TMI Blog1996 (2) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the proviso to section 3(1) and section 6 are void for the reasons assigned by the High Court? Held that:- Appeal allowed and the judgment of the High Court is set aside. - Civil Appeal No. 2843-2853 of 1996 - - - Dated:- 6-2-1996 - JEEVAN REDDY B.P. AND SUHAS CHANDRA SEN JJ. M. Chandrasekharan, Additional Solicitor-General, Pawan Kumar, senior Advocate (Rameshwar Prasad, B.B. Singh, Kumar Rajesh Singh, V.K. Verma, C.V. Subba Rao, S. Ganesh, Ravinder Narain, Ashok Sagar, Ms. P. Singh, Ms. Sonu Bhatnagar, Rajan Narain, Advocates, for M/s. JBD Co., M.P. Jha, N.K. Jha, Rudreshwar Singh, R.P. Wadhwani and Ajit Kumar Sinha, Advocates, with them, for the appearing parties. -------------------------------------------------- The judgment of the Court was delivered by B.P. JEEVAN REDDY, J. Leave granted. The Bihar Legislature enacted the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 providing for levy of tax on entry of scheduled goods into a local area for consumption, use or sale therein at a rate, not exceeding five per cent, as may be specified by the State Government. The goods mentioned in the Schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said tax constitutes a reasonable restriction imposed in public interest within the meaning of the said clause though it is true that the President has assented to the Bill; the entire Act is void and inoperative on this score. The High Court has also held that the proviso to section 3(1) and section 6 of the Act are void being violative of article 14 of the Constitution. It has held that both the said provisions confer an unguided and uncanalised power upon the Government. The High Court declined to consider the submission made by the petitioners based upon the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (hereinafter referred to as "the ADE Act") in view of the fact that it had already declared the Act void for violation of article 301. The State of Bihar has filed Special Leave Petition (C) Nos. 14636 to 14644 of 1995 against the said judgment. The I.T.C. Limited, one of the writ petitioners before the High Court, has filed Special Leave Petition (C) No. 23172 of 1995 challenging the correctness of the judgment of the High Court in so far as it has negatived its contentions concerning the validity of the Act. Special Leave Petition (C) No. 23303 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mar, learned counsel for respondents-writ petitioners, while disputing the correctness of the contentions urged by the learned Additional Solicitor-General, urged the following further contentions in support of their challenge to the validity of the impugned Act: (a) The ADE Act was enacted by the Parliament to replace the levy of sales tax and all other taxes by the States on the commodities mentioned in the First Schedule to that Act. Tobacco is included in the First Schedule. The State of Bihar has been provided an appropriate share in the revenues raised under the ADE Act. It, therefore, follows that so far as tobacco is concerned, the State cannot levy any impost thereon including entry tax. If it does, it will be deprived of its share in the revenues raised under the ADE Act. By sharing the revenues under the ADE Act, the State of Bihar must be presumed to have agreed not to levy any type of tax or impost on tobacco. The levy of entry tax under the impugned Act, therefore, is incompetent and void. The report of the Taxation Enquiry Commission on the basis of which the said Act was enacted and the practice and understanding of the various States at the Centre since the enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actment is outside the purview of entry 52 in List II of the Seventh Schedule to the Constitution and, therefore, beyond the legislative competence of the Bihar Legislature for the reason that it does not provide for the revenues raised thereunder to be passed on to the local authorities for being used for the purposes of the respective local areas. (5) Whether the proviso to section 3(1) and section 6 are void for the reasons assigned by the High Court. Question No. 1: Whether the impugned tax has been established to be compensatory or whether it can be treated as a regulatory measure. Article 301 declares that subject to the other provisions in Part XIII, trade, commerce and intercourse throughout the territory of India shall be free. Certain exceptions are provided to the said rule by Part XIII itself, one of them being clause (b) of article 304. This Court has held that tax laws are not outside the purview of article 301 and that taxes which directly and immediately restrict trade and interfere with the flow of trade and commerce do offend article 301. Similarly, non-fiscal measures which have the above effect are equally hit by article 301. It has, however, been he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensatory. The learned Additional Solicitor-General further submitted that when the entire State is divide into local areas-when no part of the State is left uncovered by a local area and when the impugned tax is levied for the purposes of the State including the welfare schemes being undertaken by it, the tax cannot but be compensatory in nature. The impugned tax will help the State in providing and improving the trading facilities since the interest of the State lies in promoting trade and commerce in goods and commodities with and within the State of Bihar. Reliance is placed upon the following observations at page 549 of Automobile Transport (Rajasthan) Limited [1963] 1 SCR 491, which read: "Licensing system with compensatory fees would not be restrictions but regulatory provisions; for without it, the necessary lines of communication, such as roads, water-ways and air-ways cannot effectively be maintained and the freedom declared may in practice turn out to be an empty one. So too, regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom." It is not possible t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in article 304(b) read with article 255 of the Constitution? In other words (a) whether the Act has received the assent of the President as alleged by the State, (b) whether the levy of the said tax constitutes a reasonable restriction and (c) whether the said levy is conceived in public interest. The impugned tax is a tax on entry-on movement of goods into a local area. If it is assumed to be neither compensatory, nor regulatory (as mentioned above) it may be said to be offending article 301, unless, of course, it is saved by virtue of the provision contained in article 304(b) read with article 255 of the Constitution, as contended by the learned Additional Solicitor-General. Article 304 and article 255 read as follows: "304. Restrictions on trade, commerce and intercourse among States. Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) (Omitted as unnecessary). (b) Impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or move ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent assented to the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Bill, 1993 on August 21, 1993(.) Letter without comments follows(.)". In the absence of any material to the contrary, we accept the averment of the State and hold that the requirement of prior consent has been satisfied in the case of the impugned Act. The next question is whether the impugned tax constitutes a reasonable restriction and whether it is imposed in public interest. In other words, the question is whether the interference with and the restriction upon the freedom guaranteed by article 301 in the form of the impugned tax is a reasonable one and whether it is required in public interest. The learned Additional-Solicitor General says that both the requirements are satisfied in this case. He says that in view of the sudden loss of revenue from the cess upon minerals as a result of the judgment of this Court in India Cement Limited (1990) 1 SCC 12; AIR 1990 SC 85 and other judgments of the Patna High Court following it, public interest required the State to find alternative sources of revenue to keep its various welfare programmes and other governmental functions going a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down a taxing statute if it contravenes the provisions of articles 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. It is, therefore, idle to contend that the levy imposed an unreasonable restriction on the freedom of trade and commerce." The above observation is relied upon to show not only that the impugned tax was "required" in the public interest but that it is also reasonable. To demonstrate the reasonable character of levy, the learned Additional Solicitor-General relies upon a few more circumstances. He points out that so far as motor vehicles, Indian-made foreign liquor, vegetable and hydrogenated oil and cements (items 1, 3, 4 and 5 in the Schedule to the Act) are concerned, the entry tax levied and collected thereon is given credit towards the sales tax payable on the sale of the said goods, which means that no additional burden is created on the dealers by the impugned levy. It is pointed out that entry tax is levied and collected mainly f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that an addition of three per cent to the said level of taxation is unreasonable when the tax so levied and collected is going to serve the interest of the public in that State? Can it be reasonably suggested that this addition of three per cent is impeding the trade, commerce or intercourse in tobacco products directly and immediately or to any appreciable degree? We think not. In this connection, it is not irrelevant to take into consideration the harmful nature of the tobacco products. Though it may not have been recognised in 1957 when ADE Act was enacted, it is now recognised by one and all that tobacco is injurious to health. (A warning to the above effect is statutorily required to be printed on all packets and cartons containing the tobacco products.) The extraordinary high level of excise duties on tobacco is meant precisely to discourage its consumption. In our opinion, therefore, it is not possible to say that the addition of three per cent is either an unreasonable restriction on the freedom of trade and commerce or that it is not required in public interest. In this connection, it is necessary to notice a few decisions brought to our notice. In Bhagatram Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Solicitor-General that inasmuch as there is no sale of crude in the State of Bihar, a provision for giving credit of entry tax against sales tax was thought to be unnecessary. It is explained that the crude from the oil fields in Assam is pumped to Barauni Oil Refinery, located in Bihar, through a pipeline. The crude is refined here and petroleum and other products produced therefrom are sold. It is, therefore, submitted that while an entry tax is levied on the entry of crude in a local area, no provision has been made for giving credit/set-off of such tax against the sales tax payable inasmuch as no crude is ever sold in Bihar and no tax is levied or collected thereon, as a fact. Reliance is placed by the learned Additional Solicitor-General upon the decision of the Constitution Bench in Khyerbari Tea Co. Ltd. v. State of Assam [1964] 5 SCR 975 where it has been recognised that a tax levied by the State must be presumed to be a reasonable restriction inasmuch as taxes are levied to raise money in order to carry on the functions of the Government and to sustain the manifold activities undertaken by it. This decision also points out that the fact that President has given assent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice of the court and for the reasons recorded hereinabove, the requirements of article 304(b) must be held to have been satisfied in this case. The attack upon the validity of the impugned Act on the ground of violation of article 301 accordingly fails. Question No. 3: Whether the Bihar Legislature is deprived of its legislative competence to enact the impugned Act on account of the enactment of ADE Act and/or because the State of Bihar is getting a portion of the taxes levied and collected under the ADE Act. The submission of Sri Ganesh on this count runs thus: The ADE Act was enacted by Parliament in lieu of levy of sales tax and all other taxes and imposts by the States on tobacco and other commodities mentioned in the First Schedule thereto. This Act was enacted by the Parliament based on an understanding with the States that they will not levy sales or purchase tax or any other kind of impost upon the scheduled commodities and that the Union will collect additional duties of excise under the Act and make over a portion of the same in specified proportion to the several States in the country. The Report of the Taxation Enquiry Commission (1953-54) is the basis of this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat "it is proposed to correlate the principles of distribution to the existence of a complete exemption from sales tax or purchase tax or any other impost by what-ever name called on these commodities under the respective State laws. In other words, the State which does not exempt completely all these three commodities from its Sales Tax Act or any other similar legislation will not be entitled to partake in the distribution of the proceeds of the additional excise duty". Learned counsel points out that Bihar has been receiving its due share from the additional duties of excise collected by the Centre on the basis of the recommendations made by the Finance Commissions from time to time. Indeed, he goes to the extent of submitting that the entry tax contemplated by entry 52 in List II of the Seventh Schedule to the Constitution is a tax similar to sales tax inasmuch as it is a tax levied upon the entry of goods into a local area for the purposes of consumption, use or sale therein. It is not possible to agree with Sri Ganesh. Entry tax is a tax levied at the point of entry of goods into a local area for the purpose of consumption, use or sale therein. It is not a tax on sale. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Commission. Provision has been made that the States which levy a tax on the sale or purchase of these commodities after the 1st April, 1958 do not participate in the distribution of the net proceeds. Provision is also being made in the Bill for including these three goods in the category of goods declared to be of special importance in inter- State trade or commerce so that, following the imposition of uniform duties of excise on them, the rates of sales tax if levied by any State are subject from 1st April, 1958 to the restrictions in section 15 of the Central Sales Tax Act, 1956." Section 3 provides for levy and collection of additional duties. Section 4 provides for distribution of additional duties among the States. It says that during each financial year, there shall be paid out of the Consolidated Fund of India to the States, in accordance with the provisions of the Second Schedule, such sums, representing a part of the net proceeds of the additional duties levied and collected during that financial year, as are specified in the Schedule. Section 5 says that any expenditure incurred under the Act shall be charged to the Consolidated Fund of India. Section 6 confers the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are in the nature of exceptions to the normal rule that Parliament can make no law with respect to the entries in List II. If so, it follows that the State Legislatures are not denuded or deprived of their power to make a law either with reference to entry 52 or with reference to entry 54 in List II. That power remains untouched and unaffected. All that the Parliament has said by enacting the ADE Act is that it will levy additional duties of excise and distribute a part of the proceeds among the States provided the States do not levy taxes on sale or purchase of the scheduled commodities. The Parliament has also provided the consequence that follows if any State levies tax on sale or purchase of scheduled commodities; all that happens is that the State will be deprived of its share in the proceeds of additional duties of excise for that financial year. Even this is subject to the power of the Central Government to direct otherwise. The Parliament could not, and did not, prohibit any State from making any law or levying any tax which a State can levy by virtue of the entries in List II. The decision of this Court in State of Kerala v. Attesee (Agro Industrial Trading Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shnamachary, relied upon by Sri Ganesh, which we have set out hereinabove, is also not quite clear. The extract speaks, in the first instance, of "a complete exemption from sales tax or purchase tax or any other impost by whatever name called on these commodities under the respective State laws" but then it immediately proceeds to explain, what it means by the said expression, by saying, "In other words, the State which does not exempt completely all these three commodities from its Sales Tax Act or any other similar legislation will not be entitled to partake in the distribution of the proceeds of the additional excise duties". Again, the fact that subsequent to the ADE Act, certain States withdrew certain enactments providing for levy of taxes/ fees other than sales tax on the scheduled commodities, in the light of the enactment of the ADE Act-assuming that it was for that reason alone-is not relevant on the meaning and interpretation of the ADE Act or for that matter, the proviso to rule (2) in the Second Schedule thereto. So long as the language of the enactment is clear and unambiguous, it is not permissible to refer to the kind of material relied upon by Sri Ganesh for alteri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, the submission of the learned counsel was unacceptable to us. Question No. 4: Whether the impugned enactment is outside the purview of entry 52 in List II of the Seventh Schedule to the Constitution and, therefore, beyond the legislative competence of the Bihar Legislature for the reason that it does not provide for the revenues raised thereunder to be passed on to the local authorities for being used for the purposes of such local authorities. The next submission of Sri Ganesh is that inasmuch as the impugned Bihar Act does not contain any provision or any indication that the taxes collected under the Act will be passed on to the local authorities, it cannot be said to be a tax contemplated by entry 52 in List II. Counsel submitted, on the basis of certain decisions of this Court to which we shall presently refer, that the said tax is essentially in the nature of octroi which was being levied by the local authorities prior to the Government of India Act, 1935. Octroi was levied by the local authorities to raise money for their own purposes. It was meant to meet the financial needs of the local authorities and not for supplementing or augmenting the general finances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of List II of the Seventh Schedule to the Government of India Act, 1935 as well as entry 52 in List II in our Constitution speak of "local areas" and not "local authorities". The tax, by whatever name called, is levied upon the entry of goods into a local area for consumption, use or sale therein. The decisions relied upon by Sri Ganesh too use the same words. Entry 52 empowers the State Legislature to levy this tax. The local authorities cannot themselves levy this tax. The power is that of the State Legislature and of none else. So long as the tax is levied upon the entry of goods into a local area for the purpose of consumption, use or sale therein, the requirement of entry 52 is satisfied. The character of the tax so levied is that of entry tax-by whatever name it is called. The decisions relied upon by Sri Ganesh do not say that the State must levy the tax and make over the collection part of it to local authorities nor do they say that after collecting it, the State must make over the proceeds to the local authorities. The highest that Sri Ganesh can legitimately put his submission is that the tax is meant for and must be utilised for the purpose of the local areas. It c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectness of the judgment under appeal in so far as it holds that the proviso to section 3(1) and section 6 are violative of article 14 inasmuch as they confer upon the State Government an unguided and uncanalised power. The proviso to section 3(1) and section 6 read as follows: "3. Charge of tax.-(1) There shall be levied and collected a tax on entry of scheduled goods into a local area for consumption, use or sale therein at such rate not exceeding five per centum of the import value of such goods as may be specified by the State Government in a notification published in an official gazette subject to such conditions as may be prescribed: Provided different rates for different scheduled goods and different local areas may be specified by the State Government. 6.. Exemption from tax.- The State Government may by notification and subject to such conditions and restrictions as it may impose exempt from levy of tax any class of dealers, persons or importers." The proviso to section 3(1) empowers the State Government to specify different rates of entry tax for different commodities mentioned in the Schedule to the Act. This is, however, subject to the ceiling of five per c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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