2007 (8) TMI 668 - HC - VAT and Sales Tax

Whether impugned levy is discriminatory and violative of article 304(a) of the Constitution? Whether entry tax on the goods imposes restriction on its movement and hence violative of article 301 and whether requirements of article 304(b) have, therefore, to be complied with? Whether impugned levy is compensatory in nature? Whether subsequent amendments to the principal Act require Presidential sanction under article 304(b), although the Presidential sanction was granted prior to enactment of the principal Act? Whether section 3(4) of the impugned Act, as it stood till May 12, 2005, suffers from vice of excessive delegation of legislative functions? Whether omission of section 3(4) in the impugned Act, by the Second Amendment Act, with effect from May 12, 2005, saves the actions taken under the said provisions of law, prior to May 12, 2005? Whether the judgment passed would have prospective effect? Whether refund of tax paid is permissible? Held that - The impugned levy is not discriminatory and therefore not violative of article 304(a) of the Constitution, except the discrimination as held above in respect of the principal Act as it stood prior to its amendment. The finding of the learned single judge in that regard is, therefore, upheld. Admittedly before enactment of the principal Act the Presidential sanction was obtained. The State, however, has not even attempted by making necessary pleadings to prove that such discriminatory tax is reasonable and in public interest. On the contrary, the stand of the State is that once the Presidential sanction is obtained in case of a discriminatory tax the requirements of article 304(b), i.e., its reasonableness and in public interest, need not be proved. The contention of the learned AAG that tax is always imposed in public interest cannot also be accepted unless it is proved by the State that the tax impugned was in fact levied in public interest. Hence the levy by the principal Act, are unconstitutional being violative of article 301 of the Constitution. Thus the learned single judge has rightly decided the aforesaid question against the State. In view of the working test laid down by the apex court in Jindal Stainless Ltd. 2006 (4) TMI 120 - SUPREME Court in determining the compensatory nature of tax, and also in view of discussion, it is held that the impugned enactment does not satisfy the test laid down for compensatory tax and hence cannot be held to be compensatory in nature. The judgment and order of the learned single judge, is affirmed, on this point. There being no dispute to the fact that no Presidential sanction/assent has been obtained for such amendments either prior to or after introduction of such amendments, the same are unconstitutional, as the previous Presidential sanction obtained prior to enactment of the Principal Act, cannot save the subsequent amendments. The said position, in fact, was known to the State as it has obtained Presidential sanction in respect of 7 items prior to the enactment of the Principal Act. The judgment and order of the learned single judge, in so far as it relates to this question, is, therefore affirmed. The provision of section 3(4) of the Act, as stood prior to May 12, 2005, does not suffer from the vice of excessive delegation of legislative function and hence the finding of the learned single judge, in that regard, is set aside. The tax already realised and where no further proceeding is pending relating to such realisation of tax, the omission of section 3(4) of the impugned Act, without a saving clause, would have no effect, but the proceedings pending on May 12, 2005, from which date section 3(4) has been omitted, cannot be allowed to continue as the actions initiated under the said provision of law have not been saved and section 3(4) of the Act has been unconditionally omitted. Hence all the proceedings pending on May 12, 2005 relating to realisation of tax by virtue of the power conferred by section 3(4) of the impugned Act, have to be declared as null and void, without, however, affecting the proceedings, which have already been finalised prior to May 12, 2005. In that view of the matter, the judgment and order of the learned single judge is set aside to the extent indicated above. no direction for refund of the tax paid can be issued by this court. Hence, the direction issued for such refund by the learned single judge is set aside. However, it is left open to the payers of the tax, concerning the present writ appeals and writ petitions, to approach the authority for refund of the tax paid and in the event of such approach being made by the payers of the tax, the authority shall within 4 (four) months, thereafter, pass necessary order relating to refund, keeping in view the decision of the apex court in Mafatlal Industries case 1996 (12) TMI 50 - SUPREME COURT OF INDIA as well as the contention of the learned counsel for the assessees that the entry tax imposed cannot at all be passed on to the consumer in view of the different statutory provisions and also fixation of uniform selling price by the Government of India, in respect of certain specified goods.

Issues Involved:
1. Whether the impugned levy is discriminatory and violative of Article 304(a) of the Constitution.
2. Whether entry tax on the goods imposes restriction on its movement and hence violative of Article 301 and whether requirements of Article 304(b) have to be complied with.
3. Whether the impugned levy is compensatory in nature.
4. Whether subsequent amendments to the principal Act require Presidential sanction under Article 304(b), although the Presidential sanction was granted prior to the enactment of the principal Act.
5. Whether Section 3(4) of the impugned Act, as it stood till May 12, 2005, suffers from the vice of excessive delegation of legislative functions.
6. Whether the omission of Section 3(4) in the impugned Act, by the Second Amendment Act, with effect from May 12, 2005, saves the actions taken under the said provisions of law, prior to May 12, 2005.
7. Whether the judgment passed would have a prospective effect.
8. Whether a refund of tax paid is permissible.

Issue-wise Detailed Analysis:

1. Whether the impugned levy is discriminatory and violative of Article 304(a) of the Constitution:
The court found that the imposition of entry tax on goods brought from outside the state, without subjecting similar goods produced or manufactured within the state to the same tax, is discriminatory and violates Article 304(a). However, the court upheld that the impugned levy is non-discriminatory after amendments, as there is no differentiation between locally manufactured goods and those imported from outside the state regarding tax rates.

2. Whether entry tax on the goods imposes restriction on its movement and hence violative of Article 301 and whether requirements of Article 304(b) have to be complied with:
The court held that any tax, whether discriminatory or non-discriminatory, which impedes the free movement of goods, amounts to a restriction within the meaning of Article 304(b). Such taxes must comply with the requirements of Article 304(b), including reasonableness, public interest, and Presidential sanction. The court found that the entry tax imposed by the impugned Act directly impedes the free movement of goods and thus must comply with Article 304(b).

3. Whether the impugned levy is compensatory in nature:
The court examined whether the tax collected was used to provide specific benefits to the taxpayers, such as infrastructure and trading facilities. The court found that the State failed to substantiate that the tax collected was spent on providing quantifiable benefits to the taxpayers. Therefore, the impugned levy was not compensatory in nature.

4. Whether subsequent amendments to the principal Act require Presidential sanction under Article 304(b), although the Presidential sanction was granted prior to the enactment of the principal Act:
The court held that subsequent amendments to the principal Act, which impose additional restrictions on the movement of goods, require fresh Presidential sanction under Article 304(b). The amendments made without obtaining such sanction were declared unconstitutional.

5. Whether Section 3(4) of the impugned Act, as it stood till May 12, 2005, suffers from the vice of excessive delegation of legislative functions:
The court found that the provision of Section 3(4) of the Act, which allowed the State Government to add, delete, amend, or modify the schedule and vary the rates of tax, did not suffer from the vice of excessive delegation. The legislative policy and guidelines were adequately laid down in the Act, and the delegatee was empowered to carry out the policy within those guidelines.

6. Whether the omission of Section 3(4) in the impugned Act, by the Second Amendment Act, with effect from May 12, 2005, saves the actions taken under the said provisions of law, prior to May 12, 2005:
The court held that the omission of Section 3(4) without a saving clause meant that all pending proceedings initiated under the omitted provision could not continue. However, actions already finalized before the omission were not affected.

7. Whether the judgment passed would have a prospective effect:
The court did not find it necessary to apply the principle of prospective overruling, as the question of refund was to be decided by the authority based on the principles laid down by the Supreme Court in Mafatlal Industries Ltd. v. Union of India.

8. Whether a refund of tax paid is permissible:
The court held that the refund of tax paid is not automatic upon declaring the charging section unconstitutional. The burden is on the taxpayers to prove that the tax burden was not passed on to other persons. The court left it open for the taxpayers to approach the authority for a refund, which should be decided based on the principles laid down by the Supreme Court in Mafatlal Industries Ltd. v. Union of India.

Conclusion:
The court declared the principal Act, the amendments, and the notifications issued under the Act as unconstitutional, being violative of Article 301 of the Constitution. The court did not issue a direction for the refund of the tax paid, leaving it open for the taxpayers to approach the authority for a refund, which should be decided based on the principles laid down by the Supreme Court.

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