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TMI Blog2008 (2) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... urer of Scheduled goods under section 26 of the Orissa Entry Tax Act shall collect by way of entry tax an amount equal to the tax payable on the value of the finished products under section 3 of the Act from the buying dealer either directly or through an intermediary only if the Scheduled goods sold are intended for entry into any local area of the State for the purpose of consumption, use or sale. While deciding the cases, the Division Bench of this court relied on various decisions of the apex court including the decision in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh [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. Some of the writ petitioners of those writ petitions preferred special leave petition before the honourable apex court which was converted into civil appeal, which was initially taken up along with the Civil Appeal No. 3453 of 2002, (Jindal Stainless Ltd. v. State of Haryana [2006] 7 SCC 271). As the twojudge Bench of the apex court doubted the correctness of the views expressed in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh [1995] 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136 and the apex court referred the matter desiring the concerned High Court to deal with basic issue as to whether the impugned levy was compensatory in nature. Consequently, this court vide its judgment dated January 17, 2008(1) has dealt with only the issue whether the impugned levy "imposed by way of the Orissa Entry Tax Act" was compensatory in nature and considered whether the impugned enactment facially or patently indicates the quantifiable data on the basis of which the compensatory tax is sought to be levied and whether the Act facially indicates the benefits which are quantifiable or measurable and the proportionality of the quantifiable benefits and held that the data provided by the State do not show that payment of entry tax is reimbursement/recompense for the quantifiable and measurable benefits to be provided to its payers and providing facilities to the citizens or others would not definitely come under the activities like movement of trade, commerce and intercourse for the free-flow of trade and commerce and, therefore, the State has failed to show that the Orissa entry tax is reimbursement/recompens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be in public interest but should also be reasonable and should receive the previous assent of the President of India. He further submitted that the impugned legislation does not satisfy the working test enunciated by the Supreme Court in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406, in which it was held that only such taxes as directly and immediately restrict trade would fall within the purview of article 301 and that any restriction in the form of taxes imposed on the carriage of goods or their movement by the State Legislature can only be done after satisfying the requirements of article 304(b). He submitted that no previous sanction was obtained before the Bill moved or introduced before the Legislature and even no subsequent sanction of the President of India under article 255 was obtained and, therefore, the Act clearly violates the conditions laid down in the proviso to article 304(b) of the Constitution. He submitted that the Supreme Court in the case of Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303; [2003] 8 SCC 60 summed up the law as laid down by the honourable Supreme Court in Atiabari Tea Co.'s case AIR 1961 SC 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax so that legal position may be authoritatively laid down with certitude by the Constitution Bench under article 145(3). In the latest decision of the Constitution Bench consisting of five judges rendered in Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC); [2006] 4 SCALE 300; [2006] 7 SCC 241 (hereinafter referred as, "Jindal 2"), the apex court, analysing the relevant provisions of Part XIII of the Constitution, laid down the scope of articles 301, 302 and 304 according to which article 301 states that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout India shall be free. It is not freedom from all laws but freedom from such laws which restrict or affect activities of trade and commerce amongst the States. Although article 301 is positively worded, in effect, it is negative as freedom correspondingly creates general limitation on all legislative power to ensure that trade, commerce and intercourse throughout India shall be free. Article 301, therefore, refers to freedom from laws which go beyond regulations which burdens, restricts or prevents the trade movement between States and also within the State. Since "freedom" co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of seven judges in Automobile Transport's case AIR 1962 SC 1406 is not satisfied, in that event the State has to satisfy that such restrictions complied with the provisions of article 304(b) of the Constitution. He also submitted that the Constitution Bench in Jindal [2006] 145 STC 544 (SC); [2006] 4 SCALE 300; [2006] 7 SCC 241 has further concluded that in the case of a "tax", the levy is part of common burden based on the principle of ability or capacity to pay. In the case of "a fee", the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of "burden" to the concept of measurable/quantifiable benefit and then it becomes "a compensatory tax" and its payment is then not for revenue but as reimbursement/ recompense to the service/facility provider. It is then a tax on recompense. Dr. Pal has given emphasis mainly on article 304(b) of the Constitution. Dr. Pal has also submitted a written note of submission. Repelling the contention of the State that the levy of entry tax is saved by article 304(a) of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 304(a) would be applicable. In the present case the State has not given any material as to whether the goods imported from outside the State to which the entry tax is attracted are also manufactured within the State. In the absence of any such material furnished by the State in their affidavit the onus of satisfying that article 304(a) has been complied with is not discharged. Therefore, article 304(a) cannot have any application to the facts and circumstances of the present case. In view of the submissions made that the Orissa Entry Tax Act is not compensatory in nature for the reasons stated hereinbefore, the restrictions imposed by the Act on the free movement of trade and commerce can be saved and/or protected if such restrictions comply with article 304(b) and the proviso thereto of the Constitution of India in spite of such restrictions are non-discriminatory. However, Shri A.K. Ganguly, learned Senior Counsel appearing for some of the petitioners, besides his argument that the entry tax imposed by the State Government through the Orissa Entry Tax Act is not compensatory, regulatory and quantifiable, has drawn our attention to the provisions of article 304(a) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce if its requirements are fulfilled. Article 304(a) imposes a restriction on the power of Legislature of a State to levy tax which may be discriminatory in character by according discriminatory treatment to goods manufactured in the State and identical goods imported from outside the State. The effect of article 304(a) is to treat imported goods on the same basis as goods manufactured or produced in a State. This article further enables the State to levy tax on such imported goods in the same manner and to the same extent as may be levied on the goods manufactured or produced inside the State. If a State tax 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, article 304(a) would be complied with. There is an underlying assumption in article 304(a) that such a tax when levied within the constraints of article 304(a) would not be violative of article 301 and State Legislature has the power to levy such tax." He has also placed reliance on Hoechst Pharmaceuticals Ltd. v. State of Bihar [1984] 55 STC 1 (SC); AIR 1983 SC 1019 in paragraph 86 of which, it has been he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifiable, compensatory or regulatory in nature is on the State as laid down in Jindal [2006] 145 STC 544 (SC); [2006] 4 SCALE 300; [2006] 7 SCC 241. Other learned counsel for the petitioners have also relied upon the arguments of Dr. Pal, Senior Advocate, appearing for the petitioner. Shri Jagannath Patnaik, learned Senior Counsel appearing for the State, submitted that the impugned Act does not violate article 301 of the Constitution and is not required to be compensatory. The levy has not chosen movement of trade as the criteria of its operation. It is not a tax on movement of goods. Having regard to the test of directness of legislation applied in Atiabari AIR 1961 SC 232, the levy does not come within the scope of article 301. The purpose and object of the levy is not to tax movement or carriage of goods. He submitted that the levy under the entry tax enactments by its character is not on movement of trade and commerce. The levy under the Act has not chosen an activity like movement of trade and commerce as the criterion of its operation as laid down in Jindal Stripe case [2004] 134 STC 303 (SC); [2003] 8 SCC 60. Considering the test of directness of the legislation, as requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 301 of the Constitution of India is a compensatory tax. The Act fully complies the principles laid down in para 19 of the Automobile Transport case AIR 1962 SC 1406 and the dicta of the Constitution Bench of the apex court in Jindal's case [2006] 145 STC 544 (SC); [2006] 4 SCALE 300; [2006] 7 SCC 241. The expenditure incurred by the State to bring about growth of trade and commerce has been more fully described in the State's counter-affidavit. He has submitted that the source of expenditure according to the dicta of Constitution Bench of the Supreme Court in Jindal's case [2006] 145 STC 544 (SC); [2006] 4 SCALE 300; [2006] 7 SCC 241 is not relevant. He submitted that the expenditure is booked under State Plan, Central Plan, Central Sponsored Plan, Market borrowing, funding by NABARD, World Bank and other sources. Such borrowings have its interest load which is also borne by the State. Lastly, he has submitted that the decisions of other High Courts holding the levy to be violative of article 301 and relied upon by the petitioners are not applicable to the present case. Shri Jagannath Patnaik, learned Senior Counsel, has further contended that the State Legislatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of tax on goods or class or classes of goods under the Act in respect of goods coming into a local area both from another local area within the State or from any place outside the State. The impact of the levy on both intra-State trade and commerce and inter-State trade and commerce is the same. The rate of tax is same for all local areas. The levy does not create any fiscal barrier/trade barrier/tariff wall which will impede the flow of goods to a local area from another within the State or from outside the State. The levy complies with the requirements of article 304(a). Therefore, it is not an impediment to free-flow of trade and commerce under article 301. Assuming that the tax imposed directly and immediately impedes free-flow of trade and commerce or in any manner discriminates goods imported from outside the State vis-a-vis goods produced within the State in the matter of tax, yet the facilities provided by the State and its agencies to trades people go to show that the levy is compensatory. The tax being paid by the consumer, the trades people do not have claim to facilities. Assuming the legal incidence of the levy to be conclusive of who pays the tax, such incidence be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommerce . . ." In the case of Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 (SC); [1996] 11 SCC 39, the apex court held that the clause, though worded in positive language has a negative aspect. It is, in truth, a provision prohibiting discrimination against the imported goods. In the matter of levy of tax and this is important to bear in mind the clause tells the Legislatures-"tax you may the goods imported from other States/ nion Territories but do not, in that process, discriminate against them visa-vis those manufactured locally, meaning thereby that if similar goods are manufactured or produced within the State, such local goods cannot be taxed on a lower rate in comparison to the tax on imported goods and if such thing is done that would amount to discrimination which is prohibited under article 304(a). So, there cannot be two rates of tax, one for the imported goods and the other for goods manufactured within the State. It is not the case of the petitioners that there is discrimination on the rate of tax on the goods manufactured within the State or imported from outside the State. In Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd legislation in respect of any one of these items may have an indirect effect on trade and commerce. In clause (kk) of sub-section (1) of section 131 of the Orissa Municipal Act, it was provided that the municipality may impose within the limits of the municipal area a tax in the form of octroi on goods brought within the limits of a municipal area for consumption, use or sale therein. But it was provided that no such imposition as are referred to in clause (kk) shall be made without the sanction of the State Government. Rules in the name and style of "Octroi Rules" were framed in exercise of the powers conferred under section 131(kk) of the Orissa Municipal Act under which octroi was collected in respect of goods entering into the local areas for sale, use and consumption. Clause (kk) of sub-section (1) of section 131 of the Orissa Municipal Act was repealed and octroi rules were abolished by the Orissa Entry Tax Act vide sub-section (1) of section 41 of the Orissa Entry Tax Act. However, the Orissa entry tax cannot be said to be a substitute of the octroi duty imposed by the municipalities. Under the Act, a Schedule has been given and entry tax is leviable on the goods mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eding two per cent ad valorem. The taxing event would be the entry of Scheduled goods in a local area. In fact octroi was being levied on almost all conceivable goods entering into a local area for consumption, use or sale therein. There appears to be a discernible policy in selecting the goods set out in the Schedule, the entry of which in a local area would provide the taxing event. The goods selected for levy are textiles, tobacco and sugar. Way back in 1957 there was a demand for abolition of sales tax on the Scheduled goods and at the instance of the Union Government the State Government agreed to forego their right to levy sales tax on the aforementioned Scheduled goods on the condition that the Union Government would levy additional excise duty on them and distribute the net proceeds of such duty amongst the consenting States. Parliament accordingly has enacted the Additional Duties of Excise Goods of Special Importance) Act, 1957. Therefore, while raising rates of sales tax and levying surcharge in respect of some other items the State Government could not have levied sales tax on the Scheduled goods. They were, therefore, selected for the levy of the tax under the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other States (or the Union territories) any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President." A perusal of the above quoted provision of article 304 shows that the Legislature of a State has been given the powers to legislate a law notwithstanding anything contained in article 301 or article 303 of the Constitution meaning thereby that the restrictions imposed in article 301, i.e., free-flow of trade, would not affect the legislation made under article 304(a) or article 304(b). Further if the Legislatures legislate with reasonable restrictions on freedom of trade, commerce and intercourse within the State as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns on free trade is not an absolute one. Statutes restrictive of trade can avoid invalidation if they comply with article 304(a) or (b)." In the case of Video Electronics Pvt. Ltd. [1990] 77 STC 82 (SC), the apex court has held as follows (page 102): "Where the general rate applicable to the goods locally made and on those imported from other States is the same nothing more normally and generally is to be shown by the State to dispel the argument of discrimination under article 304(a), even though the resultant tax amount on imported goods may be different." Therefore, a bare reading of clauses (a) and (b) of article 304 would show that they are to be construed and interpreted separately. For imposing a levy or tax under clause (b) of article 304, previous sanction of the President is required but if the levy or tax is found to be non-discriminatory between goods so imported or goods manufactured or produced within that State, it cannot be said that the State has not fulfilled the conditions imposed under clause (a) of article 304. If both the clauses would have been conjunctive, there would have been no purpose to enact these clauses separately mentioning specifically th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se goods which are produced by the State enacting the law under that clause. Therefore, in the State of Orissa, the goods which are not manufactured within the State cannot be subject to the Entry Tax Act. Therefore, under the Entry Tax Act the State can impose the levy without discrimination on the goods which are imported from outside the State and manufactured within the State. The opposite parties may make scrutiny of such goods and may not realise the levy under the Orissa Entry Tax Act on the goods which are not manufactured in the State of Orissa but for these reasons the enactment of law, namely, the Orissa Entry Tax Act cannot be declared ultra vires. In the case of H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 (SC); AIR 1986 SC 63, the apex court in paragraph 37 has held as under: "37. I find considerable force in the aforesaid contention of counsel for the writ petitioners. It is unnecessary to deal with all the decisions cited by counsel but it will suffice if reference is made only to the decision in Firm A.T.B. Mehtab Majid & Co. v. State of Madras [1963] 14 STC 355 (SC); [1963] Supp 2 SCR 435; [1963] AIR 1963 SC 928. In this case the petitioner-firm was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase value': Provided that where purchase value of any scheduled goods is not ascertainable on account of non-availability or non-production of the original invoice or bill or when the invoice or bill produced is proved to be false or if the scheduled goods are acquired or obtained otherwise than by way of purchase, then the purchase value shall be the value or the price at which the scheduled goods of like kind or quality is sold or is capable of being sold in open market." Clause (3) of article 246 of the Constitution empowers the Legislature of any State to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule of the Constitution referred to as "State List". Entry 52 of List II of the Seventh Schedule provides as under: "52. Taxes on the entry of goods into a local area for consumption, use or sale therein." Therefore, the State has exclusive power to make laws for such State for imposing tax on entry of goods into a local area for consumption, use or sale in that local area. Hence, there is no prohibition for the State to impose tax on entry of goods into a State or local area from outside the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate, as may be required in the public interest but for that purpose the previous sanction of the President is necessary. Therefore, on one hand when article 301 restricts the State to make hindrance in the free-flow of trade, commerce and intercourse throughout the territory of India, on the other, the States have been empowered to make laws exclusively given in List II of the Seventh Schedule and for the purpose of entry 52, i.e., imposing tax on the entry of goods under the instant law within the State of Orissa and therefore, the words "notwithstanding anything in article 301 or article 303" have been used which mean that the guarantee of free-flow of trade and commerce given in article 301 would not be applicable at all if the Legislature of a State imposes a tax under clause (a) of article 304 or clause (b) of that article. The difference between clause (a) and clause (b) of article 304 is that under clause (a) there would be no need of previous sanction of the President whereas for clause (b) previous sanction of the President is necessary before imposing a tax. However, the scope of clause (a) of article 304 is limited to the extent that the State can impose a tax on the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not manufactured or produced within that State; (iii) if the tax is imposed following the provisions of clause (b) of article 304 meaning thereby that the previous sanction of the President has been obtained in imposing the tax. Admittedly in enforcing the Orissa Entry Tax Act, previous sanction of the President was not obtained and therefore the Act cannot be said to be in accordance with clause (b) of article 304. We have already held in a batch of cases leading case of which was O.J.C. No. 1241 of 2000(1) that the Orissa entry tax is not compensatory or regulatory in nature and that the payment of entry tax is not reimbursement/recompense for the quantifiable and measurable benefits provided to its payers. Therefore, if we do not consider article 304, clause (a) or (b) certainly the Orissa entry tax would tantamount to infringement of article 301. The State has taken the plea that the Orissa Entry Tax Act has been enacted under clause (a) of article 304 of the Constitution. Therefore, as discussed above, no tax can be imposed on those goods imported from outside the State which are not manufactured or produced in the State of Orissa. However, we do not find any discrimina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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