2008 (2) TMI 825 - HC - VAT and Sales Tax

Validity of the Orissa Entry Tax Act, 1999 challenged - Held that - The rate of tax imposed under the Act or the Rules is also applicable uniformly on the goods imported from outside or goods manufactured within the State which are brought into a local area. Therefore, it cannot be said that the Orissa Entry Tax Act is not made under clause (a) of article 304 of the Constitution. However, the State has no jurisdiction to impose tax on such goods imported from outside and are not manufactured within the State of Orissa. Therefore, the opposite parties may make scrutiny of the same and not realise entry tax on such goods but for this the Act cannot be declared ultra vires. Thus the contention raised by Shri Jagannath Patnaik, learned Senior Advocate appearing for the State, to the effect that the Orissa Entry Tax Act has been enacted following the provisions of (1)Reported as National Aluminium Company Limited v. State of Orissa 2008 (1) TMI 837 - ORISSA HIGH COURT article 304(a) of the Constitution is sustainable in the eye of law and, therefore, it cannot be said that the Orissa Entry Tax Act is ultra vires the Constitution.

Issues Involved
1. Validity of the Orissa Entry Tax Act, 1999.
2. Whether the Orissa Entry Tax Act is compensatory in nature.
3. Compliance with Article 301 and Article 304 of the Constitution.
4. Discrimination between goods imported from outside the State and those produced within the State.

Detailed Analysis

1. Validity of the Orissa Entry Tax Act, 1999
The petitioners challenged the validity of the Orissa Entry Tax Act, 1999, asserting it violated Article 301 of the Constitution. The Act was enacted by the State Legislature under entry 52 of List II of the Seventh Schedule to the Constitution of India, effective from December 1, 1999. The High Court had previously declined to strike down the Act, providing specific directions on its applicability.

2. Whether the Orissa Entry Tax Act is Compensatory in Nature
The core issue was whether the levy imposed by the Orissa Entry Tax Act was compensatory. The petitioners argued that the Act did not satisfy the working test enunciated by the Supreme Court in *Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan* AIR 1962 SC 1406. The court held that the data provided by the State did not show that the payment of entry tax was reimbursement/recompense for quantifiable and measurable benefits to the payers. Consequently, the State failed to show that the Orissa entry tax was compensatory in nature.

3. Compliance with Article 301 and Article 304 of the Constitution
The petitioners contended that the Orissa Entry Tax Act violated Article 301, which guarantees the freedom of trade, commerce, and intercourse throughout India. They argued that the Act imposed restrictions that directly and immediately restricted the free flow of trade. The court examined whether the Act complied with Article 304(b), which allows the State Legislature to impose reasonable restrictions in the public interest, provided the President's previous assent is obtained. The court noted that no such assent was obtained for the Orissa Entry Tax Act.

The State argued that the levy was not on the movement of goods but on their entry into a local area for consumption, use, or sale. The court, however, concluded that the Act did not facially indicate the quantifiable data or benefits proportional to the tax levied, thus failing the test of compensatory tax.

4. Discrimination Between Goods Imported from Outside the State and Those Produced Within the State
The petitioners argued that the Act discriminated against goods imported from outside the State compared to those produced within the State, violating Article 304(a). The court held that the Act did not discriminate between goods imported from outside and those produced within the State, as the tax rate was uniformly applied. However, the court clarified that the State could not impose tax on goods imported from outside the State that were not manufactured within the State.

Conclusion
The court upheld the validity of the Orissa Entry Tax Act, 1999, under Article 304(a) of the Constitution, stating that it did not violate the Constitution. The court directed that the State should not realize entry tax on goods not manufactured within the State but imported from outside. The petitioners were given liberty to file appeals against the assessment orders within thirty days, and no coercive action was to be taken for the realization of the balance tax amount within this period. All writ petitions were dismissed with no order as to costs.

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