade, commerce and intercourse. Providing the above facilities and its use may incidentally bring in net revenue to the Government, but that circumstance is not an essential ingredient of compensatory tax......"
"...... Some indirect connection or some connection, more or less commensurate, etc., are not the tests, but the direct and immediate effect is the test. Maintaining of roads, bridges, etc., and promotion of SSI units, etc., are generally met from the general funds or revenue. Whether goods are transported into the State from outside the State or abroad the State has got a duty to provide those facilities, like roads, bridges, etc., which is being enjoyed not only by persons who bring goods notified for levy of entry tax but also others...."
In ITC Limited Vs. State of Tamil Nadu & Ors (supra) cited by Mr. Poddar a Division Bench of Madras High held that the Tamil Nadu Tax of Goods into Local Areas Act, 2001 did not satisfy the test laid down for compensatory tax, inter alia observing that the pleadings filed on behalf of the State merely gave statistics with regard to total costs of building roads and bridges and on maintenance of roads that had been incurred by the State from year to year.
The Madras High Court was of the view that irrespective of whether any goods were transported into the State from other States, or abroad, the State had a duty to provide facilities such as roads and bridges and in any case there were taxes for maintenance of roads, realized from owners of motor vehicles, on the basis of the laden weight of the vehicles, which had not been disclosed by the State in its affidavit. In West Bengal too, there are taxes levied on motor vehicles, on the basis of laden weight, which are utilized to meet inter alia the costs of construction and maintenance of roads.
In Jindal Strips Limited & Anr. Vs. State of Haryana & Ors. reported in [2008] 12 VST 149 (P&H) (supra) cited by Mr. Poddar, the Division Bench of the Punjab and Haryana High Court held that the impugned levy under the Haryana Local Area Development Act (13 of 2000) as amended by the Haryana Local Area Development Tax (Amendment) Ordinance (1 of 2007), was not compensatory, tested in the light of the judgement of the Supreme Court in Jindal Stainless Ltd. (supra) as the levy was not to meet the cost of any specific facilities for trade, commerce and intercourse already provided or planned to be provided and therefore, hit by Article 301 of the Constitution. The Court held that the impugned levy was meant to be for assistance to local areas for their development generally and the amendment by the Haryana Local Area Development Tax (Amendment) Ordinance, 2007 only brought about a superficial change in the language while retaining the basic character of the levy as a source for general development.
In Bharat Earth Movers Ltd. Vs. State of Karnataka (supra) cited by Mr. Poddar, D.V. Shylendra Kumar, J., held that the Karnataka Special Tax on Entry of Certain Goods Act, 2004 was not a compensatory levy as the State had not been able to demonstrate any exclusive or special service provided to the class of taxpayers who bore the tax under the Karnataka Special Tax on Entry of Certain Goods Act, 2004. The Court also held that imposition of tax only in respect of the goods brought into a local area by an importer from outside the State and not on other persons who brought similar goods to the same local area from other parts of the State was discriminatory and violative of Article 304(A) of the Constitution. The Court also observed as follows:-
"The concept of a compensatory tax being outside the purview of Part XIII itself as propounded in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 and as explained in Jindal Stainless Ltd.'s case [2006] 145 STC 544, is that a levy which is exclusively for meeting a special service or benefit to the taxpayer is not even in the nature of a tax or a general levy and is more akin to the taxpayer receiving the service from the State and paying for it. Such is not the situation in the present cases and under the enactment under challenge."
In National Aluminum Company Limited & Ors. Vs. State of Orissa & Ors. reported in [2008] 15 VST 296 (Orissa) cited by Mr. Kapur the Constitutional vires of the Orissa Entry Tax Act 1999 was challenged as violative of Article 301 and 304 of the Constitution of India and also on the ground that the State Legislature lacked legislative competence to enact the said Act.
The Division Bench of Orissa High Court found that the levy under the impugned enactment was not compensatory, since the revenue received by way of Entry Tax was deposited in the Consolidated Fund of the State, and expenditure therefrom, incurred for development work was not specifically identifiable. The Court held that tax to meet expenditure in general, for infrastructure development, for the welfare of the general public, could not be considered compensatory tax.
In Dinesh Pouches Ltd. Vs. State of Rajasthan (supra) cited by Mr. Kapur a Division Bench of Rajasthan High Court held that the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 was ultra vires Article 301 of the Constitution of India, observing that the said Act "has not been imposed for providing specific benefits/facilities to trade or commerce in quantifiable measure".
The Division Bench of Rajasthan High Court further held:-
"....When admittedly in the present case requirement of article 304(b) before enacting a law falling within the domain of article 301 has not been followed, the impugned Act must be held to be ultra vires to Chapter XIII of the Constitution in consonance with Atibari's case AIR 1961 SC 232."
In Indian Oil Cooperation Limited Vs. State of Uttar Pradesh and Ors. cited by Mr. Kapur, a Division Bench of Allahabad High Court found that tax imposed by the Uttar Pradesh Tax on Entry of Goods Act, 2000 was not compensatory tax, there being no evidence and/or material on record giving required data/statistics with regard to the amount of tax calculated or the expenditure on providing facilities. In the instant case too neither the impugned Entry Tax Act nor the Affidavit-in-Opposition of the State gives any indication of the amount expected to be collected, the amount expected to be expended on providing facilities or the specific facilities to be provided.
In Central Coalfields Vs. State of Jharkhand reported in (2007) 6 VST 614 (Jharkh) cited by Mr. Mainak Bose a Division Bench of Jharkhand High Court held "...the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof Act, 1993, as adopted by the State of Jharkhand and amended vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001" was ultra vires Articles 301 and 304 of the Constitution.
In Indian Oil Corporation Limited Vs. State of Assam reported in (2009) 21 VST 76, cited by Mr. Mazumdar, the validity of the Assam Entry Tax Act 2008 and the Rules framed thereunder, along with the provisions of the Entry Tax (Amendment) Act, 2008, were in question. The Division Bench of Assam High Court, on considering the relevant provisions of the Act, the rules and in particular the affidavits filed on behalf of the State of Assam, found that the tax sought to be imposed was compensatory in nature. A perusal of the judgement reveals that quantifiable data had been produced to satisfy the Court that the levy was in fact compensatory.
The Assam High Court noted that part of the tax was spent for providing security to the pipelines of ONGC, which were used by the writ petitioners to import oil into the State of Assam. The Tax was thus in the nature of quid pro quo for utilisation of pile lines. The Assam High Court observed:-
"Additionally, the provisions of section 10(2) which impose an embargo of use of any amount of entry tax collected for any other purpose; the transfer of the amount collected under the Act of 2001 to the special fund; the provisions of rule 11 providing for deposit of the amount of entry tax collected under an exclusive head of account, are sufficient facial indications that the levy under the Act is intended to provide certain identifiable benefits to trade. The provision in the Budget of 2008-09 for credit of Rs. 250 crores to the special fund created, the funds earmarked for infrastructure development and provisions for amenities to different departments and the constitution of a committee to examine the developmental schemes and to sanction and allocate funds, which materials have been placed in the affidavit dated August 8, 2008, are further pointers that should enable the levy to partake of the character of being compensatory in nature. While it is correct that the development of infrastructure and provision of amenities may also benefit persons other than the prayers of entry tax, the said fact, by itself, will not affect the compensatory nature of the levy, inasmuch as, it is not a requirement, such a situation being impossible, that the levy of entry tax should bring benefit only to those from whom the tax is collected."
In Indian Oil Corporation Limited and Anr. Vs. State of Bihar and Ors. reported in (2007) 10 VST 140 (Patna) the Division Bench of Patna High held that the Bihar Tax on Entry of Goods into Local Areas for Consumption or Sale Therein Act (16 of 1993) initially had the previous sanction of the President. Subsequent amendments were, however, bad for want of previous sanction of the President, and violative of Article 301 of the Constitution of India. After the amendment of the Act in 2006, the tax impugned assumed the nature of compensatory tax, and therefore did not violate Article 301. The writ petitions pertaining to the period from 2001- to 2006 were held fit to be allowed.
In Manipal Academy of Higher Education, Monipali Vs. State of Karnataka & Ors. reported in (2008) 13 VST 377 (Karnataka) cited by Mr. Mazumdar the Division Bench of Karnataka High Court was satisfied that collection of Entry Tax was a compensatory tax which had been diverted to Urban Local Bodies to provide various services and infrastructural facilities to the trader community to carry on their business activities.
In Godfrey Phillips India Ltd. Vs. State of Madhya Pradesh & Ors. reported in (2008) 17 VST 467 (MP) cited by Mr. Mazumdar, a Division Bench of Madhya Pradesh High Court upheld the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 inter alia holding that levy under the said Act was compensatory in nature.
Mr. Mazumdar submitted that the trend of the decisions of different High Courts rendered after the judgement of the Constitution Bench of the Supreme Court in Jindal Stainless Ltd. (2) (supra) show that statutes enacted after the said judgement, declaring that the taxes imposed were compensatory, for benefits to traders as specified in those Acts, were upheld. However, Statutes enacted before pronouncement of the aforesaid judgement which did not indicate that the taxes levied by the Statues were compensatory, were struck down as ultra vires the Constitution.
It however appears that in the cases of those Statutes which were upheld, the High Courts not only considered the provisions of the Statutes, but also data and other materials disclosed in the affidavits and were satisfied that the levies against those statutes were to provide specific, measurable benefits to the class of tax payers, on the principle of approximate equivalence.
The question of validity of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011, the provisions of which are almost identical to the impugned Entry Tax Act, was considered by a Division Bench of the Jharkhand High Court in W.P. 5696 of 2011 Tatal Steel Ltd. Vs. State of Jharkhand & Ors. along with a batch of other writ petitions.
By a judgement and order pronounced on 3rd April, 2012, the Division Bench of Jharkhand High Court held that Section 3 of the impugned Act of Jharkhand, that is, the charging section, was ultra vires the Constitution of India and consequently none of the provisions of the impugned Act could be enforced.
The Court held "the State further failed to discharge its burden by placing material or even calculation or data before this Court that payment of compensatory tax is reimbursement for the quantifiable or measurable benefits provided or to be provided to its tax payers. The creation of the fund under clause (a) to (d) of section 4(3) in the name of the Jharkhand State Trade Development fund and utilization of the tax amount for the purposes as given in clauses (a) to (d) under sub-section (3) of section 4 do not indicate and prove reimbursement/recompense of the tax amount to the tax payers. The purposes shown in clauses (a) to (d) of sub-section (3) of section 4 of the Act of 2011 are general nature and not specific benefits to the tax payers."
Whether a tax is a compensatory tax or not, would not just depend on the statement of objects and reasons for the enactment of the statute imposing the tax, the preamble to that statute, any recital in the statute declaring the tax to be compensatory, or any provisions stating the purposes for which the proceeds of the tax could be used.
If a specious declaration and some vague ambiguous illustrative provisions, setting forth the purposes of the levy, could in themselves make the levy compensatory, the easiest thing for all State Legislatures to do, to get rid of the hurdle of Articles 301 and 304 of the Constitution, would be to make such a declaration in the Statute, and incorporate some apparently beneficial purposes of a general nature. After all the revenue earned by the State from various taxing Statutes is also spent, to a large extent on general development and welfare activities.
A tax can be said to be compensatory, only if the impugned enactment under which the tax is imposed, facially and patently indicates that the tax is a recompense for specific, tangible and measurable benefits for the tax payers as a class, for facilitating trade, commerce and intercourse. The impugned enactment would facially have to indicate that the benefit, which was quantifiable or measurable, was also more or less commensurate with the levy.
In case the Act impugned does not disclose the corresponding measurable or quantifiable benefits and other relevant data, or if the provisions of the Act impugned are ambiguous, vague or too wide, it would still be open to the State to disclose particulars of completed projects, projects in progress and projects in contemplation, approximate/estimated costs thereof, project reports and plans and estimates of the amount proposed to be realized from the levy impugned, to show a discernible link between the levy and the corresponding benefits.
An estimate of costs of proposed projects to facilitate trade and commerce, or of taxes expected to be realized, can never be exact. Realization of taxes, which varies according to the volume of trade and commerce, could well be in excess of target, in case of unexpected increase in the volume of trade and commerce. Similarly, for compelling reasons, projects may be abandoned, inordinately delayed or modified. The actual costs of projects may be lower than the estimated costs. Even otherwise, the actual expenditure may be lesser for various reasons, leaving some part of the tax collected, unutilized.
Thus, an impugned enactment would not be vitiated only because it might bring in some revenue, in the sense that the unutilized amount of the levy would be utilized for other general purposes. Nor would a Statute be vitiated because the specific facilities provided by the State to the class of taxpayers, may also be enjoyed by some others, who do not have to pay the tax.
If a tax is compensatory, applying the parameters laid down in Jindal Stainless (2) (Supra), that tax would not cease to be compensatory only because the proceeds of the tax might have to first be credited to the Consolidated Fund of West Bengal and thereby get mixed up with the revenue realized by the State. As rightly pointed out by Mr. Mazumdar, in Automobile Transport (Rajasthan) Limited (supra) the Supreme Court clearly held that it would not make any difference if money collected from the tax was not put into a separate fund, so long as the tax was for specific facilities for the trade people who paid the tax and the expenses for providing those facilities were borne by the State.
However, in this case, the Entry Tax lying to the Consolidated Fund of West Bengal under Section 16 might, by appropriation, be credited to the Compensatory Entry Tax Fund, from time to time, only if the State Legislature, by law made in this behalf, so provides, for being utilized exclusively for the purposes of the impugned Entry Tax Act.
The utilization of the proceeds of the Entry Tax Act is, thus, subject to enactment of law by the State Legislature. As argued by Mr. Poddar, under Article 199(1)(d) of the Constitution of India, any appropriation of money out of the Consolidated Fund of the State, has to be done by way of a 'Money Bill'.
The Entry Tax collected by the State may thus be treated as part of general revenue, its utilization being directly dependent upon budgetary allocation to be made by the State Legislature by way of 'Money Bill'.
Even, assuming, that in passing the 'Money Bill' the State Legislature would be bound by the provisions of the impugned Entry Tax Act and would make appropriate budgetary provision, the withdral of the money credited to the Compensatory Entry Tax Fund would depend on enactment of law, in view of the express provision of Section 16 of the impugned Entry Tax Act. There is, thus, no guarantee that the proceeds of the Entry Tax would actually be utilized for the purposes specified in Section 18 of the said Act.
While these writ petitions were being heard, the Government of West Bengal, Finance Department, Budget Branch issued Notification No.766 FB dated Kolkata, the 24th July, 2012 framing West Bengal Compensatory Entry Tax Fund Rules, 2012. The notification dated 24th July, 2012 issued by the Government of West Bengal Finance Department, Budget Branch is in itself contrary to Section 16 of the impugned Entry Tax Act and apparently inconsistent with the Constitution of India particularly Article 266(3) and Article 199(1)(d), as argued by Mr. Poddar and Mr. Khaitan.
The Rules framed in exercise of power conferred by Statute cannot be contrary to the provisions of the Statute. A committee comprising of secretaries of different departments of West Bengal, cannot determine budget provisions and assume the power exclusively reserved to the State Legislature of appropriation of money from the Consolidated Fund of the State.
Furthermore, compensatory tax being equivalent to a fee, based on the principle of 'quid pro quo' and/or equivalence, to qualify as a compensatory tax, the Entry Tax collected from one local area must be identified to be spent in that local area and in no other area. In Automobile Transport (Rajasthan) Limited (supra) the Supreme Court was concerned with a tax on motor vehicles and not a tax on entry of goods into local areas for consumption, use or sale therein. In Jindal Stainless Ltd. (2) (supra) also the question of whether tax for entry of goods into a local area for consumption, use or sale therein, could be utilized for the development of another local area was not considered.
Utilization of Entry Tax collected from a local area for consumption, use or sale of goods in that local area, for development of trade facilities in the rest of the State, would denude the tax of its compensatory character. The theory of direct and immediate effect and the principle of equivalence can only be achieved if the amount of Entry Tax collected from one local area is spent for the benefit of the trading people of that local area, or atleast proportionally allocated between that local area and those other local areas, which the goods subject to levy might enter, for further consumption, use or sale. Significantly, in course of arguments learned counsel appearing for the State did not dispute that it was open to the State to spend the amount collected from one local area in another local area. This is also apparent from the provisions of the impugned Entry Tax Act.
As noted above, the object of the impugned Entry Tax Act is to provide for the levy and collection of taxes on the entry of certain goods into a local area in the State of West Bengal, for consumption use or sale therein, and matters connected therewith, for the purpose of creating a Compensatory Entry Tax Fund.
The impugned Entry Tax Act facially provides for a levy for the purpose of creating a compensatory Entry Tax Fund. It also facially indicates some of the purposes for which the proceeds of the Entry Tax collected may be utilized, that is, the purposes enumerated under Section 18 most of which, if read and understood as per their plain meaning pertain to general development of the State, and are within the ambit of the general duties of the State to all its tax payers.
In examining the constitutional validity of the provisions of a statute, the presumption is on its constitutionality and the onus is on those who challenge the vires of the statute to show that there has been transgression of constitutional principles. Of course, once a case of transgression of constitutional principles is made out and a levy on entry of goods into any particular area is shown to impede free trade, commerce and intercourse throughout the territory of India, the onus would shift on the State to show that the levy is in the nature of reimbursement and/or recompense for benefits provided or to be provided to the tax payer.
It is also well settled that the Court adjudicating a challenge to the validity of the provisions of a statute may, if possible, interpret the provisions of the statute in a manner that saves those provisions from constitutional invalidity. Needless to state, that in doing so, the Court must be very cautious so that it does not embark upon the legislative functions of enacting or re- enacting the law. However, before reading words into a statute or omitting from the statute words thought to be surplus, the question which the Court should ask itself is, what could be the intention the legislature and what would the legislature have done, had its attention been drawn to the confusion caused by the omission or the surplusage.
Thus, a provision conferring very wide and expansive powers on an authority can be read down and construed in conformity with the legislative intent that the power should be exercised within constitutional limitations. As held by the Supreme Court in Arun Kumar Vs. Union of India reported in (2006) 286 ITR 89 (SC) where a statute is silent or is inarticulate, the Court would attempt to transmute the inarticulation and adopt a construction which would lean towards its constitutionality, without departing from the material of which the law is woven.
Where the plain interpretation of a statutory provision gives a manifestly absurd and unjust result, which could never have been intended by the legislature, the Court may even, 'do some violence' to the language used by the legislature to achieve the obvious intention of the legislature and save the constitutionality of the statute and render the same workable. This proposition finds support from the judgements of the Supreme Court inter alia in Bhudan Singh Vs. Nabi Bux reported in [1969] 2 SCC 481; K.P. Varghese Vs. ITO reported in [1981] 131 ITR 597 (SC); C.W.S. (India) Ltd. Vs. CIT reported in [1994] 208 ITR 649 (SC) and Calcutta Gujarati Education Society Vs. Calcutta Municipal Corporation reported in [2003] 10 SCC 533.
In Narang Overseas Pvt. Ltd. Vs. ITAT reported in [2007] 295 ITR 22 (Bom) the Division Bench of Bombay High Court referred to the observation of the Supreme Court in CIT Vs. J.H. Gotla reported in [1985] 156 ITR 323 (SC) that:
"Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such a construction should be preferred to the literal construction."
The impugned Entry Tax Act appears to be a hastily drafted enactment, fraught with errors, passed in haste, in abdication of essential legislative duties and functions, without sufficient deliberation or discussion, with a view to augment revenue, for general development of the State.
There are, as pointed out by Mr. Kapur, glaring errors in various provisions of the impugned Entry Tax Act, which render the said provisions unintelligible, particularly Sections 16 and 18(1)(c).
However, it is well settled that grammatical errors, inadvertent omissions and the like are no grounds to strike down a statute that is otherwise comprehensible and workable. It is also difficult to accept Mr. Kapur's submission that if the Act contains defects, which render a provision meaningless, the Court cannot cure the same. It is true that the Courts should not ordinarily transgress into the legislative sphere of enactment, re- enactment and amendment. This court may, however, interpret a statutory provision in a manner, that renders the provision workable and constitutional.
Section 16 as enacted reads as follows:-
"Section 16. Crediting of proceeds to the Fund - The proceeds of the levy under this Act shall first be credited to the Consolidated Fund of West Bengal, and the State Government may, if the State Legislature by appropriation made by law in this behalf so provides, credit such proceeds to the Fund from time to time, after deducting the expenses of collection for being utilized exclusively for the purposes of this Act."
Section 16, as it stands is unintelligible. This Court, therefore, construes Section 16 to read "the proceeds of the levy shall first be deposited to the Consolidated Fund of West Bengal and the State Government may, by appropriation, if the State Legislature, by law in this behalf so provides, credit such proceeds to the Fund from time to time, after deducting the expenses of collection, for being utilized exclusively for the purposes of this act"
Section 16 as construed above, read with Sections 15 and Section 18(1) of the impugned Entry Tax Act, casts a mandatory statutory duty and/or obligation on the State Government to appropriate and credit the proceeds to the Compensatory Entry Tax Fund, provided the State Legislature, by law, provides for such appropriation.
The use of the word 'may' in Section 16 of the impugned Entry Tax Act, would make no difference. In ordinary parlance, 'may' implies discretion.
Normally the world 'may' is used when a provision is meant to be directory where a statutory provision confers power, coupled with performances of a public duty, as in this case, may would mean 'must' as held by the Supreme Court in Delhi Administration Vs. I.K. Nanjia reported in (1980) 1 SCC
258. Going by the plain ordinary meaning of Section 18 and the Sub-sections thereunder, many of the benefits contemplated therein might, as observed above, be part of the general obligations of the State to its tax payers and the people of the State, for example, construction of roads and bridges for linking markets, construction of railway over-bridges and subways, supply of electricity and water and maintaining pollution free environment.
Furthermore, having regard to the obligation cast by Section 18(1) to utilize the proceeds of the levy for development of or facilitating trade including the purposes specified in Sub-clause (a) to (i), this court may construe the various sub paragraphs, particularly sub paragraphs (a), (c), (f) in harmony with the statutory obligation to utilize the proceeds of the tax to develop and facilitate trade and commerce.
The State has a general duty to construct roads and bridges for all its citizens, and utilization of the proceeds of the levy to construct and maintaining roads and bridges throughout the State, irrespective of the trading activities would render the levy a tax to collect revenue. This court may thus construe 'roads and bridges' in Section 18(1)(a), to read special roads and bridges for carriage of goods.
Similarly "construction development and maintenance of linking the market areas" in sub-clause 'c' would make no sense unless the Court reads the word 'roads' or may be 'roads and bridges' as in Clause (c) into Sub-
section (b), and construe 'roads and bridges' in the manner indicated above.
Utilization of the proceeds of Entry Tax under the impugned Entry Tax Act for the purpose specified in Sub-clause (g) of creating, developing and maintaining pollution free atmosphere in the concerned areas has remote connection, if not, no connection with developing and facilitating trade and commerce, even though the same might improve the quality of life for citizens.
Taxes utilized for keeping the environment free of pollution, would not qualify as a compensatory Tax. Be it mentioned that individual industries are responsible for ensuring that they conform to the environmental norms.
Similarly vehicles including those which carry goods, are required to comply with pollution norms.
The cost of railway over bridges and/or subways are substantially borne by the Railways and as argued by Mr. Poddar the purpose specified in Sub-
clause (1) of providing financial aid grants and subsidies to local bodies and government agencies is totally vague and devoid of material particulars.
In view of the law laid down by the Supreme Court in Atiabari Tea Company Ltd. (supra), the impugned Entry Tax must be held to restrict the right to free trade, commerce and intercourse, throughout the territory of India, even though the restriction is reasonable and in public interest.
There can be no doubt that the State Legislature has exclusive power to enact legislation imposing a tax on the entry of goods into a local area, for consumption use or sale therein by virtue of Entry 52 of List II of the Seventh Schedule to the Constitution of India. However, this power is subject to the limitations imposed by the Constitution itself, particularly Part XIII thereof.
The imposition of a compensatory tax, being a judicially devised exception to the restrictions of Articles 301 and 303 of the Constitution of India, the tests judicially enunciated in Jindal Stainless Ltd. (2) (supra) to examine whether the impugned tax on movement of goods from one area to another is, in effect and substance, a compensatory tax, must strictly be applied before the validity of an enactment imposing the impugned tax can be upheld, notwithstanding non-compliance of the requisites of Article 304(b) of the Constitution of India.
A taxing Statute generates revenue for various developmental and welfare activities. The expenditure inter alia for facilities of roads, bridges, public transport, pollution control, sanitation, health care, medical treatment, water supply etc. provided by the State, is met from the revenue generated by taxing Statutes.
What distinguishes a compensatory tax is that a compensatory tax is imposed for a specific purpose or a few specific identifiable purposes, to pay for expenses in connection with specific projects, whether completed, in progress or in contemplation, which provide specific, tangible, measurable benefits to the tax payers as a class and is based on the 'principle of equivalence' and/or 'quid pro quo' and/or 'pay for value'. A tax on the other hand generates revenue, but not necessarily for any specific identifiable purpose.
To clear the test of compensatory tax, the onus lies on the State to show the exact purpose or purposes for which the levy is imposed, which should be identifiable, measurable, directly beneficial to the tax payers as a class, who in the instant case, would primarily be the traders and manufacturers of the local area, who import goods from outside the State and/or outside the country.
The State has failed to disclose details of projects in contemplation, projects in progress and/or completed projects, providing facilities to the trading community, which the levy would pay for, and show that the expected proceeds of such levy are more or less equivalent to the estimated expenditure on such projects. To qualify as a compensatory tax, the Statute imposing the tax must facially indicate that the tax is a recompense for identifiable, measurable benefits to the class of tax payers as a whole on the principle of equivalence. If the statute does not contain particulars of the corresponding benefits in return for the tax, details may be disclosed by affidavit.
It is reiterated that a compensatory tax would not cease to be a compensatory tax, only because of some excess collection, which may have to be diverted towards the revenue of the State. However, imposition of the tax would necessarily have to be preceded by the exercise of ascertaining the approximate financial requirements for specific and/or earmarked projects and balancing the same with the targeted tax receipts. The State should be able to justify the basis on which the rate of tax has been determined.
The previous sanction of the President of India not having been obtained, before enactment of the impugned Entry Tax Act, this court is constrained to hold that the impugned Entry Tax Act is ultra vires Section 304(b) of the Constitution of India.
The writ petitions are disposed of accordingly.
This Court cannot, but record its appreciation, for the immense assistance rendered to this Court, by the respective counsel appearing for the parties and in particular Mr. Avrotosh Mazumdar for the State and Mr. Poddar, Mr. Kapur and Mr. Khaitain for the writ petitioners, by their tireless and commendable hard work.
(INDIRA BANERJEE, J.) LATER On the prayer of Mr. Majumder, there will be stay of the operative part of this Judgement and Order for a period of six weeks from date.
(INDIRA BANERJEE, J.)