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Indian Oil Corporation Limited Versus State of Bihar And Anr. Indian Oil Corporation Limited Versus State of Bihar And Anr.

2017 (11) TMI 747 - SUPREME COURT OF INDIA

Levy of VAT - Entry Tax - sale of petroleum products - grievance of the Appellant in the present appeals is that when a sale is made to the OMCs, after payment of Entry Tax, VAT is not set off against the Entry Tax - Whether the second proviso to Section 3(2) of the Entry Tax Act is ultra vires to the Constitution? - Held that: - Since the set off in question depends upon the interpretation of Section 3(2) of the Entry Tax Act, it is necessary to state, at the outset, that certain conditions nee .....

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le to pay tax under the VAT Act - under Section 3(2) itself, the tax leviable by way of Entry Tax can only be paid by every dealer liable to pay tax under the VAT Act, this condition has been duty fulfilled. - Second condition need to be fulfilled is, The set off can only be granted if the assessee is an importer of scheduled goods, who is liable to pay tax under the VAT Act - Held that: - the Appellant is an importer of scheduled goods, viz., petroleum products. Words and expressions that a .....

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e to pay tax under the VAT Act. - Third condition which is needed to be fulfilled is, The assessee must incur tax liability at the rates specified under Section 14 of the VAT Act - Held that: - there being no levy on the Appellant, the Appellant does not incur any tax liability at the rates specified under Section 14 of the VAT Act. - Fourth condition need to be fulfilled is, This must only be by virtue of the sale of imported scheduled goods - Held that: - this must be by virtue of sale .....

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- On a literal reading of Section 3(2) second proviso, the Appellant would not be entitled to claim set off - the Appellant is a registered dealer under Section 3(1) of the VAT Act and would be a dealer liable to pay tax under the aforesaid Act within the meaning of the enacting part of Section 3(2) of the Entry Tax Act. However, it is clear that as importer of scheduled goods, the Appellant must be liable to pay tax under the VAT Act. As has already been found, the Appellant as an importer .....

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e, without any rational justification for the same. - We must also not forget that no assessee can claim set off as a matter of right and the levy of Entry Tax cannot be assailed as unconstitutional only because set off is not given. - The Appellant will approach the Appellate Tribunal with all relevant materials in this behalf, and the Appellate Tribunal will render a finding as to how much of the demand of Entry Tax for the assessment years in question would have to be struck down, in that .....

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TITION (CIVIL) NO.15899 OF 2017 - Dated:- 14-11-2017 - Mr. R.F. Nariman And Mr. Sanjay Kishan Kaul JJ. SPECIAL LEAVE PETITION (CIVIL) NO.15900 OF 2017, SPECIAL LEAVE PETITION (CIVIL) NO.15926 OF 2017, SPECIAL LEAVE PETITION (CIVIL) NO.16192 OF 2017 JUDGMENT R.F. Nariman, J. 1. The present appeal and special leave petitions arise out of demands made from the Appellant for payment of Entry Tax under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 (he .....

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Petrol etc. The products manufactured in the Bihar oil refinery are then sent to a branch in Patna, mainly through a pipeline constructed specifically for this purpose. Some part of these petroleum products, namely, High Speed Diesel and Petrol are sold by the Appellant to two other oil marketing companies (OMCs), namely, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL), who then take the products from the depot of the Corporation situated in Patna and th .....

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ance of the Appellant in the present appeals is that when a sale is made to the OMCs, after payment of Entry Tax, VAT is not set off against the Entry Tax. VAT is not actually paid by the Appellant by reason of a notification dated 4th May, 2006 under the Bihar Value Added Tax Act, 2005 (VAT Act), where, in case of petroleum products sold by the Appellant to OMCs, the levy itself is at the point of sale by the aforesaid OMCs to their retailers or directly to their consumers, and this being the c .....

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rores. 3. In Civil Appeal No.3018 of 2017, the impugned judgment dated 22nd October, 2013 of the Patna High Court agreed with the Advance Rulings Authority, and rejected the case of the Appellant under Section 3(2) second proviso of the Entry Tax Act, stating that the set off would not be allowable under the aforesaid proviso. 4. In the seven Special Leave Petitions before us by, a common judgment dated 19th April, 2017, a Division Bench of the Patna High Court framed five questions as follows: .....

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ds in the local area? (iv) Whether based on audit objection as contemplated under the provisions of Section 33 of the VAT Act, assessment can be re-opened with the aid of Section 8 of the Entry Tax Act? (v) Whether the assessment undertaken under Section 33 of the VAT Act is permissible after a period of four years in view of the provision of Section 31 of the VAT Act? 5. Questions 1, 3, 4 and 5 were answered against the assessee, but question 2 was answered in its favour by stating that since t .....

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n Bihar, unlike other Entry Tax Acts, was essentially to ensure that VAT was collected under the VAT Act in the State. According to him, the moment products contained in Schedule IV of the said Act suffer tax, the scheme of the Entry Tax Act is that a set off on such goods, which bear VAT, is allowable. According to the learned counsel, Section 3(2) second proviso should be construed in such a manner as would accord with this object and set off, as claimed by the Appellant, cannot, therefore, be .....

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d by the authorities. According to the learned counsel, the audit objection was itself only on the footing that a 2006 amendment had changed the definition contained in Section 2(1)(c) of the Entry Tax Act of the entry of goods and it is for this reason that set off was disallowed, and not the reasons given later by the State. According to the learned counsel, what has to be seen is the overall picture qua the goods under the Entry Tax Act and once it is clear that the aforesaid goods suffer VAT .....

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ey were able to give certificates by HPCL and BPCL for all the assessment years in question that those companies had, in fact, effected sales worth over a thousand crores outside the area of Patna. 7. According to Shri Datar, if this Court were to decide against the appellant on the construction of Section 3(2) second proviso, then, in any case, he would be liable to succeed, as the said proviso should be read down to make it constitutionally valid, as otherwise it would fall foul of Article 14 .....

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CL and BPCL would be outside the Patna area and, therefore, not exigible to Entry Tax at all. 8. Shri S. Ganesh, learned Senior Advocate, appearing on behalf of the Revenue, has countered each of these submissions. According to the learned counsel, a plain reading of Section 3(2) second proviso of the Entry Tax Act would make it clear that the provision is assessee based and not goods based. According to the learned counsel, none of the conditions of the second proviso have been met by the Appel .....

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uld have paid both Entry Tax and VAT to claim set off. In the present case, the Appellant admittedly pays only Entry Tax and no VAT as there is no levy on the Appellant when it sells oil to other OMCs. According to the learned counsel, Article 14 of the Constitution cannot be invoked in the present case for the reason that there is no clear and hostile discrimination, which is the requirement of several judgments of this Court, before Article 14 can be used to strike down tax legislation. In any .....

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pport all these propositions. 9. Having heard learned counsel for both the parties, it is necessary to set out some of the provisions of the two Acts in question. Since we are directly concerned with the Bihar Entry Tax Act, the following provisions need to be adverted to: 2. Definitions.- (1) In this Act unless the context otherwise requires,- (c) Entry of goods , with all its grammatical variations and cognate expressions, means, entry of goods: (i) into a local area from any place outside suc .....

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m any place outside the territory of India shall also be deemed to be an entry of goods for the purposes of this Act. 3. Charge of Tax- (I) There shall be levied and collected a tax on entry of scheduled goods into a local area for consumption, use or sale therein for the purpose of development of trade, commerce and industry in the State, at such rate, not exceeding twenty percent, of the import value of such goods, as may be specified by the State Government in a notification published in a of .....

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porter claims that he imported goods notified under sub-section (1) not for the purpose of consumption, use or sale, the burden of providing that the import was for purposes other than for consumption, use or sale, shall be on importer importing such goods and making such claim. (IA) The tax under sub-section (1) shall be continued to be levied till such time as is required to improve infrastructure within the State such as power, road, market condition etc. with a view to facilitate better mark .....

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entry of such scheduled goods effected by a person other than the dealer if, the value of such goods does not exceed one thousand in a year. Provided further that where an importer of Scheduled goods liable to pay tax under the Act, incurs tax liability, at the rate specified under Section 14 of the Bihar Value Added Tax Act, 2005 (Act 27 of 2005), by virtue of sale of imported Scheduled goods or sale of goods manufactured by consuming such imported Scheduled goods, his tax liability under the .....

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be, and to always have been, for all purposes, as validity and effectively in force at all material times (w.e.f. 25.2.1993) (2) Any assessment, collection, adjustment, reduction or computation made or any other action taken or anything done or purported to have been taken or done under the Bihar Finance Act, 1981 and the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 and notifications issued and rules made there under shall be deemed to be and to hav .....

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zed by way of such tax; (b) no court, tribunal or other authority shall enforce any decree or order directing the refund or any amount received or realized by way of such tax; (c) recoveries shall be made in accordance with the third proviso to subsection (2) of Section 3 of the Bihar Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale Therein Act, 1993 of all amounts which could have been collected as tax under the said Act by reason of amendment made in Section 3 by this Ordina .....

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shall be available to manufacturer if the imported scheduled goods are used or consumed in the manufacture of goods which are sold within the State of Bihar or in the course of inter-State trade and commerce or in the course of export out of the territory of India. In case only a part of the goods manufactured out of imported Scheduled goods are sold within the State of Bihar or in the course of inter-State trade and commerce or in the course of export out of the territory of India, the claim fo .....

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point of first entry into a local area and any subsequent entry or entries into any other local area or areas of the said Scheduled goods shall not be subject to tax provided the subsequent importing dealer produces before the assessing officer the original copy of the cash memo, invoice, bill or challan issued to him by the dealer from whom he purchased or received the said Scheduled goods, and files a true and complete declaration in the Form and manner prescribed: Provided that no tax shall .....

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o claim such reduction under sub-section (1) of section 4 or in accordance with the notification issued under sub-section (1) of Section 3 of the Act. (2) The claim shall be valid only when the amount of entry tax has been paid on the concerned goods. (3) The burden of proving the claim for reduction of sales tax shall be on the dealer. (4) Such claim shall be made by furnishing a statement in triplicate in Form ET-X which shall be filed along with the quarterly return. (5) On receipt of the cla .....

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prescribed under the Bihar Value Added Tax Act, 2005 to enable it to reduce the dealers liability at the time of assessment of sales tax payable under the said Act and shall keep other copy as evidence with himself. FORM E.T.-X (See Rule 8) Statement of claim for reduction in the liability of sales tax payable under the Bihar Finance Act, 1981 consequent upon payment of entry tax. (To be furnished in triplicate) 1. Name of the dealer. 2. Style of business & full address 3. Registration numb .....

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) of section 3 in respect of the goods on which entry tax has been paid by me/us and which have been sold subsequently and sales tax under the Bihar Finance Act, 1981 has become payable. PARTICULARS Sl. No. Description of schedule goods on which entry tax has been paid by the dealer. Concerned Bill / Invoice / Challan No. & date in case of Motor Vehicles mention Chassis no. & Engine No. also Quantity Value 1 2 3 4 5 Amount of entry tax paid (Quote T.C. No. & date) Period during which .....

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in this statement have been scrutinised by me and found to be correct. The amount of entry tax on the goods concerned, to the extent of which the liability of sales tax under the Bihar Finance Act, 1981 has been claimed to be reduced has been duly paid by the dealer. Signature & designation of the authority. 10. So far as the Bihar VAT Act is concerned, it is necessary to refer to the following provisions: 3. Charge of tax.- (1) Every dealer who is registered under the Bihar Finance Act, 198 .....

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ood before its repeal by Section 94, on the last day of such year shall, in addition to the tax, if any, payable by him under any other provision of this Act, be liable to pay tax under this Act on all his sales. (3) Every dealer to whom the provisions of subsection (1) or sub-section (2) do not apply, shall be liable to pay tax under this Act - (a) on all his sales of goods which have been imported by him from any place outside Bihar, with effect from the day on which he effects first sale of s .....

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ions of section 16 and section 17, tax on sale of goods shall be levied at each point in a series of sales in Bihar by a dealer liable to pay tax under this Act. (b) Where the tax is levied at each point of sale, the tax payable by a dealer at any point shall be the amount arrived at after deducting, the input tax credit specified under section 16 or section 17, from the tax computed at that point of sale. (2) (a) Notwithstanding anything contained in subsection (1), the tax on the sale of goods .....

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equent sale produces before the prescribed authority the original copy of the cash memo, or invoice or bill issued to him and files a true and complete declaration in the form and in the manner prescribed. (c) Where by a notification published under clause (a), the State Government specifies, in respect of any goods specified in Schedule IV, that the tax shall be levied at more than one point or on all points of sale, the amount of tax paid at each preceding stage of sale shall be adjusted again .....

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section (2), he shall, after giving the selling dealer a reasonable opportunity of being heard, direct that the selling dealer shall pay, by way of penalty, a sum of rupees five thousand per month for every month of default or the amount of tax involved, whichever is less. 14. Rate of Tax.- (1) Tax shall be payable on the sale price of- (a) the goods specified in the Schedule II, at the rate of one percent; (b) the goods specified in the Schedule III, at the rate of six percent; (bb) the goods s .....

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redit under sub-section (1) shall be claimed or be allowed to a registered dealer - (a) in respect of goods specified in Schedule-IV or such other goods as may be prescribed; 35. Taxable Turnover.- (1) For the purposes of this Act, the taxable turnover of a dealer shall be that part of his gross turnover which remains after deducting therefrom - (f) sale price at the subsequent stages of sale of such goods as are specified in Schedule IV of the Act as being subject to tax at the first point of t .....

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unmanufactured tobacco (commonly known as Khaini ), and other unmanufactured tobacco used in manufacture of biri. Bihar Value Added Tax Rules, 2005 18. Taxable turnover- For purposes of section 35 the taxable turnover of the dealer shall be that part of his gross turnover which remains after deducting therefrom: (6) Sale price at the subsequent stages of sale of such goods: (a) specified in Schedule IV of the Act as being subject to tax at the first point of their sale in Bihar, or (b) on the s .....

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in duplicate; (b) An annual return in Form RT-III in duplicate. Provided that every registered developer, who has opted to pay compounding tax under the provisions of Section-15C of Bihar Value Added Tax Act, 2005 in lieu of tax payable under the Act shall furnish to the authority specified in Rule 62- (a) a quarterly return in Form RT-IA; (b) an annual return in Form RT-IIIB. FORM RT-I [See Rule 19(2)] Quarterly Return under Section 24 of the Bihar Value Added Tax Act, 2005 Name and style of t .....

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f deductions [2+3+4+5+6] 8 Taxable turnover [1-7] Box A (other allowable deductions) Deduction on account of: Value (ii) Sale of Petrol, Diesel, ATF and Natural Gas by an Oil Company to another Oil Company (a list of different goods to be annexed to this return separately alongwith their respective sales values) [Details of goods sold to different companies to be submitted as per Box E-2] 11. A notification dated 4th May, 2006 issued under Section 13(2)(a) of the VAT Act reads as follows: In exe .....

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d Restrictions 1 Motor spirit (Petrol) (A) At the point of sale by importer if the goods are imported from outside Bihar or at the point of sale by manufacturer if the goods are manufactured in Bihar or, (b) at the point of sale by oil companies to the retailer or direct to the consumers, if goods are sold by these companies. 2 High Speed Diesel Oil and Light Oil Do 12. Since the set off in question depends upon the interpretation of Section 3(2) of the Entry Tax Act, it is necessary to state, a .....

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; (iv) This must only be by virtue of the sale of imported scheduled goods; and (v) His tax liability under the VAT Act will then stand reduced to the extent of tax paid under the Act. 13. It will be seen that the tax leviable under the Entry Tax Act shall be paid by every dealer liable to pay tax under the VAT Act. Under Section 3(1) of the VAT Act, all persons who are registered dealers under the Bihar Finance Act, 1981, as it stood before its repeal, are liable to pay tax under the said Act o .....

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Entry Tax Act). Under the VAT Act, importer is defined as follows: 2. Definitions- In this Act, unless the context otherwise requires: (p) importer means a dealer who brings any goods into the State of Bihar or to whom any goods are despatched from any place outside the State of Bihar. It can be seen from the aforesaid definition that an importer would necessarily refer to a dealer who imports scheduled goods from outside the state. The question arises as to whether, on such goods, the Appellant .....

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o tax on the sale of goods specified in Schedule IV, Item 3 of which includes High Speed Diesel oil and light diesel oil, the levy under the said Act is only at such point as the State Government may, by notification, specify. This takes us to the notification dated 4th May, 2006, which clearly states that when it comes to motor spirit, High Speed Diesel oil and light diesel oil, the levy is at the point of sale by oil companies to the retailer or direct to the consumer. On a reading of the afor .....

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ii) is concerned, there being no levy on the Appellant, the Appellant does not incur any tax liability at the rates specified under Section 14 of the VAT Act. 17. So far as Condition (iv) is concerned, in any case, this must be by virtue of sale of the very imported scheduled goods, which means that the sale must be by the Appellant itself and not by the other OMCs. This becomes clear from the second part of this provision which reads: ………. or sale of goods manufactured by c .....

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ection 3(2) second proviso, the Appellant would not be entitled to claim set off. However, Shri Datar relied strongly on the judgment in Associated Cement Companies Ltd. v. State of Bihar & Ors., (2004) 7 SCC 642. In this judgment, two manufacturing units of the Appellant, post-bifurcation of the State of Bihar, fell into the State of Jharkhand. Thanks to an industrial policy to give incentives to existing units to encourage additional production, the Appellant was exempted in terms of the a .....

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ginal production, apart from the additional production, it would be entitled to set off of tax paid under the Entry Tax Act. In our opinion, it is clear that this judgment would have no direct application in the facts of the present case, inasmuch as the aforesaid judgment related to exemption of sales tax on production of additional cement in order that production of cement be boosted in the State. The expression liable to pay tax was held to apply because the question of exemption would arise .....

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tax under the Act. We have already seen that the Appellant is a registered dealer under Section 3(1) of the VAT Act and would be a dealer liable to pay tax under the aforesaid Act within the meaning of the enacting part of Section 3(2) of the Entry Tax Act. However, it is clear that as importer of scheduled goods, the Appellant must be liable to pay tax under the VAT Act. As has already been found, the Appellant as an importer of scheduled goods is not liable to pay tax as the levy of tax is it .....

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cheduled goods ……. was added later by way of amendment and was not contained in Section 3(2) second proviso which was construed in the ACC (supra) case. This condition has clearly not been met in the present case as has been held by us hereinabove. In any case, the effect of the aforesaid judgment has been nullified by the addition of a third proviso to Section 3(2) by the Bihar Finance Act, 2006, which specifically provides that exempted goods will not be entitled to set off. For .....

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emember that this Court was dealing with a provision which was stated to be a charging as well as a remedial provision, the main object being to plug leakage and prevent evasion of tax. It is in this situation that the aforesaid provision was given a purposive interpretation. In the present case, Section 3(2) second proviso is neither a charging section nor a prevention of evasion of tax section. It is a section which gives a certain concession as to set off, provided its conditions are fulfille .....

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in need not detain us any further because we are not concerned with dealers liable to pay tax, but with importers of scheduled goods who are liable to pay tax in order that Section 3(2) second proviso is attracted. We have already held that in the enacting part of Section 3(2), the Appellant is certainly a dealer liable to pay tax under the VAT Act, in that it is a registered dealer falling within Section 3(1) of the said Act. Therefore, any argument based on gross turnover is wholly unnecessary .....

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es such object. We have already held that a literal reading of the second proviso, which gives a concession by way of set off, cannot possibly be held to be altered qua every material condition, so that the Appellant be entitled to claim a set off. Consequently, this judgment and other judgments cited by the Appellant, such as Commissioner of Income Tax, Bangalore v. J.H. Gotla, Yadagiri, (1985) 4 SCC 343, to buttress the plea of purposive interpretation cannot be held to apply in the facts and .....

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anomaly arising from the aforesaid position would not lead to a charge of clear and hostile discrimination. 24. When it comes to taxing statutes, the law laid down by this Court is clear that Article 14 of the Constitution can be said to be breached only when there is perversity or gross disparity resulting in clear and hostile discrimination practiced by the legislature, without any rational justification for the same. (See The Twyford Tea Co. Ltd. & Anr. v. The State of Kerala & Anr., .....

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f Sales Tax & Ors., (1992) 3 SCC 624 at para 9 and State of Karnataka v. M.K. Agro Tech Pvt. Ltd, C.A. 15049-15069 of 2017 decided on 22nd September, 2017, at para 31). 26. However, Shri Datar referred to observations contained in Ayurveda Pharmacy & Anr. v. State of Tamil Nadu, (1989) 2 SCC 285, Aashirwad Films v. Union of India & Ors., (2007) 6 SCC 624, State of Uttar Pradesh & Ors. v. Deepak Fertilizers and Petrochemical Corporation Ltd., (2007) 10 SCC 342 and Union of India & .....

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st a separate and independent tax imposed. This fact circumstance would be sufficient to distinguish the said judgments from the facts of the present case. 27. Since we have found that the plea of discrimination must fail on the aforesaid grounds, no question of reading down the provisions would then arise. 28. However, when it comes to the levy of interest, the impugned judgment dated 19th April, 2017, held that there can be no levy of interest as there is no substantive statutory provision for .....

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hat, if a party ultimately succeeds, it must be put back in the same position as if no such stay orders have been passed, and for this purpose he referred to and relied upon State of Rajasthan & Anr. v. J.K. Synthetics Limited & Anr., (2011) 12 SCC 518 at paras 18 and 23 and Nava Bharat Ferro Alloys Limited v. Transmission Corporation of Andhra Pradesh Limited & Anr., (2011) 1 SCC 216 at paras 16 to 27. 30. It will be noticed, on a reading of para 23 of Bharat Ferro Alloys (supra), t .....

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of stay orders being passed in the writ petitions. The principal amount also is not something that the Appellant was able to pass on to the ultimate consumer in the peculiar facts of this case. Had the Appellant known, from the assessment year 2008-09, and had the Department raised an objection in that very year, it would have arranged its affairs in such a manner as to avail of set off under the Entry Tax Act, which it did after 2014, when the audit objections were raised for the first time. On .....

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er dated 22nd August, 2014, the assessee was able to muster certain certificates for the assessment years in question given by BPCL and HPCL to show that a large amount of the sales made by them in turn to their retail consumers and though retail outlets were outside the local area of Patna, and, therefore, not exigible to Entry Tax at all. We find that, without asking for further data and back up details, the Assistant Commissioner of Commercial Taxes passed an assessment order immediately ther .....

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