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2014 (9) TMI 247 - HC - VAT and Sales TaxValidity of section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011 - Held that - A bare perusal of the provisions for the Trade Development Fund created by the notification dated March 29, 2008 under the Act of 2005, amended in the year 2008, and the Trade Development Fund under the Act of 2011, clearly demonstrates that the provision is similar without there being any change and therefore, the State s submission in the counteraffidavit that the new Act is entirely different is liable to be rejected Even such projection would have saved the validity of the Act of 2011 in view of the fact that in the Act of 2011 itself, the State has provided financial utilization exclusively for the development of trade, commerce and industries in the State of Jharkhand by making provisions of construction, development and maintenance of the roads and bridges for linking the market and industrial area to their hinterlands, for providing finance, aids, grants and subsidies to financial, industrial and commercial units; creating infrastructure for supply of electrical energy and water supply to industries, marketing and other commercial complexes and creation, development and maintenance of other infrastructure for the furtherance of trade, commerce in general, which services and facilities have already declared to be not only for the benefit of the tax-payer. Therefore, basic purposes for utilization have been shown in the clauses (a) to (d) of sub-section (3) of section 4 of the Act of 2011. Works cannot be said to be benefits and services to tax-payer community from whom tax is sought to be recovered under the Act of 2011. The above benefits are required to be borne from the general revenue of the State so far as it relates to the construction of roads and bridge and finance, aid, grant and subsidies to financial or industrial or commercial units are provided by the State Financial Corporation as well as by the other financial institutions and neither in the Act nor in the notification issued under the Act, any provision has been made so as to provide any scheme to give finance, aid, grants and subsidies to financial, industrial and commercial units. The State should have first collected the quantifiable data to find out the need of the benefit and the requirements of its meeting with the levy of compensatory tax. The State Government enacted the law in wilderness in hope that the State may collect the tax and thereafter it may appropriate the tax for the benefit and services of the tax-payers and that too, without there being any data base or project report and then if it fails to justify the imposition of tax, then tax may not be refunded to the tax-payers with the plea of traders unlawful enrichment. The statute cannot be enacted so as to create liability of the tax-payers and ultimately of the public by taking chance of it being constitutionally valid, with all probabilities of being violative of the provisions of the Constitution of India. Act of 2011 is admittedly a levy of compensatory tax but without furthering the principle of equivalence and is not providing quantifiable and measurable benefits to the tax-payers and is even not broadly proportional to the benefit. The State further failed to discharge its burden by placing material or even calculation or data before this court that payment of compensatory tax is reimbursement for the quantifiable or measurable benefits provided or to be provided to its tax-payers. The creation of the fund under clause (a) to (d) of section 4(3) in the name of the Jharkhand State Trade Development fund and utilization of the tax amount for the purposes as given in clauses (a) to (d) under sub-section (3) of section 4 do not indicate and prove reimbursement/recompense of the tax amount to the tax-payers. The purposes shown in clauses (a) to (d) of sub-section (3) of section 4 of the Act of 2011 are of general nature and not specific benefits to the tax-payers. It is declared that section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011 is ultra vires and unconstitutional as being not saved by article 304 of the Constitution of India and is in conflict with article 301 of the Constitution of India. Since the charging section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011 has been held to be ultra vires, the respondent-State cannot enforce any of the provisions of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011. - Decided in favour of assessee.
Issues Involved:
1. Validity of Section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011. 2. Whether the Act is ultra vires to Article 301 read with Article 304(a) of the Constitution of India. 3. Whether the Act is saved by Article 304(b) of the Constitution of India. 4. Whether the levy of entry tax imposes unreasonable restrictions on free trade. 5. Whether the tax is compensatory in nature and if it provides quantifiable/measurable benefits to the taxpayers. Issue-Wise Detailed Analysis: 1. Validity of Section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011: The petitioners challenged the validity of Section 3 of the Act, arguing that it directly interferes with the free movement of goods and imposes unreasonable restrictions on free trade, violating Article 301 of the Constitution. They contended that the Act was enacted without the President's sanction as required under Article 304(b). 2. Ultra Vires to Article 301 Read with Article 304(a): The petitioners argued that the levy of entry tax violated Article 301, which ensures free trade, commerce, and intercourse throughout India. They pointed out that Article 304(a) allows states to impose taxes on goods imported from other states if similar goods produced within the state are also taxed, provided there is no discrimination. However, the petitioners contended that the tax imposed by the Act discriminates against imported goods, thus violating Article 304(a). 3. Saved by Article 304(b): The court examined whether the Act could be saved by Article 304(b), which allows states to impose reasonable restrictions on trade, commerce, and intercourse in the public interest, subject to the President's sanction. The petitioners argued that the Act did not meet the requirements of Article 304(b) as it lacked the President's sanction and did not impose reasonable restrictions. 4. Unreasonable Restrictions on Free Trade: The petitioners contended that the entry tax imposed by the Act imposes unreasonable restrictions on free trade, thus violating Article 301. They argued that the tax was not compensatory in nature and did not provide specific benefits to the taxpayers, making it an unreasonable restriction. 5. Compensatory Nature of the Tax: The court examined whether the tax was compensatory in nature and provided quantifiable/measurable benefits to the taxpayers. The petitioners argued that the tax was not compensatory as it did not provide specific benefits to the taxpayers. They pointed out that the purposes for which the tax was to be utilized, such as construction and maintenance of roads, providing finance and subsidies, and creating infrastructure, were general benefits that should be borne by the state's general revenue and not specific benefits to the taxpayers. Judgment: The court held that the Act of 2011 was not compensatory in nature as it did not provide quantifiable and measurable benefits to the taxpayers. The court noted that the State failed to provide any data or material to show that the payment of compensatory tax was a reimbursement for the quantifiable/measurable benefits provided or to be provided to the taxpayers. The court also noted that the purposes for which the tax was to be utilized were general benefits that should be borne by the state's general revenue and not specific benefits to the taxpayers. The court declared Section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011, ultra vires and unconstitutional as it was not saved by Article 304 of the Constitution of India and was in conflict with Article 301. Consequently, the respondent-State was restrained from enforcing any of the provisions of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011.
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