2008 (12) TMI 398 - SC - VAT and Sales Tax

Whether the State enactments relating to levy of entry tax have to be tested with reference to both clauses (a) and (b) of article 304 of the Constitution for determining their validity and whether clause (a) of article 304 is conjunctive with or separate from clause (b) of article 304? Whether imposition of entry tax levied in terms of entry 52, List II of the Seventh Schedule is violative of article 301 of the Constitution? If the answer is in the affirmative, whether such levy can be protected if entry tax is compensatory in character and if the answer to the aforesaid question is in the affirmative what are the yardsticks to be applied to determine the compensatory character of the entry tax? Whether entry 52, List II, Seventh Schedule to the Constitution like other taxing entries in the Schedule, merely provides a taxing field for exercising the power to levy and whether collection of entry tax, which ordinarily would be credited to the Consolidated Fund of the State being a revenue received by the Government of the State, would have to be appropriated in accordance with law and for the purposes and in the manner provided in the Constitution as per article 266 and there is nothing express or explicit in entry 52, List II, Seventh Schedule which would compel the State to spend the tax collected within the local area in which it was collected? Will the principles of quid pro quo relevant to a fee apply in the matter of taxes imposed under Part XIII? Whether the entry tax may be levied at all where the goods meant for being sold, used or consumed come to rest (standstill) after the movement of the goods ceases in the local area ? Whether the entry tax can be termed a tax on the movement of goods when there is no bar to the entry of goods at the State border or when it passes through a local area within which they are not sold, used or consumed? Whether interpretation of articles 301 to 304 in the context of tax on vehicles (commonly known as transport ) cases in Atiabari s case 1960 (9) TMI 94 - SUPREME COURT applies to entry tax cases and if so, to what extent? Whether the non-discriminatory indirect State tax which is capable of being passed on and has been passed on by traders to the consumers infringes article 301 of the Constitution? Whether a tax on goods within the State which directly impedes the trade and thus violates article 301 of the Constitution can be saved by reference to article 304 of the Constitution alone or can be saved by any other article? Whether a levy under entry 52, List II, even if held to be in the nature of a compensatory levy, must, on the principle of equivalence demonstrate that 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) to be provided in the concerned local area and whether the entire State or a part thereof can be comprehended as local area for the purpose of entry tax?

Issues Involved:
1. Validity of State enactments relating to levy of entry tax with reference to Article 304(a) and (b) of the Constitution.
2. Violation of Article 301 by entry tax levied under Entry 52, List II of the Seventh Schedule.
3. Taxing field and appropriation of entry tax under Entry 52, List II, Seventh Schedule.
4. Application of quid pro quo principles to taxes under Part XIII.
5. Levy of entry tax on goods coming to rest in a local area.
6. Classification of entry tax as a tax on the movement of goods.
7. Applicability of interpretations from transport cases to entry tax cases.
8. Impact of non-discriminatory indirect State tax on Article 301.
9. Saving of a tax that violates Article 301 by reference to Article 304 or other articles.
10. Demonstration of compensatory nature of entry tax under Entry 52, List II.

Detailed Analysis:

1. Validity of State Enactments Relating to Levy of Entry Tax:
The judgment addresses whether State enactments for entry tax must be tested against both clauses (a) and (b) of Article 304 of the Constitution. The court notes that some High Courts have held that if a law is saved under Article 304(a), it need not be tested against Article 304(b). The Supreme Court finds it necessary to determine if clauses (a) and (b) are conjunctive or separate.

2. Violation of Article 301 by Entry Tax:
The court examines whether entry tax under Entry 52, List II, violates Article 301 of the Constitution, which guarantees the freedom of trade, commerce, and intercourse throughout India. The court considers whether such a levy can be protected if it is compensatory in nature and outlines the need for specific yardsticks to determine the compensatory character of the entry tax.

3. Taxing Field and Appropriation of Entry Tax:
The judgment explores whether Entry 52, List II, merely provides a taxing field or imposes conditions on the appropriation of entry tax. The court discusses whether the tax collected should be spent within the local area where it was collected, aligning with Article 266 of the Constitution.

4. Application of Quid Pro Quo Principles:
The court deliberates whether the principles of quid pro quo, relevant to fees, apply to taxes imposed under Part XIII of the Constitution. This involves assessing if the tax is a reimbursement for specific services or facilities provided to traders.

5. Levy of Entry Tax on Goods Coming to Rest:
The judgment considers whether entry tax can be levied on goods that come to rest in a local area after their movement ceases. This issue addresses the point at which goods are considered to have entered a local area for taxation purposes.

6. Classification of Entry Tax as a Tax on Movement:
The court examines whether entry tax can be classified as a tax on the movement of goods, especially when there is no bar to the entry of goods at the State border or when the goods pass through a local area without being sold, used, or consumed.

7. Applicability of Transport Case Interpretations:
The judgment discusses whether the interpretations from transport cases like Atiabari Tea Co. Ltd. v. State of Assam and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan apply to entry tax cases. The court notes that these cases dealt with taxes on vehicles and may have different conceptual and contextual implications compared to entry tax.

8. Impact of Non-Discriminatory Indirect State Tax:
The court considers whether a non-discriminatory indirect State tax, which can be passed on to consumers, infringes Article 301 of the Constitution. This involves assessing the impact of such taxes on the freedom of trade and commerce.

9. Saving of a Tax Violating Article 301:
The judgment explores whether a tax that directly impedes trade and violates Article 301 can be saved by reference to Article 304 or any other article of the Constitution. This issue addresses the constitutional safeguards available for such taxes.

10. Demonstration of Compensatory Nature of Entry Tax:
The court deliberates whether a compensatory levy under Entry 52, List II, must demonstrate that the value of the quantifiable benefit is represented by the costs incurred in providing facilities/services in the local area. The judgment also considers whether the entire State or a part thereof can be considered a local area for entry tax purposes.

Conclusion:
The Supreme Court finds it necessary to refer the matter to a larger Bench under Article 145(3) of the Constitution due to the importance of the issues related to Articles 301 and 304 and Part XIII of the Constitution. The court outlines specific questions for the larger Bench to address, ensuring a comprehensive examination of the constitutional validity and implications of entry tax. The records are to be placed before the Chief Justice of India for necessary orders, and parties may move for an early hearing.

← Previous Next →