2008 (5) TMI 638 - HC - VAT and Sales Tax

Vires of M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 - constitutional validity of the notifications issued under the 1976 Act - whether the petitioners are entitled in law to assail the validity of the 1976 Act in the changed factual scenario? Held that - there is no material change in the nature and character of the impugned tax with the passage of time nor can it be said that the rate of tax has been, with the passage of time, increased to such an extent as to render the tax confiscatory and non-compensatory - the State has successfully demonstrated that the impugned tax is compensatory in nature and has not lost its character of being compensatory with the passage of time as alleged by the petitioners. As far as the challenge to the constitutional validity of the several notifications issued by the State, mostly under Section 4A of the Act, on the ground that few persons and goods have been selected for the purposes of imposing higher rate of tax, is concerned, the issues stand concluded by various judgments of this Court wherein prescriptions of such higher rates under Section 4A were held to be valid. Though the petitioners have also challenged the notifications on the ground that they violate Article 301 as well as Articles 14 and 19 of Constitution of India on the ground that the rates of tax have been increased to such an extent that it has become an impediment and hindrance to trade with the passage of time, as noted in the preceding paragraph, the petitioners have neither alleged nor given figures to demonstrate and establish that there has been any decline or loss in the business income of the trade or earning of the petitioners as a result of increase in the rate of entry tax, nor have they, in any manner, stated or demonstrated that the impugned levy has adversely affected their trade and, therefore, constitutes a direct and immediate impediment on trade and is non-compensatory. Petition dismissed.

Issues Involved:
1. Constitutional validity of the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976.
2. Whether the entry tax imposed under the Act is compensatory in nature.
3. Validity of the notifications issued under the Act.
4. Whether the increase in the rate of entry tax renders it non-compensatory.
5. Whether the entry tax violates Articles 301 and 304(b) of the Constitution of India.
6. Whether the provisions of the Act suffer from excessive delegation of legislative power.

Analysis of Judgment:

1. Constitutional Validity of the Act:
The petitioners challenged the constitutional validity of the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (the 1976 Act) on the grounds that it violates Articles 301 and 304(b) of the Constitution. The court noted that the Act was previously upheld in Sanjay Trading Co. v. Commissioner of Sales Tax and Bhagatram Rajeev Kumar v. Commissioner of Sales Tax. The petitioners argued that the Act should be reconsidered in light of the Supreme Court's decision in Jindal Stainless Ltd. v. State of Haryana, which overruled the "some connection" test laid down in Bhagatram Rajeev Kumar. The court held that the petitioners are entitled to challenge the validity of the Act based on the new parameters established in Jindal Stainless Ltd.

2. Whether the Entry Tax is Compensatory:
The court examined whether the entry tax imposed under the 1976 Act is compensatory in nature. The court relied on the principles laid down in the Constitution Bench decision in Jindal Stainless Ltd., which reiterated the working test propounded in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan. The court noted that the State has provided adequate data to show that the tax collected is used to provide facilities and services that facilitate trade and commerce. The court concluded that the entry tax remains compensatory in nature as it is used to compensate local bodies for the loss of revenue due to the abolition of octroi and to provide facilities that benefit trade and commerce.

3. Validity of Notifications Issued Under the Act:
The petitioners challenged the validity of the notifications issued under the 1976 Act, arguing that they are discriminatory and arbitrary. The court referred to previous decisions, including Associated Cement Companies Ltd. v. State of M.P. and Mysore Cement Ltd. v. State of M.P., which upheld the validity of similar notifications. The court held that the notifications are in consonance with the provisions of the 1976 Act and do not suffer from any arbitrariness or discrimination.

4. Increase in the Rate of Entry Tax:
The petitioners argued that the increase in the rate of entry tax renders it non-compensatory. The court noted that the rate of tax has not been uniformly increased for all items and that the increase is restricted to a few items. The court also observed that the increase in the rate of tax has not resulted in any significant change in the tax impact or prices. The court concluded that the increase in the rate of tax does not affect the compensatory nature of the tax.

5. Violation of Articles 301 and 304(b) of the Constitution:
The petitioners contended that the entry tax violates Articles 301 and 304(b) of the Constitution as it impedes the free flow of trade and commerce. The court held that the entry tax does not directly or immediately impede the free flow of trade and commerce. The court also noted that the tax is compensatory in nature and, therefore, does not violate Article 301. The court further held that the provisions of the 1976 Act and the notifications issued thereunder are not ultra vires Article 304(b) of the Constitution.

6. Excessive Delegation of Legislative Power:
The petitioners argued that the provisions of the 1976 Act suffer from excessive delegation of legislative power, particularly Sections 3(2), 4A, 9, and 12. The court referred to previous decisions which upheld similar provisions and concluded that the provisions of the 1976 Act do not suffer from excessive delegation of legislative power.

Conclusion:
The court dismissed the writ petitions, holding that the 1976 Act and the notifications issued thereunder are constitutional and do not violate Articles 301 and 304(b) of the Constitution. The court also held that the entry tax remains compensatory in nature and does not suffer from excessive delegation of legislative power.

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