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TMI Blog2006 (12) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Kerala and some others with regard to the goods brought from outside the country to the State of Kerala. Counsel appearing for the petitioners submitted that the right of the State to impose entry tax under the Entry Tax Act has to be tested in the light of the decision of the Constitution Bench of the apex court in Jindal Stainless Ltd. v. State of Haryana and Ors. . Counsel submitted, in the light of the above decision of the apex court the decision rendered by a Division Bench of this Court in Rajan v. State of Kerala 1995 (2) KLT 369 is no longer good law and that the decision in Fr. William Fernandez v. State of Kerala and Ors. 115 STC 591 has to be affirmed, 2. The Division Bench in Rajan's case, supra considered the question as to whether Section 3 of the Entry Tax Act and Rule 4 framed therein are ultra vires and violative of the Constitution of India. Though the Bench made reference to the decisions of the Apex Court in Atiabari Tea Co. Ltd. v. State of Assam and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan , It upheld the validity of Section 3 of the Entry Tax Act holding that if the tax imposed is compensatory or regulatory in nature it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther compensatory or regulatory but prevents free flow of trade, commerce and intercourse and does not satisfy the requirements of Article 304(b) of the Constitution. It was also stated that the amendment Act has not received the assent of the President. It was pointed out that the Bill was not moved in the assembly with the previous sanction of the President as required under the proviso to Article 304(b). 5. The Constitution Bench in Jindal's case, supra, in paragraphs 52 and 53 of the judgment, stated as follows:- 52. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case 1995 Supp. (1) SCC 673 followed by the judgment in the case of Bihar Chamber of Commerce was well founded. 53. We reiterate that the doctrine of "direct and immediate effect" of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan for deciding whether a tax is compensatory or not vide para 19 of the report, will continue to apply and the test of "some connection" indicated in para. 8 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 199.78 2002-03 44.37 257.68 2003-04 72.68 243.09 2004-05 126.55 218.28 2005-06 140.68 (Unt 28.2.2006 434.03 1708.05 Table 2 Years Capital of which Ports and Industrial Other Road outlay of village light water transport transport Industries and small houses transport services and industries Minerals. 1994-95 8437.81 1276.18 222.8 37.33 852.83 779.48 1995-96 9131.1 2021.45 542.7 50.94 1255.65 771.96 1996-97 1104.62 3718.55 512.1 40.99 455.63 77.76 1997-98 1058.3 2757.65 421.78 160.89 1462.55 853.49 1998-99 7987.75 2157.94 595.66 217.72 504.4 3288.25 1999-2000 6878.77 2832.57 398.75 58.7 475.68 1000.58 2000-01 5820.34 2052.19 275.52 58.04 884.87 886.72 2001-02 3023.94 691.55 175.38 37.39 724.22 915.9 2002-03 3309.28 593.15 364.26 214.34 487.74 564.09 2003-04 3055.33 355.33 471.87 404.78 400.38 472.47 2004-05 7452.96 974.38 783.2 209.12 358.94 624.87 Referring to the above tables it is stated that in the light of the expenditure and services being regularly provided by the State, State is providing service to compensate the levy of entry tax under the Entry Tax Act. It is stated that there is a direct nexus to the levy of entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 301 of the Constitution and held as follows: 32. Article 301 states that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout India shall be free. It is not freedom from all laws but freedom from such laws which restrict or affect activities of trade and commerce amongst the States. Although Article 301 is positively worded, in effect, it is negative as freedom correspondingly creates general limitation on all legislative power to ensure that trade, commerce and intercourse throughout India shall be free. Article 301, therefore, refers to freedom from laws which go beyond regulations which burdens, restricts or prevents the trade movement between States and also within the State. Since "freedom" correspondingly imposes "limitation", we have the doctrine of "direct and immediate effect" of the operation of the impugned law on the freedom of trade and commerce in Article 301 as enunciated in Atiabari Tea Co. 33. Article 301 is, therefore, not only an authorisation to enact laws for the protection and encouragement of trade and commerce amongst the States but by its own force creates an area of trade free from interference by the State and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 authorises a State Legislature to impose a non-discriminatory tax on goods imported from sister State(s), even though it interferes with the freedom of trade and commerce guaranteed by Article 301. Secondly, the ban under Article 303 (1) shall stand lifted even if discriminatory restrictions are imposed by the State Legislature provided they fulfil the following three conditions, namely, that such restrictions shall be in public interest; they shall be reasonable; and lastly, they shall be subject to the procurement of prior sanction of the President before introduction of the Bill. 35. Broadly, the above analysis of the scheme of Artieles 301 to 304 shows that Article 304 relates to the State Legislature while Article 302 relates to Parliament in the matter of lifting of limitation, which, as stated above, flows from the freedom of trade and commerce guaranteed under Article 301. Article 304 also confers upon the State Legislature power to lift the limitations imposed on it by Article 301 and Clause (1) of Article 303. This aspect is important because the doctrine of "direct and immediate effect" which is mentioned in Atiabari Tea Co. emerges from the concept of "limitation" em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the Rajasthan Motor Vehicles Taxation Act, 1951. The challenge under Article 301 was rejected by the court holding that the taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads. The court held that if a statute fixes a charge for a convenience or service provided by 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 considered unimpaired. The Apex Court in that case has laid down a working test to decide whether a tax is compensatory or not. Applying that test the court has to see whether the impugned enactment facially or patently indicates quantifiable date on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable and it must broadly indicate proportionality to the quantifiable benefit. 10. The concept of compensatory tax, it is well settled, is a judicially evolved principle and could be an exception to the provisions of Article 301. The Apex Court also indicated after referring to the decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Officer held that the said decision cannot be interpreted to mean that the sea change which has taken place in the concept of fee (as noted above) has vanished, and that the old concept of fee has been restored and that now it has to be established that the particular individual from whom the fee is being realised must be rendered some specific services. Noticing that the decision in Jindal Stainless Ltd.'s case was given in connection with Article 301 of the Constitution and it was not regarding the nature of a fee, the two judges Bench of the apex court held that the decisions in Sreenivasa General Traders v. State of A.P. , City Corporation of Calicut v. Thachambalath Sadasivan , State of H.P. v. Shivalik Agro Poly Products still hold the field regarding the nature of fee. The court held that cess levied by Section 7(1) of A.P. Rural Development Act, 1996 on purchase of goods for rendering the rural public, the services of rural development as enunciated in Section 9 thereof is a fee, hence upheld the validity of the Act. The court however held that there has to be a broad correlation between the total amount of fees generated by the impugned cess and the total value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2002 issued by the State of Jharkand by which 2% entry tax on the imported coal which the company had imported from Australia and New Zealand to Haldia (West Bengal) and Paradip (Orissa) as per contracts executed between the parties was imposed. In exercise of the legislative power conferred upon the State, pursuant to Entry 52 of List 2 of VII Schedule of the Constitution of India and under Article 213 of the Constitution, Bihar Tax on entry of goods into the local areas for consumption, Ordinance 11 of 1993 was promulgated and published on.22.2.1993 in the extra-ordinary gazette of Bihar. By a subsequent notification dated 25.2.1993 the entry tax was introduced in the erstwhile State of Bihar and such notification was made effective since then. Bihar Ordinance was replaced and another Ordinance by name Bihar Taxes on Entry of Goods into Local Areas for Consumption, Use or Sale thereof Ordinance 1993 was issued and the second Ordinance was made and an Act in the name and style of "Bihar Taxes on Entry of Goods into Local Areas for Consumption, Use or Sale thereof Act, 1993. Section 3 is the charging Section. The court examined the validity of the notification in the light of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate that the revenue obtained from the imposition of the entry tax are used for welfare activities such as maintenance of roads, hospitals, markets etc. It was noticed that it was not in dispute that the State Government had been making the levy even prior to the introduction of the entry tax and therefore it cannot be said that entry tax was levied with proportionate road fund. 15. The Apex Court in State of H.P. v. Yash Pal Garg examined the question whether tax imposed by the State of Himachal Pradesh to recover only part of the cost incurred by the State in construction and maintenance of roads and bridges is compensatory or not. Tax levied by H.P. Taxation (on Certain Goods Carried by Road) Act, 1991 was held compensatory for the reason that the demand for tax from traders in common with others is not a restriction on the right to carry on trade, commerce and intercourse. The court held such a tax would not come within the purview of the restriction contemplated under Article 301 unless it is established that in reality it hampers or burdens the trade and commerce. Further it was noticed that the State law accords identical treatment in the matter of levy and collection of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein. Section 2(1)(g) defines the expression "importer" as a person who brings or cause to be brought any goods whether for himself or on behalf of his principal or any other person, into a local area from any place outside the State for use, consumption, or sales therein or who owns the goods at the time of entry into the local area. Charging Section 3 which stood prior to the amendment by Finance Act 2003 read as follows: (1) Subject to the provisions of this Act, there shall be levied and collected a tax on the entry of any goods into any local area for use, consumption, transfer or sale therein. The tax on such goods shall be at such a rate or rates as may be fixed by Government by notification, on the purchase value of goods not exceeding the rates specified for the goods in the First Schedule to the Kerala General Sales Tax Act, 1963. Provided that no tax shall be levied and collected in respect of any motor vehicle which was registered in any Union Territory or any other State under the provisions of the Motor Vehicle Act, 1998 (Central Act 59 of 1988), prior to a period of fifteen months or more from the date on which it is registered in the State: Provided further that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easures or measures imposing compensatory tax do not come within the purview of restrictions contemplated in Article 301 and that such measures need not comply with the requirement of the provisions of Article 304(b) of the Constitution. The Apex Court however in Jindal's case held that Article 301 is not only an authorisation to enact laws for the protection and encouragement of trade and commerce amongst the States but by its own force creates an area of trade free from interference by the State and therefore Article 301 per se constitutes limitation on the power of the State. Article 301 is binding upon the Union Legislature and the State Legislatures, and provides for freedom of inter-State as well as intra-State trade and commerce subject to other provisions of Part XIII and correspondingly it imposes a general limitation on the legislative powers. The court held that whenever the law is impugned as violative of Article 301, the courts will have to examine the effect of the operation of the impugned law on the inter-State and the intra-State movement of goods, which movement constitutes an integral part of trade. 17. We have examined whether the Kerala Entry Tax Act facia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offering trading facilities and they are based on the principles of equivalence, Applying the above test, it cannot be said that maintaining of roads, providing bridges etc. is compensatory in nature so also meet the outlay incurred for some special advantage to trade, commerce and intercourse. Providing the above facilities and its use may incidentally bring in net revenue to the Government, but that circumstance is not an essential ingredient of compensatory tax. We may in this connection point out that in the counter affidavit filed by the State in Rajan's case, the stand of the State was that entry tax was collected in lieu of sales tax and to compensate the loss of sales tax revenue. Some in direct connection or some connection, more or less commensurate etc. are not the tests, but the direct and immediate effect is the test. Maintaining of roads, bridges etc. and promotion of SSI units etc. are generally met from the general funds or revenue. Whether goods are transported into the State from outside the State or abroad the State has got a duty to provide those facilities, like roads, bridges etc. which is being enjoyed not only by persons who bring goods notified for levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levied and the working test laid down in Automobile Transport's case, Jindal Stainless Ltd's case or Vijayalakshmi Rice Mills' case is not satisfied in these cases for levying entry tax. 20. We may now examine the position with regard to the goods imported from outside the country to the State of Kerala. Reasons we have indicated in the case of goods brought from outside the State of Kerala would apply to goods brought from abroad also. Goods like signal transmission equipments, antenna, radio equipments, escavator, motor cars were/are imported into the country through various ports in the State of Kerala as well as outside the State of Kerala and then to the State of Kerala. Petitioners have obtained customs clearance on payment of customs duty and levy. Some of the petitioners have not only paid the customs and other dues but also sales tax to some other States. Object of Act 15 of 1994 which we have already indicated was to curb evasion of sales tax on motor vehicles purchased from outside and brought into State on the plea that State was losing sales tax on motor vehicles which were purchased from outside the State and brought to the State. In the budget speech in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous sanction of the President of India as required under the proviso to Article 304(b) of the Constitution of India; nor was it subsequently assented to by the President of India. It is therefore contended that Section 3(1) of the Act is void for want of Presidential assent. On facts we have already held that so far as these cases are concerned, imposition of levy of entry tax is not compensatory in nature. Further, even if the notwithstanding clause is employed to bring in within the ambit of Article 304(b) even then the procedure laid down in the proviso has not been satisfied; nor the element of public interest is established. The State could not prove that the Act imposes only reasonable restriction on the freedom of trade, commerce or intercourse as may be required in public interest. There is nothing to show that the levy was made in public interest and that there is nothing on record to suggest that the levy of entry tax on goods introduced by amendment Act had the prior sanction of the President as required under the proviso to Article 304(b); nor was there anything on record to suggest that before amending the act assent of the President was obtained as contemplated u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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