TMI Blog2007 (3) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to be held that the provision is inevitably one in violation of the requirement of article 304(a) of the Constitution of India and has to be declared as unconstitutional. Insofar as the argument of the learned Advocate-General placing reliance on the judgment of the Supreme Court in Shaktikumar M. Sancheti's case [ 1994 (11) TMI 341 - SUPREME COURT] is concerned, the argument of the provisions of the Maharashtra Act being in violation of the provisions of article 304(a) of the Constitution of India was not even canvassed by the appellant before the Supreme Court and the Supreme Court did not examine this question. While it is a fact that the High Court had dispelled the argument of the Act being violative of article 304(a) at the best, the law as laid down by the Division Bench of the Bombay High Court can be accepted as a persuasive precedent. So also the position in respect of the judgment of the Gujarat High Court in Eagle Corporation's case[ 2006 (10) TMI 395 - GUJARAT HIGH COURT] . But, in the light of the discussion above with reference to the judgment of a Division Bench of this court in Avinyl Polymers' case [1998] 109 STC 26, I cannot agree with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitutional, being violative of sub-article (b) of article 304 of the Constitution of India. In the result, these petitions are allowed, the provisions of the Act, particularly section 3 of the Act are declared to be in contravention of subarticles (a) and (b) of article 304 of the Constitution of India and therefore violates article 301 and accordingly declared to be unconstitutional. The impugned assessment orders, demand notices, etc., issued for giving effect to the provisions of the Act and the charging section and all proceedings initiated under the Act stand quashed, by issue of writs of certiorari in all these petitions. As a consequence, the taxes collected by the State under the impugned provisions of the Act are required to be refunded to the persons who have paid them. Rule made absolute. Parties to bear their respective costs. - 8224 of 2005, 7844 of 2005, 7843 of 2005, 6615 of 2005, 5467 of 2005, 3129 of 2005, 65 of 2005, 62 of 2005, 1606 of 2005, 67 of 2005,47746 of 2004, 48388 of 2004, 9279 of 2005, 412 of 2005, 9486 of 2005, 11583 of 2005, 12605 of 2005, 12607 of 2005, 6215 of 2005, 15531 of 2005, 10490 of 2005, 19731 of 2005, 22949 of 2005, 11619 of 2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an importer in accordance with the provisions of this Act or the Rules made thereunder. to be a tax levied by the Karnataka State in violation of the provisions of Part XIII of the Constitution of India; that the levy of such a tax directly on goods brought from outside the State and when it enters any local area is in the nature of a restriction or curb placed on the inter-State movement of goods in violation of the mandate of article 301 of the Constitution of India and therefore is unconstitutional. 2. The petitioners have also challenged such a levy on only goods brought from outside the State, as such levy is made payable by an importer who is a person who causes the entry of goods into the local area from any place outside the State for consumption or use therein and the levy being confined to only persons who are importers, it is also discriminatory. It is the version of the petitioners that such a levy clearly violates the provisions of article 304(a) of the Constitution of India. It is also contended that the levy of this nature only on goods brought from outside the State and while in transit is a levy which is a clear obstruction for movement of goods and being no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of taxpayers who are assessees under this Act and who bring the notified goods into the local areas within the State for the first time from outside the State of Karnataka, having not been subjected to any other levy, on such goods in the State, such persons steal a march over other persons who had to purchase the goods within the State before bringing them into the local area in the course of which they will have to pay sales tax or any other local tax and therefore the Legislature thought it fit to bring about a fair balance or to ensure that neither class gets an undue advantage in the matter of carrying on trade, business in the State, has subjected the class of taxpayers who are assessees under the Act for achieving an equalising effect in the matter of tax liability having an impact on the trade and business in the State, so that the persons like the petitioners who are importers and other persons who are non-importers receive an even treatment at the hands of the State. It is also urged in support of this contention that the equalising effect can be achieved even if the levy is imposed under the present Act in respect of the levies imposed under the other enactments on go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, touching upon the effect of Part XIII of the Constitution of India on taxing statutes and other laws. 11. I have heard Sri Navroz H. Seervai, learned counsel for the petitioners and Sri Udaya Holla, learned Advocate-General on behalf of the State at some length and the matter had been reserved for orders and on examining the pleadings, rival submissions that were urged in support of the parties, on examination of the provisions of the Act, Constitutional provisions and the authorities relied upon by the learned counsel for both the sides, I proceed to pass the judgment as under. 12. Though it is more than 56 years of working of our Constitution and though the provisions of Part XIII of the Constitution of India were subjectmatter of discussion, interpretation and decisions not only by High Courts but even by the Supreme Court from the very inception of the Constitution of India and even after a good number of judgments rendered by the Supreme Court on the provisions of Part XIII of the Constitution of India, the area is not clear. The scenario is messy, there is considerable scope for divergent views if not confusion and the last word on the understanding of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. (iii) Whether article 304 is a relaxing provision from the rigour of the application of article 301 or article 304 itself is a restricting provision on the legislative power of the State, is one area of conflicting and divergent views. (iv) Another area of divergence in views is the manner in which the levy under a taxing statute can meet the accusation of discrimination, with one school of thought taking the view that the avoidance of discrimination should be demonstrated under the provisions of the very enactment in respect of levies on imported goods vis-a-vis goods produced or manufactured locally, the other school of thought is that the vice of discrimination can be avoided by way of impact or as a result of working of various levies under different enactments on similar goods, i.e., if a combined effect of the levies under different enactments, brings about parity on the sum total of the levies on imported goods and the similar goods produced or manufactured locally, even then discrimination is avoided. (v) The third area of divergence of views is the manner in which the provisions of articles 304(a) and 304(b) operate as to whether a taxing statute is still requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers, has formulated the following propositions for acceptance on behalf of the petitioners: (a) That section 3 of the Act brings about discrimination in the matter of levy of entry tax on the value of goods notified by the State Government, which are brought into a local area from outside the State vis-a-vis similar goods entering the local area from within the State. (b) Levy of this nature per se is discriminatory and is therefore violative of article 304(a) of the Constitution of India and unless it is demonstrated by the State that such a levy is not discriminatory and unless it is so demonstrated under the provisions of the very enactment, levy remains discriminatory and even if it is demonstrated that such levy may bring about parity in the matter of taxation by pointing out to the levies imposed under the other enactments on goods of similar nature, the requirement of article 304(a) is not met and therefore the stand of the State that in the present case, the levy of entry tax under the Act on the goods imported from outside the State into the local area is only for bringing about a parity in the matter of levy of tax on similar goods brought into the local area from w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless Ltd. v. State of Haryana [2006] 145 STC 544 (SC). (vi) Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 (SC); AIR 1968 SC 599. (vii) State of Karnataka v. Hansa Corporation AIR 1981 SC 463. (viii) Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC). (ix) K.P. Varghese v. Income-tax Officer, Ernakulam [1981] 131 ITR 597 (SC); [1981] 4 SCC 173. (x) K.S. Paripoornan v. State of Kerala [1994] 5 SCC 593. (xi) State of Uttar Pradesh v. Laxmi Paper Mart [1997] 105 STC 1 (SC). (xii) Avinyl Polymers Pvt. Ltd. v. State of Karnataka [1998] 109 STC 26 (Karn) (xiii) State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136. 19. The judgment of the Supreme Court in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232, is strongly relied upon to demonstrate the discriminatory aspect and the judgment in the case of Firm ATB Mehtab Majid Co. [1963] 14 STC 355 (SC); AIR 1963 SC 928, is relied on to make good the submission that any distinction in the matter of rate of tax on similar goods on the premise that the locally produced goods have undergone a different process or a different treatment is an argument which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC 1406 and by overruling its earlier smaller Bench ruling in the cases of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1. The submission is that the question can be determined only by applying the working tests enunciated in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406. 24. It is urged that on the admitted case of the respondent-State as indicated in its statement of objections, the levy is merely a revenue raising effort and not either regulatory levy or a compensatory levy. The additional statement of facts placed before the court is contended to be hopelessly inadequate to answer the test laid down by the Supreme Court to hold the levy as compensatory levy as indicated in the case of Jindal Stainless [2006] 145 STC 544. 25. Reference is also drawn to the statement of the Minister on the floor of the assembly while moving the Bill and in support of such submission, reliance is placed on the decision of the Supreme Court in the cases of K.P. Varghese [1981] 131 ITR 597 (SC); [1981] 4 SCC 173 and K.S. Paripoornan [1994] 5 SCC 593. 26. Sri G. Sarangan, learned Seni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated October 10, 2006](1), and has vehemently urged that the ruling of the Gujarat High Court following the judgments of the Supreme Court touching upon the aspect and discussing the same, eminently merits acceptance and urged this court to follow such ruling for upholding the validity of the Act under challenge. It is submitted that this ruling applies on all aspects to the present situation on hand and this court should follow and apply the ratio enunciated therein for disposing of the present batch of writ petitions. With respect to the learned Judges of the Division Bench of the Gujarat High Court, who have delivered the judgment in Eagle Corporation's case [2007] 6 VST 560, I am unable to agree with the view expressed and law laid therein for reasons which will become clear in the later part of this order. 31. It is with reference to the judgment of the Division Bench of the Gujarat High Court, the learned Advocate-General has drawn attention to the observations made by the Supreme Court in the cases referred to and relied upon in the ruling of the Division Bench of the Gujarat High Court. 32. The rulings are: Hansa Corporation AIR 1981 SC 463, Shaktikumar M. Sanche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of article 304(b) of the Constitution of India, it is also submitted that the law laid down by the Supreme Court in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 being virtually no more good law in the light of the view expressed by a larger Bench of the Supreme Court in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406, wherein the majority of the Judges had agreed with the view expressed by the minority in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232, the judgment of the Supreme Court in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232, is virtually no more good law. Attention is also drawn to para 28 of the judgment of the Supreme Court in the case of Widia (India) Ltd. [2003] 132 STC 360, in support of the submission that the view expressed in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232, is no more good law. 37. Learned Advocate-General has also vehemently urged that courts while reviewing the validity of economic legislation should necessarily accord wide leeway to the Legislature; that such matters cannot be examined in a watertight compartment; that the wisdom of the Legislature cannot be lightly brushed aside, and has placed strong relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther persons, who bring similar goods to the very local area, discrimination is writ large on the face of the provisions. Though the allegation of discrimination is sought to be answered firstly by contending that the provisions of the very Act provide for such exemptions and concessions in favour of the persons who are made to pay the levy under section 3 of the Act so that ultimately such persons in reality do not have any additional tax burden and in the alternative it is also contended that the allegation of discrimination cannot be decided in the light of the effect of the provisions of this Act alone, but when examined in the light of the combined effect of the provisions of the present Act with the KST Act, the resultant situation is that there is no material difference in the tax burden on the imported goods and the locally manufactured or produced goods of similar nature. 41. This aspect will be examined later on, but I would like to discuss the defence put up by the learned Advocate-General that the levy is a compensatory levy in the first instance, as if the State is able to make good this defence, as agreed to by the learned counsel for both sides, nothing further ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees under the present enactment constitute 30 per cent of the users of the facilities such as roads, water, drainage, lighting, etc., provided by the local authorities and therefore the levy is to be taken as a compensatory levy. 44. In answering the allegation of discrimination under the provisions of the Act, the State has sought to justify the levy as one not discriminating between person to person, in the sense that under the provisions of the Act all assessees who are importers are subjected to the very levy and therefore the very concept of discrimination cannot be called in aid. It is also urged that the levy being a compensatory levy, goes out of the purview of Part XIII of the Constitution of India. Such a stand is taken in paras 6 and 7 of the additional statement of objections filed by the State, which reads as under: 6. It is submitted that in the State, local bodies were earlier collecting octroi from all persons causing entry of goods into their local areas. Such amounts collected were spent on providing facilities and services to the taxpayers. Considering the representations of the trade and industry and other taxpayers that levy of octroi was obstr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrimination is an argument which, if at all, runs counter to the stand of the State and as urged by the learned Advocate-General that the State can answer the attack of discrimination even with reference to the levy of tax under different enactments. It is therefore that this defence fails on both counts and the allegation of discrimination is not met effectively by the State. 47. Also, the concept of tax being a compensatory and regulatory levy and therefore it goes out of the purview of Part XIII of the Constitution of India, as propounded in Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 and explained in the case of Jindal Stainless Ltd. [2006] 145 STC 544, the nature of a levy being compensatory/regulatory should not be confused with the regulatory nature of law imposing reasonable restrictions on freedom of trade, commerce and intercourse contemplated in clause (b) of article 304 of the Constitution of India. The concept of imposing reasonable restrictions and therefore the law being regulatory under article 304(b) of the Constitution of India is not the same as the concept of compensatory/ regulatory tax going out of the purview of Part XIII of the Constitution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who have paid tax under this Act and therefore it is urged that in reality there is no tax liability under the Act. 53. While in respect of the assessees who are dealers under the KST Act also, there is some relief under this provision, the removal of discrimination is contingent upon the assessee effecting the sale of the very imported goods and it is achieved only when there is subsequent sales tax attracting tax under the KST Act and the refund of the difference if tax paid under the present enactment being found in excess, also being relegated to sale at a later stage and by claiming refund in the prescribed manner, the act of discrimination remains till one of these two things happens and it is not removed. 54. But in the case of the importer, who is not a dealer in notified goods, the situation is still worse, as sub-section (2) of section 4 of the Act provides for reduction in the tax liability to the extent of tax that might have been paid by such assessee earlier in the State of origin of the goods either by way of State sales tax or Central sales tax laws and only to that extent. Depending upon the rates of tax under the State Act from which State the goods origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied upon by the learned counsel for the petitioners in support of the submission, what is pointed out in particular is that when this precise argument which had been urged earlier before the Division Bench of this court it had been rejected and with reference to the law laid down by the Supreme Court and on the basis of such law laid down by the Supreme Court, it is not open to the State to put forth such a defence before this court contrary to the law as laid down by the Division Bench of this court in the case of Avinyl Polymers Pvt. Ltd. [1998] 109 STC 26. Particular attention is drawn both by Sri Navroz H. Seervai, learned Senior Counsel appearing for the petitioners and Sri Udaya Holla, learned Advocate-General appearing for the State, to paras 14, 15, 16, 17, 18, 19, 20 and 21 of this judgment. 59. While a perusal of this judgment of the Division Bench of this court does indicate that the Division Bench was of the definite opinion that the State cannot urge the defence of act of discrimination being removed by calling in aid the argument of parity achieved by a combination of levies under different enactments of the State and the Division Bench held that this is the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discrimination by demonstrating the resultant parity achieved by the impact of levies under different enactment of the State Legislature. A Full Bench of this court has taken the view that if a law is laid down by a Division Bench in a given situation it is not open to the Single Bench to characterise the ruling of the Division Bench as either per incuriam or as one not binding. 63. The other reason urged by the learned Advocate-General in support of the submission is that the decision of the Division Bench in the case of Avinyl Polymers Pvt. Ltd. [1998] 109 STC 26, cannot be taken as a precedent for the reason that the State and the assessee had carried the matter to the Supreme Court and ultimately while the special leave though had been granted and civil appeals had been disposed of by the Supreme Court, as per the order dated July 18, 2000, the Supreme Court has indicated that the High Court while deciding the fresh batch of petitions will not be bound by its earlier decision and having disposed of the appeals with such observations, this Bench is not bound by the view expressed by the Division Bench, as it was the very judgment of the Division Bench expressing this view wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court to the effect that the entry tax was compensatory in nature. Learned Advocate-General agrees that without going into the merits this finding may be set aside and the High Court will be at liberty to go into this question afresh while deciding the writ petitions, which have been filed challenging the subsequent notifications. Ordered accordingly. The High Court while deciding the fresh writ petitions will not be bound by the earlier decision. The appeals are disposed of. No order as to costs. Therefore, the observation is not of any avail to the State, as the appeal filed by the State questioning the legality of the judgment of the Division Bench of this Court in the case of Avinyl Polymers Pvt. Ltd. [1998] 109 STC 26, declaring that the notification was discriminatory was not disturbed, but the State appeal was disposed of as having become academic which can only imply that the judgment of the High Court gets merged with that of the order passed by the Supreme Court and the finding or declaration by the High Court is left undisturbed. 65. If such is the test for determining as to whether the provision is discriminatory or not and the combined effect on the present l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in aid to test the existence or otherwise of the discrimination under the provisions of article 304(a) of the Constitution of India, as it has become unnecessary to answer this question. 68. Though the examination could have been stopped at this stage, as very serious arguments have been addressed on the question as to whether the provisions of article 304(b) are still attracted even after answering the question in the light of the provisions of article 304(a) and lengthy submissions have been made at the bar on this question and for the sake of completion of examination, I take up this contention next. 69. Learned counsel for the petitioners and the learned Advocate-General have relied upon a good number of judgments for contending that the conjunction and used between sub-articles (a) and (b) of article 304 of the Constitution of India should be understood as one to indicate that both operate simultaneously as urged by Sri Seervai, learned Senior Counsel, or on the contrary only in the alternative as contended by the learned AdvocateGeneral, and the authorities relied upon are not conclusive one way or the other and leave an element of ambiguity and scope for further a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxing statute which has the effect of impeding movement but still found to be a non-discriminatory tax, at the best can be passing the test of article 304(a) and not as one answering the requirements of article 304(b) also. The moment it is found that the taxing statute is also one resulting in restrictions on the freedom of trade, commerce and intercourse inter-State or within the State, the requirement of demonstrating that it is a reasonable restriction and in public interest and the further requirement of obtaining the previous sanction of the President in terms of the proviso inevitably gets attracted. In the present case, while no independent argument is advanced to contend that the restriction is a reasonable restriction imposed in public interest, it is not even in dispute that the Bill had not received the previous sanction of the President nor the defect cured by the Act having been reserved for the assent of the President and the assent having been given in terms of the provisions of article 255 of the Constitution of India. For this reason also, the Act becomes unconstitutional, being violative of sub-article (b) of article 304 of the Constitution of India. The co ..... 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