2006 (8) TMI 549 - HC - VAT and Sales Tax

Entry tax on imported coal from outside the country - Notification No. S.O. 88 issued by the State of Jharkhand - two per cent entry tax has been sought for to be levied - Validity of section 3 Of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Act, 1993 - whether the entry tax under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted and modified by the Jharkhand Tax on Entry of Goods into Local Areas for consumption, Use or Sale Thereof (Amendment) Ordinance, 2001, satisfies the test of compensatory tax so as to come within the protection under article 304(b) of the Constitution of India - HELD THAT - No basis has been shown to levy entry tax in the nature of compensatory tax to find out quantifiable and measurable benefits. Nothing has been indicated either in the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 , adopted by the State of Jharkhand, or in the Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002) showing any quantifiable data or a benefit which is measurable. Thus, in our considered view the entry tax levied under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted by the State of Jharkhand and amended by Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002), is, thus, not based on the principle of equivalence and is not compensatory in nature. From the judgment, rendered by the Supreme Court in the case of Bihar Chamber of Commerce 1996 (2) TMI 430 - SUPREME COURT , though it will be evident that the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 was assented to by the President and the said entry tax was levied in public interest, there is nothing on the record to suggest that Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002), so far it relates to further restriction on certain goods, as introduced by the amended Schedule, had prior sanction of the President, as required under proviso to article 304(b), nor there is anything on the record to suggest that while amending the Schedule, assent of the President was obtained by the respondents, as contemplated by article 255 of the Constitution of India. The respondents having failed to show that the entry tax, imposed by Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted by the State of Jharkhand and amended by the Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002), constitutes reasonable restriction, we are of the view that the entry tax imposed by the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993, as adopted by the State of Jharkhand and amended by the Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002), is also not saved by the provisions, contained in article 304(b) of the Constitution of India. Thus, we hold that the provisions of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted by the State of Jharkhand vide notification dated December 15, 2000 and as amended vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof (Amendment) Ordinance, 2001 (Jharkhand Ordinance 2 of 2002) do not satisfy the requirement under article 301 read with article 304(b) of the Constitution of India and section 3 of the said Act is ultra vires. It is, thus, also held that the State-respondent cannot enforce the provisions of the aforesaid Act. Notification No. S. O. 88 dated March 23, 2002, issued under the provisions of the aforesaid Act, and memo dated July 1, 2004, issued by the Commissioner of Commercial Taxes-cum Special Secretary, Jharkhand, Ranchi, are held unsustainable and are, therefore, quashed. The writ petition is allowed in the terms indicated above.

Issues Involved:

1. Legality of the order issued by the Commissioner, Commercial Taxes-cum-Secretary, Jharkhand, directing TISCO to collect entry tax on imported coal.
2. Validity of Notification No. S.O. 88, dated March 23, 2002, levying a two percent entry tax on imported coal.
3. Legality of the notice issued by the Deputy Commissioner, Commercial Taxes, Jamshedpur, threatening penalty for non-payment of entry tax on imported coal.
4. State Government's authority to impose tax on goods imported from outside the country.
5. Whether the Entry Tax Act is compensatory in character under Article 304 of the Constitution of India.
6. Applicability of Notification No. S.O. 105, dated November 1, 2002, exempting TISCO from paying entry tax on imported coal used as raw material.

Issue-wise Detailed Analysis:

1. Legality of the Order Issued by the Commissioner, Commercial Taxes-cum-Secretary, Jharkhand:

The petitioner, TISCO, challenged the order directing the collection of entry tax on imported coal. The court examined the legislative power under entry 52 of List II of the Seventh Schedule to the Constitution of India and the provisions of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993. The court found that the definition of "entry of goods" and "importer" in the Entry Tax Act did not intend to include goods imported from outside the country. The court referenced the Kerala High Court's decision in FR. William Fernandez v. State of Kerala, which held that entry tax does not apply to goods imported from abroad. Consequently, the court declared that TISCO is not liable to pay entry tax on coal imported from Australia and New Zealand.

2. Validity of Notification No. S.O. 88, Dated March 23, 2002:

The petitioner argued that the notification altering the description of goods to "imported coal" was beyond the competence of the Commissioner, Commercial Taxes. The court did not find it necessary to decide whether "coal" includes "imported coal" for the purposes of the Entry Tax Act, as it had already determined that imported goods are not subject to entry tax under the Act.

3. Legality of the Notice Issued by the Deputy Commissioner, Commercial Taxes, Jamshedpur:

The court held that since the petitioner is not liable to pay entry tax on imported coal, the notice threatening a penalty for non-payment is unsustainable and must be quashed.

4. State Government's Authority to Impose Tax on Goods Imported from Outside the Country:

The petitioner contended that the State Government is not empowered to impose any tax on goods imported from outside the country, as trade and commerce with foreign countries is covered by entry 41, List I of the Eighth Schedule to the Constitution of India. The court agreed, referencing the Kerala High Court's decision and the Supreme Court's decision in Collector of Central Excise, New Delhi v. Ballarpur Industries Ltd., which emphasized that imported goods do not fall under the purview of entry tax.

5. Whether the Entry Tax Act is Compensatory in Character Under Article 304 of the Constitution of India:

The petitioner challenged the vires of section 3 of the Entry Tax Act, arguing it violates Article 301 and is not saved by Article 304(b) of the Constitution. The court referenced the Supreme Court's decision in Jindal Stainless Ltd. v. State of Haryana, which clarified the concept of compensatory tax and overruled earlier decisions that had broadened the definition of compensatory tax. The court found that the Entry Tax Act does not satisfy the test of compensatory tax as it does not provide quantifiable or measurable benefits to the taxpayers. Therefore, section 3 of the Entry Tax Act was declared ultra vires.

6. Applicability of Notification No. S.O. 105, Dated November 1, 2002:

The petitioner argued that coal used as raw material in its factory is exempted from entry tax under Notification No. S.O. 105. The court found no material evidence to support the claim that coal is used as a raw material rather than as fuel. Consequently, the court did not grant exemption based on this notification.

Conclusion:

The court held that the provisions of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted and amended by the State of Jharkhand, do not satisfy the requirements under Article 301 read with Article 304(b) of the Constitution of India. Section 3 of the Act was declared ultra vires, and the State-respondent was prohibited from enforcing the Act. Notifications and orders issued under the Act were quashed, and the writ petition was allowed.

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