TMI Blog2006 (8) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... or Sale Therein Act, 1993 , adopted by the State of Jharkhand, or in the Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002) showing any quantifiable data or a benefit which is measurable. Thus, in our considered view the entry tax levied under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted by the State of Jharkhand and amended by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002), is, thus, not based on the principle of equivalence and is not compensatory in nature. From the judgment, rendered by the Supreme Court in the case of Bihar Chamber of Commerce [ 1996 (2) TMI 430 - SUPREME COURT] , though it will be evident that the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 was assented to by the President and the said entry tax was levied in public interest, there is nothing on the record to suggest that Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en preferred by the petitioner, Tata Iron Steel Company Ltd. (hereinafter to be referred as, TISCO ) for the following relief: (i) To set aside the order, issued by the Commissioner, Commercial Taxes-cum-Secretary, Jharkhand, Communicated vide letter No. Sales Tax/02/2001-1970/Ranchi dated July 30, 2004, whereby and whereunder, it has been directed to collect entry tax on imported coal , pursuant to Notification No. S. O. 88, dated March 23, 2002; (ii) To set aside part of Notification No. S. O. 88, dated March 23, 2002, issued by the State of Jharkhand, whereby, two per cent entry tax has been sought for to be levied on imported coal ; (iii) To set aside the notice dated August 27, 2004, issued by the Deputy Commissioner, Commercial Taxes, Jamshedpur Urban Circle, Jamshedpur, whereby and whereunder, the petitioner has been asked as to why penalty be not imposed on it since pursuant to Notification No. S. O. 88 dated March 23, 2002 it has not deposited entry tax on imported coal ; (iv) For declaration that the State Government is not empowered to impose any tax whatsoever on the goods, including imported coal , imported from outside the country, as the trade and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Areas for Consumption, Use or Sale therein Ordinance, 1993 was issued. This second Ordinance was made an Act in the name and style of Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 (Bihar Act 16 of 1993). 4. Section 2(c) of the Entry Tax Act, 1993 while defines entry of goods , section 2(d) of the said Entry Tax Act, 1993 defines importer , which are quoted hereunder: 2. Definitions. . . . . (c) 'Entry of goods' with all its grammatical variations and cognate expressions means entry of goods into a local area from any place outside that local area or any place outside the State for consumption, use or sale therein: Provided that in case of such goods which are liable to tax under section 12(1) of the Bihar Finance Act, 1981, entry of goods shall mean entry of goods into local area from any place outside the State for consumption, use or sale therein. (d) 'Importer' means a dealer or any other person who in any capacity brings or causes to be brought any scheduled goods into a local area for consumption, use or sale therein. 5. Section 3 of the Entry Tax Act, 1993 is the charging section, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngal) on payment of custom duties, the goods being part of the same contract and agreement is delivered from ports to the petitioner's factory at Jamshedpur. 7. Learned counsel for the petitioner submitted that as per the scheme of Entry Tax Act, 1993 it had never been the intention of the Legislature to impose entry tax upon the goods, which are imported from outside the country. Section 3 is not consistent with the object, scheme and provision of the Entry Tax Act, 1993. For ascertaining the import value on which alone the charge of entry tax is levied, it does not include the customs duties or import duties. The Legislature were conscious of the distinction between the import of goods from outside the State within the country and import of goods from outside the country. Had it been the intention of the Legislature to impose entry tax on imported goods from outside the country, there was no reason as to why for ascertaining the import value, custom duties and all other charges relating to import of goods from outside the country was not included, but only those duties and charges, which are levied inside the State from which goods are imported, are taken into account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Bench of the Kerala High Court in the case of FR. William Fernandez v. State of Kerala reported in [1999] 115 STC 591. That was a case where the appellants, non-resident Indians, who imported to India motor vehicles that they had used abroad, disputed the levy of entry tax in respect of their motor vehicles under the Kerala Tax on Entry of Goods into Local Areas Act, 1994. Having noticed the preamble and provisions in the Act, i.e., Kerala Tax on Entry of Goods into Local Areas Act, 1994, which is almost similar to the present case, the Kerala High Court held as follows: 7. As is clear from the Object and Reasons, the Preamble and the provisions in the Act, it seeks to provide for the levy of tax on the entry of goods into local areas of the State from outside, that does not include entry from across the borders of the country. This seems to us to be clear from the several provisions we shall presently advert to. Clause (d) defines 'entry of goods into a local area', which means entry of goods from any place outside the State. Obviously the Legislature was aware when it used the words 'from any place outside the State' they did not mean to convey outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Central Excise, New Delhi v. Ballarpur Industries Ltd. reported in [1990] 77 STC 282, wherein, a question was raised whether the input of sodium sulphate in manufacture of paper would cease to be raw material by reason of the fact that in the course of chemical reaction such ingredient is consumed and burnt up. The Supreme Court having noticed the fact that the expression raw material has not been defined and the meaning to be given is the ordinary and well-accepted connotation in parlance of those, who deal with that matter, observed that the ingredients used in manufacture of any end-product, might comprise, amongst others, of those which may retain their dominance, individual identity and character throughout the process and also in the end-product those which as a result of interaction with other chemicals and/or ingredients might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end-product; those which like catalytic agent, while influencing and accelerating the chemical reaction, however, may themselves remain uninfluenced and unaltered and remain independent of and outside the end-product; and those, which may be burnt u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce and intercourse throughout India is free. This limitation on power is relaxed under article 302 of the Constitution in favour of the Union legislation in public interest. (b) Restriction is, however, put on this relaxation under article 303(1) which prohibits the Parliament from giving preference to one State over another and making or authorising the making of any discrimination between one State and another. (c) Article 303(2) of the Constitution, is an exception to the restriction imposed under article 303(1) on the Parliament and that exception applies only to Parliament and to be resorted only in a specified situation indicated in article 303(2) of the Constitution. (d) Each clause of article 304 of the Constitution operates as a proviso to the provisions under articles 301 and 303 of the Constitution in the following way: (i) Article 304(a) of the Constitution authorises imposition of tax on the goods imported from the neighbouring State at par in such a manner as not to create any discrimination between similar goods manufactured and produced inside the State with regard to State taxation within the allocated field. (ii) Article 304(b) of the Constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of articles 301 and 304(b) of the Constitution of India. 22. The aforesaid judgment, rendered by the Patna High Court, was, however, reversed by the Supreme Court in the case of State of Bihar v. Bihar Chamber of Commerce reported in [1996] 103 STC 1; [1996] 9 SCC 136. The Supreme Court held that it was not necessary for entry 52 of List II of the Seventh Schedule that the Act should provide for the revenues raised thereunder to be passed to the local authorities or being used for the purpose of such local authorities. Section 3(1) and section 6 of the Act, 1993 were held to be intra vires. 23. Initially when the case was heard, it was brought to the notice of the court that the judgments rendered by the Supreme Court in the cases of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax reported in [1995] 96 STC 654; [1995] Suppl (1) SCC 673 and State of Bihar v. Bihar Chamber of Commerce reported in [1996] 103 STC 1; [1996] 9 SCC 136 having been doubted by the Supreme Court, were referred to a Constitution Bench in the case of Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC) (Civil Appeal No. 3453 of 2002). The judgment in the case of Jindal Stainless Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxes are compensatory taxes which instead of hindering trade, commerce and inter-course, facilitate them by providing roads and maintaining roads . It was observed that if a statute 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 . In the said case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406, the court held that a working test for deciding whether a tax is a 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 much more than what is required for providing the facilities . In the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC) the working test, enunciated by the Seven-Judge Bench in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 was not applied and the court went on to say that the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to dealers dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legal position may be authoritatively laid down by the Constitution Bench. As a result of such reference, recent decision was rendered by the Supreme Court on April 13, 2006 in the case of Jindal Stainless Ltd. v. State of Haryana now reported in [2006] 145 STC 544; [2006] 4 (JT) SC 611. The Constitution Bench, on analysis of the relevant provisions of Part XIII of the Constitution, considered the scope of articles 301, 302 and 304 of the Constitution of India and observed as follows: 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 the Parliament under article 302, in which case Parliament can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory tax is not there in the Constitution but is judicially evolved in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406, as a part of regulatory charge. Consequently, the court will have to go into the concepts and doctrines of taxing powers vis-a-vis regulatory powers, particularly when the concept of compensatory tax was judicially crafted as an exception to article 301 in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406. 32. The Supreme Court analysed the difference between exercise of taxing powers and regulatory power and held that in generic sense, tax, toll, subsidies, etc., are manifestations of the exercise of the taxing power. The preliminary 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. 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. If the impugned law seeks to control the conditions under which an activity like trade is to take place, then such law is regulatory. Payment for reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifiable benefits is represented by the costs, incurred in procuring the facilities/services, which costs, in turn, become the basis of reimbursement/recompense for the provider of the services/facilities. Compensatory tax is based on the principle of pay for the value or quid pro quo. It is a sub-class of a fee . From this point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce, which does not happen in the case of a tax as such. Taxes may be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to the benefits. The compensatory tax is levied on an individual as a member of class, whereas a fee is levied on an individual as such. If one keeps in mind the principle of ability vis-a-vis the principle of equivalence , then the difference between a tax, on one hand, and a fee or a compensatory tax, on the other hand, can be easily spelt out. The basic difference between a tax on one hand and a fee/ compensatory tax on the other hand is that the former is based on the concept of burden whereas compensatory tax/fee is based on the concept of recompense/reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 303. (b) While the Parliament's power to impose restrictions under article 302 is not subject to the requirement of reasonableness, the power of the State to impose restrictions under article 304 is subject to the condition that they are reasonable. (c) An additional requisite for the exercise of the power under article 304(b) by the State Legislature is that previous Presidential sanction is required for such legislation. 39. According to the counsel for the petitioner, the judgments rendered by the Supreme Court in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M. P. reported in [1995] 96 STC 654 and in the case of State of Bihar v. Bihar Chamber of Commerce reported in [1996] 103 STC 1 (SC), have been overruled by the Constitution Bench of the Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544. On the other hand, according to the counsel for the State, the judgment rendered in the case of State of Bihar v. Bihar Chamber of Commerce reported in [1996] 103 STC 1 (SC) has not been overruled in entirety but part of it has been held to be not a good law. It has been further submitted on behalf of the State that the judgment r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the working test propounded in Automobile Transport's case AIR 1962 SC 1406, but it obliterates the very basis of compensatory tax. We may reiterate that when a tax is imposed in the regulation or as a part of regulatory measure the controlling factor of the levy shifts from burden to reimbursement/recompense. The working test propounded by a Bench of seven Judges in the case of Automobile Transport AIR 1962 SC 1406 and the test of 'some connection' enunciated by a Bench of three Judges in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 cannot stand together. Therefore, in our view, the test of 'some connection' as propounded in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M. P. [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136, stand overruled. 42. So far as Question No. 1, as was framed by the Supreme Court in the case of Bihar Chamber of Commerce [1996] 103 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge judgment of the Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544. 44. So far as the second question, as was framed and answered by the Supreme Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1 is concerned, in regard to question No. 2(a), i.e., Whether the Act has received the assent of the President, as alleged by the State , the petitioner has not disputed the fact that though the Bill was not introduced or moved in the Assembly with the previous sanction of the President, as required by article 304(b), it was assented to by the President, as contemplated by article 255 of the Constitution, and thereby, satisfied the required test. With regard to question No. 2(c), i.e., whether the said levy (entry tax) is in public interest , counsel for the petitioner has not disputed that the view of the Supreme Court's decision in this regard in the case of Bihar Chamber of Commerce [1996] 103 STC 1 has not been overruled by the Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544. 45. The only question, which is to be looked into, is whether the decision of the Supreme Court in the case of Bihar Chamber of Commerce [1996] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that while considering the reasonableness of the impugned Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, the Supreme Court applied the test laid down in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC), i.e., even if there is some link between the tax and facilities extended directly or indirectly, the levy cannot be impugned as invalid. The concept of some connection or link between the levy and the services offered by the State has been completely overruled by the Constitution Bench in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC). If the Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC) for the purpose of applying the test of reasonableness, i.e., the principle of some connection is relied upon to find out the reasonableness, such basic principle having been overruled by the Constitution Bench of the Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC), the decision rendered in the case of Bihar 1. Here italicised. 7Chamber of Commerce [1996] 103 STC 1, so far as the question of reasonable restriction of Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommerce v. State of Bihar reported in [1995] 97 STC 538; [1995] 1 PLJR 716, while dealing with section 3 of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, noticed the object for which the said Act was introduced. 51. It was introduced to collect funds for various different welfare schemes and to implement various financial recommendations of the State Government, as according to existing financial condition, taxation being highly essential in the said case, it was also pleaded by the State of Bihar that with a view to fulfil the above object and to make the provision of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 more workable, it was essential to levy and collect tax on certain goods entering the local areas of the State for consumption, use or sale. The Deputy Commissioner, Commercial Taxes, Bihar in his affidavit made specific averments that the Entry Tax Ordinance was thought to be promulgated in view of the loss of revenue on cess, due to the decision rendered by the Supreme Court in the case of India Cement Ltd. AIR 1990 SC 85, as well as other decisions of the Patna Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of 2002) showing any quantifiable data or a benefit which is measurable. 53. Thus, in our considered view the entry tax levied under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted by the State of Jharkhand and amended by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002), is, thus, not based on the principle of equivalence and is not compensatory in nature. 54. So far as the other question whether it is saved by virtue of the provisions, contained in article 304(b) of the Constitution of India is concerned, the respondents have neither made any statement in their affidavit nor have brought on record any data to suggest that the entry tax, imposed under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted and amended by the State of Jharkhand by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002), constitutes reasonable restriction. 55. From the judgment, rendered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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