2022 (11) TMI 287 - SC - VAT and Sales Tax

Levy of entry tax - Interpretation of local area occurring under Entry 52 of List II of the Seventh Schedule to the Constitution - whether the exclusion of an industrial area or areas from the limits of municipal councils or municipalities under the state laws in exercise of statutory power or by virtue of a declaration under proviso to Article 243-Q, would result in that area ceasing to be a local area within Entry 52 of List II and consequently precluding State from levying and collecting entry tax from those areas? HELD THAT - In the present case, two or more sets of law, operate within the two states. The first set of statutes are the enactments, that impose the levy, which is entry tax. The incidence is entry into a local area. A local area is defined as including industrial establishments, or estates. The second set of laws that are involved, are the concerned municipalities laws, such as the Orissa Act of 1950- which by proviso to Section 4 (1) excludes industrial areas, from the rigours and requirements of the municipalities enactments - the provisions in Part IX-A of the Constitution provide for constitution of municipalities, their duration, powers and responsibilities of authorities of the municipalities. Municipalities were conceived as vibrant democratic units of self-governance. Their term or duration was provided to be for five years; regular elections, to elect representatives of municipalities was contemplated. The special features of the municipalities contemplated by the provisions contained in Part IX-A, however need not be present in other bodies created by law, such as Boards, etc. Such statutory bodies, like industrial estates may perform some municipal functions. However, that some municipal functions are performed by such bodies ipso facto does not result in their acquiring the features of municipalities which are contemplated by Part IX-A of the Constitution. The burden of the appellants song, so to say, is that when a notification is issued, excluding industrial areas or estates from municipal areas, they cease to be local areas, and cannot be treated as such for the purpose of levy of entry tax - The focus of provisions of Part IX-A of the Constitution inserted through the 74th Amendment was on local self-governance and all provisions concerning it. It had no relevance to the issue of State taxation. Furthermore, the exercise of power by the Governor to exclude from the limits of a municipal area, industrial estates or large areas that were predominantly industrialised areas is upon the condition that such areas provided a minimum modicum of municipal services. The pattern of State enactments which emerges from a reading of various decisions of this Court is that every State has a set of municipal or local self-governance laws, such as those dealing with municipalities, cantonments, panchayats, gram panchayats, etc., on the one hand, and those that deal with industrial areas as for instance, the UPIAD Act, Gujarat Industrial Development Act, 1962 etc. on the other. The object of the levy, i.e., entry tax, is the regulation of entry of goods in a regular area for consumption, i.e., manufacture, use or sale. There is no dispute that entry of goods into an industrial area or estate is for their use for manufacturing or for processing or for the purposes of their delivery as their ultimate point of destination, i.e. for the purpose of their consumption, use or sale within that area. It could even be that the goods enter within the industrial area or estate, as the ultimate point of destination for their use. In any case, the levy would be attracted because the incidence is the entry into the local area. SLP dismissed.

Summary

Issues Involved:
1. Interpretation of "local area" under Entry 52 of List II of the Seventh Schedule to the Constitution.
2. Constitutionality of the Orissa Entry Tax Act, 1999.
3. Applicability of Article 243-Q regarding industrial townships and their exclusion from municipal areas.
4. Validity of the levy of entry tax on goods entering industrial townships.
5. Retrospective application of entry tax laws.

Issue-wise
Detailed Analysis:

1. Interpretation of "Local Area" under Entry 52 of List II of the Seventh Schedule to the Constitution:
The term "local area" is not defined in the Constitution. However, the General Clauses Act, 1897 defines "local authority" as a municipal committee, district board, body of port commissioners, or other authority legally entitled to control or manage a municipal or local fund. The court examined whether industrial townships could be considered "local areas" for the purpose of levying entry tax. The Constitution Bench ruling in Diamond Sugar Mills Ltd. v. State of Uttar Pradesh held that a "local area" is an area administered by a local body such as a municipality, district board, local board, panchayat, or the like, and that factory premises do not fall within this definition. The court also considered the impact of the Constitution (Seventy-fourth) Amendment Act, 1992, which introduced Article 243-Q relating to the constitution and administration of municipal bodies.

2. Constitutionality of the Orissa Entry Tax Act, 1999:
The Orissa Entry Tax Act, 1999 defined "local area" to include industrial townships among other areas. The appellants, including OCL India Ltd. and Steel Authority of India Ltd. (SAIL), challenged the levy of entry tax, arguing that it violated Article 301 of the Constitution. They contended that the inclusion of industrial townships within the definition of "local area" was unconstitutional. The High Court dismissed their writ petitions, holding that the Orissa entry tax did not violate any constitutional prohibition and was in conformity with Article 304(a) of the Constitution.

3. Applicability of Article 243-Q Regarding Industrial Townships and Their Exclusion from Municipal Areas:
Article 243-Q allows the Governor to exclude an area from being constituted as a municipality if it is an industrial township where municipal services are provided by an industrial establishment. The appellants argued that such industrial establishments could not be equated with areas administered by local authorities and, therefore, could not be considered "local areas" under any state law. The court examined whether the exclusion of industrial areas from municipal councils or municipalities under state laws or by virtue of a declaration under Article 243-Q would result in those areas ceasing to be "local areas" within Entry 52 of List II, thereby precluding the state from levying and collecting entry tax from those areas.

4. Validity of the Levy of Entry Tax on Goods Entering Industrial Townships:
The court analyzed whether industrial townships could be considered "local areas" for the purpose of levying entry tax. The respondents argued that industrial townships are open to public use and provide municipal services similar to those provided by municipalities. The court concluded that industrial areas or estates are "local areas" as they are part of the state and are administered by bodies constituted for the governance of local affairs. The court held that the inclusion of industrial townships within the definition of "local area" for the purposes of entry tax did not exceed any constitutional limit and did not violate Article 243-Q.

5. Retrospective Application of Entry Tax Laws:
The appellants argued that the levy of retrospective tax upon entry of goods into industrial areas was arbitrary. The court held that the retrospective application of the entry tax laws was valid, as it was enacted to cure the defect identified in previous legal challenges. The court found that the retrospective levy was not arbitrary and was in line with the principles enunciated in previous judgments.

Conclusion:
The court dismissed the appeals, holding that industrial townships are "local areas" for the purpose of levying entry tax and that the inclusion of such areas within the definition of "local area" in the Orissa Entry Tax Act, 1999, and similar state laws, was constitutional. The court also upheld the retrospective application of the entry tax laws, finding no reason to interfere with the decisions of the Orissa and Allahabad High Courts.