2006 (11) TMI 558 - HC - Indian Laws

Levy of tax on the entry of goods into any local area, in Assam, for consumption, use and sale therein - Whether the Assam Entry Tax Act, 2001 (the AET Act, 2001), is in violation of Articles 14 and 304(a) of the Constitution of India? - challenged the validity of AET (Second Amendment) Act, 2005 - Whether the impugned levy is or is not discriminatory in nature - HELD THAT - One needs to bear in mind the constitutional scheme as reflected by Articles 301, 302, 303 and 304. A careful and combined reading of all these articles shows that while guaranteeing, with the help of Article 301, freedom of trade, commerce and intercourse throughout the territory of India and thereby putting a limitation, on the part of the Parliament as well as Legislatures of the States, not to make law, creating fiscal barriers, which would cause impediment in the free flow of goods, Article 302 relaxes this limitation in favour of Parliament by allowing the Parliament to impose restrictions in public interest. While so allowing the Parliament to impose, in public interest, restrictions on the freedom of movement of goods, Clause (1) of Article 303 restricts the Parliament from making any law, even in public interest, if such law gives preference to one State over another. This restriction is, however, subject to one exception, the exception being that the Parliament can make law, which may even be discriminatory or which may give preference to one State over another, if such discriminatory law is aimed at meeting the scarcity of the goods, in question, in any part of the territory of India. As far as the State Legislatures are concerned, Clause (1) of Article 303 imposes one additional limitation, the limitation being that a State Legislature cannot make law giving preference or making discrimination between one State and another. What is, now, extremely important to note is that the limitation, on the part of the State Legislatures, to impose tax, which interferes with the freedom of the trade, commerce and intercourse, is lifted by Article 304(a) by allowing the Legislature of a State to impose, on goods, imported from sister States or Union territories 'any tax' to which similar goods manufactured, in its own State, are subjected, but not so as to discriminate between the imported goods and the goods manufactured in the State. Thus, Clause (a) of Article 304 authorizes a State Legislature to impose non-discriminatory tax on goods imported from sister States even if imposition of such tax interferes with the freedom of trade and commerce guaranteed by Article 301. The principle behind the making of the provisions of Article 304(a) is that no State shall impose a tax, which discriminates between inter-State trade and commerce by providing a direct commercial advantage to the local traders. A tax will be discriminatory if it operates as a disadvantage to the importers of a specified class of goods into a State vis-a-vis the producers or manufacturers of such goods within the State. The discrimination may occur for a variety of reasons, such as, variation in the rate of tax between the imported goods and the locally manufactured ones or exemption of local goods from payment of a tax to which similar imported goods are subjected. The discrimination may also arise when a State imposes tax on an item of goods imported into its State from a sister State if no such goods are manufactured or produced at all by the State, which imposes the tax. This position of law becomes clear if the facts of the case in Kalyani Stores 1965 (9) TMI 48 - SUPREME COURT and the decision pronounced therein are kept in mind. Thus, from the decision of Kalyani Stores (supra), it also becomes clear that the question of discrimination has to be examined on the basis of a particular item of goods, which is the subject of an impugned levy. Viewed, thus, it is clear that for the purpose of ascertaining if the imposition of entry tax, in the present case, suffers from discrimination, the test would be whether the imposition of the impugned entry tax makes any discrimination between the goods, which are produced within the State, and the goods, which are imported into the State. A challenge to the violation of Article 304(a) can be sustained only when it is shown that the discrimination is in respect of a given item of goods and the challenge can be met if it can be shown that the item, in question, suffers from no discrimination. When the goods, which are exempted from payment of local sales tax enter into, on being imported from outside the State, a local area of the State, the same becomes liable to payment of entry tax. Similar is the position as regard the goods, produced or manufactured within the State, but are not liable to payment of local sales tax, for, even when such goods, though produced or manufactured within the State, enter into a local area from another local area, the same becomes liable to payment of entry tax. As regard the goods taxable under the local sales tax , it is noteworthy that when such goods, manufactured or produced within the State, go out of a local area and enter into another local area, such entry is subject to the levy of entry tax, but if, upon such entry, the goods are sold and if such sale is subject to local sales tax, the entry tax is not leviable. Similarly, such goods, which are taxable under local sales tax enactment, enter into a local area, on being imported into the State, the same becomes liable to payment of entry tax; but when, after entering into a local area, such goods are sold within that local area and since such sale is subject to local sales tax, no entry tax is, eventually, payable. It is, thus, clear that in respect of goods, which are exempted from payment of sales tax, the levy of entry tax is on the entry of goods into a local area irrespective of the fact whether such entry is from outside the State into a local area or from one local area of the State to another local area of the State. Similar is the position of the goods, which are subject to local sales tax, for, the goods, which are produced outside the State but taxable under the local sales tax, suffer from no payment of entry tax, when such goods enter into a local area from outside the State. It is also not the pleaded case of the petitioners that goods, similar to the ones, the goods, which form the subject matter of the present set of writ petitions, are not produced or manufactured within the State of Assam. Under Article 304(a), the tax, sought to be imposed, must not make any discrimination between the goods, which are imported from sister States, and the goods, which are produced or manufactured within the State. If the goods, similar to the ones, which are imported into the State, but not manufactured or produced in the State, such a State cannot impose a tax on such imported goods, for, the State, in such a case, cannot impose such a tax on similar goods within the State, because of non-production of similar goods within its State. The tests, therefore, are as to whether the State, which imposes a levy, produces or not the goods, which it seeks to tax on import of such goods into the State and whether the law, enacted by the State, discriminates between the goods imported into the State and the similar goods, which are manufactured or produced within the State. It is in this backdrop that the scheme of the AET Act, 2001, and, particularly, Section 5 thereof need to be examined. Thus, it becomes abundantly clear that the State has not made any discrimination between the imported goods and the goods, manufactured or produced within the State, inasmuch as both the imported goods as well as the goods, produced or manufactured within the State, have been treated at par by the State so far as the levy of entry tax is concerned. Because of what have been discussed and pointed above, levy of impugned entry tax cannot be said to be in violation of Article 304(a) of the Constitution of India and, hence, this contention of the petitioners must fail and is accordingly rejected. Conclusions - What crystallizes from the discussions held above, as a whole, is that the tax sought to be levied, under Section 3 of the impugned Act, on the goods specified in the Schedule as modified by the impugned notifications, issued under Sub-section (4) of Section 3 of the AET Act, 2001, the impugned Ordinance, 2005, the Assam Entry Tax (Amendment) Act, 2005, are all ultra vires, unconstitutional, null and void to the extent that the same impose entry tax on those specified goods, which form the subject-matter of the present set of writ petitions. The demand for payment of entry tax raised against the petitioners cannot, therefore, be sustained. There is yet another aspect of this case, which needs some observation by this Court. In WP(C) No. 2650/05, an interim direction was passed to the effect that the petitioners shall file return under the AET Act, 2001, in respect of the goods, which form the subject-matter of their writ petition and that, in tune with the liability of tax payable by the petitioners, the petitioners shall furnish to the respondents/authorities concerned bank guarantee of such amount(s) of entry tax, which is leviable under the impugned notification. Even after the amendments were made, these directions were continued. From the orders, dated 5.1.2006, what clearly emerges is that the State respondents had given an undertaking, in the appeal, that the entry tax, to be collected by them from the petitioners, in WP(C) No, 2650/2005, would be refunded to the petitioners if the said petitioners succeed in their writ petitions and it was on the basis of this undertaking that the court stayed the operation of the interim directions passed in the said writ petition. While disposing of the appeals, the Division Bench made it clear that the consequences in accordance with law, including refund of entry tax, with interest, which may accrue thereon, shall follow. Viewed thus, it is clear that since this Court finds that the impugned notifications, dated 21.8.2003, 26.8.2003, 29.9.2004 and 28.2.2005, the impugned Ordinance and the AET (Amendment) Act, 1005, are, to the extent as indicated hereinabove, not sustainable in law, it logically follows that the respondents shall, now, refund the amount or amounts, which they have, in the meanwhile, collected by way of entry tax from the petitioners aforementioned. The writ petitions were allowed, and the impugned notifications, ordinance, and amendments to the AET Act, 2001, were declared unconstitutional. The respondents were directed not to insist on payment of entry tax by the petitioners and to refund any collected entry tax within two months.

Summary

Issues Involved:

1. Whether imposition of entry tax prior to 12.05.2005 suffered from vice of excessive delegation?
2. Whether the imposition of Entry Tax on the specified goods is in violation of Sections 14 and 15 of the Central Sales Tax Act, 1956, and/or of the provisions of Additional Duty of Excise (Goods of Special Importance) Act, 1957?
3. Whether the entry tax imposed on the goods is violative of Article 301 read with Article 304(b)?
4. Whether the Assam Entry Tax Act, 2001, is in violation of Articles 14 and 304(a) of the Constitution of India?

Summary:

1. Whether imposition of entry tax prior to 12.05.2005 suffered from vice of excessive delegation?

The court held that the Assam Entry Tax Act, 2001, prior to its amendment on 12.05.2005, suffered from the vice of excessive delegation. Sub-section (4) of Section 3 of the Act empowered the State Government to add any new item to the Schedule and to fix the rate of tax without providing any guidelines or upper ceiling limits. This delegation of power was deemed an abdication of the essential legislative function by the State Legislature. Consequently, the impugned notifications issued under this provision were declared non est in law.

2. Whether the imposition of Entry Tax on the specified goods is in violation of Sections 14 and 15 of the Central Sales Tax Act, 1956, and/or of the provisions of Additional Duty of Excise (Goods of Special Importance) Act, 1957?

The court concluded that the impugned entry tax did not violate Sections 14 and 15 of the Central Sales Tax Act, 1956. The entry tax, being a tax under Entry 52 of the State List, was not a sales tax and did not fall within the restrictions placed by Section 15 of the CST Act. Additionally, the court held that the Assam Entry Tax Act, 2001, did not contravene the provisions of the Additional Duty of Excise (Goods of Special Importance) Act, 1957, as the ADE Act did not prohibit the State from imposing entry tax under Entry 52 of the State List.

3. Whether the entry tax imposed on the goods is violative of Article 301 read with Article 304(b)?

The court held that the entry tax imposed under the Assam Entry Tax Act, 2001, was violative of Article 301 as it had a direct and immediate impact on the movement of goods. The tax could not be sustained as compensatory in nature, as the State failed to demonstrate that the revenue collected was used specifically for providing trading facilities to the traders. Furthermore, the court emphasized that the imposition of entry tax on goods like tobacco and its products without prior sanction from the President, as required under Article 304(b), rendered the levy unconstitutional.

4. Whether the Assam Entry Tax Act, 2001, is in violation of Articles 14 and 304(a) of the Constitution of India?

The court found that the Assam Entry Tax Act, 2001, did not violate Articles 14 and 304(a) of the Constitution. The Act did not discriminate between goods imported from other States and similar goods manufactured or produced within the State. Both categories of goods were treated equally concerning the levy of entry tax, and the exemption provided under Section 5 was solely to avoid double taxation.

Conclusion:

The court declared the impugned notifications, the Assam Entry Tax (Amendment) Ordinance, 2005, and the Assam Entry Tax (Second Amendment) Act, 2005, as ultra vires, unconstitutional, null, and void to the extent that they imposed entry tax on the specified goods forming the subject matter of the writ petitions. The demands for payment of entry tax raised against the petitioners were quashed, and the respondents were directed to refund any entry tax already collected within two months.