1995 (3) TMI 443 - HC - VAT and Sales Tax

Summary

Issues involved:
1. Constitutional validity of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993.
2. Legislative competence of the said Act.
3. Allegation of the Act being a colourable piece of legislation.
4. Violation of rights under Articles 301 and 304 of the Constitution.
5. Absence of prior approval of the President of India under the proviso to Article 304(b) of the Constitution.
6. Challenge on the ground of Article 14.

Summary:

1. Constitutional validity of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993:
The main challenge was on the constitutional validity of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Ordinance, 1993, which was later converted into an Act. The petitioners argued that the Act was enacted to augment State revenue and not for the benefit of any local authority, thus violating Entry 52 of List II of the Seventh Schedule to the Constitution.

2. Legislative competence of the said Act:
The petitioners contended that Entry 52 of List II authorizes the imposition of a tax for the benefit and use of local authority, and since the Act was not for this purpose, it was ultra vires. However, the court held that the legislative entries must receive the widest possible interpretation and the power of the Legislature is plenary, subject only to the provisions of the Constitution. The court found no justification to introduce limitations on Entry 52 and held that the Legislature of the State was not suffering from any legislative incompetence in enacting the said Act.

3. Allegation of the Act being a colourable piece of legislation:
The doctrine of colourable legislation was discussed, and it was concluded that if the Legislature has the power to impose the tax, its authority is not open to challenge on a plea of colourable exercise of power. The court held that the said Act is not a colourable piece of legislation.

4. Violation of rights under Articles 301 and 304 of the Constitution:
The court acknowledged that the said Act directly affects the freedom guaranteed under Article 301. The Act was found to impede the free flow of trade and commerce, and the State did not discharge the onus of proving the levy as compensatory or regulatory. The court declared Section 3 of the said Act ultra vires Articles 301 and 304(b) of the Constitution.

5. Absence of prior approval of the President of India under the proviso to Article 304(b) of the Constitution:
The petitioners argued that there was no prior approval of the President of India, making the Act ultra vires Article 304(b). The court noted that subsequent presidential assent can cure the infirmity per Article 255, and since the President had granted assent to the Act, the argument was not sustained.

6. Challenge on the ground of Article 14:
The court found that both the proviso to the charging Section 3 and Section 6 of the Act did not prescribe any guideline or criteria for the exercise of power by the executive authority, leading to uncanalised and unguided power, thus violating Article 14. The court declared these provisions ultra vires Article 14 of the Constitution.

Conclusion:
The court declared that the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, does not satisfy the requirements under Article 301 read with Article 304(b) of the Constitution. Section 3, the proviso to Section 3, and Section 6 of the Act were declared ultra vires Articles 301, 304(b), and 14 of the Constitution. The State of Bihar was restrained from enforcing the provisions of the said Act any further.