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TMI Blog1995 (3) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... business carried on by the petitioner's company are not disputed and are not very much at issue between the parties. 4.. In exercise of powers conferred under article 213 of the Constitution of India, an Ordinance was promulgated and published on February 22, 1993, in the Extraordinary Gazette of Bihar. The said Ordinance is numbered as Bihar Ordinance No. 11 of 1993. By a subsequent notification being S.O. No. 37 dated February 25, 1993, the entry tax was introduced in the State of Bihar and the said notification was made effective from the date of its issue, namely, February 25, 1993. After the said Ordinance, i.e., Bihar Ordinance No. 11 of 1993 lapsed, there was another Ordinance styled as "The Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Second Ordinance, 1993" (Bihar Ordinance No. 19 of 1993). Thereafter the said Second Ordinance became an Act styled as "The Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993" (Bihar Act 16 of 1993). Subsection (3) of section 3 of the said Act which is the charging section is set out below: "(3) Notwithstanding anything contained in sub-sections (1) and (2) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Finance Act, 1981, shall be reduced to the extent of tax paid under the Ordinance. 3. The scheduled goods shall be subject to entry tax only at the first point of entry in local areas and at the subsequent entry in any other local areas the scheduled goods shall not be subject to tax under the Ordinance provided the subsequent importing dealer produces before the assessing officer the original copy of the cash memos or bill or challan of the dealer from whom he purchased or received the goods supported by a declaration in the form and manner prescribed. 4. This notification shall come into force with effect from the date of issue." 6. Under the provisions of the said Act, a set-off is available to an importer of a motor vehicle who is a dealer in motor vehicles and is liable to pay tax under the Bihar Finance Act by virtue of sale of such motor vehicles. In fact the setoff is available in respect of sales tax paid on motor vehicles against the levy of entry tax. Section 6 of the said Act provides for grant of exemption from the levy of tax to any class of dealers, persons or importers. Section 6 of the said Act is set out below: "Section 6. Exemption from tax.-The State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avit filed by the State Government in this proceeding also it appears that the said Act has been enacted for the purpose of augmenting the State revenue and not for the purpose of or for the benefit of any local authority. Therefore, relying on the aforesaid materials the contentions raised by the petitioners' counsel are that the said Act is ultra vires the provisions contained in entry 52 of List II of the Seventh Schedule to the Constitution. The said Act, as it is claimed to have been enacted on the authority of the said entry, therefore, suffers from the lack of legislative competence. In support of the aforesaid contention, learned counsel for the petitioners have placed reliance on the following decisions of the Supreme Court, namely: (a) State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. reported in [1958] 9 STC 353; AIR 1958 SC 560. (b) Empress Mills v. Municipal Committee reported in AIR 1958 SC 341. (c) Diamond Sugar Mills Ltd. v. State of Uttar Pradesh reported in AIR 1961 SC 652. (d) Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality reported in AIR 1963 SC 906. (e) Kanwar Ramnath v. Municipal Committee reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islature in question must receive the widest possible interpretation. 15.. It is equally well-settled that the power of legislation of the State Legislature under the legislative entries is plenary and is only subject to the provisions of the Constitution. Constitution postulates that subject to its provisions, article 245 enumerates the extent of the legislative power of the Parliament and the State Legislature and article 246 distributes the legislative power between the Parliament and the State Legislature with reference to the three legislative Lists under the Seventh Schedule. As has already been noted, these legislative entries have received the widest interpretation by all courts as these are different heads of legislation empowering either State or the Union Legislature as the case may be, to legislate on the subjects mentioned therein. 16.. The reason behind giving the widest meaning to the words used for the grant of legislative power is merely not to make any attempt to define or confine the words to a narrow meaning when the Constitution itself has not tried to either define or confine the entries to any narrow meaning. 17.. The next reason which has weighed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 2 SCR 8, Subba Rao, J., at page 22 of the Report quoted with approval the above passage of Lord Salborne from the judgment in Burah's case [1878] 5 IA 178. 20.. In elucidating the said concept further Subba Rao, J., at page 23 of the said Report quoted with approval the crisp observations of Earl Loreburn, Lords Chancellor, which are reproduced here: "If the text is explicit the text is conclusive alike in what it directs and what it forbids." The observations were made by the learned Lord Chancellor in the case of Attorney-General for Ontario v. Attorney-General for Canada reported in [1912] AC 571 (PC) at page 583 of the report. 21.. Subsequently also the Supreme Court in the case of Udai Ram Sharma v. Union of India reported in [1968] 3 SCR 41 at page 57, while dealing with the question of legislative competence relied upon the aforesaid observation of Lord Salborne in Burah's case [1878] 5 IA 178 (PC) and held that powers of Legislatures while acting under the limits set down by Indian Constitution are plenary in nature. 22.. Questions of policy or of jurisprudence cannot decide matters relating to legislative competence or the vires of an Act which is otherwise com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws, to enumerate the subdivisions of those powers, or to specify all the means by which they may be carried into execution." 24.. This being the accepted legal position about the interpretation of legislative entry in the Constitution, the width or content of the said entry cannot be cut down on the supposed historical interpretation which, according to the learned counsel for the petitioners, has been acquired by the term known as "octroi" or entry tax from different judicial pronouncements. 25.. In fact none of the judgments which have been cited by the learned counsel for the petitioners in the aid of their submissions about the legislative incompetence has held any enactment on the strength of entry 52 to be beyond the legislative competence of the State Legislature. In other words in none of those judgments, the legislative competence of a legislation on an interpretation of entry 52 of List II was at issue. Therefore, those judgments cannot be said to be an authority for the aforesaid proposition advanced by the learned counsel for the petitioners. As has been stated in the celebrated decision of the House of Lords in the case of Quinn v. Leathem reported in [1901] AC 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legitimate sales tax revenue by the State. But the levy cannot be held to be bad because the Legislature intended to avoid any loss of sales tax in the State so long it is not found to be invalid either because of any constitutional or statutory violation. It is not the intention or propriety of a legislation but it is legality or illegality which renders it valid or invalid. 28.. The argument of legislative incompetence has been sought to be developed by placing reliance on (1) objects and reasons of the Act and (2) some averments made in the affidavit. The statements of objects and reasons have already been extracted before. How far can the objects and reasons of an Act be an aid to the interpretation of the statute itself has received the attention of the Supreme Court in a number of cases. The leading judgment on this aspect has been delivered in the case of Aswini Kumar Ghose v. Arabinda Bose reported in AIR 1952 SC 369. In paragraph 32 of the said judgment the following observations have been made by the Constitution Bench: "As regards the propriety of the reference to the statement of objects and reasons, it must be remembered that it seeks only to explain what reasons i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the judgment for the majority, resorted to the objects and reasons for the purpose of ascertaining the conditions prevailing at the time the Bill was introduced and the purpose for which the amendment was made. Relevant excerpts from the judgment of Subba Rao, J., at page 899 of the Report are set out below: "This Court has held in Aswini Kumar Ghose v. Arabinda Bose AIR 1952 SC 369 that the statement of objects and reasons is not admissible as an aid to the construction of a statute. But we are referring to it only for the limited purpose of ascertaining the conditions prevailing at the time the Bill was introduced, and the purpose for which the amendment was made." 31.. Therefore, the consistent view of the Supreme Court is that the statement of objects and reasons are to be referred to for a very limited purpose as stated above. But the same cannot be relied upon to advance an argument of legislative incompetence, inasmuch as the competence of State Legislature can only be examined with reference to the provisions of the Constitution and nothing else. It goes without saying that affidavits cannot be relied upon to advance an argument of legislative incompetence. This p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature has the power to impose the tax, its authority is not open to challenge on a plea of colourable exercise of power." 36.. In this case also it cannot be said that the Legislature in question has no authority to impose the tax in question. Therefore, applying the aforesaid principles, this Court cannot hold that the said Act is a colourable one. (c) Violation of rights under articles 301 and 304 of the Constitution: 37.. The next question is that the said Act is violative of the freedom under article 301 of the Constitution of India and particularly the restrictions under article 304 of the Constitution. 38.. The said Act having been admittedly enacted under entry 52, List II of the Seventh Schedule is a tax on entry of goods. It is not disputed that the tax imposed under the said Act is one on trade and commerce and it is also clear that the tax being on entry of goods into a local area for certain specified purpose is a tax directly on movement of goods. Thus the tax imposed creates a barrier between one State and another which cannot be crossed except on payment of the impugned levy. In this connection reference may be made to the decision of the Supreme Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other. (c) Article 303(2) of the Constitution, is an exception to the restriction imposed under article 303(1) on the Parliament and that exception applies only to Parliament and to be resorted only in a specified situation indicated in article 303(2) of the Constitution. (d) Each clause of article 304 of the Constitution operates as a proviso to the provisions under articles 301 and 303 of the Constitution in the following way: (i) Article 304(a) of the Constitution authorises imposition of tax on the goods imported from the neighbouring State at par in such a manner as not to create any discrimination between similar goods manufactured and produced inside the State with regard to State taxation within the allocated field. (ii) Article 304(b) of the Constitution is analogous to article 302 for it makes the State power contained in article 304(b) of the Constitution free from the prohibition contained under article 301 of the Constitution in view of the opening words of article 304 of the Constitution. But there is also a difference between the powers under article 302 and those under article 304. (e) The difference is that under article 302 of the Constitution restrictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the historical process of the merger and integration of the several Indian States with the rest of the country was speedily accomplished with the result that when the Constitution was first passed the territories of India consisted of Part A States which broadly stated represented the Provinces in British India and Part B States which were made up of Indian States. This merger or integration of Indian States with the Union of India was preceded by the merger and consolidation of some of the States inter se between themselves. It is with the knowledge of the trade barriers which had been raised by the Indian States in exercise of their legislative powers that the Constitution-makers framed the articles in Part XIII. The main object of article 301 obviously was to allow the free flow of the stream of trade, commerce and intercourse throughout the territory of India." 43.. It has been held in the majority judgment of Atiabari's case AIR 1961 SC 232 that the freedom contemplated under article 301 is not a "mere platitude" as "the expression of a pious hope" of a declaratory character. It is also not a mere statement of a directive principles of the State Policy. The majority judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy is compensatory or regulatory in the following observations at page 1425 of the report: "It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities." 47.. In his concurring judgment in the said decision in Automobile Transport Limited's case AIR 1962 SC 1406 Subba Rao, J., further elaborated on what can be called a regulatory measure and what cannot be called a regulatory measure. In paragraph 36 at page 1430, his Lordship held as follows: "........... If a law directly and immediately imposes a tax for general revenue purposes on the movement of trade, it would be violating the freedom. On the other hand, if the impact is indirect and remote, it would be unobjectionable." (Emphasis* supplied) 48.. Therefore the question which the court has to consider in dealing with the constitutional validity of a provision like the present one is obviously whether the onus of showing that the restrictions imposed under the impugned law are reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the requirements of public interest. It is a question of weighing one relevant consideration against another and harmonising both the competing, interests so as to serve the public interest in the end. This process of assessment may not always be easy, but, nevertheless we must try to weigh the pros and cons urged before us by both the parties and decide whether the tax levied by the Act satisfies the requirement prescribed by article 304(b)." (Emphasis* supplied) 49.. In a subsequent Constitution Bench judgment of the Supreme Court in the case of Kalyani Stores v. State of Orissa reported in AIR 1966 SC 1686 it has been held that reasonable restrictions which can validly be imposed under article 304(b) of the Constitution can mean restrictions which seek to protect "Public health, safety, morals and property within the territory". As the impugned levy in that case was purely a fiscal measure the learned Judges held that the same "cannot be said to be a reasonable restriction on the freedom of trade in the public interest". (Page 1691 of the report). 50.. In another subsequent decision of the Supreme Court in the case of State of Karnataka v. Hansa Corporation reported in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court following that decision" (para 2). 54.. On an examination of the said explanation it appears that the decision reported in AIR 1990 SC 85 (India Cement Ltd. v. State of Tamil Nadu) invalidated imposition of cess on royalty as beyond the competence of State Legislature in view of the fact that section 9 of the Central Act covers the field. Their Lordships of the Supreme Court in that case were of the view that cess on royalty cannot be sustained under entry 49 of List II of the Constitution. 55.. Without going into any controversy it can be said that the levy in question in that case, namely, cess on royalty was one relating to land revenue and has nothing to do with the freedom of trade and commerce contemplated under Part XIII of the Constitution. It cannot be said, relying on the principle in Hansa Corporation's case AIR 1981 SC 463 that it is same people who were paying the said cess on royalty and to pay the levy of entry tax. Therefore, the impugned levy of entry tax sought to be imposed under the said Act cannot be said to be either compensatory or regulatory but it admittedly impedes the free flow of trade and commerce. (d) Absence of prior approval of the Pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it, must impose restrictions which are reasonable. It is of course true that if the previous sanction of the President is not obtained that infirmity may be cured by adopting the course authorised by article 255." 59.. This Constitution Bench judgment in Atiabari's case AIR 1961 SC 232 considered the decision of the Supreme Court in Saghir Ahmad's case AIR 1954 SC 728. Subsequently also the honourable Supreme Court in the case of Abdul Kadir v. State of Kerala reported in AIR 1976 SC 182 considered this question at page 191 of the Report wherein it has been stated as follows: "........... We may observe that the requirement of the proviso regarding the sanction of the President has been satisfied. It is no doubt true that the assent of the President was given subsequent to the passing of the Bill by the Legislature but that fact would not affect the validity of the impugned Act in view of the provisions of article 255 of the Constitution." 60.. Similar observation has been made in the judgment of the Supreme Court in the case of Hansa Corporation AIR 1981 SC 463 and at page 475 of ".....If prior presidential sanction is a sine qua non, the requirement of the proviso is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification of the persons or things for the purpose of applying its provisions but may leave it to the discretion of the Government to select and classify persons or things to whom its provisions are to apply. In determining the question of the validity or otherwise of such a statute the court will not strike down the law out of hand only because no classification appears on its face or because a discretion is given to the Government to make the selection or classification but will go on to examine and ascertain if the statute has laid down any principle or policy for the guidance of the exercise of discretion by the Government in the matter of the selection or classification. After such scrutiny the court will strike down the statute if it does not lay down any principle or policy for guiding the exercise of discretion by the Government in the matter of selection or classification, on the ground that the statute provides for the delegation of arbitrary and uncontrolled power to the Government so as to enable it to discriminate between persons or things similarly situate and that therefore, the discrimination is inherent in the statute itself." 64.. In the instant case there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hesis of equality before law. Such a case, would fall with in the second proposition laid down by this Court in Jyoti Pershad v. Administrator for the Union Territory of Delhi [1962] 2 SCR 125 at 137; AIR 1961 SC 1602." 67.. In this case the guidance cannot be had even from the statements of objects and reasons inasmuch as the statement of objects and reasons will show that the impugned levy is only for the purpose of swelling general revenue. Therefore, we cannot find any guidance for the exercise of discretion given to the State Government either under the provisions contained in proviso to section 3 or under section 6 of the said Act. In that view of the matter, both the proviso to section 3 as extracted above and section 6 are declared ultra vires article 14 of the Constitution of India. In this connection reference may be made to the decision of the Supreme Court in the case of Municipal Board of Abu Road v. Jaishiv reported in AIR 1988 SC 388. In that case a challenge was made to the effect that imposition of octroi in respect of different municipalities have been made on varying basis, and as such it was alleged to be discriminatory. The Supreme Court repelled the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modity, here it is tobacco. Since this Court has held that the impugned levy is not on sale and purchase of goods but is a levy on entry of goods, this Court need not discuss this question any further in view of the discussion made by the Supreme Court in the case of Hansa Corporation AIR 1981 SC 463 at paragraph 8, page 467. This point was argued on behalf of the learned counsel for I.T.C. 71.. Another incidental question argued on behalf of the counsel for Indian Oil Corporation, namely, is that crude oil is merely refined at the Barauni Refinery of Indian Oil Corporation and, therefore, it does not undergo any process which can be called "manufacture". A further subsidiary question argued is that the Barauni Refinery of Indian Oil Corporation is not situated within any "local area" as defined under the said Act and, therefore, entry of goods in that area does not attract any levy under the said Act. Any decision on these questions will involve a detailed investigation into factual questions which this Court is not called upon to undertake in view of its decision already arrived at on the constitutional questions as stated above. 72.. For the reasons aforesaid, these writ pet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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