TMI Blog2008 (5) TMI 638X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein prescriptions of such higher rates under Section 4A were held to be valid. Though the petitioners have also challenged the notifications on the ground that they violate Article 301 as well as Articles 14 and 19 of Constitution of India on the ground that the rates of tax have been increased to such an extent that it has become an impediment and hindrance to trade with the passage of time, as noted in the preceding paragraph, the petitioners have neither alleged nor given figures to demonstrate and establish that there has been any decline or loss in the business income of the trade or earning of the petitioners as a result of increase in the rate of entry tax, nor have they, in any manner, stated or demonstrated that the impugned levy has adversely affected their trade and, therefore, constitutes a direct and immediate impediment on trade and is non-compensatory. Petition dismissed. - W.P. Nos. 1581 of 2002, W.P. Nos. 1195 of 2003 - - - Dated:- 15-5-2008 - W.P. Nos. 1581 of 2002, 1195 of 2003, 6361, 6362, 6364, 7055, 7649, 9827, 10389, 11642, 14026, 14698, 17586, 17896, 18018 and 18420 of 2006, 211, 960, 978, 1093, 1274, 2358, 2396, 3373, 3546, 3659, 4010, 4386, 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fications. For the sake of clarity and convenience I shall adumbrate the facts in W.P. No.11642 of 2007 and wherever it is felt necessitous to delineate any other facets relating to the factual realm, I shall exposit and delve into the same so that a complete picture is frescoed. 2. Before I advert to the pleadings that have been brought on record it is essential to advert to the factual backdrop in the context of the 1976 Act, for it is imperative to do so. The constitutional validity of the 1976 Act was challenged before a Division Bench of this Court in Sanjay Trading Co. v. Commissioner of Sales Tax [1994] 93 STC 589 wherein the Division Bench dealt with Articles 301 and 304(b) of the Constitution of India and eventually expressed the view as under: 21. In the present case, the State has taken the stand that the levy of entry tax is compensatory in character, i.e., to compensate the municipalities for loss of income by way of octroi which has been abolished in the State. This contention is met by learned Counsel for the petitioners by pointing out that the legislative provisions indicative of the compensatory nature of the levy, have been deleted and, therefore, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tea Co. Ltd. v. State of Assam and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan. A combined reading of the two decisions indicates that so long as a tax is regulatory and compensatory it is not within the mischief of Article 301. In the counter-affidavit filed on behalf of the State which was not disputed, the nature of levy has been demonstrated to be compensatory. The appellants did not dispute the figure furnished by the State. It is settled by now that if the tax is compensatory then it is immune from challenge under Article 301 (see Khyerbari Tea Co. Ltd. v. State of Assam and State of Karnataka v. Hansa Corporation). The submission of Shri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 304(b). Relying on the decisions rendered in Atiabari Tea Co. Ltd. and Automobile Transport (Rajasthan) Ltd. it was contended that entry tax impedes the movement of goods from one barrier to the other and hence Article 301 of the Constitution of India comes into play. Their Lordships opined that only such impositions which directly or immediately impede the free flow of trade, commerce and intercourse fall within the prohibition imposed by Article 301 and not all taxes whether or not their impact on trade is immediate or mediate, direct or remote. To arrive at the said conclusion the apex court placed reliance on the decisions on Automobile Transport (Rajasthan) Ltd. and State of Kerala v. A.B. Abdul Kadir and declared the Act to be intra vires. 8. In view of the reference, the matter came up for consideration before the Constitution Bench and by that time Jindal Strips Limited had come to be known as Jindal Stainless Limited. In Jindal Stainless Ltd. v. State of Haryana their Lordships noted the referral order, the arguments canvassed at the Bar, the scope of Articles 301, 302 and 304 of the Constitution, the generic concept of entry tax, difference between the exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writ petitions has been filed questioning the constitutional validity of the Act and the notifications issued thereunder. 11. At this stage it is appropriate to refer to the facts which form the basis of assail. Before I advert to the facts which have been exposited in W.P. No.11642 of 2007 as 1 have taken the same for the purpose of factual expose, it is obligatory on my part to state that Mr. R.N. Singh, learned Advocate-General, has raised a preliminary objection that the controversy in this batch of writ petitions does not require to be dwelled upon inasmuch as the Constitution Bench has only overruled the principle of some connection theory as laid down in Bhagatram Rajeev Kumar and Bihar Chamber of Commerce but the validity of the 1976 Act that was upheld in Bhagatram still holds good and the validity of the enactment cannot again be called in question by placing reliance on the decision rendered in Jindal Stainless Ltd. 12. Per contra, learned Counsel for the petitioners submitted that the Act of 1976 was held to be constitutionally valid on the foundation that the levy was compensatory in nature and the same was based on some-connection theory and once the some-con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held that the principles of constructive res judicata would not apply when the law has, since the earlier decision, been altered by a competent authority and in the context, the court is a competent authority to alter the law when it declares it to be unconstitutional. Alteration does not limit alone to change therein but is inclusive of the power of striking down. 16. In this context we may fruitfully refer to the decision rendered in Keshoram and Co. v. Union of India wherein it has been held that once the validity of a provision or notification is upheld by the court, all grounds presumed to have been considered by the court and fresh litigation challenging the validity of the same provision on some additional ground would be barred by the principles of res judicata. 17. In this context it is fruitful to refer to the Constitution Bench judgment rendered in Atam Prakash v. State of Haryana. In the aforesaid case the apex court under Article 32 of the Constitution was dealing with the constitutional validity of Section 15 of the Punjab Pre-exemption Act, 1913. The constitutional validity of Section 15(1)(a) of the Act was earlier challenged on the ground that it offende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution, is clearly to set up a 'vibrant throbbing socialist welfare society' in the place of a 'Feudal exploited society. Whatever article of the Constitution it is that we seek to interpret, whatever statute it is whose constitutional validity is sought to be questioned, we must strive to give such an interpretation as will promote the march and progress towards a Socialistic Democratic State. For example, when we consider the question whether a statute offends Article 14 of the Constitution we must also consider whether a classification that the Legislature may have made is consistent with the socialist goals set out in the Preamble and the Directive Principles enumerated in Part IV of the Constitution. A classification which is not in tune with the Constitution is per se unreasonable and cannot be permitted. With these general enunciations we may now examine the questions raised in these writ petitions. 19. In this context I may refer with profit to a three-judge Bench decision of the apex court rendered in Indian Handicrafts Emporium v. Union of India wherein placing reliance on the decisions rendered in the cases of Kapila Hingorani v. State of Bihar and John ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State of Madhya Pradesh the company is required to pay the entry tax on the value of goods entered irrespective of the facts whether such goods are sold by the company to its dealers at Indore for their ultimate consumption by the consumer in the local area of Indore or taken out of the local area of Indore for ultimate consumption in the other local areas. 24. It is put forth that so far as goods imported from outside the State of Madhya Pradesh are concerned they receive a different treatment for the purpose of levy of entry tax as against the goods locally manufactured. The goods imported from outside the State of M.P. are liable to entry tax as soon as they are entered into the State of Madhya Pradesh irrespective of the fact whether the goods are used or consumed in the area in which they are first entered. It is put forth that there is a clear discrimination between the goods imported from other States and the goods which are locally manufactured and hence, the levy of entry tax on the goods brought into Madhya Pradesh creates an impediment on the free flow of trade. 25. Reference has been made to Section 3 of the 1976 Act to indicate that it is the charging Section w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the provisions of the 1976 Act fail to satisfy the working test reiterated by the apex court in Jindal Stainless Ltd. and, therefore, it must conform to the requirement and conditions stipulated under Article 304(b) of the Constitution. It is averred that the enactment relating to the entry tax fails to satisfy the test of being a compensatory tax as laid down by the apex court in the case of Jindal Stainless Ltd. and hence, cannot be regarded as immune from challenge under Article 301 of the Constitution of India. After referring to the history of assail and the change of law it is contended that as the 1976 Act has gone through an amendment by the M. P. Amendment Act, 2004 and the Amendment Ordinance, 2006 and subsequent amendments have come by which enhancement of rate of tax has taken place on certain commodities specified in entry 10(a) of Schedule 11 of the Entry Tax Act it certainly constitutes an impediment on the free flow of trade on the goods specified in that entry. 27. It is urged that a tax which is initially compensatory can be regarded as non-compensatory if the same creates a hindrance in the freedom of trade and an impediment in facilitating the free f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the impugned levy is violative of Article 14 of the Constitution. It is set forth that in the absence of previous sanction of the President under Article 304(b), the Act is unconstitutional and the levy made therein is in clear violation of Article 301. It is contended that the levy of tax on the entry of goods impedes the free movement of goods according to the Constitution of India inasmuch as the levy of tax on the entry of goods in the local area has direct and immediate impact on the movement of goods. In this factual backdrop a prayer has been made to declare the provision contained in the 1976 Act and the Amending Act, 2004 and Ordinance, 2006 as ultra vires and further to command the authorities to refund to the petitioners the tax collected along with 24 per cent or any other rate as may be deemed fit and proper in the facts and circumstances of the case. 29. A counter-affidavit has been filed by the respondents setting forth, inter alia, that the petitioner carries on the operation of sale of finished goods in the State of Madhya Pradesh and for carrying on such business the existence of basic resources like infrastructure, roads, proper hygiene, lighting, drinking w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the respondents that the compensatory tax falls into two categories, namely, positive ingredients which ought to be there to constitute compensatory tax and negative ingredients, which if present, the tax in question cannot be termed as compensatory tax. If the purpose of levy is to raise resources for the regulatory measures to facilitate trade then in such circumstances the ingredients are of positive character and similarly the quantum of tax levied has a co-relation with the funds required for providing facilities and taking steps for regulatory measures. The provisions of the Act contain all the positive ingredients and, therefore, it is compensatory in nature. The compensatory tax need not satisfy the rule of quid pro quo strictly as in the case of concept of fee. A reference has been made to the decision rendered in Automobile Transport (Rajasthnn) wherein it has been held that only such taxes that directly or immediately restrict the trade would fall within the purview of Article 301 and 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 requirement of Article 304(b) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alorem basis is indicative of fact that the levy is not imposed as a recompense or reimbursement for the services rendered and based on the capacity to pay and hence, the levy is not compensatory tax. No figures have been provided to demonstrate that the impugned levy is the cost of providing service. The stand that the tax is levied in lieu of octroi does not meet the working test as put forth by the apex court in the Automobile Transport. The levy is exclusively for augmentation of revenue of the State with no legislative intent to provide facilities to the traders. Various assertions have been made categorically putting forth the stance that no facts have been put forth but only bald assertions have been made to show that the tax is compensatory which is unacceptable. It is stated that the respondents have not really discharged the onus and hence, the entry tax impedes the free movement of trade and creates restraint under Article 301 of the Constitution and, therefore, the impugned Act is liable to be struck down as unconstitutional. 33. An additional return has been filed on behalf of the respondents pleading, inter alia, that the 1976 Act is meant for levy of tax on the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. There is direct nexus between the service rendered and that availed of by the petitioner and the amount of tax collected against it. The persons employed by the petitioner to run its commercial establishment reside inside the local areas and avail facilities in the absence of which it would be the duty of the petitioner to provide such facilities to the workers and hence, there exists direct relationship between the services offered by the local bodies and the benefits drawn by the petitioner. 35. With regard to the stand relating to higher rate of tax it is contended that the same is permissible as per law. A reference has been made to the document that is produced for the years 1976-77 till 1988-89 to show how the provisions were made in the budget to compensate the municipalities which provide the facilities. The facet of entry tax in the State of M.P. has not changed its complexion and the tax collected has an inseparable nexus in relation to the services rendered and the stand that the persons paying tax must have direct benefit is neither correct nor sound. A letter from the Department of Finance has been brought on record to show how the amount has to be spent by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rriers on one hand and taxation for raising revenue on commercial intercourse, the difference is one of purpose and not of quality. The data filed by the State is neither correct nor relevant inasmuch as all services are available to citizens in general and not only to the dealers who pay entry tax and, in fact, the State has not disclosed what other taxes, charges, levies and fees are being recovered by it to provide even such general services. The State and the municipalities recover various taxes to fund the cost of providing basic general services and the Centre also provides various grants to the States in this regard and fundamentally they would come under the compartment of civic amenities and cannot be characterised as compensatory levy. It is contended that the State is still harbouring a misconception with regard to the some connection theory which has been overruled by the Constitution Bench and the stand put forth in the additional return is based on surmises and not on facts. The onus is cast on the State to prove by quantifiable data that levy is to defray the cost of providing the service but such data has not been filed and hence, the burden remains undischarged. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various aspects of the compilation to highlight the factum that there has been some link between the advantages extended for the trade facility to the tax and the tax collected. Mr. H.S. Shrivastava, learned Senior Counsel who appears in W.P. No.14698 of 2006 and other connected matters along with his written submission has filed a chart which, as Mr. Shrivastava would submit, would indicate the figures given by the State as regards the collections of entry tax and disbursement of the same to the local bodies are neither correct nor sound. It is urged by him that he has obtained these figures under the Right to Information Act from the Officer of the Commercial Tax Department. On a bare perusal of the figures given by the State and figures given by Mr, Shrivastava, we note certain discrepancies. At this juncture, we are not inclined to impress upon what would be the effect and impact of such discrepancy. However, it is imperative that the State should clarify by filing an affidavit why such discrepancies have occurred and if not, how it can be explained. Quite apart from the above, we are of the considered opinion that a consolidated affidavit is required to be fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, sanitation, fire fighting, electricity, environment and compensatory afforestation. A chart was filed as annexure AR-1 provided by the local self Government showing the budget of the receipts in certain municipal corporations and municipal councils and utilisation of the same within their respective jurisdiction out of the entry tax collected for providing the said facilities for the years 2005-06 to 2006-07. The said chart was given for illustration purpose. The details of the urban local bodies have been filed and, therefore, annexure AR-1 which was filed initially has become inconsequenfial and the same be ignored. 43. It is put forth in the affidavit that regarding octroi compensation an affidavit was filed earlier stating that the entry tax collected is transferred to the urban local bodies after deducting two per cent collection charges on pro rata basis. The illustrations have been given in this note. The chart shown in paragraph 6 of the note has been made accurate in the affidavit filed on December 27, 2007. Along with the copy of the affidavit a letter dated June 30, 2007 of the Finance Department has also been filed as annexure AR-2 in which the details of entry t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of the urban administration and development budget was filed on October 5, 2007 showing the figures of budgetary provisions of the urban administration and development. 45. In the affidavit dated December 27, 2007 the amount released against the octroi compensation, amount released to urban local bodies under other heads and the expenses incurred in commercial scctor and industrial scctors by urban local bodies have been shown in the chart at page 2. It is stated that due to inadvertence in column No.10 of the said chart column No.3 with column No.8 has been mentioned whereas it is column No.3 with column No.6. In the chart reproduced in paragraph 6 at page 3 of the affidavit dated December 27, 2007 in addition to the said amount the taxes levied and collected by the urban local bodies and approximate amount spent out of MPs and MLAs hand have been shown. The figures under this head in respect of Gwalior and Sagar were not available ; they have been shown as zero in the table. In the clarificatory affidavit the division-wise and year-wise details regarding grants by the Government other than entry tax amount of octroi compensation released to all the urban local bodies and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch burden is required to be discharged on the touchstone of principles laid down in Jindal Stainless Steel Ltd. (b) The voluminous documents which have been filed before this Court by the State that it has transferred large amount to various local authorities and the amount is spent on construction and maintenance of roads, provision of drinking water, sanitation, fire fighting, street and road lighting, environment and parks, compensatory afforestation, maintenance of public buildings and shops and community halls, public toilets, sulabh complex, etc., only pertains to general services which are, in any event, the statutory duty and the responsibility of the local bodies in question and by no stretch of imagination the services can be equated with any specific identified service to the person on whom entry tax is levied and recovered. (c) The analysis of figures would reveal that huge amount is spent on items such as sanitation, drinking water, fire-fighting, maintenance of public buildings and shops and street lighting which have whatsoever nothing to do in rendering of service to industries or business by conferring any kind of special advantage to the traders. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or providing special sccurity to protect the movement and storage of such gold/diamonds and charges an entry tax in order to cover the cost of such sccurity arrangement and there is a broad correspondence between the total amount of entry tax levied and the total cost of the special sccurity arrangements. (ii) If the State Government identifies a particular commodity or the grant of special facilities in order to enable the development of that particular industry and recovers the cost of such special facilities given to that particular product by imposing an entry tax on the entry of that product into any local area in the State. Example, if the State Government provides facilities throughout the State for milk and dairy products, such as making special arrangements for transport of refrigerated milk and milk products, refrigerated storage of the same and processing of milk into milk products, and recovers the cost of providing these special facilities and benefits by a levy of entry tax on the first entry of milk or milk products into any local area in the State. (iii) Similar examples can be given in respect of special facilities provided for the development of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity to the pipeline, the cost of which is recovered by levy of entry tax, on the of l imported into any local area in the State, such a levy would be compensatory tax. This is based on the illustration given by the Constitution Bench in Jindal Stainless Ltd. (viii) If the State Government provides cold storage facilities for agricultural products throughout the State and also renders facilities in connection with the marketing of these products, and recovers the cost of rendering such facilities by levying an entry tax on such agricultural products on their entry into a local area in the State, such levy would be compensatory. 50. Mr. H.S. Shrivastava, learned Senior Counsel appearing for some of the petitioners, has made following submissions: (i) Section 3(2) and Section 4A of the 1976 Act are unconstitutional as they suffer from the vice of excessive, unguided and uncanalised powers. (ii) The data furnished by the State Government do not meet the requisite parameters inasmuch as it has failed to prove/establish that the amount collected as tax and its expenditure on providing additional/specific advantage/facility to trade in particular is not in propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Indore, Bhopal and Gwalior divisions which have industrial areas at Pithampur, Mandideep and Malanpur but the expenses of industrial areas are far too less than the expenses shown for Jabalpur which has almost no industrial area as compared to other places. (ix) Raising of tax by way of issuing notifications is ex proprietory in nature and by such exorbitant enhancement the tax becomes noncompensatory in nature. (x) The notifications issued increasing the rate of tax is discriminatory as would be evident from the decisions rendered in State of Uttar Pradesh v. Laxmi Paper Mart, Loharn Steel Industries Ltd. v. State of Andhra Pradesh, Amit Paper Products v. State of M.P. [1998] 110 STC 125 (MP) and ITC Limited v. State of Tamil Nadu [2007] 7 VST 367 (Mad). (xi) Conferral of power under Sections 9 and 12 of the 1976 Act on the State Government to amend the Schedules by notifications suffers from lack of guidelines and in the absence of guidance, the said provisions, namely, Sections 9 and 12 are ultra vires. (xii) By empowering the State Government to amend the Schedules for the purpose of increasing the rate of tax tantamounts to excessive delegation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of hindrance in the free flow of trade. In the case at hand, when there is no acceptable data by the State but a confusing data has been produced, the levy has to be declared illegal and invalid being violative of Article 301 of the Constitution. 52. Mr. A.M. Mathur, learned senior counsel, has submitted that if the language of Article 304(a) is properly appreciated no tax can be imposed to discriminate the goods produced inside the State and those imported from outside the State. It is put forth by him that Sections 3(5), 4A, 9 and 12 of the 1976 Act suffer from excessive delegation of legislative power. To bolster his submissions, he has placed reliance on the decisions rendered in Atiabari Tea Co. Ltd., Mohammad Hussain Gulam Mohammad v. State of Bombay Devi Das Gopal Krishnan v. State of Punjab, Kunj Behari Lal Butail v. State of H.P. and Kishan Prakash Sharma v. Union of India. The learned senior counsel has also submitted that there are no guidelines for enhancement of rate and, therefore, it also offends Article 14 of the Constitution. 53. Mr. Kavin Gulati, Mr. Vijay Sharma and Mr. Shekhar Sharma, learned Counsel for some of the petitioners have propounded as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an expose of the fact that the entry tax is levied on certain goods to meet the loss of revenue which is not recovered under the VAT Act. (vi) The State Government cannot recover 12.5 per cent by way of sales tax but with colourable purpose amended the Schedule as a consequence of which the rate of liquefied petroleum gas has been enhanced to 9.5 per cent with effect from April 1, 2006 which shows that the purpose is different though there is no conferral of any special advantage. Similar example has been given with regard to diesel. (vii) The notification dated April 1, 2007 under entry 9 by virtue of which levy is made on the petrol and diesel brought from places outside the State of M.P. for consumption or use provides for tax at the rate of 27 per cent. This action has been done only to augment the revenue of the State and partakes the character of tax. Thus, the Act is not compensatory and the notification being discriminatory also invites the wrath of Article 14 of the Constitution and frown of Article 301 of the Constitution. 54. Mr. Kishore Shrivastava, learned senior counsel, has submitted that the acid test is the restriction on the free flow of trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. It rather facilitates the movement of goods from one State to another. The apex court in Jindal Stainless Ltd. regarded compensatory tax in the sense of recompense and reimbursement and for a tax to be compensatory, there must be some link between the quantum of tax and the facilities/services and further the benefit is measured in terms of cost which has to be reimbursed by compensatory tax or in the form of compensatory tax. If the aforesaid decision is studied in proper manner it would be clear that the apex court has not laid down a formula in stricto sensu of total link between the entry tax collected and the facilities/services provided in measurable terms which can partake the character of recompense. (b) The ratio of Jindal Stainless has to be understood in a wholesome and apposite manner but not to be read by choosing a line from here and there inasmuch as their Lordships have laid emphasis on the restrictions or impediments which directly or immediately impede the free flow of trade, commerce and intercourse which was laid down by Atiabari Tea Co. as such restrictions offend Article 301 of the Constitution and the working-test concept that was evolved in A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been understood by the learned Counsel for the petitioners. (e) The utilisation of the revenue is very significant while adjudging a levy like entry tax to come to a conclusion whether it is compensator)' in nature or it is a regulatory measure and the data provided by the State have to be adjudged on those parameters. (f) The submission that the entry tax is a revenue-raising measure is sans substratum inasmuch as, as per the Jindal's case, a compensatory tax is a compulsory contribution levied broadly for the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. The data provided by the State Government clearly reveal that the facilities/services which have been provided bear nexus with the special benefits for trade, industries and commerce and they are identifiable. (g) The contention that the benefit should be conferred to identifiable persons who pay the entry tax and they should not be burdened is not correct as the facilities and services are provided to the industries and trade as a conceptual whole and not to any particular industry or parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and disbursed to the local bodies and the principle of equivalence is satisfied as the benefit is apparent from the data produced. The equivalence cannot be in arithmetical exactitude but it is to be proportionately equivalent. It is not a case where the benefit is not measurable. The data given by the respondents would clearly show that the levy is on the individual as a member of class as it would be clear from the fact that the positive action is taken to confer a benefit on a particular class of people by which a particular measurable advantage is taken by the persons who are involved in trading. (n) The data furnished by the State in respect of the facilities/services provided to the industrial and business establishments are of specific nature inasmuch as the expenses incurred by the local bodies relate to three scctors, residential, commercial and industrial. The State has produced the data in respect of commercial and industrial scctors in certain urban local bodies, like Gwalior, Bhopal, Ujjain, Sagar, Rewa and Indore divisions. In Indore division the fire-fighting vehicles have been specifically provided between 2001-02 to 2004-05 keeping in view the need. The aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m from taxing laws. It has been further opined therein that Article 301 provides for free flow of the stream of trade, commerce and intercourse throughout the territory of India or at the boundaries of the States or at any other place inside the States themselves and if any Act imposes any direct restriction on the movement of goods it attracts the provisions of Article 301 and its validity can be sustained only if it satisfies the requirement of Article 302 or Article 304. The operation of Article 301 cannot be restricted to legislation under the entries dealing with trade and commerce. The main object of Article 301 is to allow free flow of the stream of trade, commerce and intercourse throughout the territory of India. I would like to reproduce a passage from the said judgment. 34 . . . The provision contained in Article 301 guaranteeing the freedom of trade, commerce and intercourse is not a declaration of a mere platitude, or the expression of a pious hope of a declaratory character ; it is not also a mere statement of a directive principle of State policy ; it embodies and enshrines a principle of paramount importance that the economic unity of the country will provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. and various contentions and stances raised on behalf of the parties, expressed the view that they were unable to accept the widest view that tax laws were outside the provisions of Part XIII. After so holding, their Lordships adverted to the arguments canvassed on behalf of the State to put narrow interpretation on the relevant article occurring in Chapter XIII and came to hold that the same could not be accepted. At that juncture the larger Bench thought it apt to advert to the exceptions, namely, regulatory measures which do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities which are not hit by the freedom declared by Article 301. Thereafter their Lordships came to hold as under: 17. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co.'s case is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in the preamble that it is meant to provide facilities to the tradesmen. Likewise actual user would often be unknown to tradesmen and such user may at some time be compensatory and at others not so. 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. It would be impossible to judge the compensatory nature of a tax by a meticulous test, and in the nature of things that cannot be done. 20. Nor do we think that it will make any difference that the money collected from the tax is not put into a separate fund 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. In the cases under our consideration the tax is based on passenger capacity or commercial buses and loading capacity of goods vehicles ; both have some relation to the wear and tear caused to the roads used by the buses. In basing the taxes on passenger capacity or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for aerodromes, wharfs etc., with or without compensation. (3) Parliament may by law impose restrictions on such freedom in the public interest; and the said law can be made by virtue of any entry with respect whereof Parliament has power to make a law. (4) The State also, in exercise of its legislative power, may impose similar restrictions, subject to the two conditions laid down in Article 304(b) and subject to the proviso mentioned therein. (5) Neither Parliament nor the State Legislature can make a law giving preference to one State over another or making discrimination between one State and another, by virtue of any entry in the Lists, infringing the said freedom. (6) This ban is lifted in the case of Parliament for the purpose of dealing with situations arising out of scarcity of goods in any part of the territory of India and also in the case of a State under Article 304(b), subject to the conditions mentioned therein. and (7) The State can impose a non-discriminatory tax on goods imported from other States or the Union territory to which similar goods manufactured or produced in that State are subject. (emphasis supplied) 66. In Khyerbari Tea Co. Ltd. v. State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able material whether or not there is infringement of the guarantee under Article 301 of the Constitution the further question as to whether the statute is saved under Article 304(b) does not arise and the principle laid down by this Court in Kalyani Stores case cannot be invoked. (emphasis added) 68. In State of Karnataka v. Hansa Corporation it has been held as follows: . . . Even apart from this, a levy which appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting municipal finances which suffered a dent on account of abolition of octroi cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and intercourse. In this connection it would be useful to recall the observations of this Court in Khyerbari Tea Co. Ltd. that the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Article 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, of the kind under consideration here, cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against Article 301 and will be valid only if it comes within the terms of Article 304(a). (emphasis supplied) 71. In Mrs. Meenakshi Alias Rama Bat v. State of Karnataka [1984] Supp SCC326, the apex court expressed the opinion as follows: . . . Whether levy of a tax computed according to sitting capacity of a transport vehicle used for carriage of passengers by itself without anything more restricts or thwarts freedom of trade, commerce and intercourse throughout the territory of India guaranteed by Article 301 is no more res integra. It was in fact conceded that revenue collected by such tax if employed for purposes which would not only not restrict or impede but facilitate smooth and unhampered trade, commerce and intercourse throughout the territory of India, such tax would not be violative of Article 301 of the Constitution. Thus regulatory measures or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy is identifiable and if there is sufficient nexus between the subject and the object of the levy, it is not necessary that the money realised by the levy should be put into a separate fund or that the levy should be proportionate to the expenditure'. (emphasis supplied) In the said case it has also been held as under: 7. If tax was enhanced to meet the loss suffered on account of abolition of octroi, one can say without the fear of contradiction that the abolition of octroi facilitates both inter-State and intra-State movements of goods and passengers. 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 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, Karnataka took the lead and abolished octroi. One ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities provided in the shape of a road. The difficulties are very great in defining this conception. But the conception appears to be based on a real distinction between remuneration for the provision of a specific physical service of which particular use is made and a burden placed upon transportation in aid of the general expenditure of the State. It is clear that the motor vehicles require, for their safe, efficient and economical use, roads of considerable width, hardness and durability ; the maintenance of such roads will cost the Government money. But, because the users of vehicles generally, and of public motor vehicles in particular, stand in a special and direct relation to such roads, and may be said to derive a special and direct benefit from them, it seems not unreasonable that they should be called upon to make a special contribution to their maintenance over and above their general contribution as tax-payers of the State. If, however, a charge is imposed, not for the purpose of obtaining a proper contribution to the maintenance and upkeep of the road, but for the purpose of adversely affecting trade or commerce, then it would be a restriction on the freedom of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: 9. While in the case of a fee it may be possible to precisely identify and measure the benefits received from the Government and levy the fee according to the benefits received and the expenditure incurred, in the case of a regulatory and compensatory tax it would ordinarily be well nigh impossible to identify and measure, with any exactitude, the benefits received and the expenditure incurred and levy the tax according to the benefits received and the expenditure incurred. What is necessary to uphold a regulatory and compensatory tax is the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy.If the object behind the levy is identifiable and if there is sufficient nexus between the subject and the object of the levy, it is not necessary that the money realised by the levy should be put into a separate fund or that the levy should be proportionate to the expenditure. There can be no bar to an intermingling of the revenue realised from regulatory and compensatory taxes and from other taxes of a general nature nor can there be any objection to more or less expenditure being incurred on the object behind the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. No doubt, it falls upon passengers and goods proceeding to or from an extra-State point but it is limited only to the fare and freight proportionate to the route within the State. For this purpose, there is an elaborate scheme in rule 8A to avoid a charge of tax on that portion of the route which lies outside the State. There is thus no tax on fares and freights attributable to routes outside the State except in one instance which is contemplated by the proviso to Sub-section (3) of Section 3 and to which reference will be made separately. In our opinion, the levy of tax cannot be said to offend Articles 301 and 304 of the Constitution. 78. I have referred to the aforesaid decisions only to appreciate what is meant by the working test and certain facilities provided to meet the requirement of the said test. As is manifest from the said decisions if certain conveniences are available to the freedom of trade and commerce, the same can be considered to be unimpaired. Similarly, Police Regulations, provisions for services, maintenance of roads do facilitate the trade. That apart, if a levy appears to be quite reasonable in its impact on the movement of goods and is imposed for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction of a nallah for flow of sewage water from the tank. The said case, in my considered opinion, has to rest on its own facts and cannot be treated as a precedent for dealing with the facet of compensatory tax. 81. Before the existing scenario is tested on the anvil of law as it stands today, it is apt to refer to certain decisions of the High Courts which have been placed heavy reliance upon by the learned Counsel for the petitioners to pyramid the edifice that entry tax is not compensatory. The learned Counsel for the petitioners have commended to the decisions rendered by various High Courts as to how the entry tax levied in the respective State enactments does not fulfil the requirement of Article 304(a) of the Constitution despite the stance of the State that the tax collected is transferred to the local bodies. 82. In Dinesh Pouches Ltd. v. State of Rajasthan decided on August 21, 2007 See [2008] 16 VST (Raj) by the High Court of Rajasthan the Bench after referring to various spectrum of the law eventually came to hold that apart from mentioning that the amount was spent on cleaning and sanitation, fire extinction, street light and development work, no data h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to analysis of the data. 84. In Bharat Earth Movers Ltd. v. State of Karnataka [2007] 8 VST 69 (Karn), the Bench held the provisions to be unconstitutional on the ground that there was no serious attempt at all on the part of the State to demonstrate either that the expenditure incurred towards the so-called services to the trading community in general is a particular amount and that the assessees under the Act constitute 30 per cent of such members of the trading community for whose benefit the expenditure is incurred. The Bench further came to hold that no material at all was placed by the State with regard to the revenue allotted to the local authorities under the other enactments, which have a link or nexus to the kind of the facilities sought to be provided such as provision for roads, water, lighting, drainage, etc. It is further pointed out that in absence of any link or correlation at all on the facts in respect of the revenue from the levies under the present enactment, the defence of the State that the levy imposed under the Act is compensatory is not acceptable. Thus, on a perusal of the said decision, it is manifest that data was inadequate and further there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State 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 of the operation of the law? Whether it has chosen an activity like movement of trade, commerce and intercourse throughout India, as the criterion of its operation ? If yes, the next question is : What is the effect of operation of the law on the freedom guaranteed under Article 301 ? If the effect is to facilitate free flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature. Clause (b) of Article 304 confers a power upon the State Legislature similar to that conferred upon Parliament by Article 302 subject to the following differences: (a) While the power of Parliament under Article 302 is subject to the prohibition of preference and discrimination decreed by Article 303(1) unless Parliament makes the declaration under Article 303(2), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in turn become the basis or reimbursement/recompense for the provider of the services/facilities. (vii) Compensatory tax is always proportional to the benefits and is levied on an individual as a member of a class. A compensatory tax is different from fee as a fee is levied on an individual. (viii) The theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individual(s) a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it. (ix) For a tax to be compensatory, there must be some link between the quantum of tax and the facility/services. (x) Every benefit is measured in terms of cost which has to be reimbursed by recompense in the form of compensatory tax. In other words, compensatory tax is a recompense/reimbursement. (xi) In the context of Article 301 compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, he swears or affirms the truth of the statements made in the presehce of a person who in law is authorised either to administer oath or to accept the affirmation. The responsibility for making precise and accurate statements in affidavit were emphasised by this Court in Krishan Chander Nayar v. Chairman, Central Tractor Organisation . . . 94. On a perusal of the aforesaid decisions, it is discernible that affidavit has to be sacrosanct and contradictions are not welcome features. But, a pregnant one, in the case at hand the affidavits filed by the State from time to time contain the lis of sacrosanctity. There is no such contradiction which can raise eyebrow or put the same in the realm of obnoxiousness. On the contrary, a clarificatory affidavit brings out a picture from which one can find out the truth. It is apt to note that justice is wedded to truth and the duty of the court to find out the truth, in a way. Thus, I am not inclined to accept the submission of Mr. Shrivastava, learned senior counsel, that the affidavits being contradictory and there being incurable veracity the affidavits are to be ignored. Therefore, I will consider the furnished data on the parameters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards regulatory and service charges and is utilised for providing facilities which are used by the trades people. In support of the contention the respondents have also given details of the total amount spent by the local bodies in providing facilities and have submitted that a perusal of these figures demonstrates that octroi compensation forms only a small part of the actual amount spent by the local bodies in providing facilities within the local area and, therefore, the amount received as octroi compensation is not utilised for providing civil amenities and facilities to the residents of the local area at large which are statutorily required to be provided by the local bodies. To further buttress these submissions, the respondent/State has also furnished figures of the revenue generated by the local bodies by levying local taxes and have also given figures of the various grants, etc., given to the local bodies by the State from the consolidated fund for carrying out this statutory obligation. 97. It is apparent from a perusal of the figures submitted by the respondents that they have given details of the amount of entry tax collected and the amount disbursed to the local ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and details submitted by the State and has also submitted that in all, there are 14 Municipal Corporations, 87 Municipal Councils and 237 Nagar Panchayats, i.e., 338 urban local bodies in the State of Madhya Pradesh which are divided in 7 Revenue Divisions and has clarified that the discrepancies in the previous figures given by them had resulted as facts and figures in respect of some of the urban local bodies had not been given previously. It has also been clarified that in Chart No. II given at page 2 of the affidavit dated December 27, 2007 the words column 3 with column 8 mentioned in column No.10 be read as column No.3 with column No.6 . 100. In their affidavit dated December 27, 2007, the respondent/State had furnished the following figures relating to the amount of octroi compensation released to the urban and local bodies, the other amounts released to the urban and local bodies under various other heads and the amount spent by the urban and local bodies in commercial and industrial scctors and has also furnished the percentage-wise calculation to demonstrate that the amount disbursed as octroi compensation forms only a part of the total amount spent by the urban an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.03 55.00 5 Jabalpur 30876.18 23064.89 53941.07 25843.10 2247.26 28090.46 52.08 84.00 6 Rewa 15304.72 14337.67 29642.39 17303.90 1172.07 18475.97 62.33 113.00 7 Sagar 16237.68 13802.09 30039.77 27196.51 458.93 27655.44 92.06 167.00 Total 197601.00 162180.66 359781.66 181936.02 8243.25 190179.27 52.86 92.00 101. The respondent-State, in the affidavit dated December 27, 2007, has also given the details of the division-wise break-up of the number of urban and local bodies as well as the break-up of the total amount received by the urban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,97,601 lacs constituted the amount received by them as octroi compensation from levy of entry tax which approximately constitutes 45 per cent of the total revenue. It is also apparent from a perusal of the total amount indicated at column 8 of Chart II reproduced above that the urban and local bodies have spent an amount of ₹ 1,90,179 lacs on commercial and industrial scctors which constitutes almost 44 per cent of the total revenue of the urban and local bodies in the State and which is roughly equal to the total amount of ₹ 1,97,601 lacs distributed to them as octroi compensation during 2002-03 to 2006-07 shown in column No.4 of Chart No. III or in column No.4 of Chart No. I after deducting the amount of octroi compensation released in the year 2001-02. 103. At this juncture, it is imperative to note that the learned Counsel for the petitioners have submitted that the facilities that have been given by the local bodies do come within their statutory obligations and hence, they cannot be treated as special advantages. The aforesaid submission, at a first flush, appears quite convincing but on a keener scrutiny loses its structural solidity. A Municipal Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution Bench has held, I am humbly disposed to think that the eventual some link and broad proportionality to the special and quantifiable benefits strike the balance. Their Lordships have not held that it should be in arithmetical exactitude. Neither have their Lordships held that it has to be individualistic. What has been stated is that if by a positive action a particular measurable advantage is conferred, it is only fair to the community that the beneficiary shall pay for it. Studied in this perspective, the argument that the benefit should be only and exclusively for the traders does not withstand scrutiny. 105. I would be failing in my duty if I do not refer to the illustrations given by Mr. S. Ganesh, learned Senior Counsel appearing for some of the petitioners. On a scrutiny of the said illustrations except illustration No.8 (as the same has been taken from Jindal Stainless), there can be no trace of doubt that the said examples at their very foundation are relatable to the fundamental and inherent concept of fee-keeping in view the conception of quid pro quo in stricto sensu. The said illustrations can be appreciated from another angle. In my considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data have been given as the chart would indicate. (h) The data provided meet the test of proportionality between the quantum of tax and the facilities/services provided inasmuch as the entire entry tax which is collected and allocated to the local bodies constitutes 44 per cent of the amount that is spent by them and such expenditure includes creating facilities for trade, commerce and industries. (i) The tax imposed is a single-point tax and hence, the stance is in contradistinction to the one where the tax is imposed upon the entry by different local bodies in a successive manner. The levy is identifiable and there is nexus between the subject and the object of the levy. (j) The data, as scrutinised, clearly show that the tax collected is proportional to the benefits and without which the trading facilities could not have been availed of. It is worth noting that in Jindal Stainless Ltd., the apex court has held that the theory of compensatory tax rests upon the principle that if the Government by some positive action confers upon the individual (s) a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from entry tax under Section 10; and if tax on the entry of any goods specified in Schedule II or Schedule III effected during any period has been deposited by a dealer into the Government treasury and subsequent to such entry the goods are disposed of in the manner described in clause (ii) of this proviso, such dealer shall be entitled to a set-off of the tax already paid by him in respect of such goods and such set-off shall be adjusted towards the tax payable by him in such manner as may be prescribed: Provided further that notwithstanding anything contained in this Act, where a dealer in the course of his business, purchases goods from a person or a dealer other than a registered dealer who has effected entry of such goods into a local area prior to such purchase, the entry tax shall be paid by the dealer who has purchased such goods: Provided also that notwithstanding anything contained in this Act, where a dealer liable to pay tax under the Vanijyik Kar Adhiniyam in the course of his business into a local area, purchases goods specified in Schedule III, other than goods which are local goods in relation to such local area, from another dealer of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescribed, the entry tax payable by a dealer under this Act shall be charged on his taxable quantum relating to such goods at a rate not exceeding ten per centum as may be specified in such notification notwithstanding anything to the contrary contained in Section 4. (2) On the issue of the notification under sub-section (1), entry tax shall not be chargeable and payable on such goods at any other rate mentioned in any other provisions of this Act. 111. Section 6 of the 1976 Act lays down the principles governing the levy of entry tax on dealers or persons and the same reads as under: 6. Principles governing levy of entry tax on dealer or person.- The entry tax payable by a dealer under sub-section (1) of Section 3 or by a person notified under sub-section (2) of that Section shall be levied in accordance with the principles stated below: (a) entry tax shall not be payable unless the dealer or such person effects entry of goods specified in Schedule II or Schedule III into a local area; (b) where any such goods are consumed, used or sold in a local area by the dealer or such person, it shall be presumed until the contrary is proved by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e limitation contained in the proviso. Section 4A takes certain local areas and certain goods from outside the purview of the rates specified in Schedules II and III subject to the amendatory power of the State Government. Section 12 takes certain categories of persons dealt with under Section 3(2) outside the purview of the rate of tax specified in Schedules II and III, subject to the mandatory power of the State Government. The limitation introduced on the power of the State Government under first proviso to Section 9(1) relates only to the rates of tax specified in Schedules II and III which in turn are applicable only in cases not governed by Sections4A and 12. By the alternative scheme contemplated under Section 4A and Section 12, entries of certain goods in certain areas or entry caused to be made by persons falling under certain categories are excluded from the operation of the rates of tax specified in Schedules II and III and, therefore, must necessarily be outside the purview of Section 9. Rates of tax contemplated under Sections 4A and 12 are prescribed by the State Government by notifications issued under those Sections and not by notifications issued under Section 9(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id notification. 19. . . . 20. Another facet which requires to be dealt with is that the rate fixed in the notification is exorbitant and portrays arbitrariness. It is worth noting here that the stand of the petitioner that he is liable to pay entry tax on diesel at the rate of one per cent on the goods brought from outside the State or purchased from of l companies is incorrect. It is also canvassed that there is no petroleum refinery in the State of Madhya Pradesh and all refineries are located outside the State of M.P. When a dealer is registered under the M. P. Commercial Tax Act as well as under the Central Sales Tax Act and purchases diesel or any other petroleum product in the course of inter-State sale he is also liable to pay four per cent Central sales tax by using form C in the State where the sale transaction has taken place. It is also stated that it came to the notice of the Government that so many registered dealers were either misusing form C for the purposes of import or were using bogus form C instead of purchasing petroleum products from the same nationalised companies in the State of M.P. Keeping in view the aforesaid, the concept of levy of entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of things to be compensatory but the State has produced adequate data to discharge the onus that the tax is compensatory. (e) The judgments of various High Courts that have been placed reliance upon by the petitioners are distinguishable. (f) The data furnished by the respondent-State meet the requisite parameters as postulated in Jindal Stainless. (g) The notifications issued by the State from time to time are in consonance with the provisions of the 1976 Act. (h) By virtue of the enhancement of the rate of tax, the effect of tax is not changed and the tax remains compensatory in nature. (i) The rate of tax does not create a changed scenario, as in the ultimate eventuate, the rate does not affect the price and no excess amount is collected. (j) The State having discharged its onus, the provisions of the 1976 Act and the notifications are treated to be constitutional and not ultra vires Article 304(a) of the Constitution of India. 116. Resultantly, the writ petitions, being sans substratum, stand dismissed. There shall be no order as to costs. 117. R.S. Jha J.- I respectfully agree with the conclusions arrived at by my learned bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. Rasing doubts over this legal proposition the issue was referred to a Constitution Bench by the Supreme Court in the case of Jindal Stripe Ltd. v. State of Haryana and vide the Constitution Bench judgment rendered in the case of Jindal Stainless the apex court has held the some connection test laid down in the case of Bhagatram Rajeev Kumar as not a good law. 120. It is in the backdrop of the aforesaid events that the present petitions have been filed by the petitioners contending that the provisions of the Act deserve to be declared unconstitutional as it does not satisfy the tests which have now been laid down by the Supreme Court in the case of Jindal Stainless. 121. It is contended by the learned Counsel appearing for the petitioners that in view of the Constitution Bench judgment of the Supreme Court in the case of Jindal Stainless wherein the judgment in the case of Bhagatram Rajeev Kumar upholding the constitutional validity of the Act h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is noncompensatory. It is further submitted that as the Act had been upheld in the case of Bhagatram Rajeev Kumar by applying the some connection test which has specifically been overruled in the case of Jindal Stainless, therefore, the impugned Act deserves to be declared unconstitutional. The learned Counsel has relied upon the judgment in the case of Ramdas Bhikaji Chaudhari v. Sadanand to submit that on a previous decision being overruled by a larger Bench the previous decision is completely wiped out and Article 141 would not apply to such a judgment and, therefore, the court would have to decide the present cases in accordance with the law laid down by the latest decision. The judgment in the case of State of Maharashtra v. Mana Adim Jamat Mandal has been relied upon by the learned Counsel for the petitioners to submit that even observations and evidence in an overruled judgment cannot be referred to and has also cited the case of Assistant Commissioner v. Kheria Brothers [2000] 117 STC 420, Shankerlal v. State of Rajasthan [2005] 12 SCC 330 and has also relied upon the judgment in the case of Mana Adim Jamat Mandal in support of the submission that even otherwise the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in support of his submissions, the learned Advocate-General has meticulously taken us through paragraphs 15 to 19, See paras 14 to 17 at pages 553-556 of [2006] 145 STC, 37 to 45 See paras 34 to 42 at pages 570-573 of [2006] 145 STC and 50 to 53 See paras 47 to 55 at pages 574 and 575 of [2006] 145 STC of the judgment in the case of Jindal Stainless. 125. The learned Advocate-General has also heavily relied upon the judgment in the case of Geo Miller and Co. in support of his contention that it is only the additional observations made in paragraph 8 in the case of Bhagatram Rajeev Kumar made after upholding the validity of the Act, regarding the some link hypothesis that has been set aside. 126. The learned Advocate-General appearing on behalf of the respondent/ State has refuted the submissions of the learned Counsel for the petitioners on the basis of the following submissions: (A) That the Constitution Bench in the case of Jindal Stainless while declaring certain observations made in paragraph 8 of the judgment in the case of Bhagatram Rajeev Kumar as no longer good law has neither delved upon nor set aside that part of the judgment in the case of Bhagatram Raje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on the question as to whether the entire judgment in the case of Bhagatram Rajeev Kumar has been overruled, it would be profitable to refer to the judgments relied upon by the parties. In this respect, the decision in the case of Sanjay Trading Co. [1994] 93 STC 589 (MP), wherein the constitutional validity of the Act was upheld by this Court, specifically, paragraphs 12, 13, 14, 15, 18, 19, 20, 21, 22 and 23 which are reproduced below, need to be considered (I am constrained to quote extensively from the relevant judgments to clearly understand as to what were the issues involved therein and as the present petitions are based solely on them. (Relevant portions have been underlined1 by this Court for emphasis) (at pages 596-600 in 93 STC): 12. Item 54 of List II of the Seventh Schedule to the Constitution relates to tax on sale or purchase of goods subject to the provisions of entry 92A of List I. Item 52 of List II relates to tax on entry of goods into local area for consumption, use or sale therein. Item 92A of List I relates to sale of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. Item 92B relates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearer. The burden of proving that a dealer or a notified person has not effected entry of specified goods in the local area for consumption, use or sale therein, lies on him. The Rules framed under the Act provide among other things, for furnishing of returns, payment of tax or penalty imposed on him, order of assessment and form thereof, authority and manner for assessment of tax and appeal or revision against the order of assessment. These provisions completely negative the contention of the petitioners that in pith and substance, entry tax contemplated under the Act is a tax on entry, irrespective of the purpose of entry and amounts to purchase tax. Therefore, Article 286(3) of the Constitution and Section 15 of the Central Sales Tax Act, 1956, are not attracted to this legislation. The point is answered against the petitioners. 15. For the same reasons as aforesaid, it has to be held that levy of entry tax does not amount to levy of consignment tax and the contention that it offends Article 92A of List I of the Constitution is not tenable. . . . 18. Article 304 reads as follows: 304. Notwithstanding anything in Article 301 or Article 303, the Legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa Corporation. 20. The above decision dealt with the challenge against the validity of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act (27 of 1979). Reference has been made to the majority view in Atiabari Tea Co. Ltd. v. State of Assam and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan. The decision clarifies the position in para 25 as follows: '. . . If a measure is shown to be regulatory or the tax imposed is compensatory in character meaning the tax instead of hampering trade or commerce would facilitate the same, it would be immune from a challenge under Article 301. In other words, if the tax is shown to be compensatory in character, irrespective of the fact whether it is saved by Article 304 or not, it does not come within the inhibition of Article 301. Accordingly, if validity of a tax law is challenged on the ground that it violates freedom of inter-State commerce, trade and intercourse guaranteed by Article 301, the contention may be repelled by showing (i) that the tax is compensatory in character as explained in Automobile Transport (Rajasthan) Ltd.'s case or (ii) it satisfies the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the taxation structure. Annexure A. R3 gives summary in respect of levy and details of allotment made to local bodies. The document shows that during the period 1976-77 till 1988-89, provision was made in the budget to compensate the municipalities and the amount budgeted was made over. It also shows that with effect from the year 1983-84, there has been a regular annual increase of 10 per cent in total compensation amount. Considering the Statement of Objects and Reasons and the particulars given in annexure A. R3, the statutory changes referred to above have no significance. Entry tax remains compensatory in nature and, therefore, it is immune from challenge. 129. From a perusal of the above it is apparent that the past history of entry tax as a tax imposed to compensate the loss of income due to abolition of octroi, which was utilised for providing facilities in the local areas as well as the subsequent amendments in the Act were duly considered and thereafter it was held that the tax remained to be compensatory in nature on the basis of the figures supplied by the State. It is also to be noted that the judgments in the case of Automobile Transport, Atiabari Tea Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 16 at page 310 of [2004] 134 STC. In 1995, some of the principles set out supra appear to have been deviated from when the principle of compensatory tax was applied to entry tax in Bhagatram v. Commissioner of Sales Tax, which was decided by a Bench of three Judges. 20. See para 16 at page 310 of [2004] 134 STC. In Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, the subject-matter of challenge was the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976. In that case, although it was demonstrated by the appellant-State and not disputed by the respondents that the levy was compensatory, nevertheless the court went on to say: 'The submission of Sri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the traders but to benefit the public in general including the traders, that levy can still be considered to be compensatory. According to this view, an indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be legitimately brought within the concept of compensatory tax, the nexus between the tax known as compensatory tax and the trading facilities not being necessarily either direct or specific. 27. See para 24 at page 313 of [2004] 134 STC. Since the concept of compensatory tax has been judicially evolved as an exception to the provisions of Article 301 and as the parameters of this judicial concept are blurred particularly by reason of the decisions in Bhagatram's case and Bihar Chamber of Commerce's case, we are of the view that the interpretation of Article 301 vis-a-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench under Article 145(3). 131. Subsequently, the validity of the Act again came up for consideration before the Supreme Court in the case of Geo Miller and Co. and the Supreme Court after considering the judgment in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is imposed does not automatically bring Article 301 into play. 7. In fact the concept of 'compensatory taxes' was propounded in the Automobile Transport case. By virtue of this, taxes, which would otherwise interfere with the unfettered freedoms under Article 301, will be protected from becoming unconstitutional if they are compensatory. 8. Thus, the reliance placed by the appellants on the observations made in the Atiabari case and the Automobile Transport case that taxation may impede the movement of goods from one barrier to the other and accordingly submitting that the M.P. Entry Tax Act, 1976 is hit by Article 301 is not properly founded. 9. In fact, Section 3 of the said Act was under challenge in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax. A three-Judge Bench of this Court, found that the levy of tax under the M.P. Entry Tax Act, 1976 was constitutional, since the nature of revenue earned was compensatory, as it was handed over to the local bodies to compensate them for the loss caused. 10. In the present case too, the respondents have reiterated that the tax being imposed is compensatory in nature as the revenue earned therefrom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying the some connection test or theory as alleged by the petitioners after specifically taking note of the fact that the some connection test had been referred to a larger Bench in the case of Jindal Stripe. Relevant parts of the judgment in the case of Jindal Stainless are hereinbelow reproduced for the purposes of determining whether the entire judgment in the case of Bhagatram Rajeev Kumar including the finding that the Act was not in violation of Article 301 of the Constitution of India as it was demonstrated to be compensatory in nature on the basis of the facts and figures furnished by the State, has been set aside or whether it is only the observations regarding some connection that have been declared to be no longer a good law : (at page 550 in 145 STC) 3. In a batch of appeals, the constitutional validity of the Haryana Local Area Development Tax Act, 2000, has been challenged on two grounds : (1) that, the Act is violative of Article 301 and is not saved by Article 304 ; and (2) that, the Act in fact seeks to levy sales tax on inter-State sales, which is outside the competence of the State Legislature. However, the referral order is confined to the aboveme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it must, more or less, be commensurate with the cost of the service or facility. Those decisions emphasised that the imposition of tax must be with the definite purpose of meeting the expenses on account of providing or adding to the trading facilities either immediately or in future provided the quantum of tax is based on a reasonable relation to the actual or projected expenditure on the cost of the service or facility. However, the post-1995 decisions in Bhagatram case and in Bihar Chamber of Commerce, now say that even if the purpose of imposition of the tax is not merely to confer a special advantage on the traders but to benefit the public in general including the traders, that levy can still be considered to be compensatory. According to this view, an indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be brought within the concept of compensatory tax, the nexus between the tax known as compensatory tax and the trading facilities not being necessarily either direct or specific. 17. See para 17 at page 554 of [2006] 145 STC. According to the referral order, since the concept of compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... together. Therefore, in our view, the test of 'some connection' as propounded in Bhagatram's case is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeev kumar v. Commissioner of Sales Tax and State of Bihar v. Bihar Chamber of Commerce stand overruled. . . . 53. See para 50 at page 575 of [2006] 145 STC. See para 47 at page 574 of [2006] 145 STC. We reiterate that the doctrine of 'direct and immediate effect' of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan 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 Bhaga-tram Rajeev Kumar v. Commissioner of Sales Tax and followed in State of Bihar v. Bihar Chamber of Commerce is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject-matters of pending appeals, speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indal Stainless hold or decide that the finding of fact regarding constitutionality of the M.P. Act in the case of Bhagatram Rajeev Kumar was in any way unsustainable or unconstitutional and had it intended to reopen that issue, notice would have been issued to the State of Madhya Pradesh and a specific finding regarding the validity or otherwise of the M.P. Act would also have been recorded or the case of Bhagatram Rajeev Kumar would also have been reopened and remitted for readjudication as was done in the case of the Haryana Act. 136. As the Supreme Court in the case of Jindal Stainless has declared the judgment in the case of Bhagatram as no longer good law only to the extent it propounded the some connection test and no more, it is not for this Court (a High Court) to hold that the entire judgment stands overruled and wiped out by applying the concept of implied overruling, more so, in view of the fact the Supreme Court has itself refrained from doing so although the entire judgment was before it. The concept of implied overruling or total wiping out is, therefore, apparently not applicable to the present case. 1 am fortified in taking this view as the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the tax levied under the Act, it does not satisfy the test as prescribed by the Constitution Bench in the case of Jindal Stainless any more and, therefore, deserves to be declared unconstitutional. In support of this contention the learned Counsel for the petitioners have relied upon the judgments in the case of Motor General Traders v. State of Andhra Pradesh, Rattan Arya v. State of Tamil Nadu and Indian Handicrafts Emporium v. Union of India to contend that the entry tax levied under the provisions of the Act has lost its compensatory character with the passage of time and, therefore, the Act deserves to be declared ultra vires being hit by Article 301 of the Constitution of India. 139. Though the learned Advocate-General has seriously disputed this contention and submitted that nothing has changed as the tax collected under the Act is still distributed amongst the local bodies as octroi compensation , I am of the considered opinion that in view of the aforesaid judgments of the Supreme Court as well as the Constitution Bench judgment in the case of Jindal Stainless this Court is required to re-examine the issue raised by the petitioners as to whether with the passage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld turn to be illusory. When Article 301 provides that trade shall be free throughout the territory of India primarily it is the movement part of the trade that it has in mind and the movement or the transport part of trade must be free subject of course to the limitations and exceptions provided by the other articles of Part XIII. That we think is the result of Article 301 read with the other articles in Part XIII. 51. Thus the intrinsic evidence furnished by some of the articles of Part XIII shows that taxing laws are not excluded from the operation of Article 301 ; which means that tax laws can and do amount to restrictions freedom from which is guaranteed to trade under the said Part. Does that mean that all tax laws attract the provisions of Part XIII whether their impact on trade or its movement is direct and immediate or indirect and remote ? It is precisely because the words used in Article 301 are very wide, and in a sense vague and indefinite that the problem of construing them and determining their exact width and scope becomes complex and difficult. However, in interpreting the provisions of the Constitution we must always bear in mind that the relevant provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. 142. From a perusal of the above it is clear that the majority view of the Supreme Court in the case of Atiabari Tea Co. Ltd. is that the freedom of trade, commerce and intercourse throughout the territory of India under Article 301 primarily relates to the movement and transport part of the trade and a tax which amounts to a direct and immediate restriction in the free flow and movement of trade would violate the provisions of Article 301 but at the same time the Supreme Court has specifically clarified and rejected the argument that all taxes whether or not their impact on trade was immediate, direct or remote would be hit by Article 301. The judgment in the case of Atiabari Tea Co. Ltd. came up for reconsideration before a seven-judge Bench of the Supreme Court in the case of Automobile Transport wherein the constitutional validity of the provision of the Rajasthan Motor Vehicle Taxation Act was under challenge. The view expressed in the case of Atiabari Tea Co. Ltd. was upheld in the case of Automobile Transport by the majority. However, while doing so, further exception to Article 301 was carved out by stating that regulatory measures and compensatory taxes would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce and intercourse in such a way as to facilitate its free movement, it must yet proceed to make a law under Article 304(b) and no such Bill can be introduced or moved in the Legislature of a State without the previous sanction of the President. The practical effect woulci be to stop or delay effective legislation which may be urgently necessary. Take for example a case where in the interests of public health, it is necessary to introduce urgently legislation stopping trade in goods which are deleterious to health, like the trade in diseased potatoes in Australia. If the State Legislature wishes to introduce such a Bill, it must have the sanction of the President. Even such legislation as imposes traffic regulations would require the sanction of the President. Such an interpretation would, in our opinion, seriously affect the legislative power of the State Legislatures which power has been held to be plenary with regard to subjects in List II. The States must also have revenue to carry out their administration and there are several items relating to the imposition of taxes in List II. The Constitution-makers must have intended that under those items the States will be entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier part of this judgment. Such regulatory measures as 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 the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them. . . . 17. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co. case is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 301 and such measures need not comply with the requirements of the proviso to Article 304(b) of the Constitution. . . . 19. . . . If the Act and the Schedules appended thereto are examined in this manner, it will be noticed that the tax imposed is really a tax for the use of the roads in Rajasthan and it canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions necessarily determine whether the taxes are compensatory taxes or not. We must consider the substance of the matter and so considered, there can be no doubt that the taxes imposed are no hindrance to the freedom of trade commerce and intercourse. If a statute fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be considered unimpaired. In such a case the imposition assumes the character of remuneration of consideration charged in respect of an advantage sought and received. In Armstrong v. State of Victoria [1957] 99 CLR 28, Dbdon, C.J. said: 'The reason, as I venture to suggest, simply is that, without the bridge, the aerodromes and airways, the wharves and the sheds, the respective inter-State operations could not be carried out and that the charges serve no purpose save to maintain these necessary things at a standard by which they may continue. However it may be stated, the ultimate ground why the exaction of the payments for using the instruments of commerce that have been mentioned is no vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the capacity of the taxpayer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. In the case of a tax, a particular advantage, if it exists at all, is incidental to the States' action. It is assessed on certain elements of business, such as, manufacture, purchase, sale, consumption, use, capital, etc., but its payment is not a condition precedent. It is not a term or condition of a licence. A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden. 41. On the other hand, a fee is based on the 'principle of equivalence'. This principle is the converse of the 'principle of ability' to pay. In the case of a fee or compensatory tax, the 'principle of equivalence' applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept of recompense/reimbursement. For a tax to be compensatory, there must be some link between the quantum of tax and the facility/services. Every benefit is measured in terms of cost which has to be reimbursed by compensatory tax or in the form of compensatory tax. In other words, compensatory tax is a recompense/ reimbursement. 43. In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net-revenue to the Government but that circumstance is not an essential ingredient of compensatory tax. 44. Since compensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters. 45. 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 special benefit to the payer (individual as such) based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opounded by a Bench of seven judges in the case of Automobile Transport and the test of 'some connection' enunciated by a Bench of three judges in Bhagatram's case cannot stand together. Therefore, in our view, the test of 'some connection' as propounded in Bhagatram's case is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax and State of Bihar v. Bihar Chamber of Commerce stand overruled. . . . 53. We reiterate that the doctrine of 'direct and immediate effect' of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in Automobilem Transport (Rajasthan) Ltd. v. State of Rajasthan/or deciding whether a tax is compensatory or not vide paragraph 19 of the report (AIR), will continue to apply and the test of 'some connection' indicated in paragraph 8 (of SCC) the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax and followed in the case of State of Bihar v. Bihar Chamber of Commerce is, in our opinion, not good law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only demonstrated that there is merely some link or some connection between the money collected from imposition of the tax and the facilities provided to establish a tax as compensatory. For example, if out of the total revenue collected from imposition of the tax only 10 or 20 per cent of the money collected is required or has been spent for providing the facilities that are of use to the trades people while the rest is treated as general revenue and utilised for other purposes, then on that basis the tax cannot be justified and upheld as a compensatory tax by holding that there is some link or some connection between the tax collected and the facilities provided. 147. Before I proceed any further, it would be appropriate to first address an argument raised by the learned Counsel for the petitioners that the entry tax levied under the Act cannot be tested and adjudged on the basis of the judgments in the cases of Atiabari Tea Co. Ltd. and Automobile Transport and other cases as the tax in all those cases was a tax on motor vehicles whereas the tax in question in the present case is an entry tax. 148. In my considered opinion the contention of the learned Counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensate the loss of revenue due to abolition of octroi. He has relied upon a division Bench decision of this Court in the case of Transport Corporation of India v. Chairman, Municipal Council, Municipal Corporation, Indore wherein it has been held that octroi imposed under the provisions of Madhya Bharat Municipal Corporation Act does not impede the movement and free flow of trade nor is it a direct tax on trade after duly considering the judgments in the case of Atiabari Tea Co. Ltd. and Automobile Transport. The learned Advocate-General also relied upon the judgment in the case of Mrs. Meenakshi Alms Rama Bai v. State of Kamataka [1984] Supp. SCC 326 to submit that in the State of Kamataka where a tax was imposed by abolishing octroi, the apex court has categorically held that such a tax by its very nature acquires the character of being compensatory as it facilitates the movement of goods rather than impeding it. 152. The State has taken a specific plea that entry tax under the Act has been imposed only to facilitate trade by doing away with octroi which impeded trade and to compensate the loss of revenue to the local bodies in lieu of abolition of octroi and the entire tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulatory or compensatory and for this I may profitably rely upon the latter part of paragraph 14 of the judgment in the case of Automobile Transport wherein it has been held that: 14. . . . Such regulatory measures as 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 the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them. and paragraph 10 wherein it has been stated that a tax that facilitates trade and its movement does not fall within the purview of Article 301. 155. To properly appreciate what constitutes a restriction on the freedom of trade and its movement it is necessary to take into consideration paragraphs 35, 36, and 39 of the concurring judgment of Subba Rao, J. in the case of Automobile Transport which are to the following effect: 35. The next question is, what is the content of the concept of freedom ? The word 'freedom' is not capable of precise definition, but it can be stated what woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave an indirect effect on the free flow of trade. So too, laws, other than those of taxation, made by virtue of different entries in the Lists, may remotely affect trade. Should it be held that any law which may have such repercussion must either be passed by the Parliament or by the State Legislature with the previous consent of the President, there would be an end of provincial autonomy, for in that event, with some exceptions, all the said laws should either be made by the Parliament or by the State Legislature with the consent of the Central Executive Government. By so construing, we would be making the Legislature of a State elected on adult franchise the handmaid of the Central executive. We would be re-writing the Constitution and introducing by side-wind autocracy in the field of legislation allotted to the States while our Constitution has provided meticulously for democracy. Therefore, any construction which may bring about such an unexpected result shall be avoided unless the Constitution compels us by express words to do so. There are admittedly no such words of compulsion. At the same time it is also difficult to accept the argument advanced by the States that only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rictions on the free movement. In this context two difficulties may have to be faced : firstly, though a law purporting to impose a tax on a property or a motor vehicle, as the case may be, may in fact and in reality impose a tax on the movement itself; sccondly, a law may not be on the movement of trade, but on the property itself, but the burden may be so high that it may indirectly affect the free flow of trade. In the former case, the court may have to scrutinise the provisions of a particular statute to ascertain whether the tax is on the movement. If the provisions disclose a tax on the movement, it will be a restriction within the meaning of Article 302. In the latter case, if the provisions show that the tax is on property, the reasonableness of the tax may have to be tested against the provisions of Article 19 of the Constitution. The question whether a law imposes a restriction or not depends on the question whether the said law imposes directly and immediately a limitation on the freedom of movement of trade. If it does, the extent of the impediment relates to the question of degree rather than to the nature of it. If it is a restriction, it must satisfy the conditions l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also obvious that entry tax cannot and would not be charged where the movement of goods originates in a local body and ends in some other State under the provisions of the Act. That apart, by its very nature entry tax is an indirect tax and the entire tax burden, if any, on the traders is passed on to the consumer as a result of which there is no adverse impact of the imposition of tax on the traders in the ultimate result. The petitioners have neither alleged nor given any facts and figures to the effect that they have suffered any loss in their business or trade as a result of imposition of entry tax. In fact, there is no allegation in the petitions that the tax has directly and immediately affected their trade or business adversely. 157. I may hasten to add that I have taken into consideration the above mentioned aspects of entry tax only to take note of the fact that entry tax is not a general tax imposed on all or any movement or transport part of trade and that the imposition is not restricted to trades people alone but also encompasses non-traders who cause entry of specified goods within a local area for consumption, use or sale therein. The aforesaid aspects are necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 159. The replacement of octroi by entry tax became necessary as under the Municipal laws each local body was empowered to install check-posts and barriers for the purposes of levying octroi at varying rates and the persons causing entry of goods in local areas were put to immense inconvenience as they were required to stop at each check-post and barrier installed by the various local bodies, pay tax and, thereafter, undertake the procedure of seeking refund and in this process, allegedly the trades people were ruthlessly harassed and, therefore, there was a general demand for abolition of octroi. Consequently, the State, while abolishing octroi which was levied by the concerned local body, enacted the provisions of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam 1976, i.e., the Entry Tax Act taking over the responsibility of levy and collection of the tax from the local bodies by converting it into a one point tax and thereafter distributing the proceeds therefrom to the local bodies as octroi compensation in lieu of the loss of revenue resulting from the abolition of octroi. 160. The Statement of Objects and Reasons of the Act has been published in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on their whims and fancies. The Act removed the impediments and restrictions in the movement of trade created by the local bodies for levying octroi by making provision for a single point levy of tax under the Act. Thus, the Act generally sought to simplify and regulate the levy of octroi and replace it by entry tax to facilitate the movement of goods. That apart, as undoubtedly, octroi was the most important and major source of revenue of the municipalities and as its abolition caused a tremendous reduction and dent in municipal finances, the Act sought to compensate the loss to some extent by providing a system of distributing the revenue from collection of entry tax to various municipalities as octroi compensation. Thus, the Act sought to replace octroi which was being levied under the municipal laws after due approval of the President, by the regulated and simplified entry tax which also provided for compensating the loss of revenue of the municipalities by making provisions for distributing the revenue collected from the tax to the municipalities as octroi compensation. To put it differently the Act was enacted with the object of regulating the imposition of tax on entry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e specified by the Government not exceeding 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 . . . 164. It was further observed in paras 34 and 35 that such a levy does not impose an unreasonable restriction on trade and commerce and is in fact, in public interest in the following terms: 34. . . . Even apart from this, a levy which appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting municipal finances which suffered a dent on account of abolition of octroi cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and intercourse. In this connection it would be useful to recall the observations of this Court in Khyerbari Tea Co. Ltd. case that the power conferred on this Court to strike down a taxing statute if it contravenes the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensate for the loss of revenue caused as a result of the abolition, has in so many words held that it can be said without fear of contradiction that trade, commerce and intercourse received a fillip and free, smooth, unimpeded flow of goods and passenger vehicles was considerably facilitated and the abolition of octroi was welcomed in trade and business circles and that such a tax acquires the character of being compensatory after duly considering and referring to the judgments in the case of Atiabari Tea Co. and Automobile Transport in the following terms: 7. If tax was enhanced to meet the loss suffered on account of abolition of octroi, one can say without the fear of contradiction that the abolition of octroi facilitates both inter-State and intra-State movements of goods and passengers. 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 vehicle or the passenger vehicle is stopped and enquiry made or octroi either collected or deposit insi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Meenakshi Alias Rama Bai [1984] Supp. SCC 326. 167. There is yet another reason specific to and relating to the State of M.P. to hold that the tax is not violative of Article 301 of the Constitution of India as it facilitates the movement part of trade. It is evident from a perusal of the law relating to municipalities that the provisions for levy of octroi in the name of a local-body tax already exists therein but the operation of these provisions has been stayed as entry tax is being levied under the Act and if entry tax under the Act is withdrawn or prohibited, the provisions of the municipalities and Municipal Corporation Act providing for levy of octroi as a local-body tax in the State of M.P., would come into operation enabling and empowering the local bodies to levy and recover octroi and for that purpose to take all regulatory measures including establishment of Nakas/barriers, etc., and thereby revive the alleged objectionable features of octroi which had previously been opposed and objected to by the trades people themselves alleging that they impeded the movement part of trade. To put it differently, the fact of levy of entry tax under the Act and its continuance as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and constitutional even otherwise. 169. There is another aspect which I would like to reiterate before I proceed any further and that is, that admittedly, the entry tax imposed in place of octroi by the impugned Act took care to duly and properly regulate the charge, levy, assessment, recovery, set-off, penalty, etc., in respect of the tax and also converted it into a single-point tax and sought to remove all the impediments and barriers in the free flow of trade and, therefore, the impugned Act is also a regulatory measure enacted with a view to smoothen the entire process of levy of entry tax by removing all the obnoxious features of octroi which were alleged to impeded and hamper freedom of trade and its movement. 170. While ascertaining as to whether the tax is compensatory or not, in the light of the parameters and guidelines laid down by the Supreme Court, it is necessary to deal with the arguments of the learned Counsel for the petitioners based upon paragraphs 39 to 45 See, of the judgment in the case of findal Stainless at this stage itself, that the Supreme Court in the case of jindal Stainless has now held that a tax can be held to be compensatory only in case wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar individual. 172. As is apparent from paragraph 41 See para 38 at page 571 of [2006] 145 STC, of the judgment in the case of jindal Stainless, the Supreme Court has observed that the basis of a free or a compensatory tax is the quantifiable and measurable benefit . In paragraph 42 See para 39 at page 571 of [2006] 145 STC, it has been observed that a fee or compensatory tax has to be broadly proportional and not progressive and that in the principle of equivalence which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services, which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities. Compensatory tax is based on the principle of pay for the value. It is a sub-class of a fee. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities and again that the theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individuals, a particular measurable advantage, it is only fair to the community at large that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Seventh Schedule to the Constitution of India in exercise of its plenary powers, then there would be an end of State autonomy for all practical purposes even within the fields of legislation allowed to them under the distribution of powers by the Constitution and would render the plenary power of the State to legislate meaningless and thereafter in paragraph 14 has held that regulatory measures that 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 and are excluded from the purview of the provisions of Part XIII of the Constitution. In paragraph 19 it has been specifically stated that a tax imposed for the use of roads in Rajasthan cannot be said to hinder or prohibit the movement part of trade and commerce and that such a tax is compensatory. It has also been held that determination of the nature of tax cannot be made to depend upon the preamble of the statute and that it cannot be said that a tax is not compensatory because the precise or specific amount is not actually used in providing any facility. Importantly, it has further been clarified that actual user ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een specifically held that the fact that the statute does not provide for use of the tax collected for providing a facility or that the specific and quantified amount collected is not spent on providing the facility or the fact that the tax collected is not specifically earmarked for being utilised for providing the facility would not detract from or change its compensatory character. 175. Quite apart from the above even from a conjoint reading of the judgments in the case of findal Stainless parts of which where the words special benefit and special advantage have been used have been heavily relied upon by the petitioners, along with the judgment in the case of Automobile Transport. I am unable to agree with the learned Counsel for the petitioners that the Supreme Court, in the case of Jindal Stainless, has held that a tax can be said to be a compensatory tax only when it is levied for providing some measurable and quantifiable special benefit or facility exclusively to the traders in direct proportion to the quantum of tax. I am constrained to say so as in the case of Jindal Stainless the Supreme Court was specifically dealing with the correctness or otherwise of the some con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id in so many words while giving examples of roads, bridges, aerodromes, wharfs, etc., before propounding the working test. In none of the judgments has the Supreme Court laid down that the road, bridge, aerodrome or any such facility must be provided only to and exclusively for the use of trades people as a special advantage or benefit in lieu of the tax paid by them, that only then the tax would be compensatory as contended by the petitioners, and 1 believe, deliberately so, as the proposition of providing roads, bridges, aerodromes, etc., for the exclusive use of only the trades people as a condition precedent for levying a compensatory tax, itself borders on absurdity. I am further fortified in my view from the fact that the Supreme Court, in the case of Jindal Stainless in the ultimate analysis has directed such taxes to be tested only on the basis of the working test propounded in the case of Automobile Transport according to which it has to be adjudged as to whether the trades people are having the use of certain facilities for the better conduct of their business. This test does not lay down that the facility must be a special or an exclusive facility only for the use of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be utilised in providing facilities to the trades people broadly in proportion to the tax collected and it is in this context that the Supreme Court has held that if the revenue earned from levy of a tax is not utilised for providing facilities to the traders but is treated as general revenue and is utilised for other purposes, the tax would be a mere revenue-raising measure and would not be compensatory in nature. 179. It is also pertinent to take note of the fact that the most important source of revenue of the local bodies was from imposition of octroi which was abolished and as submitted by the respondents in their return, the entry tax was introduced in its place. The entire money collected from imposition of the entry tax under the impugned Act which was introduced in its place is being distributed amongst the local bodies after deducting 2% (two per cent) therefrom towards collection and regulation charges to compensate them for the loss of revenue caused due to abolition of octroi and, therefore, the sole purpose and object of levy of entry tax under the Act is to compensate the loss of revenue of the local bodies and to fill in the dent in their revenue resulting from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like a Municipal Corporation and Municipality, trade and commerce cannot flourish, cannot be ignored or brushed aside, as it is the residents of the local area who constitute the market, being consumers, for traders who in turn are motivated to cause entry of goods within the municipal areas for consumption, use or sale therein, for the residents of the local area and the larger and more developed the local area, more the entry of goods for consumption, use or sale therein. Here, I may profitably rely upon the Constitution Bench judgment of the Supreme Court rendered in the case of State of Madras v. N.K. Nataraja Mudaliar that: . . . The flow of trade does not necessarily depend upon the rates of sales tax : it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. Instances can easily be imagined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part, where a higher rate of tax prevails. Supposing in a particular S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the object of the levy. If the object behind the levy is identifiable and if there is sufficient nexus between the subject and the object of the levy, it is not necessary that the money realised by the levy should be put into a separate fund or that the levy should be proportionate to the expenditure . . . by relying upon the judgment in the case of Automobile Transport. 184. In the case of Automobile Transport the Supreme Court has specifically held that if the money collected from the imposition of tax is utilised for providing services and amenities which facilitate the movement of goods and the trades people have the use of these facilities for better conduct of their business, then the tax is compensatory in nature. While coming to this conclusion the Supreme Court has specifically dealt with amenities like roads, bridges, aerodromes, etc. Additionally, it has also been held in paragraph 21 that if a statute fixes a charge for the convenience of the services provided by the State or an agency of the State and imposes it upon those who choose to avail themselves of the services and conveniences, freedom of trade and commerce may well be considered unimpaired as the imposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 187. The facts furnished and the charts, specifically those given by the respondent/State in their clarificatory affidavits dated November 3, 2007 and December 27, 2007, have been quoted and analysed in detail by brother, Dipak Misra, J. In his detailed judgment it has been concluded that the entire amount collected from levy of the tax is distributed by the State to the urban and local bodies as octroi compensation after deducting two per cent therefrom, that the tax is utilised by the local bodies for providing facilities which are for use of the trades people in the industrial and commercial sectors, that the urban and local bodies have other sources of revenue including revenue from levy of local taxes, that octroi compensation distributed to the urban and local bodies from the collection of the impugned tax constitutes only 45 per cent of the amount spent by the urban and local bodies on the commercial and industrial sectors within the area. To avoid prolixity, I respectfully adopt and agree with the analysis and conclusion recorded by brother, Dipak Misra, J. in his judgment. 188. In addition to the aforesaid aspects, it is submitted by the respondent/State that in reply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent-State, the amount spent on them by the urban and local bodies cannot be taken into consideration for the purposes of accounting for the amount utilised by the urban and local bodies from octroi compensation. It is submitted that as the amount collected as entry tax under the Act by the State is not directly and specifically utilised for the specific head, the facts and figures furnished by the State, on the contrary, establish that the tax is not compensatory. It is also submitted by the petitioners that the entire stand of the State is per se misconceived as the nine heads in respect of which details of expenditure have been submitted by the State do not facilitate trade nor can they be said to be special benefits for the trades people. 190. The aforesaid submissions have to be scrutinised keeping in view the law laid down by the Supreme Court. For the purposes of clarity 1 recapitulate the law as laid down by the Supreme Court in the cases of Atiabari Tea Co. Ltd., Automobile Transport, Jindal Stainless and Nataraja Mudaliar which is relevant to analyse the facts and figures furnished by the respondent/State, wherein it has been stated that: (A) The compensatory n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case in construction and repair of roads, tarring of roads, constructing shops and buildings for the trades people, providing water supply to the commercial and industrial sectors, providing street lights, sanitation, solid waste management facility, fire fighting and environment in parks, etc., are provided by the urban and local bodies, are made available for use of the trades people, are utilised by the trades people for better conduct of their trade and business and are factors that affect and have an impact on trade and business as stated in the case of Nataraja Mudaliar [1968] 22 STC 376 (SC) : AIR 1969 SC 147 even if in some cases actual use by the trades people may be unknown. That apart, the objections raised by the petitioners also deserve to be rejected as it has been clearly established by the State that the expenditure has been incurred by the State or its agency in providing these facilities from whatever source it may be. I am also of the considered opinion that the tax is compensatory as only 45 per cent of the cost incurred in providing the facilities is charged from the trades people whereas rest of the expenditure is borne from other sources including statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e name of octroi compensation, it constitutes only 44 to 45 per cent of the total amount spent by the urban and local bodies on industrial and commercial sectors within their areas for providing facilities and making available factors which facilitate and effect trade. Had the local bodies been permitted to levy octroi or a local-body tax as prescribed under Section 127(1)(f) of the Municipalities Act and Section 132(1)(f) of the Municipal Corporation Act, the revenue generated by them from levy of octroi/local body tax would have been utilised by them for discharging their statutory obligations and performing their statutory duties as required by the law relating to Municipalities. However, as the urban and local bodies have been deprived of the revenue from levy of octroi/local body tax and in its place they are paid some amount from the collection of entry tax under the provisions of the Act as octroi compensation, it goes without saying that the tax levied under the impugned Act has been imposed only to fill up the dent or compensate the loss of revenue resulting from the abolition of octroi/local-body tax and, therefore, if the urban local bodies utilise the octroi compensatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitutes only 45 per cent of the total amount spent by the local bodies in commercial and industrial sectors for the purposes of providing facilities which are of use to the trades people. Though the petitioners have alleged that in a few cases the rate of tax has been increased several folds and have also challenged the validity of the notifications increasing the rate of tax in that respect, I am of the considered opinion that the increase of tax in respect of a few commodities would not render the imposition of the entry tax non-compensatory as a whole, specifically, when in general the rate of tax under the Act continues to be between half per cent to two per cent. In this respect I may profitably rely upon the judgments of the Supreme Court in the cases of Hansa Corporation and Meennakshi Alias Rama Bai [1984] Supp. SCC 326. 197. I am also of the opinion that the validity of the entry tax or the rate of tax in respect of a particular goods cannot be adjudged on the basis of the tax impact or the services rendered in lieu thereof qua an individual tax-payer for the purposes of Article 301 of the Constitution of India as alleged by the petitioners. For the purpose of adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cement Companies Ltd. v. state of M.P. and Mysore Cement v. State of Madhya Pradesh wherein prescriptions of such higher rates under Section 4A were held to be valid. 200. Though the petitioners have also challenged the notifications on the ground that they violate Article 301 as well as Articles 14 and 19 of Constitution of India on the ground that the rates of tax have been increased to such an extent that it has become an impediment and hindrance to trade with the passage of time, as noted in the preceding paragraph, the petitioners have neither alleged nor given figures to demonstrate and establish that there has been any decline or loss in the business income of the trade or earning of the petitioners as a result of increase in the rate of entry tax, nor have they, in any manner, stated or demonstrated that the impugned levy has adversely affected their trade and, therefore, constitutes a direct and immediate impediment on trade and is non-compensatory. I am also bound to take note of the fact that the learned Counsel for the petitioners, during arguments, have fairly conceded that in spite of the increase in the rate of tax by the impugned notifications the actual and tota ..... X X X X Extracts X X X X X X X X Extracts X X X X
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