2000 (5) TMI 1055 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999.
2. Whether the entry tax impedes free-flow of trade, commerce, and intercourse under Article 301.
3. Whether the Act is compensatory and regulatory in nature.
4. The applicability and interpretation of notifications and circulars issued under the Act.

Summary:

1. Constitutional Validity of the Act:
The petitioners challenged the constitutional validity of the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 (Act No. 13 of 1999), asserting it imposed restrictions on the freedom of trade, commerce, and intercourse guaranteed by Article 301 of the Constitution. They argued the Act was not passed with the previous sanction or assent of the President as required under Article 304(b) read with Article 255, making the tax invalid.

2. Impediment to Free-Flow of Trade:
The respondents countered that the entry tax was compensatory in nature and did not impede the free-flow of trade, commerce, and intercourse, thus not violating Article 301. They argued that the tax was meant to compensate for the loss of revenue due to the abolition of octroi and was within the legislative competence of the State Legislature under Entry 52 of the State List of the Seventh Schedule.

3. Compensatory and Regulatory Nature:
The court examined whether the Act was compensatory and regulatory in nature. It was held that the Act aimed to compensate local bodies for the loss of revenue from the abolished octroi. The court noted that the tax rates were reasonable and within the statutory limit of ten percent of the value of goods. The funds collected were used to provide trading facilities, thus making the tax compensatory.

4. Notifications and Circulars:
The petitioners argued that the notification dated October 15, 1999, and the circular dated October 23, 1999, were invalid as they imposed tax on tobacco products not mentioned in the original notification. The court held that the circular issued by the Commissioner of Commercial Taxes was ultra vires to the statutory provisions of the Act. However, the subsequent clarificatory notification dated December 30, 1999, published on January 6, 2000, was deemed valid.

Conclusion:
The court upheld the constitutional validity of Act No. 13 of 1999, declaring it compensatory and regulatory in nature. The notification dated October 15, 1999, and the clarificatory notification dated December 30, 1999, were declared legal and valid, while the circular dated October 23, 1999, was quashed. The entry tax on cigarettes was made recoverable from January 7, 2000. The writ petition was disposed of with no order as to costs.