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TMI Blog2003 (8) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... Other Advocates: Dhruv Agarwal, R.V. Prasad, Praveen Kumar, Satyanarayana, N.D.B. Raju, Ms. Bharati R., Guntur Prabhakar, D. Venkatesh, Ms. A. Rama, Rajeev M. Roy, Rajeev K. Virmani, Ms. Rashmi Virmani, E.C. Vidyasagar, Sanjay Kunur, Ramlal Roy, Narayan N. Keshwani, Pratap Venugopal, P.S. Sudheer, Ms. Shalini Gupta, Ms. Revathy Raghavan, Ms. Sarpana Raj, Sanjay R. Hegde and Satya Mitra, for the parties. Senior advocates: Bhaskar P. Gupta, A.N. Haksar and T.L.V. Iyer, for the parties. -------------------------------------------------- The judgment of the Court was delivered by M.B. SHAH, J.-The levy of entry tax on goods by the State of Karnataka has a chequered history and the State had to face various litigation on this score. The constitutional validity of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979 (hereinafter referred to as "the Act"), and the notifications issued by the State Government in exercise of its powers conferred by section 3 of the said Act were challenged before the High Court by filing writ petitions under article 226 of the Constitution. The Act and the notifications issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the amending Act No. 8 of 1993, namely, the Karnataka Tax on Entry of Goods (Second Amendment) Act, 1992, whereby for the words "by the State Government, by notification from time to time", the words "retrospectively or prospectively by the State Government by notification and different dates " were substituted. The amending Act was passed by the State Legislature after obtaining the assent of the Governor on February 11, 1993, but the assent of the President was not obtained and that is the only surviving challenge in these appeals. 5.. Thereafter, Karnataka Act No. 45 of 1994, namely, the Karnataka Tax on Entry of Goods (Amendment) Act, 1994, was enacted after obtaining the assent of the President on October 19, 1994. Again, the said Act was amended by Karnataka Act No. 3 of 1995, namely, the Karnataka Tax on Entry of Goods (Amendment) Act, 1992, after obtaining the assent of the President on September 6, 1994. 6.. The Government of Karnataka in exercise of its power under section 3(1) of the Act brought out notification dated March 30, 1994, which came into effect on April 1, 1994, levying tax on the entry of goods brought into a local area from any place outside the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Karnataka that the entry tax was compensatory in nature. We are now informed that the aforesaid notifications on March 30, 1994, and March 31, 1997, have been superseded by notification dated January 7, 1998, and notification on September 23, 1998, which are retrospective in character. The later notifications are subject-matter of challenge before the Karnataka High Court. As far as the State of Karnataka is concerned, it is not seeking to realise any tax under the earlier notification dated March 30, 1994, and March 31, 1997. This being so, the appeals filed by the State of Karnataka have become academic and nothing more survives. As far as the appeals filed by the respondents are concerned, the same relate to the finding of the High Court to the effect that the entry tax was compensatory in nature. Learned Advocate-General agrees that without going into the merits this finding may be set aside and the High Court will be at liberty to go into this question afresh while deciding the writ petition which have been filed challenging the subsequent notifications. Ordered accordingly. The High Court while deciding the fresh writ petitions will not be bound by its earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so when the goods have been imported from outside the State of Karnataka and are meant for sale. 6.. Entry 2-A by Notification dated November 9, 1998, prescribing rate of tax at 8 per cent from April 1, 1995, is ultra vires the power of section 3(1) of the Act. 7.. In cases where assessments were already framed, the assessees would be free to file appeals within four weeks and where notice alone has been issued, they may submit objections within the aforesaid period. The State had not preferred any appeal against the aforesaid judgment and order. 12.. However, the appellants (dealers) filed appeals before the division Bench of the High Court. The High Court, by judgment and order dated October 18, 2000 Reported as Bellary Steels and Alloys Ltd. v. State of Karnataka in [2002] 123 STC 189 (Kar)., dismissed the Writ Appeals Nos. 1717-21, 8191-93 of 1999 and other appeals involving similar question. 13.. Those judgments and orders are challenged by filing these appeals. For the levy of entry tax, the High Court held that (page 200): "17. The State of Karnataka came into being on November 1, 1956, pursuant to the reorganisations of the States in India. Municipal laws prevailing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to observe that, as noticed before, when Hyderabad Amending Act III of 1954 was enacted the assent of the President was duly obtained. Similarly when Bombay Act XXXII of 1958 which was meant for amending Hyderabad Act XXI of 1950 was enacted the assent of the President had been given. If the assent of the President had been accorded to the amending Acts, it would be difficult to hold that the President had never assented to the parent Act, namely, Hyderabad Act XXI of 1950. Even if such assent had not been accorded earlier it must be taken to have been granted when amending Act III of 1954 was assented to." 17.. The court, thereafter, arrived at the conclusion that the assent of the President of India would be deemed to have been given to the Act 8 of 1993 when assent to the subsequent Acts No. 45 of 1994 and 3 of 1993 was given. Submissions: In these appeals, the challenge is confined to the notification dated September 23, 1998, which was issued by the State Government in exercise of powers conferred by sub-section (1) of section 3 of the Act providing that with effect from April 1, 1994, and up to January 6, 1998, tax shall be levied and collected on the entry of goods, spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 964), a notified area committee, a town board, a sanitary board or a cantonment board constituted or continued under any law for the time being in force and a Mandal under the Karnataka Zila Parishads, Taluk Panchayat Samithis, Mandal Panchayat and Nyaya Panchayats Act, 1983 (Karnataka Act 20 of 1985), and Panchayat area under the Karnataka Panchayat Raj Act, 1993 (Karnataka Act 14 of 1993)." 21.. The learned counsel for the respondents justified the impugned judgment for the reasons recorded therein. It is their submission that retrospective effect is given after removing the defects pointed out by the High Court in Avinyl Polymers' case [1998] 109 STC 26 (Kar). and to validate the levy of entry tax. Findings: Before dealing with the rival contentions, we would first refer to articles 301 and 304 which are as under: "301. Freedom of trade, commerce and inter-course.-Subject to the other provisions of this Part, trade, commerce and inter-course throughout the territory of India shall be free. ..................... 304.. Restrictions on trade, commerce and inter-course among States.-Notwithstanding anything in article 301 or article 303, the Legislature of a State may by l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout the territory of India declared by article 301 cannot be justified unless it falls within article 304. Exercise of power under article 304(a) can be effective only if the tax or duty on goods imported from other States and the tax or duty imposed on similar goods manufactured or produced in that State is such that there is no discrimination. The court also referred to the observations of Hidayatullah, J., that article 304(a) imposes no ban but lifts the ban imposed by articles 301 and 303 subject to one condition. That article is enabling and prospective. The court (in para 22 Page 100 of STC; page 105 of SCC.) further held: "It is manifest that free-flow of trade between two States does not necessarily or generally depend upon the rate of tax alone. Many factors including the cost of goods play an important role in the movement of goods from one State to another. Hence the mere fact that there is a difference in the rate of tax on goods locally manufactured and those imported would not amount to hampering of trade between the two States within the meaning of article 301 of the Constitution. As is manifest, article 304 is an exception to article 301 of the Constitution. The n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require sanction of the President as contemplated under article 304(b). Hence, the contention that amending Act No. 8 of 1993, by which the words "retrospectively or prospectively " are added, requires sanction of the President, is without any substance. 27.. Further, once it is conceded that imposition of tax was compensatory or regulatory in nature, there is no question of obtaining the assent of the President under article 304(b) of the Constitution. For the Act in question, this question is dealt with and made clear by this Court in Hansa Corporation's case [1980] 4 SCC 697. and thereafter in repeated judgments including State of Himachal Pradesh v. Yash Pal Garg (decd. by Lrs.) [2003] 4 JT 413 (SC) [2003] 1 RC 17 (SC). wherein it is held that so long as the tax remains compensatory or regulatory, it cannot operate as hindrance. The court also held (page 27 of RC): "(a) A demand for tax from the traders in common with others is not a restriction on the right to carry on trade, commerce and inter-course. (b) Such tax would not come within the purview of the restrictions contemplated under article 301 unless it is established that in reality, it hampers or burdens the trad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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