TMI Blog2014 (10) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... l area or purchased such goods, on which entry tax has already been paid, such tax shall be refunded or adjusted to such dealer by whom without using them in the local area, such goods are assigned to any other place outside the State or are sold either in the course of inter-state trade or commerce or in the course of export outside the territory of India. Section 6 provides for powers to the State Government to give rebate by a notification upto the full amount of tax leviable under the Act. Where the tax is payable in respect of a sale or purchase of such goods under the UP Value Added Tax Act, 2008 by a dealer registered under the Act, and for exemptions under Section 7 by the State Government on any notified goods. The notification establishing the industrial area, for a limited purpose, therefore, does not take it out or carve out a separate area for which there may be no Municipal Corporation, Municipality or Panchayat. The entire State is divided into local areas for the purposes of self-governance. The statement of objects and reasons, the manner and method levy and collection of the entry tax, and its utilisation exclusively for development for facilitating the trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III of the Constitution of India. The tax is compensatory, to save it from the vice of violating Art.301, not only if it is by way of recompense/ reimbursement to the trades, it is also required to be tested on the touchstone of Art.304 (a) and (b), namely that it is not discriminatory, unreasonable and is enacted for public purpose. The expression compensatory tax is not to be examined in a narrow sense of giving substantial or one to one benefit to the tax payer. The tax to be violative of Art.301, has to be noncompensatory and also violative of Art.304 (a) and (b), in the sense that even if the levy is imposed by a legislation, introduced with the sanction of the President, it still has to be nondiscriminatory, unreasonable and against public purpose. The freedom of trade, commerce and intercourse is violated if it affects the free movement of trade and commerce between the States and has an impact on the overall economic growth of the nation. Chapter XIII of the Constitution seeks to achieve economic unity and growth of the nation as a whole, by removing artificial barriers. We may not, therefore, look to justify the tax, if it is a barrier and not to judge it only by the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners S.P.Kesarwani, Additional Chief Standing Counsel along with C.B. Tripathi, Additional Chief Standing Counsel for the respondents JUDGEMENT 1. In all these writ petitions the petitioners as traders, manufacturers and importers bringing scheduled goods into the local areas in the State of U.P. for consumption, use or sale therein have challenged the validity of the U.P. Tax on Entry of Goods into Local Areas Act, 2007, (in short the U.P. Act of 2007) on the grounds of lack of the legislative competence of the State of U.P. of enactment, as also violative of freedom of trade, commerce and intercourse guaranteed under Art.301 and not saved by Art.304 (b) of the Constitution of India. The petitioners have also challenged the retrospectivity of the Act. w.e.f. 1.11.1999, when the U.P. Tax on Entry of Goods Ordinance, 1999, replaced by U.P. Tax on Entry of Goods Act, 2000, was promulgated and which was struck down by this Court in Indian Oil Corporation Ltd. v. State of U.P., AIR 2004 Alld. 277. 2. The substance of challenge in all these writ petitions to the constitutional validity of the U.P. Act of 2007 is that the entry tax is levied under the Act is by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olished. Some States like Maharashta and Gujarat did not abolish the octroi. In U.P. it was decided to levy surcharge on sales tax, the proceeds whereof were to be distributed to Urban Local Bodies as grants to compensate them for the loss of revenue. In the course of time the surcharge was merged in trade tax. The Urban Local Bodies were made entitled to receive a share of 7% in net tax receipts, following the recommendations of the First State Finance Commission. The volume of transfers to the Urban Local Bodies substantively improved under the new system. In 1995-96 total non-planned grants to Urban Local Bodies in U.P. amounted to ₹ 285 crores. In the year 2001-02 this amount exceeded to ₹ 700 crores. 5. The 11th Finance Commission in its report presented to the Lok Sabha on 27th July, 2000 considered in para 8.13 the assessment about the manner and extent of augmentation of the Consolidated Funds of the State, keeping in view of the provisions required to be made for the emoluments and terminal benefits of the local bodies including teachers; the existing powers of the local bodies to raise financial resources and the powers, authorities and responsibilities tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax, octroi has been the major source of revenue for the municipalities and, in some States, even for the panchayats. Many States have, however, abolished octroi with a view to remove impediments to the physical movement of goods, though several other new barriers have been created. Some States have introduced a levy in lieu of octroi, usually the entry tax, the net proceeds of which are transferred to the local bodies in the form of grant. During our interaction with the representatives of the local bodies, we were told that though the grant in lieu of octroi given to the local bodies was raised by certain percentage from year to year, it does not have as much buoyancy as the octroi had. There have also been numerous complaints of delay in release of the compensatory grants. While we do not advocate reintroduction of octroi, we do feel that there is a need for replacing it with a suitable tax that is buoyant and can be collected by the local bodies. 6. The State of U.P. promulgated the U.P. Tax on Entry of Goods Ordinance, 1999 w.e.f. 1.11.1999, which was later on enacted as U.P. Tax on Entry of Goods Act, 2000. The Prefatory Note of the Act of 2000 read as follows:- Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral public expenditure but for specific expenditure for a specific purpose. For example, education cess would be a tax which generates revenue which is utilized for education purposes e.g., school building, paying salaries to teachers etc. Similarly, a health cess would be a tax which generates revenue which is utilized for health purposes e.g. for building hospitals giving free medicines to poor people etc. Similarly in our opinion a compensatory tax is really in the nature of a cess because it generates revenue which is not used for general public purpose but for the specific purpose of facilitating trade and commerce. Paragraph no.66:- In fact in the Statement of Objects and Reasons of the impugned Act (U.P. Act no.12 of 2000) it is specifically mentioned:- Preferatory Note-Statement of Objects and Reasons:- With a view to augmenting the revenue of the State it was decided to make law to provide for levy and collection of tax on entry of certain goods into a local area from any place outside that local area including a place outside U.P......... Paragraph no.67:- Thus the Statement of objects and Reasons of the impugned Act clearly discloses that the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further orders of this Court. 9. A two judges bench of the Supreme Court had doubted the correctness of the views expressed in Bhagat Ram Rajiv Kumar v. CST, 1995 Supp 1 SCC 673, which was relied on in a subsequent decision in State of Bihar v. Bihar Chamber of Commerce, (1996) 9 SCC 136 and had referred the matter to a Larger Bench. In Jindal Stainless Ltd. (2) v. State of Haryana, (2006) 7 SCC 241 a Constitution Bench of the Supreme Court overruled the judgment in Bhagat Ram and Bihar Chamber of Commerce's case and concluded as follows:- 49. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case 1995 Supp. (1) SCC 673 followed by the judgment in the case of Bihar Chamber of Commerce (1996) 9 SCC 136 was well-founded. 50. We reiterate that the doctrine of direct and immediate effect of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide para 19 of the report, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he apex court in the case of Jindal Stainless Ltd. holding:- (a) That tax rests upon and has roots running on the lines of principles of equivalence (which is converse of the principle of ability to pay) applies to a case of compensatory tax; (b) That benefits, under a compensatory tax, are quantifiable and measurable; (c) That it is broadly-proportional and not progressive; (d) That it is based on the principle of pay for the value ; (e) That it is based on the concept of recompense/reimbursement; and reimbursement/recompense is in close proximity to the cost incurred by the provider of the services/facilities; and (f) That compensatory tax, compulsorily charged is in proportion to the special benefits derived to defray the cost of regulation or facilities or special advantages provided to the trades in question; (g) That the burden of showing that the tax is compensatory in nature lies on the State. 28. Laying down parameters of compensatory tax, the apex court in Jindal Stainless Ltd. observed:- 40. In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that entry tax is compensatory tax . We hold accordingly. 34. In the nature of the case we make no order as to costs. 12. The State of U.P. filed special leave petition against the order of the Division Bench dated 8.1.2007 in which following interim order was passed by the Supreme Court on 17.4.2007:- It is stated by learned counsel for the State of U.P. that an appeal shall be filed against the order of the Allahabad High Court which was passed pursuant to the directions given by this Court on 14th July, 2006 in Civil Appeal No.3453 of 2003 and connected cases. It is stated that some other High Court have also decided the matter afresh. The High Court's orders, wherever it has been passed in favour of the tax payers, shall operate so far as the concerned writ petitioner's are concerned. A list has been filed indicating that seven of the High Courts have already decided the writ petitions and the judgments are awaited in respect of five other High Courts. The concerned High Courts, i.e. Karnataka, Rajasthan, Andhra Pradesh, Orissa and Tamil Nadu are requsted to dispose of the matter pursuanct to the direcgtion of this Court dated 14th July, 2006 within a peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court by the State Government against the judgment of the High Court dated January 8, 2007. Since M/s Indian Oil Corporation was demanding for the refund of ₹ 3022.58 Crores on the basis of the interim order dated 17.4.2007 of the Apex Court, the State Government was considering to enact afresh the said Act retrospectively after the judgment of the Constitution Bench of the Hon'ble Supreme Court. In the meantime, the Bihar Entry Tax Act has been held valid by the Hon'ble Patna High Court. It was, therfore, decided to make a law with retrospective effect by removing the shortcomings pointed out in the judgment of the High Court of Judicature at Allahabad and in the light of the observations with respect to the compensatory tax made by the Constiuttion Bench of the Supreme Court and on the basis of the provision of the Bihar Entry Tax Act, which has been held valid by the Patna High Court. Since the State Legislature was not in session and immediate legislative action was necessary to implement the aforesaid decision, 'The Uttrar Pradesh Tax on Entry of Goods into Local Areas Ordinance, 2007' U.P. Ordinance No.35 of 2007 was promulgated by the Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n entry of goods specified in the Schedule into a local area for consumption, use or sale therein, from any place outside that local area, at such rate not exceeding five percent of the value of the goods as may be specified by the State Government by notification and different rates may be specified in respect of different goods or different classes of goods:- Provided that the State Government may by notification amend the Schedule and upon issue of any such notification, the Schedule shall, subject to the provisions of sub-section (10), be deemed to be amended accordingly. (2) The tax under sub-section (1) shall be continued to be levied till such time as is required to improve infrastructure within the State such as power, road, market condition etc. with a view to facilitate better market conditions for trade, commerce and industry. (3) The tax levied under sub-section (1) shall be payable by a dealer who brings or causes to be brought into the local area such goods, whether on his account or on the account of his principal or takes delivery or is entitled to take delivery of such goods on its entry into a local area:- Provided that the State Government may by noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of value of the goods brought into a local area from outside Uttar Pradesh. (6) Notwithstanding anything contained in sub-section (1) or sub-section (3), no tax shall be levied on or collected from a dealer who brings or causes to be brought into a local area any goods which are:- (i) consigned without using them in the local area to any place outside the State; or (ii) sold or re-sold either in the course of inter-State trade or commerce or in the course of export out of the territory of India, Explanation:- Section 3, section 5 and section 6-A of the Central Sales Tax Act, 1956 shall apply for the purpose of determining whether or not any goods has been sold by a dealer in the course of inter-State trade or commerce or in the course of export out of the territory of India:- Provided that where at the time of entry of goods into a local area, the quantity or value of goods to be sold within such local area for the purpose of being taken outside the State without consumption, use or sale in such local area, is not ascertainable, the dealer shall pay the amount of tax on the value of total quantity of goods and after the goods are consigned or sold outside the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idity of anything previously done thereunder except that any imposition, assessment, levy or collection of tax or penalty shall be subject to the said modification or annulment. 5. Reversal of levy of tax:- Where any dealer has brought or has caused to be brought or has taken delivery of any goods notified under sub-section (1) of section 4 on its entry into a local area, for consumption, use or sale therein and has paid tax in respect of entry of such goods into such local area or purchased such goods on which entry tax has already been paid, such tax shall be refunded or adjusted to such dealer by whom without using them in the local area such goods are consigned to any other place outside the State or are sold either in the course of inter- State trade or commerce or in the course of export outside the territory of India. 12. Realization of tax through manufacturer:- (1) Notwithstanding anything contained in any other provision of this Ordinance, any person who intends to bring into a local area from any manufacturer within the State, such goods specified in the Schedule as may be notified by the State Government, shall, at the time of taking delivery of the goods f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Uttar Pradesh which shall include the following:- (a) construction, development and maintenance of roads and bridges for linking the market and industrial areas; (b) providing finance, aids, grants and subsidies to financial, industrial and commercial units; (c) creating infrastructure for supply of electricity and water to industries, marketing and other commercial complexes; (d) creation, development and maintenance of other infrastructure for the furtherance of trade, commerce and industry in general; (e) providing finance, aids, grants and subsidies for creating, developing and maintaining pollution free environment in the concerned areas; (f) any other purpose connected with the development of trade, commerce and industry or for facilities relating thereto which the State Government may specify by notification; (g) providing finance, aids, grants and subsidies to local bodies and government agencies for the purposes specified in clauses (a), (c), (d), (e) and (f); (2) The entry tax levied and collected under this Ordinance shall be credited to the Uttar Pradesh Trade Development Fund and shall exclusively be used for facilitating trade, commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spare parts (Item 2); non-levy sugar (Item 4); cement (Item 8), coal (Item 9); aluminum and its product (Item 14); cable of all kinds (Item 16), laptop, computer system and peripherals, TV including LCD (Item 17); tyre and tubes excluding tyres and tubes of cycle, rickshaw and animal driving vehicle (Item 18), and marbles stones and their tiles (Item 18). 19. The notification was amended on 19.2.2010, excluding natural gas, cement, motor vehicles of all kinds, tyres and tubes. It was again amended on 29.3.2009 excluding machinery and spare parts; wood and timber of all kinds; clinker; aluminum and its products; cables of all kinds, lap top-computer system and peripherals; marbles stones and tiles; and refrigerator, air conditioner and conditioning plants. On high speed diesel and other petroleum products, excluding kerosene oil for public distribution system, a notification was issued on 04.3.2008 providing rebate and a notification was issued on 30.6.2008, providing exemptions. At present only 08 items out of 20 are left in the Schedule for levy of entry tax. Section 5 of the Act of 2007 provides for reversal of levy of tax. Where any dealer has paid entry tax in respect of ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal Areas Act, 2001. The High Court found that the levy of entry tax under the Gujarat Act were compensatory. The entry tax on the goods did not violate Art.301, nor was the levy of tax found to be discriminatory between goods so imported and the goods so manufactured or produced in the State. The importer would be at par with the local dealers. 22. The Patna High Court in Indian Oil Corporation Ltd. and Anr. v. State of Bihar and Ors. decided on January 9th, 2007, (2007) 10 VST 140 (Patna) examined the provisions of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 as amended by Bihar Amendment Act, 2001; Bihar Amendment Act, 2003; Bihar (Amendment and Validation) Act, 2003; Bihar Amendment Act 7 of 2006 and Bihar Amendment Act (9) of 2006 and held the Validation Act to be constitutionally valid. It held that the collection of entry tax is compensatory tax, which has been diverted to Urban Local Bodies, to provide various services and infrastructure facilities to traders community to carry on their business activity. The Patna High Court further found that since the State had not produced any data to show that levy of entry tax und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powering trading facilities; the incidental used by community of the facilities used by traders, did not engage the primary or principal use for facilitating trade and commerce; the entry tax collected was allotted to the local bodies for the loss sustained due to abolition of octroi. The substantial amount of the entry tax was allotted to the local bodies was spent in commercial or industrial centres; measures have been taken to provide trading facilities and markets had been established. The proportionality between quantum of tax and the facilities/services provided demonstrated that 44% of the amount spent by them was on the expenditure incurred creating facilities for trade, commerce and industry; the tax imposed was single point tax and was provisional to the benefits without which the trading facilities could not have been availed of. 26. The Guwahati High Court in Indian Oil Corporation Ltd. (Guwahati Refinery) v. State of Assam and Ors. decided on 9.1.2009 reported in (2009) 21 VST 76 (Guwahati) upheld the validity of the Assam Entry of Tax Act, 2008 as well as the retrospectivity of the Act w.e.f. 1.10.2001. The Assam High Court held that the persons bringing specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent- State did not produce and place any material before the Court showing that payment of compensatory tax is a reimbursement for the quantifiable/measurable benefit provided or to be provided to its payers. The High Court found that there was no quantifiable data, i.e., a benefit which is measurable. Maintaining of roads and providing bridges is not compensatory in nature so as to constitute special advantage to trade, commerce and intercourse. The expenses for maintenance or construction of roads and bridges are met from the general revenue of the State. It is the statutory obligation and duty of the State to provide facilities like roads and bridges. Similarly, State Financial Corporation, constituted under the State Financial Corporation Act for providing incentive and financial aids functions as a statutory body. The supply of electrical energy and waters to the industries, marketing and commercial complexes, cannot be held to be special benefits to the trades men. The trade development fund was created by notification dated 29.3.2008 with retrospective effect from 1.4.2006. Nothing was brought on record to show that the entry tax collected from 1.4.2006 till the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. are generally met from the general funds or revenue. Whether the goods are transported into the State from outside the State or abroad the State has got a duty to provide those facilities, like roads, and bridges, which is being enjoyed not only by persons who bring goods notified for levy of entry tax but also others. The Kerala High Court found that there are absolutely no connection or nexus with the collection of entry tax and its utilisation for the benefit of traders/manufacturers from whom such tax is collected. 29. The Karnataka High Court, in Bharat Earth Movers Ltd v. State of Karnataka and others decided on 29.3.2007 (2007) 8 VST 69 (Katn), allowed the writ petitions holding the Karnataka Special Tax on Entry of Certain Goods Act, (29 of 2004) as violative of Articles 301, 304 (a), (b) and 255 of Constitution of India; followed its earlier Division Bench decision in Avinyl Polymers Pvt. Ltd v. State of Karnataka (1998) 109 STC 26 (Karn) and held that the State was not able to demonstrate any exclusive or special service provided to the class of taxpayers who bear the entry tax under the Act. The Karnataka High Court found that there was absolutely no co-relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 301 of the Constitution. The Madras High Court held 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. Maintenance of roads, bridges etc., is generally met from general funds or revenue. Whether goods are transported into the State or outside State or abroad, the State has got a duty to provide facilities like roads, brides, etc., which are being enjoyed not only by the persons who bring the goods notified for levy of entry tax, but also by others. The State of Tamilnadu also levies taxes for the purpose of maintenance of roads from the owners of motor vehicles under the Tamil Nadu Motor Vehicles Taxation Act, 1974 wherein the parameters of levy are based on the laden weight of the motor vehicle. The Madras High Court also held that the levies of entry tax only on goods which are imported into the State of Tamil Nadu as against those which are produced or obtained within the State of Tamilnadu causes discrimination. The price structure of the imported goods vis-a-vis the locally manufactured goods or the economics of the importer, need not be gone into, to exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's sanction under the proviso to Article 304 (b), it will not absolve the State Legislature from obtaining the President's specific sanction if an item, which had not been originally included in the Bill, when it had received the sanction of the President, is sought to be subsequently included. The President's sanction, under Article 304 (b), is the sine qua non for the validity of a legislative enactment. The new insertion in the Bill, which was originally not there, will not survive, unless the President's sanction is obtained for that purpose. 34. The Gauhati High Court - Itanagar Bench in Jaiprakash Associates Limited (Cement Division) v. State of Arunachal Pradesh and others decided on 5.3.2009 (2009) 22 VST 310 (Gauhati) held that the levy of tax on the entry of goods, other than non-taxable import, under the Arunachal Pradesh Goods Tax Act, 2005, for consumption use or sale thereof into the local area of State of Arunachal Pradesh is violative of Articles 301 and 304 of the Constitution of India. The High Court held that a conjoint reading of the Articles 301 to 304 would show that the State legislature has no power to impose a discriminatory tax. The word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only a superficial change in the language while retaining the basic character of the levy as a source for general development. Mere specification of the 60% of the amount in line with jdugments 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. The data given by the State of having incurred expenditure at 17% of the total collections and is for less than the amount. The other statute namely Haryana Rural Development Fund Act, 1983, Punjab Passengers and Goods Taxation Act, 1952, Punjab Agricultural Produce Market Act, 1961, etc., levying compensatory taxes to cover the cost of services. The burden of proof on the State that the payment of levy of entry tax is reimbursement/recompense for the quantifiable/measurable benefits provided or to be provided to the petitioners was not discharged and thus the levy under the act was not found to be compensatory in nature. It thus amounted to restriction on free-flow of trade and commerce and is hit by Article 301 of the Constitution of India. 36. The judgment, in Jindal Strips Limited vs. State of Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided or projected to be provided, the levy was unconstitutional. The Trade, Commerce and Intercourse within the Territory of India:- 38. Part XIII of the Constitution of India provides for trade, commerce and intercourse within the territory of India. Article 301 to Article 307 under this Chapter are quoted as below:- Article 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. Article 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. Article 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 maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommerce and intercourse throughout the territory of India shall be free. Freedom is not for all laws but from such laws which restrict and affect activities of trade, and commerce amongst the State. 40. In Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232, the constitutionality of Assam Taxation (On Goods Carried by Roads and Inland Waterways) Act, 1954 enacted by the Legislature of Assam providing for levy of tax on certain goods carried by road or inland waterways in the State of Assam, was questioned by a number of tea companies who sold most of their products outside the State of Assam after transporting them by road or waterways to West Bengal and other States. The majority opinion (Gajendragadkar, Wanchoo and Das Gupta, JJ.) stated their conclusion in the following words:- 52. ...Our conclusion, therefore, is that when Article 301 provides that trade shall be free throughout the territory of India it means that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or the transport of goods from one part of the country to the other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 301. Once outside the purview of Article 301, it was held, Article 304 was also not attracted. The Court observed in paragraph - 19 that:- The taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads...... (AIR page 1425) Vide para. 21 of the Report, it was observed that:- If a statue fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be considered unimpaired. (AIR page.1425) Thus, the concept of compensatory tax was propounded. Therefore, taxes which would otherwise interfere with the unfettered freedom under Article 301 will be protected from the vice of unconstitutionality if they are compensatory. 42. In Automobile Transport AIR 1962 SC 1406 it was said, vide (AIR page.1425, para 19), that:- a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition that some connection between the tax and the trading facilities extended to dealers directly or indirectly is sufficient to characterise it as compensatory tax. The Court held that where the State provides several facilities to the trace, such as laying and maintenance of roads, waterways, markets etc. the entry tax on that premise is compensatory in nature. 45. On 26.9.2003 a Two-Judge Bench of Supreme Court doubted the correctness of the view in Bhagatram Rajeevkumar v. CST (supra) and State of Bihar v. Bihar Chamber of Commerce (supra) and the matter was heard by a larger bench. In Jindal Stainless Ltd. (2) and another vs. State of Haryana and others (2006) 7 SCC 241 a Constitution Bench of Five Judges considered the reference and held in paragraphs 36 to 53 as follows:- 36. We have examined and analyzed the relevant provisions of Part-XIII and particularly Article 301 as we are required to lay down the parameters of compensatory tax vis-a-vis Article 301, as indicated vide para 27 (of SCC) of the referral order. Generic Concept of Compensatory Tax:- Introduction:- 37. The concept of compensatory tax is not there in the Constitution but is judicially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the taxpayer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. In the case of a tax, a particular advantage, if it exists at all, is incidental to the States' action. It is assessed on certain elements of business, such as, manufacture, purchase, sale, consumption, use, capital etc. but its payment is not a condition precedent. It is not a term or condition of a licence. A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept of recompense/reimbursement. For a tax to be compensatory, there must be some link between the quantum of tax and the facility/services. Every benefit is measured in terms of cost which has to be reimbursed by compensatory tax or in the form of compensatory tax. In other words, compensatory tax is a recompense/reimbursement. 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 costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net-revenue to the government but that circumstance is not an essential ingredient of compensatory tax. 44. Since compensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters. 45. To sum up, the basis of every levy is the controlling factor. In the case of a tax , the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of a fee , the basis is the special benefit to the payer (individual as such) based on the principle of equivalen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court propounded the doctrine of direct and immediate effect . Therefore, whenever a law is challenged on the ground of violation of Article 301, the Court has not only to examine the pith and substance of the levy but in addition thereto, the Court has to see the effect and the operation of the impugned law on inter-State trade and commerce as well as intra- State trade and commerce. 48. When any legislation, whether it would be a taxation law or a non-taxation law, is challenged before the court as violating Article 301, the first question to be asked is: what is the scope of the operation of the law? Whether it has chosen an activity like movement of trade, commerce and intercourse throughout India, as the criterion of its operation? If yes, the next question is: what is the effect of operation of the law on the freedom guaranteed under Article 301? If the effect is to facilitate free flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature. Clause (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Automobile Transport and the test of some connection enunciated by a Bench of three Judges in Bhagatram's case cannot stand together. Therefore, in our view, the test of some connection as propounded in Bhagatram's case is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. and State of Bihar v. Bihar Chamber of Commerce stand overruled. 51. Before concluding, we may point out that parties before us have taken more or less extreme positions and, therefore, we have not examined the arguments in seriatim. Conclusion:- 52. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case followed by the judgment in the case of Bihar Chamber of Commerce was well-founded. 53. We reiterate that the doctrine of direct and immediate effect of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan for deciding whether a tax is compensatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of compensatory tax as judicially evolved in Automobile Transport (supra) as a part of regularly charge. Most of the High Courts of the States namely Punjab and Haryana, Jharkhand, Kerala, Karnataka, Tamil Nadu, Assam and Bihar have struck down the entry tax where sufficient data was not produced by the States to establish that the entry tax was not compensatory inasmuch as it was not levied to reimburse or recompense, and that the State Government failed to provide sufficient data to show that the benefits were quantifiable/measurable with the levy. The States of Gujarat, Orissa and Madhya Pradesh have, however, held otherwise. 49. On 18.12.2008, when some of the cases arising out of the judgements of the High Courts in entry tax matters came up for hearing before the Constitution Bench of Supreme Court, it was found that some of the High Courts before which the State entry tax stood challenged had taken the view that clause (a) and (b) of Art.304 of the Constitution of India are independent of each other and that if the impugned law stood saved under Art.304 (A), then it need not be tested with reference to clause (b) for determining its validity. The Supreme Court recalled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f trade and commerce in Article 301 vis-a-vis the States' authority to levy taxes under Article 245 and Article 246 of the Constitution read with the appropriate legislative Entries in the Seventh Schedule, particularly in the context of movement of trade and commerce. 12. Whether Article 304(a) and Article 304(b) deal with different subjects? Whether the impugned taxation law to be valid under Article 304(a) must also fulfil the conditions mentioned in Article 304(b), including Presidential assent? Whether the word restrictions in Article 302 and in Article 304(b) includes tax laws? Whether validity of a law impugned as violative of Article 301 should be judged only in the light of the test of non-discrimination? Does Article 303 circumscribe Article 301? Whether internal goods would come under Article 304(b) and external goods under Article 304(a)? Whether per se test propounded in Atiabari's case (supra) should or should not be rejected? Whether tax simpliciter constitutes a restriction under Part XIII of the Constitution? Whether the word restriction in Article 304(b) includes tax laws? Is taxation justiciable? Whether the working test laid down in Atiaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... save itself from the vice of Article 301 should be to provide services to that particular trade or industry and not to the development of trade, commerce and industry in the State in general. He submits that the levy being on the value of the goods (advalorem) makes the levy progressive which is an attribute of tax as a common burden and not a compensatory tax which is close to a fee in which the benefit has to be given to the payer and not in general. 52. Referring to Section 14 of the Act of 2007 Shri Gupta submits that the words in sub-section (1) the proceeds of the levy under the Act shall be appropriated to the Fund and shall be utilised exclusively for the development or facilitating the trade, commerce and industry in the State of Uttar Pradesh looses its relevance when the word is used broadly with no definite meaning. He submits that the words in general in clause (d); in concerned area in clause (e) and any other purpose in clause (f) make the utilisation of the funds for general purposes. The U.P. Trade Development Fund provided in sub-section (2) of Section 14 and exclusively use of the entry tax levied and collected and credited to the fund for facilitatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitution as the revenue generated by it cannot be said to be specifically meant for facilitating trade or commerce, but is raised for augmenting the general revenue of the State. The statement of objects and reasons of the Act (U.P. Act No. 12 of 2000) also discloses that the Act was enacted to augment the general revenue of the State and not for facilitating trade and commerce. 55. Shri Bharat Ji Agrawal submits that though on 27.1.2004, when the earlier writ petition was decided, the judgment in Bhagatram Rajeevkumar v. CST (supra) held the field. This Court held that the case is not of much help because in the said case in the counter affidavit filed by the State which was not disputed, the nature of levy was demonstrated to be compensatory. The decision proceeded on a concession made by the petitioner's counsel that the levy was compensatory in nature. The Court thereafter observed that even if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the revenue earned was made over to the local bodies to compensate them for the loss cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian Oil Corporation. 57. Shri Bharat Ji Agrawal refers to judgment in Jindal Stainless Limited (2) which has now decided the constitutional issue of the validity of the enactments levying entry tax. He submits that the tests laid down by the Jindal Stainless Limited (2) are not satisfied in the levy of entry tax in the Act of 2007. For the compensatory tax to be constitutional valid, if it does not have protection of Article 304 (b), the benefit of tax must be quantifiable and measurable to the trade. The compensatory tax is by way of recompense/reimbursement to the trade. It is of an hybrid nature which is more closure to fee than tax. The burden of proving that the benefit to the trade is quantifiable or measurable is on the State. Shri Agrawal referred to Section 14 of the Act of 2007 and submits that none of the benefits intended in Section 14 taking individually or collectively give any benefit to the development of trade and commerce. The Act of 2007 does not mention in any of its provision that the entry tax can be utilised for the payers. There is no special benefit intended to the payers. 58. Shri Bharat Ji Agrawal submits that Indian Oil Corporation is challeng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 27th January, 2004 this Court had held that no facility whatsoever has been provided by the U.P. Government to Mathura refinery for transportation of crude oil from outside State of U.P., which is ultimately transported through underground pipelines maintained exclusively by the petitioner itself. He submits that the cost incurred by the IOC for acquiring land for Sadaya Mathura pipelines was approximately 13.6 crores in or about 1976-77, made up of free hold land (Rs.11.47 corres); lease hold land (Rs.1.13 crores) and right to way, (Rs.98.75 lacs). In addition the petitioner Corporation has spent approximately ₹ 1361.33 crores for construction of Salaya Mathura Pipeline in 1977-80. The pipeline is operated, maintained, secured and insured by the Corporation. The Corporation has installed sophisticated tele-supervisory and telecommunication instruments and facilities along the pipeline so that the pipeline can be remotely operated, controlled and monitored from control stations located at vital points along the pipeline. Tele-supervisory control and telecommunication systems for the Salaya-Mathura Pipeline have been installed at total costs of ₹ 55.85 crores incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory tax. Applying the tests laid down in Jindal Stainless, it is clear that the tax is not compensatory tax for following reasons:- 1. The tax is levied on traders dealing in 15 goods and not on any other goods; 2. The tax is levied on traders moving the goods into the local area and outside the local area, and not on traders moving the goods within the local area; 3. There are no specific benefits or facilities or amenities to be provided to the traders in those 15 goods who move from one local area to another, to the exclusion of benefits or facilities provided to the members of trader, commerce and industry generally; 4. The proceeds of the tax collected from such a limited category of traders is being applied to the entire State; 5. Even assuming that the traders who pay the said tax may also incidentally, as part of the larger body of trade, commerce and industry derive some benefit, the tax collected from them is patently much more than the facilities provided to them; 6. On both the principles laid down in Jindal Stainless namely the specific benefit to the payer and pay for the value , and on the test laid out in Automobile Transport case that the tax s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was thus held as ultra vires Article 301 of the Constitution of India. He has also relied upon Hardev Motor Transport vs. State of M.P. and others (2006) 8 SCC 613; Sree Rayalaseema Alkalies and Allied Chemicals Limited v. State of Andhra Pradesh and others (2008) 13 VST 15 (AP) and Dinesh Pouches Ltd. v. State of Rajasthan and others (2008) 16 VST 387 (Raj) in support of his submission. Shri Bharat Ji Agrawal has also referred to the judgments of Kerala High Court, Karnataka High Court, Punjab and Haryana High Court and Gauhati High Court in which the similar Acts to levy entry fee were held to be ultra vires to Article 301 of Constitution. 70. Shri Bharat Ji Agrawal appearing in Writ Petition No. 1284 of 2008 (M/s GAIL India Limited vs. State of UP and others) submits that earlier Writ Petition No. 1138 of 2002 (Gas Authority of India Limited vs. State of UP and another) challenging the Circular dated 2.3.2002 to levy tax on whole sale price is pending. The entry tax can be levied only on purchase price or on the price on which the natural gas is purchased by the GAIL. The Circular issued under the old Act of 2000 has now been incorporated in the definition clause of the new A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.35 126.61 2006-07 132.84 21.08 25.95 179.87 2007-08 169.04 23.86 27.12 220.02 2008-09 236.44 29.30 33.69 299.02 2009-10 190.19 25.15 36.19 251.53 2010-11 49.51 0.72 1.63 51.85 2011-12 (Upto Nov.11) 38.14 0 0.35 38.49 Total 1063.46 124.66 222.50 1410.61 72. Shri Bharat Ji Agrawal also appears in Writ Petition No. 1780 of 2008 (M/s Jaypee Greens Limited vs. State of UP and others), Writ Petition No. 1532 of 2007 (Jaiprakash Industries Ltd vs. State of UP and ors), Writ Petition No. 840 of 2007 (Diamond Cement Limited vs. State of UP and others), Writ Petition No. 1515 of 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Dhruv Agrawal has also referred to Division Bench judgment of this Court dated 8.1.2007 after remand by the Supreme Court in which it was held that there was not a iota of evidence produced by the State Government to show the quantifiable and measurable benefits of the entry fee to the trade. He submits that the findings inter-se between the parties unless reference by the Supreme Court are binding on the State. Shri Dhruv Agrawal submits that the ordinance dated 23.9.2007, which was later on converted into Act No. 30 of 2007 cannot validate the entry fee which was realised under an unconstitutional act. The entry tax cannot be justified to be levied retrospectively. He submits that in any case the entry fee is not compensatory and is thus violative in view of Jindal Stainless Limited (2) as compensatory. He relies upon B. Krishna Bhat vs. State of Karnataka (2001) 4 SCC 227, in which relying upon the Shri Prithvi Cotton Mills Ltd. and Anr. v. Broach Borough Municipality and Ors. (1970 (1) SCR 388 at 392) the Supreme Court held as follows:- Applying the said principles to the facts of the present case, it is seen that the invalidity pointed out by the High Court about the lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not suffer from want of legislative sanction. The only lacking part was that under the respective Acts referred to hereinabove, the said collection could be made by a local authority only, which the BDA was not until Section 28C was introduced. This lacuna was removed by introduction of Section 28C and the BDA has been made a deemed local authority for the purpose of such collection. Therefore, once the BDA has been declared as a deemed local authority with retrospective effect, we find no difficulty in accepting the validity of this collection. Hence, the validity of Section 28C has to be upheld and consequently all the cesses collected by the BDA under the Acts referred to under Section 28C have to be declared as validly collected. For the reasons stated above, we uphold the validity of Sections 28B and 28C of the BDA Act which are under challenge while we declare that that part of Section 7 of the Amending Act which validates the collection of property tax by the BDA before the introduction of Sections 28A and 28B as invalid; consequently the said collection is liable to be refunded as directed by the court in earlier proceedings. Accordingly, this appeal is partly allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of UP coal for consumption in its Renu Sagar Captive Power Plant at Renukoot, District Sonebhadra. The company also brings into the State, cement and machinery parts, which are scheduled items under the Act of 2007. He submits that Jindal Stainless Limited (2) is the last word on the questions of law raised in these writ petitions. If the entry tax collected goes to general revenue of the State, the benefit of which is given to all the trades, the tax is not a compensatory tax to be saved from the vice of Article 301 of Constitution. He submits that the benefits of collection of entry tax may not be given one to one to the traders. The benefit must flow to the traders of the scheduled commodity. There should be a plan for expenditure of the entry tax on the trades, which should broadly compensate the traders. 80. Shri V.K. Upadhyay, Senior Advocate assisted by Shri Ritvik Upadhyay also appear in Writ Petition No. 1510 of 2007 (Kanoria Chemical Industries Ltd vs. State of UP and others); Writ Petition No. 566 of 2009 (M/s Soni India Private Limited vs. State of UP and others); Writ Petition No. 1153 of 2008 (M/s Hi-Tech Carbon Limited vs. State of UP and others), Writ P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipal committee, district board, body and port commissioner or other authority legally entitled to or entrusted by the Government with the control or management of the municipal or local fund. The local authority is defined under the U.P. General Clauses Act in Section 2 (25) and the local fund is also defined under Section 2 (26). Relying upon Shakti Kumar M. Sancheti and another vs. State of Maharashtra and others (1995) 1 SCC 351, he submits that the expression local area as used in various Articles of the Constitution, namely 3 (b), 12, 245 (1), 246, 277, 321, 323-A and 371-D indicates that the constitutional intention was to understand the local area in the sense of any area, which is administered by a local body, may be corporation, municipal board, district board etc. The definition does not bring the entire State as local area as the use of word a before local area in the Section is significant. The taxable event is not the entry in any area of the State but a local area. If the goods are brought into the factory, which is defined by a separate notification as industrial area, it cannot be said that the goods have been brought into the local area in the State. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and water to industries, marketing and other commercial complexes; creation, development and maintenance of other infrastructure for the furtherance of trade, commerce and industry etc. are the activities, which are covered within the 18 items of the Twelfth Schedule, with reference to Article 243-W of the Constitution of India. The municipalities and other local bodies entrusted with these powers, authority and responsibilities, under the Constitution of India, could not have been passed over in the expenditure of the amount of the entry tax, collected and credited to the State Development Fund. There is no public representative in the State Development Fund, nor any procedure for allocation or guidelines have been prescribed. The municipality must have a say for development. The octroi was abolished, as it created barriers and its realisation was not free from irregularities. The new Act does not provide for any safeguard for checking the irregularities for which the octroi was abolished. Shri Goyal submits that the entry tax is a different form of octroi. The Schedule includes only 20 items and leaves many other items at the discretion of the State Government. There is no ration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Courts of the country must follow the principles laid down in the judgment. Shri Aloke Kumar appearing in some of the writ petitions relating to scheduled commodities namely coal, paper, cement, clinker, imported timber, machinery and tendu leaves, has also adopted the argument of Shri S.P. Gupta and Shri Bharat Ji Agrawal. He submits that the burden of proof, that the entry tax is compensatory tax to the trades, and that its payment to the trades and that the entry tax is a reimburse/recompense that the quantifiable/measurable benefits, is on the State Government. The State Government has failed to discharge the burden. For example the traders of coal cannot be compensated in any manner as the trading of coal is based on transportation. The traders of coal are already paying toll tax in addition to the road tax paid by transporters, and that too according to the loading capacity of the vehicle, the coal traders have no use of power or water for running their trade. They are also paying Clean Energy Cess to the Central Government. Similarly the traders in tendu patta cannot be compensated from the collections of entry tax, as they are not entitled nor get any compensation or fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before the High Courts, we permit the parties to place them in the concerned writ petitions within two months. The concerned High Courts shall deal with the basic issue as to whether the impugned levy was compensatory in nature. The High Courts are requested to decide the aforesaid issue within five months from the date of receipt of our order. The judgment in the respective cases shall be placed on record by the concerned parties within a month form the date of the decision in each case pursuant to our directions. 90. Pursuant to the aforesaid order the matter was taken up by the High Court. The State of U.P. placed relevant date in the High Court to demonstrate that the entry tax is compensatory in nature. This Court, however, by its order dated 8.1.2007 found after considering the date that there is not even an iota of evidence/material on record to give required date/statistics to prove, establish that the amount collected as tax and its expenditure on providing additional/specific addition/facility provided to trades in particular mentioned under the Schedule of the Act. In the absence of such data it is not possible for the Court to hold that the entry tax is comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and commerce of the goods mentioned in the schedule to the Act, and the State Government will have no power to divert the money collected as entry tax. Now a complete mechanism regarding utilization of entry tax has been provided, and the entire entry tax collected is to be utilized for the development of trade and commerce of the goods mentioned in the schedule. The Accountant General as an independent body has been given power to audit the entire money collected and the money spent towards entry tax. A High Power Committee constituted under the Chairmanship of the Chief Secretary, Government of India in its meeting dated 5.5.2008 has allocated the entire collection from entry tax after 24.9.2007 i.e. the date of promulgation of Ordinance No.35 of 2007 towards the development of trade and commerce of scheduled goods. 93. In the meeting of the U.P. Trade Development Fund presided by the Chief Secretary, Government of U.P. held on 5.5.2008 the entire collections and allocations of the year 2007- 08 was considered. In the year 2007-08 the entry tax collected on the 15 scheduled items are given as below:- 1. Crude oil as defined under Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jindal Stainless Ltd. v. State of Haryana decided by Constitution Bench oft he Supreme Court considered the allocation of the amount under Section 14 of the Act of 2007 and decided as follows:- (i) The maximum realises of entry tax of crude oil are from Indian Oil Corporation, which is used in Mathura Refinery for petroleum products namely kerosene, petrol, furnace oil etc., which is thereafter sent to its various depots and outlays for supply in different areas. After giving benefit on rebate the realisation of entry tax of diesel and furnace oil are nil. The expenditure on roads, electricity, water, and law and order is made by the State in the development of trade, commerce and industry of the goods of cement, coal, sugar, machinery, imported timber, clinker and other scheduled commodities. The contribution of roads and bridges is very important and thus 150 crores be allocated for construction of roads and bridges apart from other sources. (ii) The electricity has inherent contribution in development of trade, commerce and industry and thus ₹ 150 crores be allocated to electricity department for various electricity projects for the development of trade, commerce an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 375.52 2003-04 (January 2004) 252.35 26. That in pursuance to the order dated 9.2.2004 passed by Hon'ble Supreme Court the year wise amount collected as entry tax in a separate interest bearing account being the account no. 8342-Other deposit-120- Miscellaneous deposit-01-receipts of entry tax is as under:- Year Amount of Entry Tax in Crores (Interest Included) Interest deposited by the State Government in Crores 2003-04 (From Feb 04) 90.19 2004-05 358.95 4.51 2005-06 562.13 6.31 2006-07 801.04 19.33 2007-08 (Upto Sep.-07) 43.93 - 27. That the money collected or to be collected under the new Act as entry tax has to be appropriated to the fund and has to be utilized in the manner provided in the Act and Rules and shall exclusively be spent for facilitating the trade and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutional principles. 100. Shri Kesarwani submits that in State of Bombay and Anr. v. F.N. Balsara, AIR 1951 SC 318; Mahant Moti Das v. S.P. Sahi, AIR 1959 SC 942, Hamdard Dawakhana and Anr. v. Union of India, AIR 1960 SC 554; Superintendent and Remembrancer of Legal Affairs, West Bengal v. Girish Kumar Lavalakha and Ors., (1975) 4 SCC 754 and in State of Bihar v. Bihar Distillery Ltd., AIR 1997 SC 1511, it was held that an act is presumed to be enacted within the forecorners of the provisions of the Constitution. There is presumption against the constitutionality of the legislature. The burden of proof that the legislature is unconstitutional is heavily upon the person, who challenges it. The endeavour of the Court is to sustain the constitutionality of legislature. The Court should take into consideration all existing circumstances that matter of common knowledge, matter of common report, and history of times. The approach of judicial restraints and presumption of constitutionality requires that the legislature is given the benefit of doubt about its purpose. He further relies upon Union of India v. Elphinstone Spinning and Weaving Co. Ltd., AIR 2001 SC 724; State of A.P. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustry under clauses (a) to (g) of Section 14 (1) of the Act. The U.P. Tax on Entry of Goods into Local Area (Fund) Rules, 2007 with the composition of the Committee to supervise the fund and the Accountant General to audit the accounts, ensures and guarantees that the entire proceeds of the levy of entry tax is to be used exclusively for development and for facilitating trade and commerce of the scheduled goods. There is nothing to show nor it has been suggested that the Committee has not allocated the receipts for the purposes of development of trade and commerce of the scheduled goods. The amount allocated from the fund has to be utilised for the purposes approved by the Committee commensurate with the objects and purpose set out in Section 14 of the Act. The Committee also ensures that the tax payers are not required to pay much more than what is collected as entry tax. He submits that the State Government has from time to time exercised by various notifications, the powers to amend the schedule and has granted rebates and adjustments form the sales tax to be paid by the manufacturer/traders of the goods. The State Government is conscious of its obligations of development of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slature acting within its own legislative field, had the powers of sovereign legislature, and could make its law prospectively as well as retrospectively. 103. In J.K. Jute Mills Company Ltd. v. State of U.P., AIR 1961 SC 1534 the Supreme Court held that in exercise of the power of legislature to enact a law with reference to a topic, it will be competent for the legislature to enact a law, which is either prospective or retrospective. In para 15 the Supreme Court held:- 15. The power of a legislature to enact a law with reference to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospective. In Union of India v. Madan Gopal, 1954 SCR 541: (AIR 1954 SC 158), it was held by this court that the power to impose tax on income under entry 82 of List I in Schedule VII to the Constitution, comprehended the power to impose income-tax with retrospective operation even for a period prior to the Constitution. The position will be the same as regards laws imposing tax on sale of goods, In M. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants have, therefore, come to this Court because they have made no payments and so, their cases do not fall under S. 23(a) or may be, their cases fall under Section 23(b). The position therefore, is that the retrospective operation of Section 23(a) and (b) covers respectively cases of payments actually made under the provisions of the earlier Act, and cases pending inquiry, and the retrospective operation of Section 3(3) read with Section 1(3) only applies to cases of persons who did not pay the tax during the whole of the period, or whose cases were not pending; and it is this limited class of persons whose interests are represented by the appellants before us. Having regard to the somewhat unusual circumstances which furnish the background for the enactment of the impugned statute, we do not think that we could accept Mr. Setalvad's argument that the retrospective operation of the Act imposes restriction on the appellants which contravene the provisions of Article 19(1) (f) and (g). In our opinion, having regard to all the relevant facts of this case, the restrictions imposed by the said retrospective operation must be held to be reasonable and in the public interest under Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration of S. 3, in substance, changes the character of the tax. The argument is that the proviso to S. 3(2) enables the producer to recover the tax from the purchaser in case the goods are sold to a purchaser before they are carried, whereas such a provision did not exist in the past and in that sense, the retrospective operation changes the character of the tax. We have already noticed that the proviso in question is not retrospective in operation, and so, this argument has to be tested by reference to the remaining portion of S. 3(2). Thus tested, it is difficult to accept it as sound. In this connection, we may refer to the recent decision of this Court in Rai Ram Krishna v. State of Bihar. AIR 1963 SC 1667 where a similar plea was rejected and it was pointed out that this Court has consistently held that the mere fact that a validating statute operates retrospectively does not justify the contention that the character of the tax sought to be recovered by such retrospective operation is necessarily changed. 106. In Epari Chinna Krishna Moorthy v. State of Orissa, AIR 1964 SC 1581 the Supreme Court while dealing with the retrospective operation of the Orissa Sales Tax Valida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pass on the tax to the consumers or he is generally in a position to pass on the same to the consumer has no relevance, when the Court has to consider the legislative competence and an Act, which validates levy retrospectively. In Tilock Chandra Prasan Kumar the High Court of Allahabad had struck down the levy of sales tax on split or process food grains and 'Dal' holding that 'Dal' purchased by the petitioner before it could be said to be a commodity, essentially different form the 'Arhar', 'Dal' purchased by 'Dal' mills and accordingly the purchases effected by the petitioner could not be regarded as first purchase. The Government of U.P. issued an Ordinance (U.P. Sales Tax Amendment and Validation Ordinance, 1970) adding Explanation-II to Section 3 (D) as well as Section 7 of the Act. The Ordinance was later enacted as an Act. The Amendment Act removing the defects by the Explanation to Section 3 (D) and providing for a deeming clause that the split or processed food grains such as in the form of 'Dal' shall be deemed to be different from unsplit or unprocessed food grains, at validating provisions to the Principal Act vide Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government among those who benefit from it . 109. In M/s Ujagar Prints v. Union of India, 1989 (3) SCC 488 following Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283, the Supreme Court held in para 65 and 66 as follows:- 65. There is really no substance in the grievance that the retroactivity imparted to the amendments is violative of Article 19(1)(g). A competent legislature can always validate a law which has been declared by Courts to be invalid, provided the infirmities and vitiating infactors noticed in the declaratory-judgment are removed or cured. Such a validating law can also be made retrospective. If in the light of such validating and curative exercise made by the Legislature - granting legislative competence - the earlier judgment becomes irrelevant and unenforceable, that cannot be called an impermissible legislative overruling of the judicial decision. All that the legislature does is to usher in a valid law with retrospective effect in the light of which earlier judgment becomes irrelevant. (See Sri Prithvi Cotton Mills Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x declared by a Court to be illegally collected under an ineffective or an invalid law, then how is the validity of such Validation Act to be tested? It was held that the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition, of course, is that the Legislature must possess the power to impose the tax, for, if it does not, the action must ever remain ineffective and illegal. The Constitution Bench held:- AIR 1970 SC 192 At P. 195, Para 4 of AIR 1970 SC 192 ....Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A Court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a Court holds a tax to be invalidly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Validating Act has competence over the subject-matter; (ii) whether by validation, the Legislature has removed the defect which the Court had found in the previous law; (iii) whether the validating law is inconsistent (sic consistent) with the provisions of Part III of the Constitution. If these tests are satisfied, the Act can with retrospective effect validate the past transactions which were declared to be unconstitutional. The Legislature cannot assume power of adjudicating a case by virtue of its enactment of the law without leaving it to the judiciary to decide it with reference to the law in force. The Legislature also is incompetent to overrule the decision of a Court without properly removing the base on which the judgment is founded. The Court on a review of judicial opinion, proceeded to lay down the following principles among others so as to maintain the delicate balance in the exercise of the sovereign powers by the Legislature, Executive and Judiciary:- AIR 1996 SC 1431 : 1996 AIR SCW 1051 (i) in order that rule of law permeates to fulfil constitutional objectives of establishing an egalitarian social order, the respective sovereign functionaries ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of the Act in question retrospectively. In this process it cannot be said that there has been an encroachment by the Legislature over the power of the judiciary. A Court's directive must always bind unless the conditions on which it is based are so fundamentally altered that under altered circumstances such decisions could not have been given. This will include removal of the defect in a statute pointed out in the judgment in question, as well as alteration or substitution of provisions of the enactment on which such judgment is based, with retrospective effect. 111. In Widia (India) Ltd. v. State of Karnataka, AIR 2003 SC 3094 the Supreme Court held that if the levy is not discriminatory, no consent is required for the validating act for giving retrospectivity of the validity to the levy. On the aforesaid principles settled by the Supreme Court, we do not find that the provisions of Section 17 of the Act validating levy of the entry tax w.e.f. 1.11.1999 suffers from vice of lack of legislative competence or violation of any of the fundamental rights. The tax has already been levied and collected and has been deposited in a separate interest bearing account und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment under the Cantonments Act, 1924; (vi) any Industrial Development Area under the Uttar Pradesh Industrial Area Development Act, 1976; (vii) an Industrial Township by whatever name called; (viii) any other local authority by whatever name called under an Act of the Parliament or the State Legislature. 113. Reference order made by learned counsel appearing for the petitioners to the provisions of Art.243 (w), 243 (x) and 243 (y), 243 (z) inserted by Constitution (74th) Amendment Act, 1992 (w.e.f. 1.6.1993) in submitting that the Legislature of a State may by law endow the municipalities that such powers and authorities as may be necessary to enable them to function as institution of self-governance; and for devolution of powers and responsibilities upon municipalities subject to such conditions as may be specified therein, for preparation of plans for economic development and social justice and performance of functions and implementation of schemes as may be entrusted to them including those in relation to the matters listed in the 12th Schedule. Art.243 (x) gives powers to the municipalities to impose tax. The legislature may by law authorise any municipality to lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke. The premises of a factory, therefore, is not a local area. As there is no other entry either in the State list or concurrent list in which the impugned liability could fall, it was held that there was no scope from the conclusion that the liability was as the legislative competence of the State legislature. 115. In M/s Widia (India) Ltd. v. State of Karnataka, AIR 2003 SC 3095, the Supreme Court while considering the provisions of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act of 1979 held:- 33. Last contention only requires to be narrated for being rejected, as it cannot be disputed that 'industrial area' is either within the area of Municipal Corporation, or within the area of municipal limits or panchayat limits. The establishment of industrial area is for limited purpose and Section 3 of the Karnataka Industrial Areas Development Act, 1966 specifically provides that the State Government may by notification declare any area to be an industrial area for the purposes of the said Act. But it is nowhere provided that the said area would cease to be part and parcel of either Municipal Corporation or the area of Municip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se among the states shall be absolutely free. 90. Section 99 states that the Commonwealth shall not by any law or regulation of trade, commerce or revenue give preference to one State or any part thereof over other States or any part thereof. Thus Section 92 of the Australian Constitution is similar to Article 301 of our Constitution, whereas Section 99 of the Australian Constitution is similar to Article 303(1) of our Constitution. 91. The decisions of the Australian High Court in this connection are hence apposite. They have been referred to in Chapter 5 of the Book 'Australian Federal Constitutional Law' by Colin Howard and Chapter 9 of the book on Australian Constitutional Law by Fajgenbaum and Hanks. 118. The provision of the U.S. Constitution that gives the Congress exclusive powers over trade activities amongst the state and with foreign countries and Indian tribes is contained in Art.1 Section 8, Clause (3), empowering the Congress 'to regulate Commerce with foreign Nations, and among several States, and with the Indian Tribes'. The term commerce as used in the Constitution means business or commercial exchanges in any and all of its forms betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Courts have played role of applying national interest against State interest in any subject. 121. In Southern Pacific Co. v. Arizona, 325 U.S. 761, 65 S.Ct. 1515 the U.S. Supreme Court held that an Arizona statute that prohibited railroads within the state from having more than 70 cars in a freight train, or 14 cars in a passenger train, was unconstitutional. The purpose of the legislation, deemed a safety measure, was to minimize accidents by reducing the lengths of trains passing through the State. Practically speaking, however, the statute created an unreasonable burden on interstate commerce, as trains entering and leaving the state had to stop at the borders to break up a 100-car freight train into two trains and to put on additional crews, thus increasing their operating costs. The U.S. Supreme Court held that the means used to achieve safety was unrealistic and that the increase in the number of trains and train operators actually enhanced the likelihood of accidents. It balanced the national interest in the free flow of interstate commerce by a national railway system, against the state interest of a dubious safety measure. it decided that the value of the operation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erce, interstate transportation must be involved. Once goods have arrived in one state from another state, their local sale is not inter state commerce. The discrimination, if it is more than merely burdensome, interstate commerce, may come within the powers of the U.S. Congress. The statutes, which make reasonable qualifications made by States do not violate commerce clause. A State statute affected interstate commerce is not upheld merely because it applies equally to and does not discriminate between residents and non-residents of the State, as it can otherwise unduly burden interstate commerce. The Interstate Commerce Act of 1987 enacted by the Congress to promote and facilitate commerce by ensuring equitable interaction between carriers and the public provided for creation of the Interstate Commerce Commission, which has jurisdiction and supervision of such carriers and modes of transportation as rail, roads, express delivery companies and heading car companies. The Commission had the power to enforce the statutory requirements with a certificate of public convenience and necessity be obtained. The Discussion:- 124. The Indian Oil Corporation brings the entire crude oi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 285 of Constitution of India, does not extend to exemption from levy of indirect tax. In Sea Customs Act. Re AIR 1963 SC 1760, a nine-Judge Bench of Supreme Court opined by a majority that Art.286 envisaged immunity from direct taxes, and not from indirect taxes such as sales tax. In New Delhi Municipal Council v. State of Punjab, (1989) 1 SCC 335, another nine Judge Bench affirmed the decision in Sea Customs Act case. 126. The reference to Art.285 of the Constitution of India by Shri K.N. Kumar, learned counsel for the railway, thus is made to be rejected as it applies to the property of Union and not to the notified goods brought into a local area by railways for its consumption, attracting entry tax under the Act of 2007. Similarly we find that the reference to Sections 184 and 185 of the Indian Railways Act is also not of help in challenging the levy of entry tax as these sections have no application to entry tax levied by the State Government on the entry of goods into local area under the Act made with reference to Entry 52 in List- II of the 7th Schedule. 127. We may make reference here to the objections taken by Shri S.P. Kesarwani appearing for the State of U.P that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd shall be utilised exclusively for development of facilitating the trade, commerce and industry to include the activities specified in sub-section (a) to sub-section (g). The entire entry tax collected has to be spent on development or facilitating trade or commerce of the goods mentioned in the Schedule of the Act. Section 14 (2) read with the U.P. Tax on Entry of Goods into Local Areas (Fund) Rules, 2007, provides for utilisation of money of the fund and the manner of utilisation of the fund to be determined by the Committee constituted under Rule 4 to be known as the U.P. Trade Development Fund Management Committee headed by the Chief Secretary, Government of India with the provisions under Rule 5, of the accounts of the fund to be maintained by the Accountant General, UP and the Finance Department under sub-rule (4); the surrender of the amount with intimation to Accountant General-I (Lekha Hakdari), if the amount is not spent by the end of the financial year under sub-rule (5); the receipts and expenditure to be ledgerised by the Accountant General, UP under sub-rule (6), and the audit of the accounts of the fund to be made by the Accountant General (Lekha Parikshak) UP. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na namely that the Act of 2007 does not patently or facially indicate that the collection shall be utilised for the benefit of trade or commerce and further that the levy of entry tax is not based on the recompense/reimbursement, as the measurable/quantifiable benefits are not provided to be given to the payers. 131. As observed by us, the objects and reasons and the provisions of the Act of 2007 clearly provide that the entire collection of the entry tax has to be credited to the U.P. Trade Development Fund, to be used exclusively for facilitating trade, commerce and industry and that the amount realised shall not be used for the purposes other than those specified in sub-section (1) of Section 14 of the Act. The distribution of entry tax so collected and credited to the UP Trade Development Fund by the UP Trade Development Fund Management Committee, to the local bodies and its expenditure through the local bodies is also not seriously in dispute. The argument, that the funds should be utilised only for the purpose of the benefits, which must directly be given to the trades of the scheduled goods on the entry of which in the local areas, the entry tax is collected, does not car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any allegation made by the petitioners that the amount collected as entry tax has not been allocated by the U.P. Trade Development Fund Management Committee for the development of trade and commerce and that the money has been diverted or has been used for a purpose other than such development of trade and commerce. No material has been placed by the petitioners to contradict the factual and legal position under the Act nor there is any tangible material to demonstrate that the entry tax causes any discrimination, is unreasonable or is against public interest. 134. The levy and collection of entry tax in the State of UP under the old Act of 2000 was successfully challenged by the companies manufacturing and trading in scheduled goods. The Act was declared as ultra vires to Articles 301 and 304 of Constitution by Division Bench of this Court by judgment dated 27.1.2004. While staying the operation of the judgment the Supreme Court directed that subject to appellants depositing all taxes that may be realised by the appellant from the respondents after 27.1.2004 in a separate interest bearing account, the amount and the interest accrued will be held subject to further orders of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared ultra vires and on the basis of the findings recorded by the Division Bench on remand under the old Act of 2000. In the circumstances the State Government could not effectively collect the entry tax on the entry of scheduled goods. 136. In the counter affidavits filed in Writ Petition Nos. 1484 of 2007 (I.T.C. Limited vs. State of UP and others) and Writ Petition No. 1284 of 2008 (Gail (India) Pvt. Limited vs. State of UP and others the year-wise amount collected as entry tax from 1999 to 2000, to January 2004 is given in paragraph 25 and the amount of interest deposited by the State Government of the amount of entry tax collected upto September, 2007 has been given in the charts. From these deposits and interest, held by the State Government in pursuance to the interim orders passed by the Supreme Court and the stay of realisation entry tax in almost all the writ petitions, the insistence of burden of proof of expenditure of the amount is totally uncalled for. The State has to first collect the entry tax, only then it can prove the utilisation and the expenditure on trade and commerce to justify the levy as compensatory tax. The argument of proof of expenditure on trades ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy is imposed by a legislation, introduced with the sanction of the President, it still has to be nondiscriminatory, unreasonable and against public purpose. 140. In other words, the tax has to be non-discriminatory, reasonable and levied in public interest even if such legislation was moved with the assent of the President. It is not gainsaid to say, it is valid, if it is compensatory as it provides measurable and quantifiable benefits to the trade and commerce. 141. In Video Electronics Pvt. Ltd. v. State of Punjab and Ors., AIR 1990 SC 820 Justice Sabyasachi Mukherjee, the then Chief Justice speaking for the three Judge Bench, referred to Atiabari T. Company Ltd. (Supra), Automobile Transport Rajasthan Ltd. (Supra); Firm ATB Mehtab Mazid and Company v. State of Madras, AIR 1963 SC 928; A. Hazee Abdul Shakoor and Co. v. State of madras, AIR 1964 SC 1729; Andhra Sugars Ltd. v. State of Andhra Pradesh, AIR 1968 SC 599 and State of Madras v. N.K. Natraja Mudliar, AIR 1969 SC 147 and observing with approval Mr. Justice Subba Rao as the learned Chief Justice then was (at page 1430 of Automobile Transport Ltd., AIR 1962 SC 1406) that if a law directly and immediately impose tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the economic development of States to bring these into equality with all other States and thereby develop the economic unity of India is one of the major commitment or goals of the constitutional aspirations of this land. For working of an orderly society economic equality of all the States is as much vital as economic unity. The Supreme Court then held in paras 21, 22 and 28 as follows:- 21. The taxes, which do not directly or immediately restrict or interfere with trade, commerce and intercourse throughout the territory of India, would therefore be excluded from the ambit of Art. 301 of the Constitution. It has to be borne in mind that sales tax has only an indirect effect on trade and commerce. Reference may be made to the Constitution bench judgment of this Court in Andhra Sugar Ltd. v. State of A. P., (1968) 1 SCR 705 : (AIR 1968 SC 599) where this Court observed that normally a tax on sale of goods does not directly impede the free movement of transport. See also the observations in Mudaliar's case where at p. 851 (of 1968 (3) SCR 829: at p. 161 of AIR 1969 SC 147) (supra) it was observed that a tax on sale would not normally offend Art. 301. That article made no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... 28. Concept of economic barrier must be adopted in a dynamic sense with changing conditions. What constitutes an economic barrier at one point of time often cease to be so at another point of time. It will be wrong to denude the people of the State of the right to grant exemptions which flow from the plenary powers of legislative heads in list II of the 7th Schedule of the Constitution. In a federal polity, all the States having powers to grant exemption to specified class for limited period, such granting of exemption cannot be held to be contrary to the concept of economic unity. The contents of economic unity by the people of India would necessarily include the power to grant exemption or to reduce the rate of tax in special cases for achieving the industrial development or to provide tax incentives to attain economic equality in growth and development. When all the States have such provisions to exempt or reduce rates the question of economic war between the States inter se or economic disintegration of the country as such does not arise. It is not open to any party to say that this should be done and this should not be done by either one way or the other. It cannot be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deny such benefits to the trades. Will it not be a narrow approach to justify such tax. In such case we may be looking to the Constitution of India justifying a tax, only for development of trade, commerce and industry dehorse its objects clause (Preamble), fundamental rights, fundamental duties and directive principles of State policy. 146. The Constitution of India is a living, dynamic and organic document. It protects rights and enforces duties on the people living in a democratic, socialist republic and sets out the framework of governance with central object of achieving the freedoms and human development. The powers of the States to legislate, and tax by legislation may not be interpreted to give benefits of such levies to only those trades, who pay such tax, deviating from the very purpose of economic development and constitutional governance. The tax even if it is compensatory cannot be justified, if it is levied for benefit of only those, who pay it. The disbursement of a part of it, without defining its percentage or ratio, for the benefit of general public, will not take away or destroy its character. It will still remain a compensatory tax, which may not be levied to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hospitals and police stations etc. The utilization of the fund, to which the amount of entry tax is to be credited, for providing these facilities and services in local areas in the State should be treated as facilities and services to the payers of the entry tax. Mr. Manish Goyal is not wrong when he submits that all the development conceived in Section 14 of the Act of 2007 is to be provided by local bodies, under Art.243W of the Constitution of India in implementation of the schemes in the 12th Schedule. He, however, does not appreciate that the development of these schemes require funds. The implementation of these schemes have not been taken away from the local bodies. The U.P. State Development Fund constituted under sub-section (2) of Section 14 in which entire collection of entry tax is credited, will be spent in these local areas, through the local bodies, to be spent by them for development of trade and commerce. The Act of 2007 and the Rules of 2009 provide for sufficient guidelines for utilisation of such fund by and through the local bodies. Conclusion:- 150. For the reasons given as above, we hold that the State of U.P. did not lack legislative competence in e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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