TMI Blog2007 (1) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... ies[ 1986 (2) TMI 331 - KARNATAKA HIGH COURT] also considered in detail the Supreme Court decision in Syed Ahmed Aga [ 1975 (5) TMI 88 - SUPREME COURT] . The facts of the case and the nature of the amendments also appear to be very close to the case in hand. In light of all those decisions, I have no hesitation in coming to the conclusion that the amendments sought to be introduced in the Parent Act vide amending Act 10 of 2001, dated November 5, 2001 and the amending Act 9 of 2003, dated August 22, 2003 were bad and violative of article 304(b) of the Constitution for want of the Presidential sanction/assent. It is well-settled by a catena of decisions that only in case an Act is violative of article 301 of the Constitution, its validity is required to be tested with reference to article 304(b). The levy of the tax in its present form being compensatory in character, the need to satisfy the requirements of article 304(b) of the Constitution does not arise. Hence, I may summarise the conclusion as follows: (i) The levy under the Parent Act of 1993, before its amendments, was not compensatory in character and was, therefore, violative of article 301 of the Constitution. (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined importer , import value and local areas respectively. Section 3(1) provided for levy and collection of tax on entry of the Scheduled goods into a local area for consumption, use or sale therein at such rate, not exceeding five per cent of the import value of the goods, as might be fixed by the State Government. Section 3(2) provided that the tax would be paid by every dealer liable to pay tax under the Bihar Finance Act or any other person who brought or caused to be brought the Scheduled goods into the local areas. Section 4 provided that in case of motor vehicle the payment of entry tax would be adjustable against the sales tax liability resulting from its sale by the dealer. Section 8 provided for the application of the provisions of the Bihar Finance Act, 1981 and empowered the authorities under that Act for enforcement of the provisions of the Entry Tax Act. The Schedule to the Act had listed under it only six goods, namely, (i) motor vehicles, (ii) tobacco products (excluding biris), (iii) Indian-made foreign liquor, (iv) vegetable and hydrogenated oils, (v) cements and (vi) crude oil. 5. The Bihar Entry Tax Act, 1993 was declared ultra vires articles 301 and 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability resulting from the sale of the goods by the dealer, that was available under section 4 of the Parent Act only in respect of motor vehicles, was extended to all the Scheduled goods by inserting a second proviso to sub-section (2) of section 3. Section 4 thus became redundant and was deleted. The amending Act brought about another major change in the parent Act by expanding the list of goods in the Schedule from six to eighteen. 9. The import of the amendment in the definition of entry of goods was that with regard to the Scheduled goods that were subject to levy of sales tax, entry into a local area from another local area within the State was excluded from the levy of entry tax. In other words, with regard to the Scheduled goods, subject to levy of sales tax, only goods coming from a place outside the State would attract the charge of entry tax. Excepting tobacco and tobacco products (excluding biris) at serial Nos. 2 and 14 respectively, all goods listed under the Schedule were subject to levy of sales tax. Hence, it was submitted on behalf of the petitioners that the amendment of the definition of entry of goods by the amending Act of 2001 introduced the vice of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in C.W. J.C. No. 2739 of 2003 (one of the two cases in hand). The writ petition was filed challenging the levy of entry tax on crude oil imported from other countries. It was contended that the provisions of the Bihar Entry Tax Act did not justify levy of entry tax on crude oil imported from outside the country and the State Legislature was not competent to levy an impost on imported goods. In support of the submission, reliance was placed on a decision of the Kerala High Court(1) which was at that time subject to an appeal pending before the Supreme Court(2). In those circumstances, a bench of this court adjourned the case till the disposal of the appeal by the Supreme Court and passed an interim order on April 7, 2003 by which the (1)FR. William Fernandez v. State of Kerala Reported in [1999] 115 STC 591 (Ker) (2)S.L.P. (Civil) Nos. 9938-9957 of 1998 petitioner was directed to go on paying 50 per cent of the entry tax and the realisation of the balance half was stayed till decision of the matter by the Supreme Court. On behalf of the petitioner, it was submitted that the Amendment and Validation Act, 2003 was brought with a view to overcome the challenge raised by the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC); [1995] Supp. 1 SCC 673 relied on in State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 by which the constitutional validity of the Bihar Act in its unamended form was upheld by the Supreme Court. As a result, the cases came up before the Constitution Bench of the Supreme Court to decide with certitude the parameters of the judicially evolved concept of 'compensatory tax' vis-a-vis article 301 . The Constitution Bench by its judgment and order in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 held that the decisions in Rajeev Kumar [1995] 96 STC 654 (SC) and Bihar Chamber of Commerce [1996] 103 STC 1 (SC) had erred in deviating from the concept of regulatory and compensatory tax as evolved in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and the working test for determining whether the tax was regulatory or compensatory as laid down in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 and substituting it by the test of some connection between the tax and the facilities extended to the trade directly or indirectly. The Constitution Bench recorded its conclusion in paragraph 53 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC 544; [2006] 7 SCC 241 for determining whether a tax was regulatory or compensatory in character. The Amendment Act, 2006 re-defined entry of goods in the following manner: 2(c) 'Entry of goods', with all its grammatical variations and cognate expressions, means, entry of goods: (i) into a local area from any place outside such area, (ii) into a local area from any place outside the State, (iii) into a local area from any place outside the territory of India, for consumption, use or sale therein. 20. It extended the provision for adjustment of entry tax against the sales tax liability that was earlier available on sale of those goods by the dealer, also to sale of goods manufactured by consuming the imported Scheduled goods. In case of manufactured goods, however, the provision of adjustment was subject to a number of limitations and restrictions. 21. The most significant amendment introduced by the Amendment Act, 2006 was the creation of the Bihar Trade Development Fund and the declaration incorporated in the Act that the money collected as entry tax would be spent exclusively for the purpose of development of trade, commerce and industry i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd varnishes, (vi) computer hardware and software, (vii) different kinds of motor vehicles, (viii) telephone sets and spares, (ix) timber plywood, etc., (x) cement, (xi) steam coal, (xii) air-conditioners and air coolers, (xiii) building materials, (xiv) marble, granite, ceramic and glazed tiles, (xv) sanitary goods and fittings, (xvi) paper of all kinds, etc., etc. It is stated on its behalf that consumables like petroleum products, paints, varnishes, etc., are consumed and the other goods are used as fixtures, fittings or installations in the factory or factory premises and these ultimately become part of the fixed capital asset of the company. It is asserted that none of the purchased goods are sold by the petitioner to any person or consumed or used as raw materials for the manufacture of a new commodity for sale. 25. The goods purchased by the petitioner from outside the State for its different uses were brought within the ambit of the Bihar entry tax following the 2001 Amendment of the Act that expanded the schedule and brought a number of manifold goods under it. The petitioner is aggrieved by the levy of entry tax on the goods purchased by it from outside the State for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant data in the writ petitions, both the petitioners filed supplementary affidavits in their respective cases. 30. M/s. Harinagar Sugar Mills Ltd., filed (third) supplementary affidavit in C.W.J.C. No. 6540 of 2002. In this affidavit, it is stated that over a period of about six years, the sum of Rs. 78,39,493.60 was realised from the petitioner as entry tax. 31. It is stated in the affidavit that in return the petitioner did not receive any facility, benefit or service from the State that would promote trade or commerce. It was stated that apart from payment of entry tax, the petitioner was obliged to share the expenses in the construction of link roads, culverts, etc., in its area with the Zonal Development Council constituted under the Bihar Sugarcane (Regulation of Supply and Purchase) Act, 1981. It was further stated that under the Bihar and Orissa Municipal Act, Ramnagar Notified Area Committee had the obligation to provide all civil amenities, such as water, etc., and it levied taxes for the purposes. The petitioner was already paying taxes, rates and charges to different statutory bodies for the civil amenities and elements of infrastructure which were practically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03 submitted that the Constitution Bench decision of the Supreme Court in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 knocked the bottom off the Parent Act of 1993 and the later amendments made the Constitutional position of the Act from bad to worse. As a result of the later amendments, the Act became discriminatory in regard to the scheduled goods coming from other States and it thus become violative of article 304(a) of the Constitution. Moreover, the amendments were introduced without the previous sanction of the President which was in violation of the proviso to article 304(b) of the Constitution. Dr. Pal assailed, in particular, the Amendment and Validation Act, namely, Bihar Act 11 of 2003 that brought, with retrospective effect, the Scheduled goods imported from other countries also within the ambit of the Act. He submitted that in making the amendment date back to the inception of the parent Act, the State had not only overstepped its legislative powers but in the absence of the previous sanction by the President, the amendment was also violative of article 304(b) of the Constitution. As regards the last amendment to the Act, Dr. Pal submitted that it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , beyond question. He further submitted that the later amendments to the Act were of a nature that did not warrant the previous sanction of the President on each separate occasion. He also submitted that it was quite fallacious to contend that after the amendment in 2001, the Act had become discriminatory in regard to the scheduled goods coming from outside the State and stated that the submission was unsustainable both on facts and in law. He finally submitted that following the amendments of July, 2006, the levy under the Act had firmly regained its compensatory character and the levy was, therefore, in perfect, accord and harmony with article 301 of the Constitution and the provisions of article 304(a) or (b) of the Constitution were, therefore, not attracted. 38. In light of the directions of the Supreme Court in Jindal Stainless Limited [2006] 7 SCC 271 and in view of the submissions made at the Bar, the following questions arise for consideration in the two cases. 1.. (a) Whether the levy under the Bihar Entry Tax Act, 1993 before its amendments can be said to be compensatory in nature and, therefore, involving no conflict with article 304 (a) of the Constitution in lig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directly promoting trade and commerce. As a matter of fact, it was the admitted position that the money collected as entry tax went to the consolidated fund of the State. Nevertheless, the decision in Bihar Chamber of Commerce [1996] 103 STC 1; [1996] 9 SCC 136, by applying the test of some connection between the tax and the trading facilities provided by the State, held that entry tax was compensatory in nature. In Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241, a Constitution Bench of the Supreme Court observed that the levy was held to be compensatory in nature on an incorrect premise. The test of some connection was not a valid test to determine compensatory nature of a tax and in fact it would be destructive of the very idea of a compensatory tax as evolved in Atiabari AIR 1961 SC 232. It further held that the compensatory character of tax could only be determined on the basis of direct and immediate effect of the impugned law on trade and commerce under article 301 of the Constitution as propounded in Atiabari Tea Co. Ltd. AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406. Since the appeals befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. If the provisions are ambiguous or even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/facility provider to show by placing the material before the court, that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to its payer(s). 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) [See: para 35 of the decision in the case of Khyerbari Tea Co. Ltd. v. State of Assam reported in [1964] 5 SCR 975; AIR 1964 SC 925]. 41. In the absence of any material produced by the State to show that it provided any quantifiable/measurable benefit, facility or service to promote trade and commerce and the levy was a reimbursement/recompense for providing the benefit, facility or service, there is no escape from the conclusion that the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity cannot be saved under article 304(b) of the Constitution. Reliance was also placed on a Division Bench decision of the Jharkhand High Court in Tata Iron Steel Company Ltd. v. State of Jharkhand [2007] 6 VST 587; [2006] BRLJ 111 where it was held that Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 was impliedly overruled by the Jindal Stainless Ltd. [2006] 145 STC 544; [2006] 7 SCC 241. 45. I am unable to accept the submission. The policy mandated by article 301 of the Constitution is expressly subject to the other provisions of Part XIII of the Constitution. On the other hand, article 304 begins with the words Notwithstanding anything in article 301 or article 303 . . . . It is well-settled that article 304 of the Constitution is an exception to article 301 and a taxing statute though coming within the purview of article 301 may yet be valid if it satisfied the requirements of article 304 of the Constitution. The Supreme Court in State of Karnataka v. Hansa Corporation [1980] 4 SCC 697 considered the very issue in paragraphs 24 to 27 of the judgment. On closely examining the earlier decisions of the court in Atiabari AIR 1961 SC 232, Automobile Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the first ground assigned to hold that the impost was a reasonable restriction and it was in public interest, Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 relied upon the earlier decisions in (i) Hansa Corporation [1980] 4 SCC 697, (ii) Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC), (iii) Shaktikumar M. Sancheti v. State of Maharashtra [1995] 96 STC 659 (SC); [1995] 1 SCC 351 and (iv) Khyerbari Tea Co. Ltd. [1964] 5 SCR 975; AIR 1964 SC 925. Now, Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 undoubtedly held that the test of some connection in paragraph 8 of the judgment in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC) was not good law but it made no adverse comment insofar as the other three decisions are concerned. The decision in Hansa Corporation [1980] 4 SCC 697 that was repeatedly relied upon in Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 was specifically considered in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. In paragraphs 13 and 14 of the judgment, it was observed that for introducing the doctrine of substantial or some link Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC) had wrongly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar [1995] 96 STC 654 (SC) with regard to the test of some connection indicated in paragraph 8 of the judgment. With respect therefore, I am unable to follow the decision of the Jharkhand High Court in Tata Iron Steel Company Ltd. [2007] 6 VST 587; [2006] BRLJ 111 and I am of the considered view that the decision in Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 on the issue of article 304(b) of the Constitution remains undisturbed. The Advocate-General is, therefore, correct in his submission that on the question of article 304(b) of the Constitution (with regard to the Parent Act before its amendments), this court is bound by the decision in Bihar Chamber of Commerce [1995] 97 STC 538 and it cannot take a different view. It is, therefore, held that though the levy under the Parent Act was not compensatory in nature, the impost was constitutionally valid by virtue of article 304(b) of the Constitution. Issue No. 2: 50. On behalf of the petitioners in the two cases, it was contended that the amendment in the definition of entry of goods by amending Act 10 of 2001, with effect from November 5, 2001, made the Act apparently discriminatory against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In support of the submission, he submitted charts showing that the difference in total incidence of tax (entry tax + sales tax on goods from other States and sales tax on goods from this State) was nil. On behalf of the petitioners, the chart was disputed and it was stated that for sometime, the rate of entry tax on wheat and rice was higher than the rate of sales tax on their sale with the result that wheat and rice imported from outside the State suffered a higher incidence of tax. The Advocate-General submitted that if the levy of entry tax was fixed at a rate higher than the rate of sales tax for some period and in case of some of the goods it might be a ground to challenge the notification issued under section 3 of the Entry Tax Act but on that basis it could not be argued that the Act itself was discriminatory or violative of article 304(a). He submitted that the Act had an internal balancing provision that saved it from being discriminatory against goods imported from their States. 52. I am inclined to agree with the submission of the Advocate-General on this issue. 53. But Mr. K.N. Jain appearing for M/s. Harinagar Sugar Mills Limited submitted that the Advocate-Ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the State that the amendments were of a nature that did not require the previous sanction of the President and made the following observations in paragraph 18 of the judgment: 18. . . In the case before us, the principal Act had the sanction of the President and enables orders to be passed which had the force of law enabling restrictions to be imposed by rules covered by the purposes of the Act. We have already cited section 18 of the principal Act to show the amplitude of the rule-making power which had the required Presidential sanction. And, we have found that the amendments before us only varied the form of restrictiveness without appreciably adding to its content. This case has, therefore, no application to the situation before us. 56. Further in paragraph 24 of the judgment, it was observed as follows: 24. . . . In the case before us, the amendment did not, in our opinion, go beyond a regulation which was fully authorised by the language of the provisions of the principal Act. Even any additional licensing involved did not go beyond the purview of the provisions of the principal Act and the Rules framed thereunder. The mere change in form, from statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in detail the Supreme Court decision in Syed Ahmed Aga AIR 1975 SC 1443. The facts of the case and the nature of the amendments also appear to be very close to the case in hand. In light of all those decisions, I have no hesitation in coming to the conclusion that the amendments sought to be introduced in the Parent Act vide amending Act 10 of 2001, dated November 5, 2001 and the amending Act 9 of 2003, dated August 22, 2003 were bad and violative of article 304(b) of the Constitution for want of the Presidential sanction/assent. Issue No. 4 60. Dr. Pal strongly argued that the introduction of goods imported from other countries in the definition of entry of goods was bad, both for its retrospectivity and for want of previous sanction by the President. Learned counsel submitted that the amendment in question was not of a nature to remove a lacuna in the Act but the amendment created a new liability that was not in existence from before. That being the position, to make the amendment effective from the date of the inception of the Act was patently unfair, unjust and unreasonable and amounted to the State overstepping itslegislative powers. In support of the submission, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he figures relating to collection as entry tax and expenses incurred by the State in providing the benefits, facilities or services promoting trade or commerce. Learned counsel submitted that the mere declaration of intent would not make the levy compensatory in character. 63. I am unable to accept the submission of Dr. Pal and Mr. Jain and on this issue, I find that the Advocate-General is on firmer grounds. The submission of Dr. Pal will apply to cases where an Act has been held to be unconstitutional and invalid by a competent court of law. In the case in hand, the position is just the contrary. It is seen above that the finding in the Bihar Chamber of Commerce [1996] 103 STC 1 that at least the Parent Act was constitutionally valid by virtue of article 304(b) of the Constitution remains subsisting till date. It is true that after Bihar Chamber of Commerce [1996] 103 STC 1, several amendments were introduced which are held to be invalid in this judgment. But before the Act or the amendments were declared unconstitutional or invalid by any court of law, the features offending the constitutional provisions were removed and the Act was brought in conformity with the constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 69. In light of the above discussions, I may summarise the conclusion as follows: (i) The levy under the Parent Act of 1993, before its amendments, was not compensatory in character and was, therefore, violative of article 301 of the Constitution. (1)Here italicised. (ii) The Parent Act of 1993, before its amendments, was nevertheless saved by virtue of article 304(b) of the Constitution and the decision in Bihar Chamber of Commerce [1996] 103 STC 1 (SC) to that extent remains subsisting till date. (iii) The amendments introduced in the Act by amending Acts 10 of 2001 and 9 of 2004 were bad because the former made the Act violative of article 304(a) of the Constitution and further because both the amendments were made without the previous sanction of the President. (iv) The introduction of imported goods within the definition of entry of goods was bad for being retrospective as also for want of the Presidential sanction/assent. (v) After the 2006 Amendment the levy under the Act acquired the nature of a compensatory tax and the Act in its present form is a valid piece of legislation. 70. In light of the above discussions, the two cases are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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