2010 (1) TMI 1107 - HC - VAT and Sales Tax

Rule 3 of the Rules of 1996, section 132(6)(n) and 132(6)(o) of Act of 1956 questioned - Held that - No merit in these petitions and hold that rule 3 of the Terminal Tax (Assessment and Collection) on the Goods Exported from Madhya Pradesh Municipal Limits Rules of 1996 and section 132(6)(n) and 132(6)(o) of the Municipal Corporation Act are intra vires to the Constitution.

Issues Involved:
1. Constitutional validity of the Terminal Tax (Assessment and Collection) on the Goods Exported from Madhya Pradesh Municipal Limits Rules, 1996.
2. Legislative competence of the State Legislature to impose terminal tax on coal.
3. Interpretation of relevant entries in the Seventh Schedule of the Constitution.
4. Application of section 132(6)(n) and 132(6)(o) of the Municipal Corporation Act, 1956.

Detailed Analysis:

1. Constitutional Validity of the Terminal Tax Rules, 1996:
The petitioners challenged the constitutional validity of the Terminal Tax Rules, 1996, arguing that the Municipal Corporation is collecting terminal tax at Rs. 5 per ton on coal, which they claim is beyond the legislative competence of the State Legislature. The petitioners contended that the Mines and Mineral (Development and Regulation) Act, 1956 (MMRD Act) occupies the entire field, and the State Legislature is denuded of legislative competence to enact any law on the subject due to the declaration made in section 2 of the MMRD Act.

2. Legislative Competence of the State Legislature:
The petitioners argued that the State Legislature cannot impose any tax on minerals under entry 23 of List II of the Seventh Schedule to the Constitution of India. They asserted that the MMRD Act, which falls under the Union List, precludes the State from enacting such laws. The Municipal Corporation, however, argued that under article 243X of the Constitution, the State is empowered to authorize municipalities to levy, collect, and impose taxes for augmenting their revenue. Entry 56 of List II empowers the State Legislature to make laws with respect to the imposition of export/terminal tax on goods exported from the limits of the municipal corporation.

3. Interpretation of Relevant Entries in the Seventh Schedule:
The petitioners relied on various entries in the Seventh Schedule, including entry 54 of List I (Union List) and entry 23 of List II (State List), to argue that the State Legislature lacks the competence to impose terminal tax on coal. The Municipal Corporation contended that entry 56 of List II provides the State Legislature with the authority to impose terminal tax on goods exported from municipal limits. The court noted that entry 89 of List I covers terminal taxes on goods or passengers carried by railway, sea, or air, while entry 56 of List II covers taxes on goods and passengers carried by road, indicating different fields of operation.

4. Application of Section 132(6)(n) and 132(6)(o) of the Municipal Corporation Act, 1956:
The petitioners argued that section 132(6)(n) of the Municipal Corporation Act, 1956, does not empower the Municipal Corporation to levy terminal tax on coal as no export of coal is taking place. They also contended that section 132(6)(o) of the Act, which allows the Corporation to impose any other tax with the State Government's approval, is arbitrary and conflicts with the MMRD Act. The Municipal Corporation countered that the tax is imposed on the movement of goods beyond the Corporation's limits and is payable by those responsible for such movement.

Judgment Summary:
The court held that the tax imposed by the Municipal Corporation falls within entry 56 of List II of the Seventh Schedule and does not conflict with the Union's power under entry 89 of List I. The court found no merit in the petitioners' arguments that the MMRD Act precludes the State from imposing terminal tax on coal. The court upheld the validity of rule 3 of the Terminal Tax Rules, 1996, and sections 132(6)(n) and 132(6)(o) of the Municipal Corporation Act, 1956, stating that they are intra vires to the Constitution. The petitions were dismissed, and the court emphasized that the tax aims to augment revenue and does not suffer from arbitrariness.

Conclusion:
The court concluded that the State Legislature and the Municipal Corporation have the legislative competence to impose terminal tax on goods exported from municipal limits, including coal. The relevant provisions and rules were upheld as constitutionally valid, and the petitions challenging them were dismissed.

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