TMI Blog2004 (1) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... t purpose have set up their power plants in the State of Maharashtra. Eurotex Industries use furnace oil for their captive power plant as raw material, whereas Tata Power Limited use low sulphur waxy residue oil as raw material for the manufacture of electricity. Eurotex Industries Limited import furnace oil through Goa or Karwar Port and then transport it to their factory situated at Kolhapur in the State of Maharashtra. Tata Power Limited have their power plant situated at Chembur in Bombay and the raw material required is imported through the Port in Bombay. 4.. By the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 (hereinafter referred to as "the Entry Tax Act", for short) the State Government has levied entry tax on certain goods that enter into the local areas (entire State is divided into several local areas) in the State of Maharashtra for consumption, use or sale from any place outside the State at the rate specified in the Schedule to the said Act. First proviso to section 3 of the Entry Tax Act provides that the rate of entry tax to be levied shall not exceed the rate specified for that commodity under the Bombay Sales Tax Act, the Bombay Sales of Mot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.. Elaborating the above submissions, Mr. Jagtiani submitted that article 301 guarantees freedom of trade, commerce and intercourse throughout the territory of India and is made subject only to Part XIII of the Constitution. Relying upon the decision of the apex Court in the case of Indian Cement Ltd. v. State of A.P. reported in [1988] 69 STC 305; (1988) 1 SCC 743 (para 12 at page 755), Mr. Jagtiani submitted that a taxing statute does constitute a fiscal barrier, which affects free-flow of goods from one State to another. He submitted that in the instant case the Entry Tax Act clearly operates as a barrier to the inflow of furnace oil from outside Maharashtra into Maharashtra for the following reasons: (A) There is a direct 12 per cent to 15 per cent advantage in the pricing/cost of production in favour of a person who purchases furnace oil in Maharashtra for manufacture of electricity because of the provisions of section 42 read with rule 41D of the BST Act and Rules. The differential is so evident and glaring that any prudent businessman would opt to purchase furnace oil in Maharashtra for this reason alone. (B) Entry tax was initially promulgated as an Ordinance with e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the same and there is a wide gap of 12 per cent to 15 per cent in respect of furnace oil brought into the local area from outside the State. Thus the said Act merely pays lip service to the provisions of article 304(a) whilst in effect discriminating between the furnace oil imported and locally manufactured furnace oil. In this connection he relied upon the decision of the apex Court in the case of Shree Mahavir Oil Mills v. State of J. K. reported in [1997] 104 STC 148; (1996) 11 SCC 39, particularly paragraph 25 at page 53 (page 162 of STC) which reads as follows: "In our opinion, it is this: the States are certainly free to exercise the power to levy taxes on goods imported from one States/ Union Territories but this freedom, or power, shall not be so exercised as to bring about a discrimination between the imported goods and the similar goods manufactured or produced in that State. The clause deals only with discrimination by means of taxation; it prohibits it. The prohibition cannot be extended beyond the power of taxation. It means in the immediate context that States are free to encourage and promote the establishment and growth of industries within their States ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. face of it, augmentation of revenue is neither compensatory nor regulatory in purpose. (D) The additional affidavit filed on behalf of the State read along with the written submissions filed by the State reveal that the Act has been enacted to create "level playing fields". This declaration of intent, which is also reflected in the Statement of Objects and Reasons, certainly militates against the pretence of the Act being compensatory or regulatory in nature. If at all, the Act is retaliatory in intent vis-a-vis other States. (E) The additional affidavit of the State seeks to justify the imposition of entry tax as being compensatory by showing that the same has been utilised to compensate those local areas which have abolished octroi and that the expenditure has been made on account of the State Road Fund. It was submitted that this argument must be rejected for the following reasons: (a) The contention that the entry tax is to compensate for abolition of octroi is not supported by the provisions of section 3(7) of the Entry Tax Act. (b) Even prior to the coming into existence of the said Act, funds were allocated by the State Government right from 1997 onwards towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that by imposing entry tax the State has brought about discrimination which is emphasised by the fact that every manufacturer of goods purchasing furnace oil within Maharashtra is entitled to a refund/rebate/set-off or drawback irrespective of the size of its manufacturing unit or the place where it is located. It was submitted that the conditions for claiming benefit under rule 41D are as follows: (a) that he is a dealer registered under the Act. (b) that he has purchased goods covered in entry 6 of Schedule B and in Schedule C; (c) that the goods are purchased by him in the State for manufacture of goods or sale or export; (d) that the goods so manufactured or actually sold by him or exported by him and not given away as samples; (e) that the goods purchased by him are used by him in the packing of the goods manufactured. It was submitted that from the aforesaid conditions, it is clear that the refund/rebate/set-off of sales tax paid on the raw material used in the final product is not restricted to any special class of manufacturers but is available to all manufacturers who purchase raw materials within the State and use it in the manufacture of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m outside the State of Maharashtra and these expressions cannot be extended so as to include imports from outside the territory of India. It was submitted that there is an obvious distinction between the expression "outside the State of Maharashtra" and "outside the country". Since the term used is "outside the State of Maharashtra", it was submitted that entry tax was not leviable on scheduled goods which are imported from outside the country. In this connection, Mr. Jetley relied upon the judgment of the Kerala High Court in the case of FR. William Fernandez v. State of Kerala [1999] 115 STC 591 and the decision of the Karnataka High Court in the case of Syndicate Bank v. State of Karnataka [2000] 119 STC 155. 15.. The counsel for the petitioners further submitted that section 2(1)(n) of the Entry Tax Act defines the words "value of goods". The said definition does not include the customs duty paid on the import of the goods from outside the territory of India. It was submitted that this omission is not accidental but is based on considered deliberation and it is evident that there is no legislative intent to levy entry tax on import of goods from outside the territory of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay entry tax and will not be entitled to claim any set-off, drawback or rebate of the same; whereas, others who purchase the said goods within the State of Maharashtra are entitled to set-off or rebate of refund of the taxes paid on the said goods. Relying upon the decisions of the apex Court in the case of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 and Anand Commercial Agencies v. Commercial Tax Officer [1997] 107 STC 586, Mr. Jetley submitted that it is not open to the State to discriminate between the imported goods and the goods manufactured or produced within the State. Accordingly, it was submitted that the impugned legislation which seeks to discriminate between the imported goods and the goods manufactured in the State is wholly arbitrary, unreasonable, illegal and contrary to law and accordingly, liable to be quashed and set aside. 19.. Mr. Bharucha, learned Senior Advocate appearing on behalf of the respondents, submitted that the impugned legislation is neither constitutionally invalid nor it is discriminatory as contended by the petitioners. He submitted that the validity of an Act cannot be challenged on the basis of exemption noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are sold in the course of exports and coming from a place outside Maharashtra, are put on par with similar goods from within the State and accordingly, he submitted that the impugned Act cannot be said to be discriminatory. 21.. Mr. Bharucha submitted that the Statement of Objects and Reasons for enacting of the Entry Tax Act, inter alia, provides that some States have levied entry tax on goods imported from outside their States. Thus, levy of entry tax by several States would discriminate against the industries trade and consumers in Maharashtra, if a similar tax to equalise the tax was not levied in Maharashtra. Accordingly, Mr. Barucha submitted that the entry tax ensures a level playing field for goods which enter the local area from within the State and those goods that enter the local area from outside the State. He submits that the entry tax seeks to iron out anomalies that arise on account of different rates of sales tax in different States. He submitted that the entry tax does not impose any restrictions whatsoever on freedom of trade and commerce. He submitted that the Entry Tax Act in fact assists free trade by ironing out the discrepancies and providing a leve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 301 of the Constitution. He submitted that only direct and immediate restrictions are hit by article 301 of the Constitution but a conditional exemption is not a direct and immediate restriction and, therefore, the same is not hit by article 301. Relying upon the decisions of the apex Court in the case of State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376; AIR 1969 SC 147, State of Tamil Nadu v. Sitalakshmi Mills Ltd. [1974] 33 STC 200; (1974) 4 SCC 408, Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82; (1990) 3 SCC 87 and Amrit Banaspati Co. Ltd. v. Union of India (1995) 3 SCC 335, he submitted that free-flow of trade does not depend on the rate of tax. Accordingly, it was submitted that merely because in some cases the burden of tax is not exactly equal, cannot render the provisions of the entry tax invalid. 24.. Without prejudice to the aforesaid submissions, Mr. Bharucha submitted that the entry tax does not hinder or restrict the free-flow of trade and commerce and that it in fact aids the free trade by removing the anomalies caused by differential rates of sales tax. He submitted that the entry tax is compensatory and regulatory in nature and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed when the goods cross the customs barrier. He submitted that the taxing event under the Entry Tax Act is long after the goods are imported and have merged with the mass of goods in India. Therefore, the entry tax is outside the restrictions of article 286 of the Constitution of India. 26.. Mr. Bharucha relied upon the decision in the case of Secretary to Government of Home Department, Tamil Nadu v. Salem Dharmapuri Omnibus Association (1975) 4 SCC 175 and submitted that if Government has power to impose a tax, the motive for the purpose with which that power has been exercised is immaterial. Relying upon the decision of the apex Court in the case of Orissa State Warehousing Corporation v. Commissioner of Income-tax [1999] 237 ITR 569 (SC); (1999) 4 SCC 197, it was submitted that intentment has no place in a taxing statute. He submitted that a fiscal statute has to be interpreted on the basis of the language used therein and not de hors the same. He submitted that the court has to ascribe the natural and ordinary meaning to the words used by the legislation and the Court ought not under any circumstances can substitute its own impression and ideas in place of the legislative i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and collected on a commodity is refunded as per the provisions of the BST Act, can entry tax still be levied at 15 per cent, especially where the same is legislated to bring the importers on par with the local purchasers of raw material? In other words, whether the effective rate of tax on a commodity under the BST Act should be taken into consideration for determining the levy of entry tax? 30.. Similar question had arisen in the matter of levy of additional duty under section 3 of the Customs Tariff Act, 1985 ("the CTA", for short). Section 3(1) of the CTA provided that on every imported article additional duty shall be leviable equal to the excise duty for the time being leviable on a like article if produced or manufactured in India, or capable of being manufactured in India. The explanation to section 3(1) of the CTA provided that the expression "the excise duty for the time being leviable" means the excise duty for the time being in force. The issue before the court was, for determining the additional duty under the CTA whether the exemption notifications issued under the Excise Act or the Rules made thereunder should be considered or not. This Court in the case of Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritory of India is not an easy question to answer. Every State has a right to impose tax on subjects which fall within its jurisdiction under List II of the Seventh Schedule to the Constitution. This includes taxes on sale or purchase of goods other than newspapers. Fiscal powers of the State can be utilised not only to collect revenue but also to regulate economic development of a State. A backward State may try to encourage development of industries within the State by grant of subsidy and also by low rate of tax on goods manufactured by local industries. If small newly set up industries in the State have to compete with big industries, small units may not survive at all. In such a case, the State is entitled to prop up the local industries by taking fiscal measures. This may be done by providing subsidies or by imposing low rate of sales tax on the goods manufactured within the State. This aspect was explained in the case of Video Electronics Pvt. Ltd. v. State of Punjab by Sabyasachi Mukharji, C.J., in the following words: [1990] 77 STC 82 (SC) at page 100; [(1990) 3 SCC 87 at page 105, para 22]. 'It is manifest that free-flow of trade between two States does not necessaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile similar goods entering the local area from within the State do not bear sales tax, the State has in fact created a tax barrier in contravention of article 301 which guarantees free-flow of trade, commerce and intercourse throughout the territory of India. The fact that the tax barrier created by the levy of entry tax has hampered free-flow of goods into the State is established from the averments made in the additional affidavit in reply filed on behalf of the State on November 20, 2003. In the said affidavit in reply it is admitted by the State that after the introduction of entry tax, the sale of goods in question within the State has gone up considerably. This admission on the part of the State clearly establishes that on introduction of entry tax, the manufacturers have opted to purchase raw materials from within the State, because on account of the tax barrier created by the entry tax, bringing raw materials from outside the State works out to be costlier. In other words, by taxing the goods entering the local areas from outside the State while not taxing the goods entering the local area from within the State, free-flow of trade, commerce and intercourse is hampered and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trade between the States violates the constitutional mandate and is therefore, liable to be declared as unconstitutional. 36.. It is true that by judicial decisions, an exception to article 301 has been carved out and it has been held that the taxes which are compensatory or regulatory in nature are protected from the vice of unconstitutionality. In the present case, it is contended by the State that the entry tax is levied to compensate those local areas which have abolished octroi and further entry tax collected has been used in meeting the expenditure on account of the State road fund. This contention of the State is belied by section 3(7) of the Entry Tax Act which clearly states that the entry tax is leviable in addition to levy and collection of octroi or entry tax by any authority including the local authority. Therefore, it cannot be said that the levy of entry tax is with a view to compensate the local area on account of abolishing octroi. Moreover, it is not in dispute that the State Government has been allocating amounts towards the State road fund even prior to the introduction of entry tax. Therefore, it cannot be said that the entry tax has been levied with a spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State do not effectively bear sales tax. Apart from above, the ratio laid down by the apex Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1; (1996) 9 SCC 136 to the effect that for establishing the compensatory nature of tax, it is enough if some connection, direct or indirect, is shown to exist between the tax and the trading facilities provided by the State does not support the case of the State, because, in the present case, admittedly the entry tax is levied to ensure that the goods entering the local area bear either sales tax or entry tax. Once it is found that the specified goods entering local area from within the State do not bear sales tax then entry tax on similar goods entering the local area from outside the State cannot be levied. In these circumstances subjecting the goods imported from outside the State to entry tax becomes unauthorised, arbitrary, discriminatory and violative of article 301 of the Constitution. 38.. The ratio laid down by the Apex Court in the case of R.K. Garg (1981) 4 SCC 675 is distinguishable on facts. In the present case unlike the case before the apex Court, the petitioners are not contending that the exemption granted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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