2017 (10) TMI 491 - SC - VAT and Sales Tax

Levy of Entry tax - goods imported from different countries and brought into local area of a State - The State legislations are also questioned on the ground that the entry tax legislations do not contemplate levy of an entry tax on goods imported from outside the country - Whether Section 2(d) read with Section 3 of Orissa Entry Tax Act, 1999, Section 2(d) read with Section 2(d) of Kerala Act, 1994 and Bihar Act, 1993 (before its amendment in 2003), never intended to levy any entry tax on the goods, entering into local area of State from any place outside the territory of India? - Held that - It is well known rule of statutory interpretation that by process of interpretation the provision cannot be rewritten nor any word can be introduced. The expression any place before the words outside the State is also indicative of vide extent. The words any place cannot be limited to a place within the territory of India when no such indication is discernible from the provisions of the Act - The Entry tax legislations are referable to Entry 52 of List II of Seventh Schedule of the Constitution. Entry 52 also provided a legislative field, namely, taxes on the entries of goods into a local area for consumption, use or sale therein . Legislation is thus concerned only with entry of goods into a local area for consumption, use or sale. The origin of goods has no relevance with regard to chargeability of entry tax - definition clause, Section 2(d) read with Section 3 does not exclude the charging of the entry tax on goods entering into local area for consumption, use or sale from outside the country. In Section 2(d) the word used is any place outside that local area or outside the State . The word any is a word of very wide meaning and use of word any excludes any limitation. We, thus, are of the view that all the three legislations clearly did not exclude goods coming from outside the territory of India and the definition of entry of goods read with charging section clearly included all goods entering into a local area. Thus, the submissions of learned counsel for the petitioners that entry tax legislation did not include imported goods cannot be accepted. Entry 41 & 83 of List I and Entry 52 of List II - Whether Entry Tax Legislations in question intrude into exclusive legislative domain of Parliament as reserved under Entry 41 and Entry 83 List I? - Whether levy of entry tax on goods imported from outside territory of India is legislation trenching the field of import and export , duties of custom reserved to Parliament? - Held that - The Constitution of India, Part XI, Chapter I deals with legislative relations, legislative powers of Parliament and State Legislatures are clearly demarcated. Power to tax is an incidence of sovereignty and there is a clear demarcation of taxing field, which has been earmarked to the Parliament as well as to the State Legislatures. Taxing power of both Union and State Legislatures are mutually exclusive and has been clearly demarcated. This is further clear by the fact that in List III, i.e. Concurrent List, no taxing entry is included except the entry of stamp duty & levying of fee in respect of any of the matters in List III but not including fees taken in any Court - The distribution of power between Union and States is done in a mutually exclusive manner as is reflected by precise and clear field of legislation as allocated under different list under the Seventh Schedule. No assumption of any overlapping between a subject allocated to Union and State arises. When the field of legislation falls in one or other in Union or State Lists, the legislation falling under the State entry has always been upheld. The Scheme of distribution of legislative power between Union and States in the Constitution of India relies on the distribution of legislative power between the Federal Government and Provincial Government as contained in Seventh Schedule of the Government of India Act, 1935. The Government of India Act, 1935 has been referred to as Constitution Act by the Privy Council - there is no clash/overlap between entry levied by the State under Entry 52 List II and the custom duty levied by the Union under Entry 83 List I. We have also arrived at the same conclusion in view of the foregoing discussions. We thus hold that entry tax legislations do not intrude in the legislative field reserved for Parliament under Entry 41 and under Entry 83 of List I. - The State Legislature is fully competent to impose tax on the entry of goods into a local area for consumption, sale and use. We thus repel the submission of petitioner that entry tax legislation of the State encroaches in the Parliament s field. Import and its extent - Whether the importation of goods, imported from a territory outside the India continues till the goods reach in the premises/factory of the importer, during which period State at no point of time is legislative competence to impose any tax? - Held that - Import and export are concepts which denote trade between different countries. The term import signifies etymologically to bring in . To import goods into the territory of India means to bring them into the territory of India from abroad - The submissions of the writ petitioners on the strength of Section 5(3) that even first sale after the import should be treated during the course of the import is not supported by the concept as contained in Section 5 of the 1956 Act and the reliance on the said provision is wholly misplaced - taxing event with regard to levy of customs duty by Parliament and levy of entry tax by States under Entry 52 List II are entirely different and separate. The taxing event pertaining to levy of entry tax occurs only after the taxing event of levy of customs duty is over. Thus, the State Legislation imposing entry tax in no manner encroaches upon the Parliamentary Legislation under Entry 41 and Entry 83 - There is no invalidity in levy of entry tax by the States. Original/Unbroken Package Theory - Whether doctrine of unbroken package as evolved by the American Court are to apply with regard to imported goods of the petitioners prohibiting the State from levying any tax till the goods are first sold/dealt by the importer? - Held that - The Original Package/ Unbroken Package is a theory which was evolved by U.S. Supreme Court in reference to the imported goods. The genesis of the theory is from the Chief Justice Marshall, in the case of Brown Vs. The State of Maryland, 6 L.Ed. 678. State of Maryland has enacted a law that all importers of foreign articles or commodities shall, before they are authorized to sell, take out a license for which they shall pay fifty dollars - it is clear that the U.S. Supreme Court itself has abandoned the Original Package theory and it has been held that imported goods are not immuned from nondiscriminatory ad valorem taxes imposed by the State - Goods imported after having been released from customs barriers are not immuned from any kind of State taxation, which fall equally on other similar goods and the submission of the learned counsel for the petitioner that immunity from State taxation shall continue till it reaches in the premises where it is to be taken for consumption, sale and use cannot be accepted. Non-inclusion of Custom Duty in purchase value - Whether in the definition of purchase value as contained in Entry Tax Legislations in question, noninclusion of custom duty is indicator of fact that the legislature never intended to levy entry tax on imported goods? - Held that - From the definition of purchase value given in 2(j) three aspects are noticeable. Firstly, purchase value means the value of scheduled goods as ascertained from original invoice or bill. Secondly, it includes insurance charges excise duty and other charges mentioned therein. And thirdly, other charges incidental to the purchase of such goods. The original invoice or bill of scheduled goods, generally include the entire value including the import duty or custom duty and in any event the inclusion of all other charges incidental to the purchase of such goods has to necessarily mean all charges including custom duty which is incidental to the purchase. Thus, noninclusion of custom duty specifically in definition of purchase value in 2(j) is inconsequential and cannot lead to mean that the legislature never intended to include the imported goods under the entry tax legislation - We thus do not find any substance in the submission of petitioner that noninclusion of custom duty in definition of purchase value leads to conclusion that entry tax is not payable on entry tax. Whether Entry Tax Legislations are not covered by Entry 52 List II since the Entry 52 is in essence entry of levying octroi which can be levied only by local authorities and the State has no legislative competence to impose entry tax under Entry 52 List II? - Held that - It is well settled that the nomenclature or form of a tax is not a decisive factor to find out the nature of the tax. It is the matter of legislative policy as to how the tax is to be collected. The definition of taxation as given in Article 266 (28) that tax includes general or local tax does not in any manner support the contention of the petitioner that tax under Entry 52 is only a local tax which ought to be collected through local bodies. It is the matter of legislative policy that whether a tax is collected as a general tax or a local tax. The nature of tax, measure of tax and machinery for tax collection are all different aspects. The submission of the petitioner that tax in Entry 52 should be collected by local authorities and State has no legislative competence to levy such tax is fallacious. It is well within the jurisdiction of the legislature to formulate its policy regarding levy of tax and its collection. Entry 52 of List II has to be given its wide and full meaning and no limitation in the legislative power of the State can be read as contended by counsel for the petitioner - Further, any pre-constitutional tax practice cannot put any fetter on Constitution farmers to define any tax, to elaborate the concept of tax or to move away or forward from any kind of earlier levy - taxes which are to be used by the local authorities can be collected by the local authorities as well as by the State Government. It is the matter of legislative policy as to how the tax is collected and distributed. Under List II Entry 5, the State has legislative power to lay down powers of the Municipal Corporation by legislation. It is again legislative policy that as what machinery is to be provided by the State legislature regarding collection of taxes on the entry of goods into a local area for consumption, use or sale. No capital can be made on the submission that since tax is not being collected by local authorities it is beyond the power of the State under Entry 52 List II. - We thus do not find any substance in the submission of the learned counsel for the petitioner that entry tax legislation is not covered by Entry 52 List II. Expression MACHINERY AND EQUIPMENT as used in the SCHEDULE OF ORISSA ACT 1999 - Whether a plant, imported in knocked out condition is covered by the Part II of the Schedule of Orissa Act, 1999? - Held that - The Plant in a knocked out condition is nothing but a collection of machineries. The plant being a wide term including machinery also, we fail to see how a knocked out plant shall not be covered by Item No. 9 of Part II of the Schedule. Machinery and equipments are wide words which shall also cover plant in a knocked out condition. We thus reject the contention of the counsel for the petitioner that a plant which is imported in knocked out condition is not covered by the Part II of Schedule of Orissa Act, 1999 - A plant imported in knocked out condition is fully covered with the definition of machinery and equipment under Part II of Schedule of the Orissa Act, 1999.

Summary

Issues Involved:
1. Legislative competence of State Legislature to impose entry tax on goods imported from outside the country.
2. Whether entry tax legislations contemplate levy on goods imported from outside the country.
3. Whether entry tax legislations intrude into the exclusive legislative domain of Parliament as reserved under Entry 41 and Entry 83 List I.
4. Whether the importation of goods continues till the goods reach the premises/factory of the importer, prohibiting the State from levying any tax during this period.
5. Applicability of the Original/Unbroken Package Theory.
6. Non-inclusion of customs duty in the definition of purchase value.
7. Whether entry tax legislations are covered by Entry 52 List II.
8. Whether a plant imported in knocked-out condition is covered by the Part II of the Schedule of Orissa Act, 1999.

Detailed Analysis:

1. Legislative Competence of State Legislature:
The Court held that the State Legislature has the competence to impose entry tax on goods imported from outside the country into a local area for consumption, use, or sale therein. The legislative competence is derived from Entry 52 List II of the Seventh Schedule of the Constitution, which allows states to levy taxes on the entry of goods into a local area for consumption, use, or sale.

2. Contemplation of Levy on Imported Goods:
The Court concluded that the definition of "entry of goods" in the Orissa Entry Tax Act, 1999, and similar acts in Kerala and Bihar, includes goods entering a local area from any place outside the local area or state, which implicitly covers goods imported from outside the country. Thus, the statutes do not exclude the levy of entry tax on imported goods.

3. Intrusion into Exclusive Legislative Domain of Parliament:
The Court held that entry tax legislations do not intrude into the legislative domain reserved for Parliament under Entry 41 and Entry 83 List I. The power to levy customs duties and regulate trade with foreign countries is distinct from the power to levy entry tax on goods entering a local area for consumption, use, or sale. The two taxes are separate and distinct imposts.

4. Continuation of Importation:
The Court determined that the importation of goods from outside India ends when the goods enter the customs frontiers of India and are cleared for home consumption. Once the goods are released for home consumption, they lose their status as imported goods and become part of the mass of goods within the country, making them subject to state entry tax.

5. Original/Unbroken Package Theory:
The Court rejected the applicability of the Original/Unbroken Package Theory, which originated in the U.S. Supreme Court case Brown vs. Maryland. The Court held that this theory has no application in India, and imported goods are not exempt from state taxation until they reach the factory premises. The theory has been discredited and abandoned in subsequent U.S. Supreme Court decisions and is not applicable in the Indian context.

6. Non-inclusion of Customs Duty in Purchase Value:
The Court found that the non-inclusion of customs duty in the definition of purchase value does not indicate that the legislature never intended to levy entry tax on imported goods. The purchase value includes the value of scheduled goods as ascertained from the original invoice or bill, which generally includes customs duty and other incidental charges.

7. Coverage by Entry 52 List II:
The Court held that entry tax legislations are fully covered by Entry 52 List II. The argument that Entry 52 only allows local authorities to levy such taxes and not the state is fallacious. The state has the legislative competence to impose entry tax under Entry 52 List II, and it is a matter of legislative policy how the tax is collected and distributed.

8. Plant Imported in Knocked-Out Condition:
The Court concluded that a plant imported in a knocked-out condition is covered by the definition of machinery and equipment under Part II of the Schedule of the Orissa Act, 1999. The term "machinery and equipment" is broad and includes plants in a knocked-out condition.

Judgments Delivered:
- Appeals against the judgments of the Orissa High Court are dismissed.
- Appeals against the judgment of the Patna High Court are dismissed.
- The civil appeal filed against the judgment of the Jharkhand High Court is allowed.
- Appeals filed by the State of Kerala are allowed, restoring the judgment of the learned Single Judge.
- Writ Petition 574 of 2003 is dismissed.
- Liberty is granted to appellants in appeals against the Orissa High Court judgment to revive their writ petitions within 30 days to urge the ground of discrimination under Article 304(a).

The parties shall bear their own costs.