2024 (9) TMI 1489 - HC - VAT / Sales Tax

Local Body Tax (Entry Tax) - Constitutional Validity of Chhattisgarh Sthaniya Kshetra me Mal Ke Pravesh Par Kar Adhiniyam, 1976 - seeking quashing of notification dated 04/03/2014 - violative of Article 301 and 304 of Constitution of India and also violative of Article 14 of the Constitution of India - whether the impugned legislation is violative of Article 304 (a) of the Constitution of India? - whether entire State can be declared as local area in light of Judgment of the Hon ble Supreme Court in Jindal s case? - HELD THAT - The validity of Act of 1976 came up for consideration before this Court in Steel Authority of India Vs. State of Chhattisgarh and others (and other cases), 2009 (9) TMI 911 - CHHATTISGARH HIGH COURT in which this Court upheld the validity of the Act of 1976. The same was subject to challenge by petitioners therein before the Hon ble Supreme Court. After the reference was answered by the Hon ble Supreme Court in Jindal s case (9 Judges). The matter were placed before the regular bench of the Hon ble Supreme Court and liberty was reserved in favour of the petitioners to file a fresh writ petitions in light of Judgment of the Hon ble Supreme Court in Jindal s Case 2016 (11) TMI 545 - SUPREME COURT (LB) . The argument of higher tax being imposed on goods imported from other state is violative of article 14 of Constitution of India cannot hold water in view Malwa Bus Service (Private) Ltd. v. State of Punjab and others 1983 (4) TMI 290 - SUPREME COURT wherein Hon ble Supreme Court held that a difference in the rate of tax by itself cannot be considered to be discriminatory and offensive to the equality clause. The Power to State to grant tax reduction to local goods non discriminating as observed by the Hon ble Supreme Court in Jindal s Case (9 Judges) 2016 (11) TMI 545 - SUPREME COURT (LB) . It has been further observed that constitutional validity of any taxing statute has, therefore, to be tested only on the anvil of Article 304 (a) and if the law is found to be non discriminatory, it can be declared to be Constitutionally valid without legislation having to go through the test or process envisaged by Article 304(b). It has been further observed that suffice to say that a fiscal statute shall be opened to challenge only under Article 304 (a) of the Constitution without being subjected to test of Article 304(b) either in terms of existence of public interest or reasonableness of the levy. Therefore, the validity of the impugned legislation and the notification to be tested on the anvil of Article 304 (a). The Court has to see as to whether the impugned legislation and notification are the tested of Article 304 (a) of Constitution of India. It has to be brought on record that by virtue of any legislation, the party has suffered loss or it is restricted to perform trade and commerce in the given State in which the legislation is enacted. The impugned notification only prescribes the rates on the goods imported from outside and goods inside the State. The notification does not debar the petitioner to trade and commerce inside the State of Chhattisgarh - The power to impose tax is a plenary power with the State subject to the fact that while imposing higher tax rate on the goods imported from outside is not discriminatory. The fact remains as stated above that the notification does not debar the petitioners for trade and commerce in the State of Chhattisgarh. The legislation cannot be declared ultra vires lightly. The taxing statute cannot be challenged only on the ground that the rate of taxation is higher. Until and unless it is said be colourable piece of legislation. It has not been established by the petitioner that the impugned legislation is enacted with colourable exercise of power or it is fraud on the legislative power. The argument was advanced that since there is a higher tax imposed on the goods imported from outside of the state hence it is discriminatory and cannot pass the test of Article 304 (a) of Constitution of India - it is also admitted that entire State is not local area and it is defined in section 2 (d) of definition clause of the Act of 1976. It is to be seen that there is no ambiguity in the definition clause. As to whether the petitioners suffered entry tax at multiple levels has not been substantially demonstrated. Hence, appropriate writ as claimed in this regard cannot be issued. Placing reliance on the judgments of the Hon ble Supreme Court and the discussion made herein, the petition is dismissed.

Summary

Issues Involved:
1. Constitutional validity of the Chhattisgarh Sthaniya Kshetra me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (Act of 1976).
2. Notification dated 04/03/2014 issued under Section 4-A of the Act of 1976.
3. Whether the entire State can be declared as a "local area" under Entry 52 of List II of the Constitution of India.
4. Whether the Act of 1976 and the notification are discriminatory and violate Articles 14 and 304 of the Constitution of India.
5. The concept of compensatory tax and its application.

Detailed Analysis:

1. Constitutional Validity of the Act of 1976:
The petitioners challenged the Act of 1976, claiming it was ultra vires to the Constitution of India, specifically Articles 14 and 304. They argued that the Act imposed discriminatory rates of entry tax on goods imported from other states compared to those produced within the state. The court referred to several precedents, including the Supreme Court's judgment in Jindal Stainless Ltd. (2017) 12 SCC 1, which upheld the validity of similar entry tax laws by various states. The court reaffirmed that non-discriminatory taxes do not per se violate Article 301 of the Constitution. It also noted that the Act of 1976 had been previously upheld by the Supreme Court in cases like Bhagatram Rajeevkumar and Geo Millers Co. Pvt. Ltd.

2. Notification Dated 04/03/2014 Issued Under Section 4-A of the Act of 1976:
The petitioners sought to quash the notification dated 04/03/2014, arguing it conferred arbitrary and unguided powers on the executive to enhance the rate of entry tax up to 50%. The court examined the legislative framework and found that the notification was within the permissible limits set by the legislature. It referred to the Supreme Court's guidelines on the delegation of legislative powers, emphasizing that the legislature can delegate subsidiary powers to the executive as long as it provides clear guidance and objectives.

3. Whether the Entire State Can Be Declared as a "Local Area":
The petitioners argued that the entire state could not be declared a "local area" for the purposes of Entry 52 of List II of the Constitution. The court referred to the Supreme Court's judgment in Jindal Stainless Ltd. (2017) 12 SCC 1, where it was observed that the term "local area" could cover the whole state or specific areas as notified in the legislation. The court found that the definition of "local area" in Section 2(d) of the Act of 1976 was precise and did not support the petitioners' claim.

4. Whether the Act of 1976 and the Notification are Discriminatory:
The petitioners claimed that the Act and the notification imposed higher entry tax rates on goods imported from other states, which was discriminatory and violated Articles 14 and 304(a) of the Constitution. The court noted that different tax rates for goods imported from outside the state and those produced within the state do not per se constitute discrimination. It emphasized that the burden of proving discrimination lies on the petitioners, who failed to provide substantial evidence. The court referred to the Supreme Court's judgment in Malwa Bus Service (1983) 3 SCC 237, which held that a difference in tax rates does not necessarily imply discrimination.

5. The Concept of Compensatory Tax:
The court discussed the concept of compensatory tax, which was judicially evolved as an exception to the provisions of Article 301 of the Constitution. It referred to the Supreme Court's judgment in Jindal Stainless Ltd. (2017) 12 SCC 1, which clarified that compensatory taxes are permissible if they provide direct and substantial benefits to the taxpayers. The court found that the revenue realized from the entry tax under the Act of 1976 was used to compensate local bodies for the loss of revenue due to the abolition of octroi, thus meeting the criteria for compensatory taxes.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of the Act of 1976 and the notification dated 04/03/2014. It found no violation of Articles 14 and 304(a) of the Constitution, and the petitioners failed to substantiate their claims of discrimination. The court emphasized that the legislative framework provided sufficient guidance and objectives, and the concept of compensatory tax was appropriately applied.