2007 (3) TMI 706 - PUNJAB AND HARYANA HIGH COURT

Constitutional validity of the Haryana Local Area Development Tax Act, 2000 - levy and collection of tax on entry of goods into local areas for consumption, use or sale - individual service - Whether a levy is compensatory or not has to be decided with reference to the nature of the levy itself? - Violation of Article 301 - HELD THAT:- A perusal of statutory provisions shows that the levy of tax is on entry of goods into a local area for consumption, use or sale and the tax is payable by the importer with reference to value of goods at a specified rate. The tax collected is to be distributed by the State Government among the local bodies. The same is to be utilised for development facilitating free-flow of trade and commerce on infrastructural facilities such as roads, bridges, culverts, sewerage, drainage, sanitation, waste-management, electricity, drinking water and other infrastructural facilities. At least 60 per cent of the amount is to be utilised. The board is to ensure balanced development of the local areas and recommend allotment of proceeds of tax and changes in the rate of tax. The board is also to ensure that the proceeds of tax are not more than the amount actually required for development of local areas.

We find merit in the contention raised on behalf of the petitioners. The levy is not to meet the cost of any specific facility already provided or planned to be provided. The parameters clearly laid down in Jindal [2006 (4) TMI 120 - SUPREME COURT] are that compensatory tax represents the costs incurred in procuring facilities/services on the principle of "pay for value". It is a charge for offering trade facilities. It adds to value of trade and commerce. It is based on the principle of equivalence. It must have a broad proportion to the benefit derived to defray the cost of regulation or to meet the outlay incurred for some special advantage to trade and commerce and intercourse. The impugned levy initially was meant to be for assistance to local areas for their development generally and the amendment brings about only a superficial change in the language while retaining the basic character of the levy as a source for raising general development. In this view of the matter, we are unable to hold that the facial test is met. Mere specification of the 60 per cent of the amount being in line with judgments dealing with the levy of fee is of no consequence when the very subject-matter of utilisation cannot be treated as any special direct or exclusive service or benefit to the payer of the tax.

Thus, the data given by the State in respect of the amount Spent does not stand scrutiny. As rightly pointed out by learned Counsel for the petitioners, the expenditure incurred is 17 per cent of the total collection and the expenditure is far less than the collection of much more amount under other statutes levying compensatory taxes to cover the cost of at least some of the very same services. The burden of proof on the State cannot be held to have been discharged.

Though the levy was earlier upheld by this Court with reference to the parameters as understood from the judgments of the honourable Supreme Court, including judgments in Bhagatram [1994 (11) TMI 337 - SUPREME COURT] and Bihar Chamber of Commerce [1996 (2) TMI 430 - SUPREME COURT], which now stand disapproved by the Constitution Bench, applying the parameters as laid down in Jindal [2006 (4) TMI 120 - SUPREME COURT], we are of the view that the impugned levy is not compensatory in character. The same amounts to restriction on free flow of trade and commerce and is hit by Article 301 of the Constitution of India.

We record our finding accordingly.