2001 (9) TMI 1090 - HC - VAT and Sales Tax

Issues Involved:
1. Applicability of Article 285 of the Constitution to levy of entry tax on High Speed Diesel (HSD) brought into a local area by the Southern Railway.
2. Whether Southern Railway qualifies as a "dealer" carrying on "business" under the Entry Tax Act.
3. Entitlement of the railways to deductions under Section 3 read with Rule 9A(3) for HSD remaining unused in locomotive tanks when leaving the local area.
4. Extension of entry tax exemption granted to oil companies and their retail dealers to Southern Railway.

Detailed Analysis:

Issue 1: Applicability of Article 285 of the Constitution
The petitioners argued that Article 285 of the Constitution exempts the property of the Union from state taxes, including entry tax on HSD. However, the respondents contended that entry tax is an indirect tax on the entry of goods into a local area for use, consumption, or sale, and not a direct tax on property. Citing the Supreme Court's decision in *In re, Sea Customs Act, Section 20(2) AIR 1963 SC 1760*, the court held that Article 285 exempts only direct taxes on property and not indirect taxes like entry tax. Thus, the court concluded that Article 285 does not bar the levy of entry tax on HSD brought into a local area by the Southern Railway.

Issue 2: Southern Railway as a "Dealer" Carrying on "Business"
The petitioners contended that railways do not operate with a profit motive and hence should not be considered as a "dealer" carrying on "business." The court referred to the definitions under Section 2(A)(2b) and Section 2(A)(4) of the Act, which include any trade, commerce, or manufacture, irrespective of profit motive. The court also cited the Supreme Court's decision in *District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer [1976] 37 STC 423*, which held that railways are engaged in commerce. Consequently, the court held that Southern Railway qualifies as a "dealer" carrying on "business" under the Entry Tax Act.

Issue 3: Entitlement to Deductions for Unused HSD
The petitioners argued that only the value of HSD consumed within the local area should be taxed, and the value of HSD remaining in locomotive tanks when leaving the local area should be deducted. The court agreed, stating that HSD is consumed when used to power locomotives and any remaining HSD when the locomotive leaves the local area should be considered as "sent out" and not subject to tax. Rule 9A(3) allows for deductions of goods sent out of the local area within six months. The court suggested practical methods for ascertaining the quantity of HSD consumed within the local area and held that the railways are entitled to deductions for unconsumed HSD under Rule 9A(3).

Issue 4: Extension of Exemption to Southern Railway
The petitioners claimed discrimination as the State Government exempted oil companies and retail dealers from entry tax but not the railways. The court acknowledged the logical inconsistency but stated that this issue pertains to state policy and should be addressed by the petitioners with the State Government. The court concluded that no relief could be granted on this ground within the current petition.

Conclusion:
1. The court rejected the petitioners' claim that the Entry Tax Act is inapplicable to HSD brought into local areas by the railways.
2. The court declared that the railways are entitled to deductions under Rule 9A(3) for HSD remaining unused in locomotive tanks when leaving the local area.
3. The assessment order dated March 26, 1999, and the consequential endorsement dated June 4, 1999, were quashed. The second respondent was directed to redo the assessment allowing for the deductions.
4. The second petitioner was instructed to appear before the second respondent on November 7, 2001, with the necessary records for further proceedings.
5. Each party was ordered to bear their respective costs.

Petition partly allowed.

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