TMI Blog2009 (7) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the respective parties within four weeks from the date of receipt of copy of this order. - Writ Petition No. 39540 of 2003 - - - Dated:- 24-7-2009 - KUMAR N. , J. ORDER:- N. KUMAR J. In all these writ petitions the petitioners have challenged the constitutional validity of sections 4B and 4BB of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979, for short, hereinafter referred to as, the Act and the Notification No. FD 41 CET 2003(iii) dated July 26, 2003 issued by the Government of Karnataka prescribing the rate of entry tax on the motor vehicles mentioned therein. The petitioners are all dealers registered under the provisions of the Karnataka Sales Tax Act, 1957 and Karnataka Tax on Entry of Goods into Local Areas Act, 1979. As the constitutional validity of the aforesaid provisions is under challenge, it is not necessary to set out the facts of each case. Section 4B of the Act was the charging section in respect of levy of entry tax on motor vehicles. The said section was inserted in the Act for the first time with effect from April 1, 1995 by the Karnataka Tax on Entry of Goods (Amendment) Act, 1994 (Karnataka Act No. 45 of 1994). Numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Karnataka Sales Tax Act, 1957, to be fixed by Government by notification. Karnataka Act 45 of 1994 was notified to come into force from April 1, 1995 by Notification No. FD 43 CET 95(1) dated March 31, 1995 and pursuant to the same, the Government issued Notification No. FD 43 CET 95(3) dated March 31, 1995 specifying that tax shall be levied and collected from April 1, 1995 on entry of motor vehicles at the rates specified. The validity of section 4B inserted by Karnataka Act 45 of 1994, was questioned before the High Court. This court on July 26, 1999 in the case of Syndicate Bank v. State of Karnataka [2000] 119 STC 155 (Karn) held that the provision is violative of articles 301 and 304(a) of the Constitution as it discriminated between goods imported from outside the State and locally manufactured goods. It had however suggested that there could be provision by which no discrimination between the imported goods and locally manufactured goods is given and the amount of entry tax is given adjustment in the total liability of sales tax or the amount of sales tax already paid could be given adjustment under the provisions of the Entry Tax Act. The writ appeal preferred against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 301 read with article 304(a) of the Constitution of India and therefore, they are ultra vires and liable to be quashed. The discrimination is writ large on the face of the provision. This court in Syndicate Bank's case [2000] 119 STC 155 has quashed a similar provision which has been upheld by the apex court. Merely because new provision is made for refund of tax paid under the State sales tax or the Central sales tax and on such computation the tax levied at the entry point could be almost identical with the tax paid by a local dealer, would not render the provisions valid. Any tax in article 304(a) of the Constitution means the same tax which is levied on an importer and which is not levied on a local dealer. The discrimination should be considered qua the same tax and not with regard to different taxes. The entry tax is a tax on entry and not on sale, whereas sales tax is a tax on sale. The two taxing events are totally different and operate at different points of time. The violation of article 304(a) of the Constitution cannot be justified on the ground that the combined effect of two types of taxes imposed under different laws and having different taxing events whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal area whereas for the similar goods produced in the State, no tax has been prescribed. Thus, keeping in view the rate of entry tax, there is a clear discrimination between the two and thus offends article 304(a). Once the discrimination is made out, the enquiry by the courts ends. The price structure of the imported goods vis-a-vis the locally manufactured goods or the economics of the importer need not be gone into. Therefore, the said notifications were quashed on the ground of offending article 304(a) of the Constitution. The said notifications are ultra vires the powers of the State Government both on the ground of causing discrimination in terms of article 304(a) of the Constitution of India and also on the ground of exceeding the Legislature delegation made in its favour under section 3(1) of the Act. Against the said order special leave petitions came to be filed before the apex court. The Supreme Court disposed of the special leave petitions by holding that the counsel for the parties agree that the appeals filed by the State of Karnataka have become infructuous. It is because the aforesaid notifications of March 30, 1994 and March 31, 1997 were superseded by notificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as may be prescribed. The said provision was challenged before this court. This court in the case of Syndicate Bank v. State of Karnataka [2000] 119 STC 155, decided on July 26, 1999 struck down the aforesaid provision on the ground that the tax is discriminatory and thus violates article 304(a) of the Constitution. It held that, if locally manufactured motor vehicles are moved from one local area to another, they are not liable to entry tax and it is only the importer who has been subjected to tax. Therefore, the provisions of section 4B of the Act are directly hit by articles 301 and 304(a) of the Constitution and consequently it was declared ultra vires the Constitution. In the course of the said judgment the learned judge made the following observations (at page 161): There could be a provision by which no discrimination between imported goods and locally manufactured goods is given and the amount of entry tax is given adjustment in the total liability of sales tax or the amount of sales tax already paid could be given adjustment under the provisions of the Entry Tax Act. The aforesaid judgment of the single judge was challenged in appeal which came to be dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , not being a dealer in motor vehicles had purchased the motor vehicles for his own use. The impugned notification issued under the aforesaid provision reads as under: GOVERNMENT OF KARNATAKA No. FD 41 CET 2003(iii) Karnataka Government Secretariat, Vidhan Soudha, Bangalore. Dated 26th July, 2003. Notification In exercise of the powers conferred by sub-section (1) of section 4B of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), the Government of Karnataka hereby specifies that with effect from the first day of January, 2000 up to 31st March, 2002, the tax shall be levied and collected under the said Act, at the rates specified in column (3) of the table below on the entry of motor vehicles specified in the corresponding entries in column (2) thereof. TABLE Sl. No. Category of motor vehicles Rate of tax under (1) (2) (3) 1. Motor-cars including motor taxi cabs 12% 2. Motor-cycles includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motor vehicle. The second contention was negatived on the ground, the levy is not on entry of vehicle in any part of the State but in any local area in the State and, therefore, it cannot be found fault with. The third contention was negatived on the ground that, tax levied under different legislations enacted in exercise of constitutional power are not rendered bad on assumption that it amounts to double taxation. The taxable event for entry tax is not same as for octroi nor it is by the same authority for the same purpose and for same period. In the said case the High Court did not find that the provisions violated the constitutional provision guaranteed under article 301 of the Constitution. The correctness of the said finding of the High Court was not challenged before the apex court. Therefore, the apex court held that the levy would be held to be valid because the Legislature intended to avoid any loss of sales tax in the State so long as it is not found to be invalid either by any statutory or constitutional violations. Therefore, the Supreme Court did not go into the question whether the said levy of tax violates the constitutional provision as contained in article 301 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar word or sentence. To determine whether a decision has 'declared law' it cannot be said to be a law when a point is disposed of on concession and what is binding is the principle underlying a decision. A judgment of the court has to be read in the context of questions which arose for consideration in the case in which the judgment was delivered. . . . . The law which will be binding under article 141 would, therefore, extend to all observations of points raised and decided by the court in a given case. So far as constitutional matters are concerned, it is a practice of the court not to make any pronouncement on points not directly raised for its decision. . . The Supreme Court in the case of State Financial Corporation v. Jagdamba Oil Mills AIR 2002 SC 834 held as under: 19. Courts should not place reliance on decisions without discussing as to have the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of courts are not to be read as Eculid's theorems nor as provisions of the statute. These observations must be read in the context in which they appear. Judgments of courts are not to be construed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there to find out the intent and purport of the decision by not only considering what has been said therein but the text and context in which it was said. For the said purpose the court may also consider the constitutional or relevant statutory provisions vis-a-vis its earlier decisions on which reliance has been placed. The Supreme Court in the case of Divisional Controller, K.S.R.T.C. v. Mahadeva Shetty AIR 2003 SC 4172 held as under: The decision ordinarily is a decision on the case before the court, while the principle underlying the decision would be binding as a precedent in a case which comes up for decision subsequently. Therefore, while applying the decision to a later case, the court dealing with it should carefully try to ascertain the principle laid down by the previous decision. A decision often takes its colour from the question involved in the case in which it is rendered. The scope and authority of a precedent should never be expanded unnecessarily beyond the needs of a given situation. The only thing binding as an authority upon a subsequent judge is the principle upon which the case was decided. Statements which are not part of the ratio decidendi are d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding as an authority upon a subsequent judge is the principle upon which the case was decided. It is also to be borne in mind that so far as constitutional matters are concerned, it is the practice of the Supreme Court not to make any pronouncements on points not directly raised for decision. Therefore, this constitutional question whether the similar provisions under the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987 was violative of article 301 read with article 304(a) was not required to be considered by the apex court in the aforesaid judgment, they have not decided the said question and, therefore, the said judgment cannot be construed as a binding precedent answering the said question by merely looking into the final result of the said decision. Therefore, the said decision is of no assistance and the court has to decide the said question in the light of the three judgments of the apex court rendered by the Constitution Benches, laying down the law on the point. The answer to the questions raised in these writ petitions revolves round the interpretation of articles 301, 302, 303 and 304 of the Constitution which is contained in Chapter XIII of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with similar matter it felt the matter should be heard by a Larger Bench. Therefore, the matter was heard by a Bench of seven judges in the case of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 where the said Bench was called upon to decide which of the three views expressed in Atiabari Tea Co. Limited case AIR 1961 SC 232 lays down the correct law. The said Bench held that, the concept of freedom of trade, commerce and intercourse postulated by article 301 must be understood in the context of an orderly society and as a part of the Constitution which envisages a distribution of powers between the States and the Union, and if so understood, the concept must recognise the need and the legitimacy of some degree of regulatory control, whether by the Union or the States: this is irrespective of the restrictions imposed by the other articles in Part XIII of the Constitution. As regulatory measures do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by article 301, they are excluded from the purview of the provisions of Part XIII of the Constitution for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1962 SC 1406 for deciding whether a tax is compensatory or not vide paragraph 19 of the report, will continue to apply and the test of some connection indicated in paragraph 8 of the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654; [1995] Suppl 1 SCC 673 and followed in the case of State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1; [1996] 9 SCC 136 is, in our opinion, not good law and, therefore, they declared the test of some connection as propounded in the aforesaid two judgments as not applicable to the concept of compensatory taxes and accordingly to that extent the judgments rendered by the apex court in those two cases have been overruled. It is in the background of this settled legal position, the point that arises for consideration in the instant cases has to be decided. A reading of the impugned provisions makes it clear that, what is levied is a tax. It is payable by the importer. The importer is defined to mean a person who brings a motor vehicle into a local area from any place outside the State for use or sale therein and who owns the vehicle at the time of its entry into a local area. The words outside the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have sustained because of tax holidays and lower tax in neighbouring States. The tax levied is also not regulatory in nature. The regulation extends to administrative acts which produces regulative effect on trade and commerce. The impugned provisions do not seek to contract conditions under which the activity like trade is to take place. The said provisions are not enacted to enforce discipline or conduct under which the trade has to perform. The tax is not a payment for regulation of conditions or incidents of trade or manufacture. The levy of tax does not facilitate trade. On the contrary it hampers free trade. The primary object of levy of tax is the collection of revenue, as is clear from the object behind the amendment. Therefore, the impugned levy is neither a compensatory tax nor a regulatory measure. Therefore, Part XIII of the Constitution is attracted to the levy of tax and it has to satisfy the constitutional requirement as contained in articles 301 and 304 of the Constitution as it is a law passed by the State Legislature. The impugned law chooses an activity, namely, the movement of trade and commerce as the criterion of its operation and if the effect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the States creating what may be called tax barriers or fiscal barriers , as they may be called-at or along their boundaries in the interest of freedom of trade, commerce and intercourse throughout the territory of India, guaranteed by article 301. The Supreme Court in the case of State of Uttar Pradesh v. Laxmi Paper Mart [1997] 105 STC 1 has held that, once the discrimination is made out, the enquiry by court ends. The price structure of the imported goods vis-avis the locally manufactured goods or the economics of the importer need not be gone into. The Karnataka Legislature by law, under the impugned provisions of the Act, has not imposed any tax on motor vehicles manufactured or produced on purchase value of a motor vehicle and entry of which is effected into a local area for use or sale therein, within the local area of the State of Karnataka. Under the impugned provision such a tax is levied and collected only in respect of motor vehicle which are brought into a local area from any place outside the State for use or sale therein and who owns the vehicle at the time of entry into a local area. Therefore, the imposition of tax under the Act is discriminatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to be at the same rate. Any tax in article 304(a) of the Constitution means the same tax which is levied on an importer and not levied on the local dealer. The discrimination to be considered qua the same tax and not with regard to different taxes levied under different enactment. The entry tax is on entry and not on sale whereas the sales tax is on sale. The two taxing events are totally different and operate at different points of time. Once the discrimination is established or admitted the law becomes void, as offending the Constitution, as such discrimination results in creating tax barriers or fiscal barriers. What is void cannot be restored to life by enacting the provisions for reduction of taxes paid under a different so as to wipe out the vice of discrimination. What appears to have influenced the Constitution makers while enacting article 301 of the Constitution, is a similar provision in the American Constitution which is known as a commerce clause . The observations made by Cardozo J. in Charles H. Baldwin v. G.A.F. Seeling Inc. [1934] 294 US 511 at p. 523; 79 Law Ed. 1032 at p. 1038 while dealing with the commerce clause contained in article 1, section 8, clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of India. It is essential for the economy of the nation and for sustaining and improving living standards of the country and its people. It should ultimately lead to one country, one people concept, and the economic benefits of the development should reach every citizen, wherever he lives within the country. The people of the States must sink and swim together. The long run prosperity and salvation lies in union and not in division. Article 301 embodies and enshrines this principle of paramount importance that the economic unity of the country will provide the main sustaining force for stability and progress of the political and cultural unity of the country. This object is best achieved if the benefits enjoyed by the people in one State is also available to the people in other States, by demolishing this artificial boundaries and barricades separating one State from another. In the present context of globalization, privatization, and free economy the national boundaries and barriers are sought to be sidelined and the benefit of economic development is sought to be made available to the people of the whole world. If a State's economy could be prosperous, because of tax ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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