TMI Blog2006 (12) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... y by placing materials before the court - In our view, there is 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. Affidavit filed is not specific and the State has not been able to establish the nexus between entry tax collected and the benefit conferred upon the person from whom the tax is collected. We also notice, the State is also discriminating between traders who bring goods from outside the State or country to a local area as defined under Section 2(1)(h) read with Section 2(1)(d) and person who brings goods from an area within the State to a local area in the State. Facts would indicate that on the introduction of entry tax, manufacturers have opted to purchase raw materials from within the State because they are less costlier since the levy of entry tax has definitely created a tax barrier affecting the free flow of trade, commerce and intercourse, such a tax violates Article 301 of the Constitution and therefore liable to be declared as unconstitutional. We therefore hold that unless and until State discharges its burden by placing materials before court tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of levy of entry tax is reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to the petitioners. The impugned Act imposing entry tax cannot be said to be specifically meant for facilitating trade, commerce and intercourse, but is raised for augmenting the general revenue of the State. We therefore hold that the demand and collection of entry tax under the Kerala Tax on Entry of Goods into Local Areas Act, 1994 is illegal, unauthorised and violative of Article 301 of the Constitution of India. Original Petitions are allowed as above and the levy and demand notices issued would stand quashed. - K. Radhakrishnan And M. Krishnan,JJ. JUDGMENT 1. Constitutional validity of certain provisions of the Kerala Tax on Entry of Goods into Local Areas Act, 1994 (Act 15 of 1974) is under challenge in all these Original Petitions. A few of the writ petitioners have sought for a declaration that Section 2(1)(d), 2(1)(g), 2(1)(i) and Section 3 of the Kerala Tax on Entry of Goods into Local Areas Act, 1994 (in short Entry Tax Act ) are discriminatory and ultra vires of Articles 14, 19(1)(a), 19(1)(g), 246, 265, 286, 301, 304(a), 304(b) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , use or sale therein. State and its officers sought to levy entry tax not only on goods which are brought from outside the State into any local area for consumption, use or sale but also from outside the country. Several writ petitions were filed before this Court challenging the imposition of entry tax on motor vehicles and goods like JCB 3 CX Bachoe Loader, escavators etc. brought from outside the State and abroad. Writ Petitions were also filed by non-resident Indians challenging the imposition of entry tax when they brought motor cars from outside the country. A few of the A class contractors have also brought JCB from places like England. Placing reliance on the judgment in Rajan's case, State contended that the principle laid down in that case is equally applicable when goods are brought from outside the country. Repelling the contention of the State the Division Bench of this Court in Fr. William Fernandez's case (supra) took the view that the principles laid down in Rajan's case would not apply when goods are brought from outside the country. 4. Counsel appearing for the petitioners submitted that entry tax cannot be levied when motor vehicles and other g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Courts were directed to ascertain as to whether the impugned levy was compensatory in nature. The order is reported in (2006) 7 SCC 271. 6. In Jindal's case it has been specifically stated that the burden is on the State to show placing materials before court that payment of compensatory tax is reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to payers. It also opined that as soon as it is shown that the Act invades freedom of trade it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of Article 304(b) of the Constitution. 7. The Commissioner of Commercial Taxes, Government of Kerala, in due reverence to the direction of the apex court, filed affidavit before this Court on 11.9.2006 explaining the services and expenditure incurred by the State for importers of the goods. It is stated that the State provides variety of services such as convenient roads, protection for transport of goods through traffic checking and police protection for transport of goods through traffic checking and police aid. The affidavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regularly provided by the State, State is providing service to compensate the levy of entry tax under the Entry Tax Act. It is stated that there is a direct nexus to the levy of entry tax on goods and the expenditure incurred by the State to provide corresponding service to the importers of goods. Referring to the counter affidavit filed by the State, a synopsis of notes of argument was filed in W.P. (C) No. 12490 of 2006. Referring to column 2 of the table it is stated that entry tax collection does not indicate whether it was collected for vehicles alone or inclusive of goods and vehicles or after giving rebate as per Section 4 of the Act. It is stated that no figure has been shown for 1994-95 and 1995-96, the starting years. It is also pointed out that during 1996-97 collection was Rs. 1.89 crores and in 2005-2006 it is Rs. 140.68 crores. It is also pointed out that the expenditure for roads is met from motor vehicle tax revenue and from funds allotted from other agencies like National Highway Fund, World Bank Loan and Allotment from NABARD. Referring to table 2, it is pointed out that capital outlay for industry and minerals have no relevance or connection with levy of entry ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation to enact laws for the protection and encouragement of trade and commerce amongst the States but by its own force creates an area of trade free from interference by the State and, therefore, Article 301 perse constitutes limitation on the power of the State. Article 301 is, however, subject to the other provisions of Articles 302, 303 and 304. It states that subject to other provisions of Part XIII, trade, commerce and intercourse throughout India shall be free. 34. Article 301 is binding upon the Union Legislature and the State Legislatures, but Parliament can get rid of the limitation imposed by Article 301 by enacting a law under Article 302. Similarly, a law made by the State Legislature in compliance with the conditions imposed by Article 304 shall not be hit by Article 301, Article 301 thus provides for freedom of inter-State as well as intra-State trade and commerce subject to other provisions of Part XIII and correspondingly it imposes a general limitation on the legislative powers, which limitation is relaxed under the following circumstances: (a) Limitation is relaxed in favour of Parliament under Article 302, in which case Parliament can impose restrictions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 301 and Clause (1) of Article 303. This aspect is important because the doctrine of direct and immediate effect which is mentioned in Atiabari Tea Co. emerges from the concept of limitation embodied in Article 301. It is this doctrine of direct and immediate effect which constitutes the basis of the working test propounded vide para 19 (of AIR ) in Automobile Transport. Therefore, whenever the law is impugned as violative of Article 301, the courts will have to examine the effect of the operation of the impugned law on the inter-State and the intra-State movement of goods, which movement constitutes an integral part of trade. The concept of compensatory tax was examined by the Apex Court in the light of the above mentioned constitutional provisions especially Article 301. The concept of compensatory tax was not there in the Constitution but was judicially evolved in Automobile Transport's case, supra as a part of regulatory charge. A compensatory tax is levied on an individual as a member of a class, whereas a fee is levied on an individual as such. The apex court examined the difference between a tax, a fee and a compensatory tax. The apex court in Jindal's case, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept of compensatory tax, it is well settled, is a judicially evolved principle and could be an exception to the provisions of Article 301. The Apex Court also indicated after referring to the decision in Automobile Transports' case that the primary purpose of a taxing statute is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulatory power or whether it is the product of the exercise of the taxing power. It is pointed out that if the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. It is also stated that if the impugned taxing or non-taxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of the operation of such a law is to impede the activity, then the law is a restriction under Article 301. It is also pointed out by the apex court that the law is to enforce discipline o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof is a fee, hence upheld the validity of the Act. The court however held that there has to be a broad correlation between the total amount of fees generated by the impugned cess and the total value of services rendered. Referring to Vijayalakshmi Rice Mills' case, another Bench of the Supreme Court in Hardev Motor Transport v. State of M.P. felt that it is bound by the Constitution Bench decision than Vijayalakshmi Rice Mills' case. 13. The Apex Court in Jindal Stainless Ltd's case referring to Automobile Transport's case, supra held that the working test propounded in that case stood disrupted in the case of Bhagatram Rajeevkumar v. G.S.T. (1995) Supp. (1) SCC 673 and State of Bihar v. Bihar Chamber of Commerce . The Apex Court in Jindal's case, supra, overruled the above mentioned decisions and accepted the working test laid down in Automobile Transport's case, that is, direct and immediate effect not some connection or casual connection of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co.'s case and the working test enunciated in Automobile Transport's case for deciding whether a tax is compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd style of Bihar Taxes on Entry of Goods into Local Areas for Consumption, Use or Sale thereof Act, 1993. Section 3 is the charging Section. The court examined the validity of the notification in the light of the decision in Jindal's case and took the view that there is nothing on record to show that proportionate benefit has been extended to any individual as a member of class or any service facility has been provided in lieu of the same. It is also held that there is no material to indicate that the revenue so collected by way of entry tax is being recompensed to the service/facility provider, nor the impugned enactment facially or patently indicates the quantifiable data on the basis of which the compensatory tax is sought to be levied. It is also held that the Act does not disclose any material to show as to how the levying of entry tax is of any benefit to the free flow of trade and commerce. 14. The Division Bench of the Bombay High Court in Eurotex Industries and Exports Ltd. v. State of Maharashtra (2004) 135 STC 25 placing reliance on the decision of the Apex Court in Jindal Stripe Ltd v. State of Haryana examined the scope of Section 3 of the Maharashtra Tax on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Article 301 unless it is established that in reality it hampers or burdens the trade and commerce. Further it was noticed that the State law accords identical treatment in the matter of levy and collection of tax on the goods manufactured within the State and identical goods imported from outside the State. The facts we get in the above case is entirely different from the facts of the cases we are dealing with. First of all, State of Himachal Pradesh is a hilly area which is not connected with railway or other modes or water transport. Expenses for maintenance is very huge and the tax is collected from all that is from the traders within the State and outside. Principle laid down in the case is therefore not applicable to this case. Further, we may notice, in Yash Pal Garg's case, supra, all the traders were treated alike whether they are from within the State or not. 16. The Kerala Entry Tax Act was originally enacted to provide for the collection of sales tax on motor vehicles purchased from outside the State and brought into State and to avoid loss of sales tax on account of purchase of motor vehicles by parties other than dealers from outside the State and brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Territory or any other State under the provisions of the Motor Vehicle Act, 1998 (Central Act 59 of 1988), prior to a period of fifteen months or more from the date on which it is registered in the State: Provided further that no tax shall be levied and collected in respect of any goods which is the property of the Central Government or which is used exclusively for purposes relating to the defence of India. (2) The tax shall be payable by the importer of any goods by the importer in such manner and within such time as may be prescribed. After the amendment by Finance Act 2003 reads as follows: (1) Subject to the provisions of this Act, there shall be levied and collected a tax on the entry of any goods into any local area for use, consumption, transfer or sale therein. The tax on such goods shall be at such a rate or rates as may be fixed by Government by notification, on the purchase value of goods not exceeding the tax payable for the goods as per the Kerala General Sales Tax Act, 1963. Provided that no tax shall be levied and collected in respect of any motor vehicle which was registered in any Union Territory or any other State under the provisions of the Motor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts will have to examine the effect of the operation of the impugned law on the inter-State and the intra-State movement of goods, which movement constitutes an integral part of trade. 17. We have examined whether the Kerala Entry Tax Act facially or patently indicated quantifiable data on the basis of which the compensatory tax was levied. The Act has not indicated any benefit which is either quantifiable or measurable, if the provision of the Act does not indicate facially the quantifiable benefit, burden is on the State as a service/facility provider to show by placing the materials before the court that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to the payer. We have already found that the compensatory character of tax is not self-evident from the Kerala Entry Tax Act. We have already extracted the object of the Act which is for augmenting the general revenue by curbing the evasion of sales tax on goods purchased from outside the State, which cannot be characterised as a compensatory levy. This legal position is well settled by the judgment of the apex court in Jindal Stripe Limited's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds or revenue. Whether goods are transported into the State from outside the State or abroad the State has got a duty to provide those facilities, like roads, bridges etc. which is being enjoyed not only by persons who bring goods notified for levy of entry tax but also others. In our view, there is 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. Affidavit filed is not specific and the State has not been able to establish the nexus between entry tax collected and the benefit conferred upon the person from whom the tax is collected. We also notice, the State is also discriminating between traders who bring goods from outside the State or country to a local area as defined under Section 2(1)(h) read with Section 2(1)(d) and person who brings goods from an area within the State to a local area in the State. Facts would indicate that on the introduction of entry tax, manufacturers have opted to purchase raw materials from within the State because they are less costlier since the levy of entry tax has definitely created a tax barrier affecting the free flow of trade, commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to curb evasion of sales tax on motor vehicles purchased from outside and brought into State on the plea that State was losing sales tax on motor vehicles which were purchased from outside the State and brought to the State. In the budget speech in the Assembly during 1994-95 in regard to new tax measures it is stated that the Government proposed to impose entry tax on motor vehicles in order to prevent loss of revenue on account of vehicles being purchased directly from other States. A Division Bench of this Court in Fr. William Fernandez' case, supra took the view that the object and reasons and the preamble and the provisions of the Act seek to provide for the levy of tax on the entry of goods into local areas of the State from outside, but does not include entry from across the border of the country. Reference was also made to Clause (n) of Section 2(1) dealing with purchase value. What has been directed to be taken into account is the value of goods as ascertained from the original invoice and includes insurance, excise duties, countervailing duties, sales tax, transport fee, freight charges and all other charges incidentally levied on the purchase of goods and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on goods introduced by amendment Act had the prior sanction of the President as required under the proviso to Article 304(b); nor was there anything on record to suggest that before amending the act assent of the President was obtained as contemplated under Article 255 of the Constitution of India. What is placed before us is only a letter from the Government of India in response to the letter of June 1992 sent by the Taxes Department stating that the Government of India have no objection to the introduction of the Kerala Tax on Entry of Goods into Local Areas Bill 1992 by the State Legislature under Article 304(b) of the Constitution which is not the assent or previous sanction of the President as per the proviso to Article 304 (b) of the Constitution. 22. We therefore hold that the levy of entry tax on goods imported from other State to the State of Kerala and from abroad is not compensatory in nature since the State Government could not discharge its burden by placing materials before court that payment of levy of entry tax is reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to the petitioners. The impugned Act imposing entry tax c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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