2003 (8) TMI 220 - SC - VAT and Sales Tax

Constitutional validity of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979 and the notifications issued by the State Government in exercise of its powers conferred by section 3 of the said Act challenged Held that - Appeal dismissed. In these appeals, no contention is raised to the effect that levy of tax on goods by the impugned notification discriminates between the goods imported from other States and similar goods manufactured or produced within the State. Hence, it would be difficult to accept the contention that the sanction of the President was required to be obtained before amending and enacting Act No. 8 of 1993 whereby for the words by the State Government, by notification from time to time , the words retrospectively or prospectively by the State Government by notification and different dates were substituted. Addition of words retrospectively or prospectively in section 3(1) would not make the section restrictive which can be hit by article 301 of the Constitution nor the said part of the legislation could be held to be discriminatory. Once it is conceded that imposition of tax was compensatory or regulatory in nature, there is no question of obtaining the assent of the President under article 304(b) of the Constitution.

Issues Involved:
1. Constitutional validity of the Karnataka Tax on Entry of Goods Act, 1979.
2. Validity of notifications issued under Section 3 of the Act.
3. Retrospective application of tax under the amended Section 3.
4. Requirement of Presidential assent for retrospective amendments.
5. Whether the tax is compensatory or regulatory in nature.
6. Applicability of the Act to industrial areas.

Detailed Analysis:

1. Constitutional Validity of the Karnataka Tax on Entry of Goods Act, 1979:
The Act faced various litigations challenging its constitutional validity. Initially, the High Court declared the Act and the notifications issued under it unconstitutional. However, the Supreme Court in State of Karnataka v. Hansa Corporation set aside the High Court's decision, upholding the Act's validity. The Court held that if the tax is compensatory, it is immune from challenge under Article 301 of the Constitution. The Act was also found compliant with Article 304 as it received Presidential assent.

2. Validity of Notifications Issued Under Section 3 of the Act:
Several notifications were issued under Section 3, which were challenged for being discriminatory and exceeding the powers conferred by the Act. The High Court quashed the notifications dated March 30, 1994, and March 31, 1997, but upheld the compensatory nature of the tax. Subsequent notifications dated January 7, 1998, and September 23, 1998, were issued to comply with the High Court's judgment.

3. Retrospective Application of Tax Under the Amended Section 3:
The controversy centered around the addition of the word "retrospectively" in Section 3 by the Karnataka Tax on Entry of Goods (Second Amendment) Act, 1992. The amendment allowed the State Government to levy tax retrospectively. The appellants argued that this retrospective application without Presidential assent was unconstitutional. However, the Court concluded that the addition of the words "retrospectively or prospectively" did not make the section restrictive under Article 301 and did not require Presidential assent.

4. Requirement of Presidential Assent for Retrospective Amendments:
The appellants contended that the retrospective amendment required Presidential assent. The Court held that the assent of the President to subsequent amendments (Acts No. 45 of 1994 and 3 of 1995) implied assent to the earlier amendment (Act No. 8 of 1993). The Court found no substance in the argument that the retrospective amendment required separate Presidential assent.

5. Whether the Tax is Compensatory or Regulatory in Nature:
The Court reiterated that a compensatory tax does not hinder trade and commerce under Article 301. Since the tax was compensatory, it did not require Presidential assent under Article 304(b). The Court referred to previous judgments, including Hansa Corporation and Yash Pal Garg, to affirm that compensatory taxes are not a hindrance to trade and do not require Presidential assent.

6. Applicability of the Act to Industrial Areas:
The appellants argued that industrial areas should not be covered under the definition of "local area" as per the Act. The Court rejected this contention, stating that industrial areas are within the limits of municipal corporations, municipalities, or panchayats. The establishment of industrial areas does not exclude them from being part of these local bodies.

Conclusion:
The appeals were dismissed, and the Court upheld the validity of the Karnataka Tax on Entry of Goods Act, 1979, and the notifications issued under it. The retrospective application of tax was deemed valid without requiring separate Presidential assent. The tax was confirmed as compensatory in nature, and the Act was applicable to industrial areas within municipal or panchayat limits. The appellants were ordered to pay costs of Rs. 10,000 in each appeal.

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