TMI Blog2016 (10) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ods into Local Areas for Consumption, Use or Sale Therein Act, 1993 and the Rules made thereunder and Notifications S.O. 176 & 18 both, dated 20.01.2016, are declared as ultra vires to the Constitution and are accordingly quashed. The impugned provisions as contained in Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 held to be discriminatory and violative of Article 304(a) of the Constitution of India read with Article 303 of Constitution of India. Petition allowed - decided in favor of petitioner. - Civil Writ Jurisdiction Case No.6155 of 2016, Civil Writ Jurisdiction Case No. 6206 of 2016 - - - Dated:- 27-9-2016 - I. A. Ansari CJ And Chakradhari Sharan Singh, JJ. For the Petitioner : Dr. Ashok Saraf, Senior Advocate (In both cases) Mr. D.V.Pathy, Advocate Mr. Kishore Kunal, Advocate Mr. Suman Chetia, Advocate Mrs. Manju Jha, Advocate For the Respondents : Mr. Lalit Kishore, PAAG Mr. Piyush Lal, AC to PAAG JUDGMENT ( Per: Honourable The Chief Justice ) The present writ petitions have been filed challenging the levy and collection of entry tax on goods brought by the petitioners to the State of Bihar for individual co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein. The Bihar Entry of Goods Into Local Area Rules, 1993, (hereinafter referred to as the 1993 Rules ) were framed to give effect to the provisions of the 1993 Act. However, the 1993 Act was declared ultra vires Articles 301 and 304 of the Constitution of India by the judgment of this Court in Bihar Chamber of Commerce vs. State of Bihar, (1995) 97 STC 53. The said judgment of this Court was subsequently reversed by the Supreme Court in State of Bihar vs. Bihar Chamber of Commerce, reported in (1996) 9 SCC 136, wherein it was held, by applying the decision, in Bhagatram vs. CST, reported in 1995 Supp (1) SCC 673, that the levy, under the 1993 Act, was compensatory in nature and, hence, did not violate Article 301 of the Constitution. 6. The said decision of the Supreme Court, in Bihar Chamber of Commerce (supra), was, later on, overruled by the decision of the Constitution Bench of the Supreme Court, in Jindal Stainless Ltd. vs. State of Haryana, reported in (2006) 7 SCC 241. 7. By the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein (Amendment) Act, 2001, the 1993 Act was amended. In terms of the Amendment Act of 2001, the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided also that if the sale of such scheduled goods is exempted from tax under any notification issued under sub-section (3) of Section 7 of the Bihar Finance Act, 1981, reduction of his liability under the Bihar Finance Act, 1981 as provided in this section or any notification thereunder, issued shall not be made. 12. In the same year, i.e., in 2006, pursuant to the decision of the Supreme Court, in Jindal Stainless (supra), Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein (Amendment) Act, 2006, underwent various amendments in the 1993 Act including amendments to the second Proviso to Section 3(2) extending the adjustments of entry tax against also the sales tax liability to the sale of manufactured goods by consuming the imported scheduled goods. 13. The amendments, so made by the 2001 Act, 2003 Act and 2006 Act, were challenged before this Court in Indian Oil Corporation Limited vs. State of Bihar, [2007] 10 VST 140 (Patna), and this Court, upon considering the changes made to the 1993 Act by way of the aforesaid amendments, held that the parent 1993 Act, before its amendment, was not compensatory in character and was, therefore, violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments or of a local authority; (G) A commission agent, broker, factor, a del-credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of the principal. Explanation I- Every person who acts as an agent on behalf of a dealer residing outside the State of Bihar and buys sells, supplies or distributes goods in the State or acts on behalf of such dealer as (a) A commission agent, broker, factor, a del-credere agent, an auctioneer or any other mercantile agent, by whatever name called; or (b) An agent for handling goods or documents of title to goods ; or (c) An agent for the collection or the payment of the sale price of goods or as a guarantor for such collection or payment; or (d) A local branch of a firm or company situated outside the State, shall be deemed to be a dealer for the purpose of this Act Explanation II- A Government which whether or not in the course of business, buys, sells, supplies or distributes goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arter and year and deliver or cause to be delivered to the prescribed authority such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. (8) Every person or dealer, under sub- section (1), shall maintain true and complete accounts, registers and documents, as may be prescribed, in respect of the scheduled goods handled by him and the documents of title relating thereto and shall produce the said accounts, registers and documents before the prescribed authority as and when required by him. (9) Every person or dealer responsible for collecting tax, in accordance with the provisions of this section shall apply for and obtain registration under the Act in the manner prescribed under section 5 of the Act. 16. Apart from the above, the earlier applicability of the 1993 Act only to transactions above ₹ 25,000/- has been changed making the Act applicable to transactions with value above ₹ 1,000/-. To give effect to the amendments made in the 1993 Act, changes were made, in exercise of powers under Section 9(1) of the 1993 Act, to the 1993 Rules by S.O. No. 169, dated 21.07.2015. Again, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry tax. This apart, contends Dr. Saraf, that if VAT is paid on the goods brought in from outside the State of Bihar under the Bihar VAT Act, 2005, no entry tax is payable inasmuch as the payment of entry tax is liable to be set off against the VAT liability on such goods. Further, no entry tax is levied on goods, which are exempted from payment of VAT in terms of the third Proviso to Section 3(2) of the 1993 Act. 22. Coupled with the above, Dr. Saraf submits that the impugned levy of entry tax, in pith and substance, is a tax on goods, which are brought into the State of Bihar on account of inter-State sale transactions on which the State of Bihar cannot levy VAT inasmuch as wherever VAT is leviable, there is set off against the VAT so payable. The State of Bihar, submits Dr. Saraf, realizing the limitation imposed on it by Article 286(1)(a) of Constitution of India, which prohibits the State from taxing inter-State sale transactions has evolved a novel way of contravening Article 286(1)(a) of Constitution by selectively taxing inter-State transactions of sale in the garb of entry tax. 23. It is submitted by the learned Senior Counsel, Dr. Saraf, that in terms of Article 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end customers in Bihar Price of Mobile (A) CST [2%] (B) ET [5% on A+B] (C) BVAT [5% on A+B+C] (D) BVAT after reduction of ET as per proviso to Section 3 (2) (E=D-C) Cost to the Customer (A+B+C) 10000 200 510 535.50 25.50 10225.50 (i) Bihar Dealer doing resale of Mobile Phone to end customers by bring goods in Bihar though Stock Transfer Price of Mobile (A) CST [2%] (B) ET [5% on A+B] (C) BVAT [5% on A+B+C] (D) BVAT after reduction of ET as per proviso to Section 3 (2) (E=D-C) Cost to the Customer (A+B+C) 10000 NIL 500 525 25 10025 a. Scenario 2- Tax burden on Goods brought in b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mobile (A) CST [5.5%] (B) ET [5% on A+B] (C) BVAT (D) BVAT after reduction of ET as per proviso to Section 3 (2) (E=D-C) Cost to the Customer (A+ B+ C) 10000 550 527.50 525 527.50 10527.50 27. It is submitted that in the light of the aforesaid scenarios, the price of mobile phones for the customers will be as under: Scenario Price to be paid by the Consumer Scenario 1 (i): Bihar Dealer doing resale of Mobile Phone to end customers in Bihar 10225.50 Scenario 1 (ii): Bihar dealer doing resale of Mobile Phone to end customers by bring goods in Bihar though Stock Transfer 10025 Scenario 2 (i): Bihar Dealer manufacturing Mobile Phones using raw material brought in from outside Bihar 10092 Scenario 2 (ii): Bihar Dealer doing resal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is not applicable to the transaction undertaken through e-commerce portal inasmuch as the goods, which are brought in by the petitioners, are only for personal use or consumption and not for being sold. Where the individual consumer are not dealers‟ and do not have liability under the Bihar VAT Act, 2005, the payment of entry tax, on such transactions, will be an additional cost on such goods. 32. It is submitted by Dr. Saraf in Indian Oil Corporation Limited (supra), this Court held the amendment to the 1993 Act as discriminatory in the case of a petitioner, when the set off was not made applicable. Similarly, in Food Corporation of India (supra), the Court struck down the notification, whereby entry tax was imposed at a rate higher than the rate of sales tax on those goods. Reliance was also placed by Dr. Saraf on the decision of the Supreme Court in State of U.P. Vs. Jaiprakash Associates Ltd, reported in (2014) 4 SCC 17, wherein the notifications, under the Uttar Pradesh Trade Tax Act, 1948, granting rebate of tax on goods manufactured, in the State of Uttar Pradesh, were challenged on the ground of being discriminatory against goods imported from neighbouring State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Article 14 and 19(1)(g) of the Constitution of India. 36. Mr. Lalit Kishore, learned Principal Additional Advocate General, appearing on behalf of the respondents, submits that the 1993 Act has already been held to be compensatory and, consequently, the issue, as regards the validity of the 1993 Act, according to learned Principal Additional Advocate General, must be taken to have already been decided by this Court, in Indian Oil Corporation (supra), and, therefore, the validity of the impugned provisions of the 1993 Act cannot, again, be looked into in the present writ petition. Learned Principal Additional Advocate General also submits that the impugned provisions are merely the machinery provision and, hence, levy of entry tax, on e- commerce transactions, were all along present in the 1993 Act prior to 2015 and this has already been upheld by this Court, in Indian Oil Corporation (supra). It is submitted that the levy of entry tax is irrespective of the fact whether the goods are brought into the State directly by the consumer/individual buyer thereof or has been imported into the State for subsequent sale and, therefore, contends Mr. Lalit Kishore, the levy cannot be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Bihar for personal consumption and use of individual buyers. 40. It is not disputed by the respondents, submits Dr. Saraf, that there was no machinery provision in the 1993 Act prior to the impugned amendments and, therefore, the impugned provisions are seeking to provide for a mechanism to impose entry tax on e-commerce transactions. Dr. Saraf further submits that the goods, brought into the State of Bihar for personal use or consumption, were, otherwise, not subjected to entry tax inasmuch as there was no machinery provision to collect entry tax and by creating a specific machinery for collection of entry tax, when the goods are sold for personal use or consumption through the medium of e- commerce, the provisions seek to create a blatant discrimination against such goods and seek to put a restrain on e-commerce transactions. 41. To reboost his submissions, Dr. Saraf points out that the impugned provisions are to ensure that the cumulative burden is higher on such goods, which have been held to be fiscal barrier by the Supreme Court in Jaiprakash Associates (supra). Such a fiscal barrier has an immediate and direct effect of ensuring that the goods are not brought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other States 1 [or the Union territories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. 43. Article 1, if we may point out, conceives India as a Union of States and declares that the territory of India shall compromise of the territories of the States, the Union territories and such other territories as may be acquired. It is in the backdrop of the fact that Article 1 conceives India as a Union of States that the constitutional scheme for the conduct of trade, commerce and intercourse, contained in Part XIII, needs to be analysed. 44. What becomes glaringly noticeable to the eyes are the two expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itnessed and experienced had its reflection in our Constitution. The concept of entry tax is a concept routed in history. Before the industrial revolution, the society, world over was mainly agriculture based, there were small principalities and very little quantity of goods moved from one area to another, because gods were, ordinarily, produced for consumption by the producers themselves, such as, land-owners and their tenants. Petty artisans, normally, produced very little commodities for sale. With the industrial revolution, industries grew and this resulted into faster movement of goods, which forms an integral and inseparable part of commerce. The situation in India was no different. As the makers of our Constitution conceived India as a strong economic unit, it was but natural for them to knit into the scheme of our Constitution the concept of a meaningful growth of industries so as strengthen economic base of India. This was not possible to achieve unless obstructions in the movement of the goods were, if not completely removed, be, at least, reduced as much as possible. 48. Before India became independent, the western world, particularly, Europe was fragmented into small ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opt remedial measures intended solely for the protection of regional interests without due regards to the their effect on the economy of the nation as a whole. The object of Part XIII was to avoid such a possibility. Free movement and exchange of goods throughout the territory of India is essential for the economy of the nation and for sustaining and improving licensing standards of the country. The provision contained in article 301 guaranteeing the freedom of trade, commerce and intercourse is not a declaration of mere platitude, or the expression of a pious hope of a declaratory character ; it is not also a mere statement of direction principle of State policy ; it embodies and enshrines a principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country. In appreciating the significance of these general considerations were may profitably refer to the observations made by Cardozo, J. , was framed under the dominion of a political philosophy less parochial in range. It was framed upon the theory that the peoples of the several states must sink or swim t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of goods solely for the reason that the goods are carried to or transported through a given State, for, if such restrictions are not avoided, the freedom of trade cannot be achieved. 54. Addressing, therefore, the question as to whether tax laws are excluded from the provisions of Part XIII and whether tax laws are immune from the freedom guaranteed under article 301, the Supreme Court, in Atiabari Tea Company Limited (supra), observed: 50. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings. 55. From the above observations made in Atiabari Tea Company Limited (supra), it is clear that the Supreme court answered, in the negative, the question as to whether the tax laws are immune from the operation of Article 301. Having held that tax laws were not immune from the operation of the Article 301 or, for that matter, the constitutional scheme, embodied in Part XIII, the Constitution Bench, in Atiabari Tea Company Limited (supra), clarified that it is not all taxes, which will hit Article 301, but only such taxes, which, directly and immediately, restrict trade, for, it is only direct restrictions causing impediments to the movement of goods that Article 301 seeks to avoid and nullify. It is in this light that the following further observations, made in Atiabari Tea Company Limited (supra), need to be read. 51. We do not think it necessary or expedient to consider what other laws would be affected by the interpretation we are placing on article 301 and what other legislative entries would fall under Part XIII. We propose to confine our decision to the Act with which we are concerned. If any other laws are similarly challenged the validity of the challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Legislature to impose, by law, such restrictions on these freedoms as may be required in public interest. Article 303, however, clarifies that neither Parliament nor the Legislature of States shall have the power to make any law giving or authorizing the making of any discrimination between one State and another by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. In other words, Article 303 clarifies that even in public interest, Parliament is not authorized to make laws giving preference to one State over the other. This restriction is, however, subject to one exception, the exception being that the Parliament is left with the discretion to make laws giving preferential treatment or making discriminatory provisions if such laws become necessary for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. 59. Thus, a State Legislature, apart from the limitation imposed by Article 301, has the limitation of not making laws to give preference or make discrimination between one State and another, while making laws, in exercise of its powers, relating to trade, commerce and interc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpermissible under Article 301. However, a law, which has direct and immediate impact on the movement of goods, can be saved only if it falls in any of the permissible restrictions, which Articles 302, 303 and 304 perceive. 63. It may also be noted that in Atiabari Tea Company Ltd. (supra), the three appellants before the Supreme Court were tea companies, two of whom carried on the trade of growing tea in Assam and the third one carried on its trade at Jalpaiguri. They carried their tea to Calcutta in order that it might be sold, in Calcutta, for consumption and sale outside India. Tea, produced in Jalpaiguri, had to move through a few miles of the territory of the State of Assam. Besides the tea, which was carried by railways, a substantial quantity of tea was also carried by road or by inland waterways and, as such, became liable to pay tax leviable under the Assam Taxation (on goods carried by roads or inland waterways) Act, 1954, for, this Act levied tax on certain goods, such as, tea, which was carried by road and inland waterways. The principal ground of attack on the legislation was that it violated the provisions of Article 301 and was not saved by Article 304(b). It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 305). (pp. 831-832). 64. The other view, which may be called the third view as expressed by Shah, J, and described, in Automobile Transport (Rajasthan) Ltd. (supra), as the widest view was that the freedom, contemplated under Article 301, was freedom of trade, commerce and intercourse in every aspect of all such activities, which constitute commerce and intercourse and not merely restrictions on the movement or transportation part of goods. Shah J (as his Lordship then was) expressed his view thus, The guarantee of freedom of trade and commerce is not addressed merely against prohibitions, complete or partial ; it is addressed to tariffs, licensing, marketing regulations, price-control, nationalization, economic or social planning, discriminatory tariffs, compulsory appropriation of goods, freezing or stand-still orders and similar other impediments operating directly and immediately on the freedom of commercial intercourse as well. Every sequence in the series of operations which constitutes trade or commerce is an act of trade or commerce and burdens or impediments imposed on any such step are restrictions on the freedom of trade or commerce and intercourse. What is guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd commerce, in all its varied aspects and in all its activities, shall be free. 67. In Automobile Transport (Rajasthan) Ltd. (supra), which is a decision of 7 Judges Bench, the correctness of the majority view, expressed in Atiabari Tea Company Ltd. (supra), came to be questioned. Having examined all the three views, as indicated hereinabove, the majority, in Automobile Transport (Rajasthan) Ltd. (supra), held that the widest view, expressed by Shah, J, being based on purely taxtual interpretation of Part XIII of the Constitution of India, was not the correct view, for, this view ignores altogether, amongst others, the reality that the freedom of trade, commerce and intercourse in a society, regulated by law, must be understood in the context of working of an orderly society and the effect of such a view, if conceded to, would be that even when a. State Legislature wishes to control or regulate trade, commerce and intercourse in such a way as to facilitate its free movement, it must, nevertheless, proceed to make a law under Article 304(b) and that no such Bill can be introduced or moved in the Legislature of the States without the previous sanction of the President. In other w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 raise revenue for their own purposes. If the widest view is accepted, then there would be for all practical purposes, an end of State autonomy even within the fields allotted to them under the distribution of powers envisaged by our Constitution. An examination of the entries in the lists of the Seventh Schedule to the Constitution would show that there are a large number of entries in the State list (List II) and the Concurrent list (List III) under which a State Legislature has power to make laws. Under some of these entries the State Legislature may impose different kinds of taxes and duties, such as property tax, sales tax, excise duty, etc., and legislation in respect of anyone of these items may have an indirect effect on trade and commerce. Even laws other than taxation laws, made under different entries in the lists referred to above, may indirectly or remotely affect trade and commerce. If it be held that every law made by the Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement with the reason given in that judgment, we do not think that any useful purpose would be served by repeating them. It is enough to point out that though the power of levying tax is essentially for the very existence of government, its exercise may be controlled by constitutional provisions made in that behalf. It cannot be laid down as a general proposition that the power to tax is outside the purview of any constitutional limitations. We have carefully examined the provisions in Part XII of the Constitution and are unable to agree that those provisions exhaust all the limitations on the power to impose a tax. The effect of Article 265 was considered in the majority decision and it was pointed out that the power of taxation under our Constitution was subject to the condition that no tax shall be levied or collected except by authority of law. Article 245 which deals with the extent of laws made by Parliament and by the Legislatures of States expressly states that the power of Parliament and of the State Legislatures to make laws is, 'subject to the provisions of this Constitution'. The expression subject to the provisions of this Constitution is surely wide enoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory 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 provision of Part XIII of the Constitution for the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretation canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co. case (1961) 1. S.C.R. 809, 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. 70. Having laid down the parameters of the freedom guaranteed under Article 301, the majority examined the scheme of the Act, which was under challenge in Automobile Transport (Rajasthan) Ltd. (supra) and having found that the tax im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na, (2006) 7 SCC 241, at para 32, 33, 34 and 35 as under: 32. Article 301 states that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout India shall be free. It is not freedom from all laws but freedom from such laws which restrict or affect activities of trade and commerce amongst the States. Although Article 301 is positively worded, in effect, it is negative as freedom correspondingly creates general limitation on all legislative power to ensure that trade, commerce and intercourse throughout India shall be free. Article 301, therefore, refers to freedom from laws which go beyond regulations which burdens, restricts or prevents the trade movement between States and also within the State. Since freedom correspondingly imposes limitation , we have the doctrine of direct and immediate effect of the operation of the impugned law on the freedom of trade and commerce in Article 301 as enunciated in Atiabari Tea Co. 33. Article 301 is, therefore, not only an authorisation to enact laws for the protection and encouragement of trade and commerce amongst the States but by its own force creates an area of trade free from interference by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her words, clause (a) of Article 304 authorises a State Legislature to impose a non- discriminatory tax on goods imported from sister State(s), even though it interferes with the freedom of trade and commerce guaranteed by Article 301. Secondly, the ban under Article 303(1) shall stand lifted even if discriminatory restrictions are imposed by the State Legislature provided they fulfil the following three conditions, namely, that such restrictions shall be in public interest; they shall be reasonable; and lastly, they shall be subject to the procurement of prior sanction of the President before introduction of the Bill. 35. Broadly, the above analysis of the scheme of Articles 301 to 304 shows that Article 304 relates to the State Legislature while Article 302 relates to Parliament in the matter of lifting of limitation, which, as stated above, flows from the freedom of trade and commerce guaranteed under Article 301. Article 304 also confers upon the State Legislature power to lift the limitations imposed on it by Article 301 and clause (1) of Article 303. This aspect is important because the doctrine of direct and immediate effect which is mentioned in Atiabari Tea Co. eme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposition of restrictions on freedom of trade, commerce and intercourse between one State and another within any part of the territory of India and Parliament alone has been empowered by Article 302 to impose such restrictions in freedom of trade, commerce and intercourse as may be required in public interest. 74. Article 303 deals with discrimination and, in such cases, neither the Parliament nor the Legislature has been empowered to make any law authorising or giving any preference to one State over another or making any discrimination between one State and another by virtue of any entry relating to trade and commerce in any of the lists in the Seventh Schedule. However, clause (2) of Article 303 empowers the Parliament to make any law, giving or authorizing the giving of any preference, or making, or authorizing the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. As such, while making any discrimination between one State and another or giving preference to one State over another, Parliament alone can make such a law only w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he freedom of trade, commerce and intercourse shall be introduced or moved in the State legislature without the previous sanction of the President. 78. Article 304(b) does not, thus, deal with discrimination between two States or giving preference to one State over another, which is totally prohibited by Article 303(1) of the Constitution subject to relaxation provided in Article 304(a) of the Constitution. Hence, to save any law from being violative of Article 301 of the Constitution, the fiscal State legislation must not be discriminatory meaning thereby it should not discriminate between two States or give preference to one State over another and, by virtue of Article 304(a) of the Constitution, must not impose tax on the goods imported from other States or Union territories, when similar goods manufactured or produced in the State, are not subject to such tax so as to discriminate between goods manufactured and produced within the State and also not to put restrictions on the movement of goods except when such restrictions are reasonable or in public interest subject to the condition that previous assent of the President is taken before any amendment or Bill is introduced. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inasmuch as the same shall be violative of Article 303(1) of the Constitution of India. The matter can be explained from another angle. When even the Parliament has no power to discriminate between one State and another or give preference to one State over another except in a limited case, how the State legislature can be permitted to make such discrimination or give preference to one State over another only on the ground that the said taxes are compensatory in nature. 84. This Court, in Indian Oil Corporation (supra), has not decided the issue as to whether the State can impose discriminatory taxes only on the ground that the same is compensatory in nature. This Court, in Indian Oil Corporation (supra), held that after the 2006 Amendment, the levy, under the 1993 Act, acquired the nature of compensatory tax. Though it was held that amendments introduced in the 1993 Act by the Act of 2001 and 2004, were bad, because the same were violative of Article 304(a) of the Constitution of India; when both the amendments were made without the prior assent of the President. Since the period involved in the Writ petition was from 2001 to 2006, the Court has not examined the issue as to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need pay so much of the sales tax after reducing the entry tax paid on the very same item. In other words, the payment of entry tax goes to reduce the petitioner's sales tax liability to the extent of the amount of entry tax paid. The payment of sales tax is essentially governed by final determination in the form of assessment and entry tax paid goes only as a credit towards liability for sales tax or in other works, sales tax is demanded after reducing the entry tax paid by the petitioner. Therefore the entry tax collected at the check-post is virtually in the form of advance payment of sales tax and there is no need to determine the entry tax liability in respect of goods brought by a registered dealer for resale in the State. 88. We are in respectful agreement with the decision of the Kerala High Court in Sri Krishna Marbles and Granites v. State of Kerala (supra). The same view has been taken by the Gauhati High Court in ITC Limited (supra) decided by one of us {Chief Justice}. We respectfully agree with the observations made, conclusions arrived at and the decision rendered in ITC Limited (supra). 89. While examining the contention of the petitioner that the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to goods that were brought into a local area for sale whereas entry tax was leviable also on goods brought into a local area not for sale but for consumption or use, He further submitted that consumption or use may be in two days. The goods brought into a local area may be used as raw material for producing a new commodity for sale or they may be consumed as they are, as in the case of his client, the petitioner in C.W.J.C. No. 6540 of 2002. In these two cases, the provision of set-off in the sales tax liability would not apply and in these two cases, therefore, the Act was quite discriminatory with regard to the goods imported from other States. The submission of Mr. Jain cannot be said to be without substance. Therefore, while agreeing with the submission of the Advocate- General that there was no discrimination against goods imported from other States insofar as those goods were brought for resale, it has to be held that there was an apparent discrimination against goods imported from other States for the purpose of consumption or use. I., therefore,, conclude that the amendment in the definition of entry of goods with effect from November 5, 2001 did introduce an element ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on the sale of those goods. He submitted that the Act was provided with an internal balancing mechanism that saved it from being discriminatory against goods imported from other States. In that case, it was pointed out that atleast in case of paddy, wheat and rice, the rate of entry tax was higher than the rate of sales tax with the result that paddy, rice and wheat imported from outside the State suffered a higher incidence of tax compared to paddy, rice and wheat procured from within the State. The Advocate General countered the submission by taking the stand that if for some goods the rate of entry tax was higher than the rate of sales tax then that might be a ground to challenge the notification fixing the rate of entry tax under Sub-section (i) of Section 3 of the Entry tax Act but on that basis, it could not be argued that the Act was itself discriminatory or violative of Article 304(a) of the Constitution. It thus becomes plain and clear that in order to save the Act from the vice of discrimination against paddy, wheat and rice imported from outside the State, the notification No. SO 32, dated 1.4.2006 fixing the rate of entry tax on those goods at 4% of their value mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween one State or another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule .* Clause (2) of Article 303, is in the It is not very clear why clause (1) of Article 303 uses the words nor the legislature of a State when Article 302 does not refer to the legislature of a State at all. Probably, the idea was to declare affirmatively in the interest of removing any doubt - that even a legislature of a State shall not have the power to make any law giving or authorizing the giving of any preference to one estate over another or making or authorising the making of any discrimination between one state and another by virtue of their power to make a law with reference to the entries relating to trade and commerce in the Seventh schedule. Further, the additional of words by virtue of any entry relating to trade and commerce of any of the Lists in the Seventh Schedule at the end of the clause have also given rise to a good amount of controversy, which we shall refer to later, to the extent relevant nature of a classification. It says that nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - or fiscal barrier , as they may be called - at or along their boundaries in the interest of freedom of trade, commerce and intercourse throughout the territory of India, guaranteed by Article 301. As we shall presently point out, this clause does not prevent in any manner the States from encouraging or promoting the local industries in such manner as they think fit so long as they do not use the weapon of taxation to discriminate against the imported goods vis-a-vis the locally manufactured goods. To repeat, the clause bars the States from creating tax barriers - or fiscal barriers, as they can be called - around themselves and/or insulate themselves from the remaining territories of India by erecting such 'tariff walls'. Part-XIII is premised upon the assumption that so long as a State taxes its residents and the residents of other States uniformly, there is no infringement of the freedom guaranteed by Article 301; no State would tax its people at a higher level merely with a view to tax the people of other States at that level. And it is this clause which has a crucial bearing on this case. Now coming to clause (b), it empowers the legislature of the State to make a law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) ensures only equal rate of tax for incoming goods. So if such goods are taxed at a higher rate or where they are taxed at any rate when indigenous goods enjoy concessional rate of tax, article 304(a) is attracted. They are simple cases of hostile discrimination. Therefore, whether a particular tax is discriminatory within the meaning of this clause, the effect of the tax on the flow of goods from outside the taxing State has to be taken into consideration and, if the overall effects of rebate of tax is such that they fall within the meaning concessional rate of tax. A detailed discussion on the effects and scope of rebate is done in the following paragraphs under the head Issue 2 in the judgment. . 46. Article 304(a) is a provision that deals with taxation. It places goods imported from sister States on a par with similar goods manufactured or produced within the State in regard to State taxation in the allocated field. The object of article 304(a) was to limit the power of taxation by States so as to prevent discrimination against imported goods by imposing taxes on such goods as a higher rate than is borne by indigenous goods. The tax referred to in article 304(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the instant case, if the grant of rebate of tax by the State Government under Section 5 of the Act is to the full amount of tax levied, then for the dealers manufacturing cement using fly-ash outside the State of Uttar Pradesh but selling it in Uttar Pradesh, though the State Government contends that the rate of tax is same for the dealers inside Uttar Pradesh and outside Uttar Pradesh, but the overall effect is that there is no tax levied on the net turnover after deductions being made from the gross turnover but, on the other hand, the dealers manufacturing or producing cement using fly-ash outside Uttar Pradesh are taxed at the rate of 12.5%. Therefore, it can be said that the rebate of tax is in the nature of exemption and the instant case can be decided on the basis of catena of decisions of this Court where blanket exemption without reasons are said to be discriminatory and violating article 304(a) of the Constitution of India. 97. It needs to be borne in mind that in Jaiprakash Associates (supra), the Supreme Court held that the object of Article 304(a) of the Constitution is to prevent imported goods being discriminated by imposing a higher tax thereon than on local ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside the State, supplying goods to the State of Bihar in course of inter-State trade and commerce, the effect whereof is that no entry tax is payable by a dealer making resale of the said goods inside the State, but, on the other hand, the dealers, who are supplying goods from outside the State to consumers, have to pay full entry tax as well as central sales tax. The net effect of the impugned provisions is that the cumulative burden of taxes, on goods imported from outside the State, is higher than the said goods produced within the State. This is what is known as fiscal barrier and such fiscal barrier has a direct and immediate effect of ensuring that goods are brought in from outside the State of Bihar for personal use or consumption on payment of CST and thereby making a discrimination between the dealers of one State and another, which is clearly violative of Article 304(a) of the Constitution. 102. In the present case, respondents have not disputed that there is a higher burden of tax on goods brought in by the petitioners for individual consumers through e- commerce transactions; but the State has tried to defend the same by contending that since the levy is compensato ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
