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2004 (5) TMI 296 - SC - VAT and Sales TaxWhether the M.P. Entry Tax Act, 1976, is unconstitutional as it is hit by article 301 of the Constitution for not satisfying the conditions laid down in article 304(b)? Whether in any event the goods used by the appellants are subject to entry tax by virtue of section 3 of the M.P. Entry Tax Act, 1976? Held that - Appeal dismissed. The entry tax imposed by the respondents is justifiable. There is no ambiguity in the proviso which clearly states that tax shall not be levied only on those goods which have been imported from outside and are meant for use or consumption as raw materials, incidental goods or as packing material or in the execution of works contract, but only if after being brought in for such purpose are disposed of in some other manner.
Issues Involved:
1. Constitutionality of the M.P. Entry Tax Act, 1976 under Article 301 and Article 304(b) of the Constitution. 2. Applicability of Section 3 of the M.P. Entry Tax Act, 1976 to goods used in the execution of works contracts. Detailed Analysis: Issue 1: Constitutionality of the M.P. Entry Tax Act, 1976 Argument by Appellants: The appellants argued that the M.P. Entry Tax Act, 1976 is unconstitutional as it violates Article 301 of the Constitution by not satisfying the conditions laid down in Article 304(b). They relied on precedents such as Atiabari Tea Co. Ltd. v. State of Assam and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, asserting that taxation impedes the movement of goods and should bring Article 301 into play. Court's Analysis: The court noted that not all taxes fall under Article 301. Only those taxes that directly or immediately impede the free flow of trade, commerce, and intercourse are governed by Article 301. The concept of "compensatory taxes" was introduced in the Automobile Transport case, which protects certain taxes from being unconstitutional if they are compensatory in nature. The court referred to Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M.P., where a three-judge bench upheld the constitutionality of the M.P. Entry Tax Act, 1976, as the revenue earned was compensatory, handed over to local bodies to compensate them for the loss caused by the abolition of octroi. Conclusion: The court concluded that the M.P. Entry Tax Act, 1976 is compensatory in nature and does not violate Article 301. Therefore, the constitutionality of the Act is upheld. Issue 2: Applicability of Section 3 of the M.P. Entry Tax Act, 1976 Argument by Appellants: The appellants contended that Section 3(1)(b) of the M.P. Entry Tax Act, 1976 does not permit the levy of entry tax on goods used in the execution of works contracts, as these amount to "sale" under Article 366(29A) of the Constitution, which includes the transfer of property in goods involved in the execution of works contracts. Court's Analysis: The court examined Section 3(1)(b) of the M.P. Entry Tax Act, 1976, which imposes an entry tax on goods specified in Schedule III if they are brought into a local area for consumption, use as raw materials, incidental goods, packing material, or in the execution of works contracts but not for sale. The court noted that the M.P. Entry Tax Act makes a clear distinction between "sale" and "execution of works contracts," specifically excluding the latter from the former. The court further noted that the M.P. Entry Tax Act has been enacted under Entry 52 of List II of the Seventh Schedule, which pertains to taxes on the entry of goods into a local area for consumption, use, or sale therein. Article 366(29A) defines "tax on the sale or purchase of goods" in relation to entries 92 and 92A of List I and entry 54 of List II, and hence, its definition does not apply to Entry 52 of List II. Conclusion: The court concluded that the M.P. Entry Tax Act, 1976 does not adopt the definition of "sale" under Article 366(29A) and that the appellants are liable to pay entry tax under Section 3(1)(b) of the Act. The court also clarified that the proviso under Section 3(1)(b) exempts goods imported from outside the state for specific purposes only if they are disposed of in some other manner, which was not the case here. Final Judgment: The appeals were dismissed, and the constitutionality and applicability of the M.P. Entry Tax Act, 1976 were upheld.
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