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TMI Blog2007 (8) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... constitutional validity of the Act of 1999 and the aforesaid notification issued thereunder. Amongst other grounds, the petitioner has challenged the levy being ultra vires article 301 under Chapter XIII of the Constitution of India. It is submitted by learned counsel for the petitioner that the impugned tax on the entry of goods into local area has direct impact on movement of trade from any place to a local area within the State of Rajasthan as it is a levy on entry of its product or movement of its product from any place outside the local area to within the local area where it is to be used, sold or consumed. That being so, it is hit by article 301 of the Constitution. In view of the fact that before enacting the impugned Act the Bill has not been laid before the President for his assent as envisaged under proviso to article 304(b) of the Constitution. Hence, it is not saved from restriction imposed under article 301. He has pressed into service the principle enunciated in (1) Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232. (2) Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406. (3) Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directly and immediately benefited. This petition was first listed for hearing on February 27, 2002 and the matter was dismissed by referring to an earlier decision of this court in Godfrey Philips India Ltd. v. State of Rajasthan [2001] 121 STC 54; [2000] 7 STT 50, which has upheld the validity of the Act of 1999. However, both the decisions of this court in Godfrey Philips India's case [2001] 121 STC 54; [2000] 7 STT 50 as well as in this case, which was dismissed by following the Godfrey India's case [2001] 121 STC 54 (Raj); [2000] 7 STT 50 were challenged before the Supreme Court by way of appeal. Backdrop in which case was remitted back to High Court: It may be noticed here that in the meantime another matter has reached before the apex court arising from the Punjab and Haryana High Court relating to "Haryana Local Area Development Tax Act, 2000": challenge has been laid to the validity of the said Haryana Act on two grounds: firstly, that the Act is violative of article 301 of the Constitution and is not saved by article 304 of Constitution and the Act, in fact, seeks to levy sales tax on inter-State sales, which is outside the competence of State Legislature. &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be brought into a local area, the goods whether on his own account or on account of his principal or any other person or who takes delivery or is entitled to take delivery of such goods on its entry into a local area." In its order dated September 26, 2004 in the first Jindal case [Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC)], the Supreme Court referred to the principle enunciated in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 that all taxing laws are not excluded from the operation of article 301. The tax laws can and do amount to restrictions on the freedoms guaranteed to trade under Part XIII of the Constitution. Statutes of State Legislature, restrictive of trade can avoid invalidation if they comply with article 304(a) and (b). It was further held that only such taxes as directly and immediately restrict trade would fall within the purview of article 301. However, the prohibition of restrictions on free trade is not an absolute one and that, any restriction in the form of taxes imposed on the carriage of goods or passengers on their movement by the State Legislature can only be done after satisfying the requirements of article 304(b). In Ati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of trade, commerce or intercourse to fall within article 301 of the Constitution. The working test was approved and applied by the Supreme Court in large number of cases referred to in first Jindal's case [2004] 134 STC 303 (SC). However, the court noticed the discordant note struck on the true scope of aforesaid working test devised in Automobile Transport's case AIR 1962 SC 1406 justifying the compensatory tax to fall beyond the scope of article 301 of the Constitution in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 in which the court had opined that 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 such dealers directly or indirectly the levy cannot be impugned as invalid. The principle stated in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 was reiterated by the Bench of two judges in State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136. Noticing two different and divergent stream of thoughts that what should be the test for deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the concerned writ petitions within two months. The concerned High Courts shall deal with the basic issue as to whether the impugned levy was compensatory in nature. The High Courts are requested to decide the aforesaid issue within five months from the date of receipt of our order. The judgment in the respective cases shall be placed on record by the concerned parties within a month from the date of the decision in each case pursuant to our direction." Thereafter, another order was made by the Supreme Court on January 23, 2007, which is as under: "So far as the High Courts of Allahabad, Patna, Guwahati and Kerala are concerned, the impugned provisions have been held to be ultra vires by the Allahabad, Guwahati and Kerala High Courts and there has been partial striking down by the Patna High Court. Notwithstanding the pendency of these matters before this court, it shall be open for any concerned State/aggrieved party to question the correctness of the order passed by the High Court in an appropriate proceeding."; and extended the period for deciding the writ petition. This is how the matter is before us now. The principles emerging from Jindal's case [2006] 145 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the meaning of article 304(b) (see paragraph 35 of the decision in the case of Khyerbari Tea Co. Ltd. v. State of Assam reported in AIR 1964 SC 925). Scope of articles 301, 302 and 304 vis-a-vis compensatory tax: 44.. As stated above, taxing laws are not excluded from the operation of article 301, which means that tax laws can and do amount to restrictions on the freedom guaranteed to trade under Part XIII of the Constitution. This principle is well-settled in the case of Atiabari Tea Co. AIR 1961 SC 232. It is equally important to note that in Atiabari Tea Co. AIR 1961 SC 232, the Supreme Court propounded the doctrine of 'direct and immediate effect'. Therefore, whenever a law is challenged on the ground of violation of article 301, the court has not only to examine the pith and substance of the levy but in addition thereto, the court has to see the effect and the operation of the impugned law on inter-State trade and commerce as well as intraState trade and commerce. 45. When any legislation, whether it would be a taxation law or a non-taxation law, is challenged before the court as violating article 301, the first question to be asked is: what is the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside local limits of given local area to within limits of local area. Thus, the octroi directly concerns the free movement of goods and falls within specie of taxes which, if otherwise not shown to be saved from the field of article 301, is impermissible. The levy being subject of State Legislature can fall outside the indiction under article 301 on two grounds. Firstly, if it is compensatory tax in the sense that it is levied to provide certain facilities to the trade to impose regulatory provisions for its better development and growth and the tax collected through such levy is in approximate proportion to cost incurred in providing such services or in implementing regulatory measures, benefit from which is a quantifiable measure, it can be termed as a compensatory tax for facilitating the trade, commerce or intercourse and not for its impediment. In such event it falls outside the purview of article 301. Secondly, if the tax cannot be considered compensatory or regulatory in nature but is part of general revenue amounting to restriction on such freedom, it is saved under article 304 of the Constitution. The first question to be examined by us is the nature of tax imposable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of India Act, 1935, a precursor of Indian independence and Constitution, was enacted in 1935, the legislative fields were divided into three categories under Schedule Seven appended thereto. Like legislation scheme under the Constitution, the legislative fields were reserved for Federal Legislature, provincial Legislature and for both commonly called as Federal List, Provincial List and Concurrent List. Entry 49 of List II of Provincial List reads as under: "Cesses on the entry of goods into a local area for consumption, use or sale therein." Said entry 49 of Provincial List under the Act of 1935 corresponds to entry 52 of State List in the Seventh Schedule of the Constitution. Post Constitution, when laws were enacted for constituting institution of local self-governance, like provisions were made in such enactments authorising such authorities to levy and collect taxes on entry of goods in such local areas for which such authorities were constituted. Provision for levy of octroi as compulsory tax to be levied by the municipalities had been incorporated in Rajasthan Town Municipalities Act and Rajasthan Municipalities Act, 1959, Rajasthan Panchayat Act, 1954 and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity, as the case may, itself to levy, collect and appropriate such taxes for its purposes, or the State Government by itself may levy and collect such taxes, duties, tolls and fees as referred to in respective clause (1) of each articles for the purpose of panchayat or municipalities, as the case may be, and assign the same to them for the purpose for which levy has been made and collected. It is significant to notice that tax authorised under entry 52 of List II of the Seventh Schedule is limited to specified activity on entry of goods into the local area, i.e., for use, consumption or sale therein, which is clearly indicative of the fact that wherever the movement of goods from outside the limit of local area terminates within the local area for the purpose of utilisation of such goods within that local area by way of use, consumption or sale therein, there is direct nexus with the activity of movement of goods and levy of tax on the entry of goods which moves into the local limits of the defined local area. Apparently, this nexus is related to levy of tax for providing fund for the institution of self-governance to discharge functions which have been assigned to the municipali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned local area it would not alter the nature of such tax nor the status of the tax vis-a-vis article 301. Some decisions: There is a high authority pronouncing that effect of levy of tax on entry of goods into local area for its use, consumption or sale therein, the duty known as octroi has a pernicious evil influence on the free movement of trade, commerce or intercourse and falls within the ambit of article 301. Punjab Flour and General Mills Co. Ltd., Lahore v. Chief Officer, Corporation of the City of Lahore and the Province of the Punjab AIR 1947 FC 14: A contention was raised in Punjab Flour and General Mills Co. Ltd., Lahore v. Chief Officer, Corporation of the City of Lahore and the Province of the Punjab AIR 1947 FC 14, that imposition of octroi (without refunds) on import of wheat among other grains within municipal limits as notified by municipality of Lahore vide Punjab Government Gazette dated February 6, 1940 was beyond jurisdiction of provincial legislation or municipality in exercise of its power to impose local taxes, as it falls within entry 58 of Federal List under the Government of India Act, 1935, which reads "terminal taxes on goods carried by railway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use or sale therein. It is to be noted that there is no limitation on the manner by which the goods to be subjected to such cesses may enter . . ." The taxes leviable under entry 49 of List II, now under entry 52 of the Seventh Schedule of the Constitution, is subject of local taxation for the purpose of local governance. Before noticing decisions of the Supreme Court, we may refer to two vintage Bench decisions of the Rajasthan High Court on the issue. Gauri Shanker v. Municipal Board, Jhunjhunu AIR 1958 Raj 192: Levy of tax on entry of goods within local area for use, sale or consumption under section 59 of the Rajasthan Town Municipalities Act, 1951, had been subject-matter of challenge before this court in Gauri Shanker v. Municipal Board, Jhunjhunu AIR 1958 Raj 192, inter alia, on the ground that it being a duty on movement of goods within municipal limits results in impediment on free movement of trade and impinges upon article 301 of the Constitution. Since the Bill presented to the Legislative Assembly was not preceded with the approval of the President, the Act was ultra vires article 301 of the Constitution. The Division Bench found that before the Act has com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Schedule of the Government of India Act, 1935 is a restriction on movement of goods which directly impedes the freedom of trade, commerce or intercourse throughout the territory of India and falls within the mischief of article 301 of the Constitution. It was also found that levy of octroi can be saved from being violative of article 301 if it can be found to be reasonable restriction on such freedom. But, the law by the State Legislature must be framed in accordance with the provisions of article 304. Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906: In this connection, we may notice Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906. In this case, the court had occasion to examine the nature of octroi in connection with issue raised about the validity of charging octroi from the appellant before the Supreme Court, namely, Burmah-Shell Company on its product brought inside the limits of Belgaum Municipality for sale. The company used to bring its product which were manufactured in its refineries, which were situated outside the limits of Belga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hler's: Public Finance (3rd Edition) and Grice's National and Local Finance to point out that these duties were known as "ingate tolls" because they were collected at toll gates or barriers. Normally, they were levied on goods meant for consumption but in Seligman's Encyclopaedia of Social Sciences "octrois" are described without any reference to consumption or use as under: "As compared with the facilities of the National Government the possibilities of raising revenue by local bodies are quite limited. All forms of indirect taxation are practically closed to local authorities. They are unable to levy customs duties, although they may collect the so-called octrois, that is, duties levied on goods entering town." In the aforesaid light, the court found that until the Government of India Act, 1935 came into force terminal tax, which was also a tax on entry of goods but without reference to its use, consumption or sale in the local area was a specie of octroi. Referring to report of Indian Statutory Commission, the court said: ". . . on the recommendation of a Committee appointed in 1908, terminal tax took the place of octroi in a large number of municipalities; at fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds within the local area for use, consumption or sale therein was reserved for provincial Legislature under entry 49, List II of the Seventh Schedule appended to Government of India Act, 1935, which read: "Cesses on the entry of goods into a local area for consumption, use or sale." The another important factor which was noticed by the court was that octroi to be collected by the authority governing the local area to appropriate the same for its own purpose and terminal tax collected were to be distributed amongst the provinces. In other words, revenue by tax collection as octroi on entry of goods into a local area for use, consumption or sale therein remains the part of the fund of institution governing the local area, the terminal tax which was levied and collected under the Central enactment became a revenue of the State. Summary of principles culled out in first Jindal's case [2004] 134 STC 303 (SC): In the first Jindal's case [2004] 134 STC 303 (SC), while making an order referring the question to a larger Bench as a result of cleavage of opinion in the scope of doctrine of quid pro quo, principle of near quality and validity of widened opinion expressed in Bhagatr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered or facility provided should be more or less commensurate with the tax levied. (6) A tax does not cease to be compensatory in nature merely because the precise or specific amount collected is not actually used in providing the facilities. However, the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy is necessary to uphold a regulatory and compensatory tax. (7) The expenditure for providing the facilities may be met from other sources. (8) The actual use of the facility by the tradesmen who are subject to the tax is immaterial." It needs hardly to be reminded that the view opposite to above in relation to paras 5 and 6, as propounded in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136 had been specifically overruled. In other words, principle of having some tenuous or indirect nexus between the levy and benefit derived by trade and commerce indirectly as a member of general category, had been overruled. The existence of specific identifiable object behind the levy and a nexus between subject and object i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State List to compensate the loss of revenue on account of abolition of octroi, the principle was stated by the Supreme Court in Mrs. Meennakshi Alias Rama Bai v. State of Karnataka AIR 1983 SC 1283; [1984] Supp. SCC 326: ". . . Every local body from municipal corporation to gram panchayat in every State enjoys the power to levy octroi. A goods vehicle or a passenger vehicle will have to pass through different areas under the jurisdiction of various local authorities. If at every octroi station, the goods vehicles or the passenger vehicle is stopped and enquiry made or octroi either collected or deposit insisted upon with a right to claim refund, one has to experience through this agonising journey to appreciate what a pernicious influence octroi had on transport of goods and passengers . . . One can take judicial notice of a universal demand for abolition of octroi as an evil . . ." From the above it is more than clear that the tax on entry of goods within local area for consumption, use or sale therein has the direct effect on impairing the freedom of trade, commerce and intercourse affecting it adversely and is held to be falling within mischief of article 301 and can be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held to be compensatory in nature because the basic evil of tax on entry of goods in local area for consumption, use or sale therein under entry 52 of the State List, which was found impeding free movement of trade, commerce or intercourse throughout the territory of India had been abolished and the new tax was not of the same nature under same authority. But in the present case instead of abolishing the levy of octroi only the agency of levying the tax and collecting the same has been substituted, i.e., instead of institution of local self-Government, municipality or panchayats, etc., the State Government itself has become the charging and collecting agent for the purpose of assigning funds amongst the various local authorities from the respective area of which the taxes under the Act has been levied and collected. Whether the distribution amongst the various local authorities of tax collected under entry 52 of the Constitution by the State is required to be in proportion to recovery made from concerned local area may raise another question, to which we shall advert to a little later. For the present, suffice it to say that tax on entry of goods within the local area for use, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose with no corresponding duty to be provided to the tax-payer. Before proceeding to examine the principles laid down by the Supreme Court while laying down the test to find out whether the impugned law falls within the ambit of restriction on the limits of the law-making authority, particularly vis-a-vis the taxing statute, it has to be kept in view that the scheme of levy in each case is the determinate factor, to find an answer and in determining the true nature of the levy in question and nature of levy/ levies under statutes falling in different legislative fields which have come under judicial scrutiny may not afford in every case a comparable parallel, but do provide light. Atiabari's case AIR 1961 SC 232: In Atiabari Tea Co.'s case AIR 1961 SC 232, the court was considering the imposition of tax by the Assam Legislature under the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954. The Act was passed in order to provide for levy of tax on certain goods carried by roads or Inland Waterways in the State of Assam and it has received the assent of the Governor on April 9, 1954. It had not been reserved for assent of President before movi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re governed by the provisions of Part XII alone cannot be accepted." It was further said that: "Article 301, read in its proper context and subject to the limitations prescribed by the other relevant articles in Part XIII, must be regarded as imposing a Constitutional limitation on the legislative power of Parliament and the Legislatures of the States. Wherever, it is held that article 301 applies the legislative competence of the Legislature in question will have to be judged in the light of the relevant articles of Part XIII. Article 301 applies not only to inter-State trade, commerce and intercourse but also to intra-State trade, commerce and intercourse." The court while accepting that the freedom of trade guaranteed under article 301 is freedom from all restrictions except those which are provided by the other articles in Part XIII had added that: " . . . restrictions, freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the above consideration is not germane for the present purposes inasmuch as the levy in question is not the levy on import of goods from outside the State within the State but is on the movement of goods into the local area. Whether through intra-State movement of goods or through inter-State movement of goods is immaterial, but levy is directly on the movement of the goods within the local limits of the local area for the purpose of goods staying in the local area either for consumption or sale or use. Therefore, the activity which is chosen for the levy of tax in the present case is directly the movement of goods and has direct nexus with the restrictions imposed by way of imposing tax. The working test that levy of tax must have a direct and immediate nexus on the impediment on free movement of the goods, is satisfied in the case of levy of tax by the State Legislature pursuant to entry 52 of List II of the Seventh Schedule of the Constitution. In applying the test of direct nexus with the imposition of tax and consequent restrictions on the movement of goods and passengers, the Court has not made distinction whether the levy is compensatory in nature or is by way of gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such object and the amount that is spent by the State for providing such facilities for the development of trade, commerce or intercourse must have proportionality on the principle of quid pro quo. Otherwise, it would be hit by article 301 of the Constitution. In case by providing facilities for betterment of trade, commerce or intercourse cost is recovered, it is no impediment so as to invite attention of article 301 or Part XIII at all. But, if the levy is by way of imposition for raising general revenue and has a direct impact on the free movement of trade, commerce or intercourse, it falls within the ambit of article 301 and can be saved only if it is made in accordance with the provisions of article 304(b), where the enactment is made by the State Legislature. Referring to the Traffic Regulation Rules and the necessity of providing traffic sign at frequent distances under Motor Vehicles Act, the Court observed in Automobile Transport's case AIR 1962 SC 1406: ". . . it would be absurd, for example to suggest that freedom of trade is impaired or hindered by laws which require a motor vehicle to keep to the left of the road and not drive in a manner dangerous to the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in a good state of repairs . . ." Thus, working test of proportionality of tax collected with the money spent in providing facilities for betterment of trade which could be availed by the traders was accepted as a touchstone on the anvil of which the tax could be considered compensatory falling outside the purview of article 301 or regulatory, burdening the trade falling within the ambit of article 301 of the Constitution requiring an inquiry into the reasonableness of restriction in terms of article 304 to be saved from being ultra vires. The question that comes to forefront is what tax can be called as compensatory or regulatory in nature so as to fall outside the purview of article 301 of the Constitution. The test was evolved by the Supreme Court in Automobile Transport's case AIR 1962 SC 1406 while enunciating the principle that there may be certain taxes which are imposed with the object of providing facilities or services to trade and commerce so that trade and commerce can run smoothly and the tax is imposed on those who avail or ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the working test of quid pro quo is satisfied. If that ratio is not maintained, the tax cannot be considered to be compensatory for benefit of trade and commerce. Obviously, this proposition as working test is applied in cases where taxes are directly imposed for the purpose of providing specific or general services directed to the trade or commerce. But in case such tax is imposed for augmenting general revenue, which may be called generally in public interest, as noticed above, cannot be termed compensatory tax. It will here be apposite to refer to the following principle stated in the majority judgment delivered by Justice S.K. Das: ". . . It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities . . . so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may be and it will not make any difference that the money collected from the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Australia was concerned with the provisions imposing a charge at the rate prescribed in the Schedule on owners of certain vehicles having more than a specified load capacity to pay towards compensation for wear and tear caused to public highways in Victoria. Section 92 of the Constitution of Australia is couched in somewhat same terms as article 301 of Indian Constitution. The contention has been raised that levy at the aforesaid rate impaired the freedom of trade, commerce and intercourse violating section 92 of the Constitution of Victoria, hence law imposing aforesaid rate under the Commercial Goods Vehicles Act, 1955 was beyond the legislative competence of the Parliament. In other words, the tax was imposed directly towards wear and tear to compensate the State for wear and tear of roads constructed and maintained by it and rate was levied on those people, who were to avail such facilities. The High Court found that provisions of the Act required the owner of every commercial goods vehicle of load capacity exceeding four tons and not engaged in conveying certain specified classes of goods to pay as a contribution towards compensation for wear and tear caused to publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition that taxing statute within legislative field of a legislating authority in terms of division of legislative fields in the Seventh Schedule by competent Legislature are outside the purview of article 301. It is only where the levy is directly on activity affecting movement of trade and commerce that it can be considered as burden or restriction on freedom of trade, commerce or intercourse. But the same is for the purpose of providing facilities for the smooth movement of trade and commerce or for the development of trade and commerce and only when the tax is by way of reimbursement of expenses incurred for providing such facilities that the tax can be said to be compensatory in nature, will still be away from the province of article 301. To bring a tax within such class further test to be applied is the proportionality of collection and spending of revenue on quid pro quo basis. These principles enunciated in Automobile Transport's case AIR 1962 SC 1406 and also emerging from other judgments were succinctly culled out in first Jindal's case [2004] 134 STC 303 (SC). The discordant note struck in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursement of special identifiable benefit provided or making specific regulatory provision benefit from which can be gauged in quantifiable measure for some special advantage to trade, commerce and intercourse and not merely an incidental advantage flowing to trade and commerce as a result of general activity of governance by a welfare government without reference to extension of some special advantage or benefit extended to trade, commerce or intercourse for reimbursing itself of the cost defrayed. The impugned Act: Therefore, the first question to be addressed in this regard is whether the tax sought to be imposed is for the purpose of providing certain facilities or benefits to the trade or commerce or for regulating the trade or commerce for the development of any trade or commerce within the local area or is for augmenting general revenue of the State or funds of the authority governing or administering the concerned local area to meet its general expenses without reference to any identifiable flow of benefits or facilities to trade, commerce or intercourse. Since the tax imposed in Automobile Transport's case AIR 1962 SC 1406 directly related to the better movement of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government will assess the dealers and the latter will be required to deposit entry tax on a regular basis. Provisions are also being incorporated for summary assessment and payment of tax in advance. The State Government will have powers to exempt or reduce tax along with interest in cases where it seems appropriate. It will be mandatory on the part of the dealers to maintain accounts and issue sale bill, memo or invoices. The officers of the Commercial Taxes Department will have powers to enter the premises and inspect and seize the documents, if required, in connection with the provisions of the Act. (7) This Bill seeks to achieve the aforesaid objectives. Hence, the Bill." If the aforesaid were to provide a clue, it militates against the tax being levied for extending any identifiable measure for trade and commerce in a quantifiable measure, but betrays a tax to augment general revenue to befall on dealers only and not on all as a class of persons, who bring goods in local areas for consumption, use or sale therein. The preamble: The preamble of the Act states that it is to provide for the levy and collection of tax on entry of goods into local areas of the State for consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g execution of works contract involving the use or consumption of goods entering into a local area; or every dealer not ordinarily resident of a local area; or every manager or agent of a dealer not ordinarily resident of a local area; other than a dealer dealing exclusively in the goods as may be specified; or every lessor or lessee, who brings or causes to be brought goods into a local area is required to get himself registered irrespective of the value of his annual turnover of goods brought into a local area. On the perusal of the aforesaid, it is apparent that notwithstanding what is said in section 3, levy is on the entry of goods in each local area for use, consumption or sale therein, and section 4 provides that incidence of tax falls only on such dealer whose turnover of goods received within local area exceeds rupees one lac, section 11 obliterates this distinction of registration without reference to the turnover of the dealer within a local area in respect of entry of goods to which he may become liable to pay tax. In other words, notwithstanding that the liability to pay tax is on the activity of bringing the goods in a given local area for the purpose of use, consump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this provision for filing return of each branch separately does not detract from the fact that, but for exemption from Commissioner in his discretion, a dealer is not only required to furnish multiple returns in respect of entry of goods in different local areas on the basis of happening of taxing events but is required to file a consolidated return at principal place of business, even if no taxable event takes place thereon and he may not be liable to pay tax in respect of any transaction happening at the principal place of business. Multiple returns is the rule. These provisions taken together make it abundantly clear that notwithstanding above provision made for annual return, in fact the trader or man of commerce is required to file multiple returns before each assessing authority having jurisdiction of different local areas in respect of turnover in separate local areas but the provision relating to determination of turnover for the payment of tax and the requirement of registration of a dealer irrespective of the total turnover beyond which tax liability arises in respect of taxable event happening in each local area lends it a colour of tax for augmenting general revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy and collection of tax less cumbersome, which otherwise was found to be so on account of various check-posts through which the goods were entering into the local area and the vehicles to be kept stationary. However, this contention is also not well founded in view of the clear provision made under section 31 of the Act, which reads as under: "With a view to prevent or check evasion of tax under this Act, check-posts or barriers or both, as the case may be, established or erected under the provisions of the Rajasthan Sales Tax Act, 1994 shall be recognised for the purpose of this Act." Thus, section 78 of the Rajasthan Sales Tax Act, 1994 has been incorporated by reference, which, inter alia, provides for establishing as many check-posts as the State Government desires and authorising the officers in the Commercial Taxes Department to keep the goods vehicles stationary until required by them for the purpose of checking the documents and verification of the goods carried through such transport. Section 78 of the Act of 1994 authorises the State Government for setting up of a check post at such place and for such period as may be specified in the notification. Under sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited by notification under the administration of panchayat, municipality, notified area committee or cantonment board has been defined as an independent local area and entry of goods therein for use, consumption or sale therein has been subjected to tax in the hands of dealer, who becomes entitled to take delivery of such goods on entry of such goods in the concerned local area in the course of his business. Apparently, levy is on the movement of goods into a local area. The charge becomes eminent on entry when a "dealer", as defined under the Act, becomes entitled to take delivery of the goods within the local area and unless the goods are retransported within six months of the receipt, the liability is otherwise has been fixed for that time. Conclusions on facial analysis of the Act: The cumulative effect of the aforesaid provisions leave no room of doubt that the tax in question is directly on the activity of movement of goods from outside any local area to within its local limit for use, consumption or sale therein and has an effect of directly and immediately impeding the free movement of goods. There being no element of collection of tax with any purpose of providing spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Supreme Court in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136, which have been overruled by the Supreme Court in Jindal's case [2006] 145 STC 544 (SC). In view of the aforesaid, the very foundation of the decision having been upset by the Supreme Court, the said decision as such cannot be considered to be binding precedent for holding the impugned enactment as a taxing statute levying compensatory tax. The Division Bench has specifically applied the test for holding the impugned tax to be compensatory tax, that there being some connection between the tax and facilities provided without there being direct and immediate nexus is not violative of article 301 of the Constitution. This is contrary to later Constitutional Bench decision in Jindal's case [2006] 145 STC 544 (SC). Therefore, in terms of the latest pronouncement of the Supreme Court in light of which this issue has to be decided by this court, the decision rendered by this court in Godfrey Philips India's case [2001] 121 STC 54; [2000] 7 STT 50 cannot be considered as precedent, and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered if the municipality, charged with a duty to render services, has enough and adequate funds and that the impugned tax was a measure for compensating the municipalities for the loss of revenue or for augmenting its finances. As such a stand was not taken, it is not necessary for us to examine whether the tax is compensatory in character." The apex court found that there is nothing in Hansa Corporation's case [1980] 4 SCC 697 which seems to support the proposition enunciated in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 or for that matter Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136. Therefore, both these decisions relied on by the learned counsel do not assist us in reaching the conclusion, one way or the other. Significantly, the court also noticed that entry tax imposed by Karnataka Legislature was found to be valid only because it has fulfilled the procedural requirement as required in terms of article 304(b), which in the present case is admittedly not fulfilled. The stand taken by the State and material placed on record and consideration thereof: We have seen that from the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsatory nature of tax as per the respondent-State is founded not for the purpose of providing any specific facility by the State or through its agency to trade, commerce or intercourse and to reimburse itself of the expenses incurred in that behalf but to fund the municipalities or the other local authorities on account of abolition of octroi to be levied and collected by such authorities in terms of various enactments to which we have alluded to above but has decided itself to levy and collect the octroi in the condensed name of tax on entry of goods into local area for use, sale or consumption therein. Apparently, this cannot be considered, on its face value, an insignia of compensatory tax for the purpose of taking it out of the ambit of article 301 of the Constitution, by furnishing the details of the revenue collected by local authorities until July 31, 1992 by levying tax in terms of entry 52 and subsequent collection of revenue under the Act of 1999 enacted in the same field. These figures do not really pertain to spending of money for providing facilities but relate to assigning funds to the local authorities in terms of obligation placed on to the State Government under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided to trade and commerce or imposing regulatory measures for the smooth running of trade, commerce or intercourse within the local area or within the State of Rajasthan. So also, the amount spent for upkeeping and maintaining fire brigade is the function of the local authority and is a part of general administrative function of the local area directly for being prepared to meet the challenges of unforeseen accidents due to fire and not for the purpose of providing such facilities primarily to trade and commerce. But is part of ordinary obligation of local administration. Incidental benefit flowing to trade and industry cannot be considered the object and purpose of tax to provide identifiable specific benefit to trade and commerce in lieu of collection made from it. It is not a direct and specific facility so as to fulfil the test, which has been extracted in the order remanding the matter to the High Court for deciding the issue as under: "To sum up, the basis of every levy is the controlling factor. In the case of 'a tax', the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of 'a fee', the basis is the speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) lighting public streets, places and buildings; (b) watering public streets and places; (c) cleaning public streets, places and sewers, and all spaces, not being private property, which are open to the enjoyment of the public, whether such spaces are vested in the Board or not, removing noxious vegetation and abating all public nuisances; (d) removing filth, rubbish, night-soil, odour, or any other noxious or offensive matter from privies, latrines, urinals, cesspools or other common receptacles for such matters in or pertaining to a building or buildings; (e) extinguishing fires and protecting life and property when fire occurs; (f) regulating offensive or dangerous trades or practices; (g) removing obstructions and projections in public streets or places and in spaces, not being private property which are open to the enjoyment of the public, whether such spaces are vested in the Board or belong to the State Government; (h) securing or removing dangerous buildings or places and reclaiming un-healthy localities; (i) acquiring, maintaining, changing and regulating places for the disposal of the deal and of the carcasses of dead animals; (j) constructing, altering an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney collected through the impugned levy is spent in providing regulatory services to that effect only or mainly. Nothing has been stated in the additional affidavit or written submissions or in statistics furnished by respondents to link the imposition and collection of tax under the Act of 1999 with anyone or more objects specified in Schedule XII of the Constitution nor there is a whisper in the entire submissions about spending any sum for providing specified benefit or facility to trade or commerce in any quantifiable measure with reference to any area of responsibilities that may have been or may be assigned to Municipality under Schedule XII of the Constitution. Similarly, apart from giving the details of expenses incurred on aforesaid four heads of activities for which collection from entry tax are alleged to have been spent, no such details about the expenses incurred in respect of various functions discharged by the panchayat also have been furnished which could be related to providing of facilities and benefits to the trade and commerce or imposing regulatory measures for its benefit in an identifiable or quantifiable measure. Like Municipality Act, under section 50 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for compensating the different local areas for loss of their revenue on account of abolition of octroi. In fact imposition of tax under the Act of 1999 belies the statement that octroi has been abolished. The impact of the notification dated July 31, 1998 was not to abrogate the provisions of the Municipalities Act or the Panchayat Act, to which we have made reference earlier, and which authorises levy and collection of octroi by such local authorities but only the notification prescribing rates at which the municipal corporations or the municipal board could levy and collect the taxes has been withdrawn. In other words, under the provisions of the Rajasthan Municipalities Act, 1959 and corresponding provision under the Rajasthan Panchayati Raj Act, 1994 it was for the State to prescribe the rate at which octroi could be levied and collected by such authorities. The effect of subsequent enactment of Act of 1999 is only that while withdrawing the notification prescribing rate of collection of octroi under the Municipalities Act or the Panchayati Raj Act, as the case may be, State Government itself has entered the field enabling it to levy and collect the octroi by itself and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Jharkhand High Court in Tata Iron & Steel Company Ltd. v. State of Jharkhand [W.P. (T) No. 5354 of 2004(2)] have also taken same view on examining the tax on entry of goods into local area for consumption, use or sale therein to be levied and collected on account of abolition of octroi by the respective local authorities in terms of legislative enactments made by the respective States. Since the Supreme Court has directed to reach independent conclusions irrespective of those judgments, we are refraining ourselves from entering into and referring to the details of those judgments. (1)Reported as Thressiamma L. Chirayil v. State of Kerala [2007] 7 VST 293 (Ker). (2)See [2007] 6 VST 587. Conclusions: Thus, viewed from any angle, we have no hesitation in coming to the conclusion that the Rajasthan tax on entry of goods into local area for use, sale or consumption therein has not been imposed for providing specific benefit/facility to trade or commerce in quantifiable measure. There is no facial indication in the Act that tax is imposed for any such specified purpose. Nor the material placed by State proves that payment of entry tax is a reimbursement or recompense for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament and State Legislature, to enact laws authorising the giving of any preference to one State over another or making or authorising making of any discrimination between one State over another by virtue of any entry relating to trade or commerce in any of the List in the Seventh Schedule. Having imposed such absolute restriction on legislative powers of Parliament and State Legislatures, the clause (a) of article 304, saves such taxes on import of goods to one State from another where tax imposed on imported goods is similarly imposed on such goods manufactured in State so as no preference comes into existence due to tax on such imported goods. The imposition of tax other than on import of goods within State does not come within the umbrella of article 304(a) of the Constitution. This takes us to clause (b) of article 304, which saves any such law made by State Legislative including taxation law which results in reasonable restriction on trade, commerce or intercourse throughout the territory of India. However, before embarking upon this inquiry into reasonableness of aw, a Bill before its introduction into State Legislative Assembly has to receive sanction of the President. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it is introduced for being enacted. That procedure having not been followed, apparently it was incompetent for the State Legislature to impose such tax, which has resulted aforesaid in view of article 301 read with article 304 of the Constitution. We have noticed above such limitations on legislative competence flows not from want of a legislative field reserved for State Legislature under the Seventh Schedule, but because of provisions contained in Part XIII of the Constitution. We are, therefore, of the opinion that the tax on entry of goods into local area having the effect of directly impeding the free movement of trade and commerce within the State is not compensatory in nature and falls within the ambit of article 301 of the Constitution of India. Until it is enacted in terms of the provisions of article 304(b), it cannot be said to fall within the legislative domain of the State Legislature. The restriction under article 301 of the Constitution has been found to be a constitutional restriction on the right of legislative competence to enact laws in derogation thereof and saving from that clause has been provided under articles 302 to article 305. When admittedly in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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