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TMI Blog2003 (9) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... ARAMA REDDI P. JJ. S.L.P. (Civil) Nos. 9537, S.L.P. (Civil) Nos. 11698, S.L.P. (Civil) Nos. 11558, S.L.P. (Civil) Nos. 11595, S.L.P. (Civil) Nos. 12260, S.L.P. (Civil) Nos. 12424, S.L.P. (Civil) Nos. 13995, S.L.P. (Civil) Nos. 14388, S.L.P. (Civil) Nos. 14400, S.L.P. (Civil) Nos. 14409, S.L.P. (Civil) Nos. 16555, S.L.P. (Civil) Nos. 22462 of 2002, C.W.P. No. 6630 of 2000 decided on September 26, 2003 Other Advocates: Ejaz Maqbool, Ujjwal Kumar Jha, Ms. Minakshi Nag, Rajesh Bindal, Rajesh Jain, Kuldeep Kumar Jain, Sanjai K. Pathak, P.K. Bansal, Rajiv Agnihotri, Pankaj Kumar Singh, Rajesh Kumar, K.L. Janjani, Ms. Kamakshi S. Mehlwal, Binod Kumar Jha, Pravesh, Roy Abraham, Dr. Mrs. Seema Jain, Himinder Lal, Ms. Kadambri, Sacchin Puri, Ms. Punita Khanna, P.N. Puri, Ms. Veena Nanda, Atul Nanda, S.K. Sabarwal, Ms. Vijayalakshmi Menon, Rakesh K. Khanna, Ms. Rashmi Khanna, Reetesh Singh, Surya Kant, Nikhil Nayyar, Prakash Jha, H.K. Puri, S.K. Puri, Ujjwal Banerjee, Mahabir Singh, S.P. Singh Chauhan, Ajay Pal, Ms. Nitu Samita Das, Rakesh Dahiya, Ms. Vanita Bhargava, Tarun Johri, R.K. Maheshwari, Ms. Varuna Bhandari Gugnani, Neeraj Kumar Jain, Vinay Kumar Garg, Bharat Kumar, Sanja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. We do not consider it appropriate to discuss the various provisions of the Act which have been analysed by the parties before us but only highlight the aspects of the Act which, in our opinion, are relevant for the purpose of this reference under article 145(3). 7.. The Act seeks to impose entry tax on all goods brought into a "local area". The phrase "local area" has been defined in section 2(14) of the Act as meaning: "an area within the limits of a Municipal Corporation established under the Haryana Municipal Corporation Act, 1994 (Haryana Act 16 of 1994), or a municipality established under the Haryana Municipal Act, 1973 (Haryana Act 24 of 1973), or a Town Board or a Cantonment Board established under the Cantonment Act, 1924 (Central Act 2 of 1924), or a Zila Parishad established under the Haryana Panchayati Raj Act, 1994 (Haryana Act No. 11 of 1994), or any other local authority constituted or continued under any law for the time being in force". 8.. The entire State is divided into local areas. The Act ostensibly covers not only vehicles bringing goods into the State but also vehicles carrying goods from one local area to another. However those who pay sales tax to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge in that case was to the Rajasthan Motor Vehicles Taxation Act, 1951. The challenge under article 301 was rejected by the Constitution Bench by holding that "the taxes are compensatory taxes which instead of hindering trade, commerce and inter-course facilitate them by providing and maintaining the roads". The following observation at paragraph 21 of the report also merits attention (page 1425): Article 304: "Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other States (or the Union Territories) any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or inter-course with or within that State as may be required in the public interest: .........." "If a statute fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandpoint of article 301. It was held that the tax cannot be treated to be compensatory tax for the reason that the Municipal Board provided no facilities whatever to the owners of vehicles like State carriages making use of the national highway in question. The following propositions are deducible from these cases: (1) The essence of article 301 is a right of free movement of trade without any obstructions by way of barriers-inter-State or intra-State or impediments operating as such barriers. Taxes which have a direct impact on the flow of trade and commerce constitute a violation of article 301 unless the legislation is brought within the scope of article 304(b). (2) The tax levied upon the entry of goods into a local area for the purpose of use, consumption or sale therein has a direct effect on the movement of goods and therefore it can be saved only if the levy is in the nature of compensatory tax for the use of trading facilities or it comes under the protective umbrella of article 304. (3) So long as a tax remains compensatory or regulatory, it cannot operate as a hindrance to trade. Regulatory measures or compensatory taxes imposed to provide facilities and servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 17.. In Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC)., the subject-matter of challenge was the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976. In that case, although it was demonstrated by the appellant-State and not disputed by the respondents that the levy was compensatory, nevertheless the court went on to say [page 658 of [1990] 96 STC and page 678 of (1995) Supp 1 SCC]: "The submission of Sri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the Revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide municipal services more efficiently, which would help or ease free-flow of trade and commerce, because of which the impost has to be regarded as compensatory in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned in that case as compensatory and the reasoning adopted for that conclusion cannot be brushed aside as mere obiter dicta. 21.. It is contended by the appellants, with considerable force, that if the concept of compensatory tax has to be understood in the manner in which it has been viewed by the court in the decisions of Bhagatram's case and Bihar Chamber of Commerce's case [1996] 9 SCC 136, there will be no practical distinction between a tax raised for general Revenue purposes and a compensatory tax meant for the specific purpose of providing facilities or services to the persons subjected to the tax. All State Revenues are presumably expended or at least are expendible only for the welfare of the nation or the State as a whole. This may result in a general economic upliftment and the betterment of all facets of life including ultimately and in an indirect sense the trading community. The approach in the two decisions noted does away with the difference between taxes in general and compensatory taxes. If that is the law then any tax could pass the test of compensatory tax judged from the standard applied. Then no tax can impinge on the freedom ordained by article 301, a res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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