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TMI Blog2001 (12) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... es situated in the State of Haryana or have business establishments in Haryana. Only three of the petitioners, namely, Leather Cloth and Plastic Manufacturers Association, New Delhi, New Santra Pipe Fittings Pvt. Ltd., Hawrah, West Bengal and M/s. MRF Ltd., Madras, who have filed C.W.P. Nos. 9705 of 2000, 13374 of 2000 and 15546 of 2000 respectively, do not have factories or business establishments in the State of Haryana. 3.. The petitioners (except those who have filed C.W.P. Nos. 9705, 13374 and 15546 of 2000) have averred that for the purpose of manufacturing their products, they have been importing raw materials and other goods and have been paying various taxes including octroi levied under section 69 read with section 70 of the Haryana Municipal Act, 1973 (for short, "the Municipal Act"). They have alleged that with a view to attract the voters in the forthcoming elections to the Legislative Assembly, the Government of Haryana abolished the octroi in November, 1999 and simultaneously increased the tax on consumption of electricity in the municipal areas under section 70(1)(viii) of the Municipal Act at the rate of five paise per unit in place of one paise per unit, imposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of tax is far higher than the rate of octroi tax earlier charged or the rate of octroi/entry tax in other States. In the petitioners' case, the liability is nearly 50 times of its liability under the earlier regime of octroi tax under section 69 of the Haryana Municipal Act. Such a high tax cannot be said to be an entry tax. (h) Item 14 of Schedule "A" appended to the Act, which exempts textile, tobacco and sugar on which additional excise duty in lieu of sales tax is leviable also shows that wherever either sales tax was being paid or any other duty in lieu of sales tax was payable, the entry tax is not leviable. (i) Section 5(1)(d) of the Act which exempts goods on which sales tax has been paid or has become payable, would also clearly show that the intention of the State is to levy sales tax on all goods on which sales tax has not already been paid or is not payable to the State Government. (j) The real effect of the Ordinance and the provisions of the notifications issued on the same date is that so-called entry tax is levied by way of sales tax in respect of those goods which are not sold within the local area but are consumed or used in manufacture of other goods. The no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... averred that the textile fabrics manufactured by its members are covered by items Nos. 14 to 17 of Schedule B under sections 6 and 15 of the 1973 Act and by virtue of the conditions specified in the said Schedule, the textile fabrics do not attract tax under the 1973 Act because additional excise duty is levied under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. It has challenged the impugned legislation by describing it as a colourable exercise of legislative power of the State, inasmuch as, the tax is sought to be levied on the sale and purchase of goods involving import from outside the State and export in the course of inter-State trade and out of India. It has further averred that the impugned legislation is ultra vires to articles 286, 301 and 304 of the Constitution. 6.. New Santra Pipe Fittings (Pvt.) Ltd. (C.W.P. No. 13374 of 2000) is engaged in the business of manufacturing various types of pipe fittings including G.I. sockets which are sold in different parts of country including the State of Haryana. M/s. M.R.F. Ltd., Madras (C.W.P. No. 15446 of 2000) is engaged in the manufacture of auto tyres and tubes in its factories situated at Goa, Arko ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 11(1) of the Ordinance and the Entry Tax Act confers unbridled and unguided power upon the State Government to exempt any class of importers from the levy of entry tax and, therefore, it is liable to be struck down being violative of article 14 of the Constitution. (x) Section 6 of the Entry Tax Act which requires the filing of return and lays down the procedure for assessment is unreasonable and arbitrary. (xi) Exemption notifications issued under section 11(1) of the Ordinance are liable to be quashed on the ground of discrimination because no discernible criteria has been adopted for exempting those engaged in the manufacture of goods relating to information technology. 8.. In the written statements filed on behalf of the respondents, it has been averred that octroi was abolished because there was feeling that it was obnoxious in character and impeding the development of trade and commerce and there was clamour for its abolition and in order to compensate the municipalities for the loss caused due to abolition of octroi, the State Government decided to generate additional funds by levy of entry tax. They have averred that entry tax is compensatory in nature and the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) dated May 13, 2000. 10.. From the abovenoted pleadings, the following questions of law arise for consideration by the court: (i) Whether the Ordinance and the Entry Tax Act are liable to be struck down being colourable piece of legislation and/or beyond the legislative competence of the State? (ii) Whether the entry tax is violative of articles 14, 19(1)(a) and (g), 301 and 304 of the Constitution of India? (iii) Whether exemption notifications dated May 5, 2000 are ultra vires to article 14 of the Constitution of India? 11.. Before adverting to the arguments advanced by the learned counsel in the context of the aforementioned questions, we may notice the relevant provisions of the Ordinance (2000) 15 PHT 177 (JS) and the Entry Tax Act. The same read as under: "Preamble and sections 3, 5 and 11 of the Ordinance: To provide for levy and collection of tax on the entry of goods into the local areas of the State of Haryana for consumption or use therein and matters incidental thereto and connected therewith. 3.. Levy of tax.-(1) There shall be levied and collected a tax on entry into a local area, of all goods except those specified in Schedule A, for consumption or use th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (5) 'brings goods into a local area' means causing the entry of goods into a local area by bringing them inside the local area or causing the goods to be brought inside the local area from any place outside the local area; (9) 'entry of goods into a local area' means taking or bringing goods into a local area from any place outside the State or from any place inside any other local area in the State; (12) 'gross turnover' used in relation to an importer with reference to a period of time means the sum or value of goods which the importer brings or receives on the entry of such goods into a local area during the given period; (13) 'importer' means any person who, in the course of business, whether on his own account or on account of a principal or any other person, brings any goods into or receives or is entitled to receive any goods on their entry into a local area and includes a casual importer; (14) 'local area' means 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 Can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which have, without use or consumption, been delivered outside the local area; (c) the value of goods which have been subjected to tax once under this Act, either as such or in some other form; (d) the value of goods on which sales tax has been paid or has become payable to the State; (e) the value of plant, machinery, equipment and tools, brought or received on lease; (f) the value of goods left in the stock, whether as such or in different form, lying with him in the local area, except when the certificate of registration issued under this Act is cancelled: Provided that the value of goods deducted under this clause shall, except when the certificate of registration issued under this Act is cancelled, form part of the turnover for the period immediately succeeding: Provided further that the value of plant, machinery, equipment and tools, if forming part of the turnover, may form part of the closing stock, if capitalised; and (g) the value of such other goods as may be prescribed. Explanation.-For the purpose of this sub-section, deductions of value of only such goods shall be admissible which forms part of gross turnover of the importer and if value of certain goods have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which has been delivered as such by him outside the State subject to production of proof of despatch and receipt of goods outside the State; Note.-Production of declarations in form F, prescribed under the provisions of the Central Sales Tax (Registration and Turnover) Rules, 1957, shall be admissible as evidence for the purposes of this clause subject to verification of the correctness, genuineness and validity of the declaration produced; (e) the value of goods specified in Schedule A of the Ordinance; (f) the value of goods returned as such to the consignor within six months of their entry into the local area; and (g) the value of goods left in the stock except when the business is closed or the certificate of registration issued under the Ordinance is cancelled: Provided that the turnover deducted under this clause shall form part of the turnover for the period immediately succeeding: Provided further that the value of plant and machinery, if forming part of the turnover, can form part of the closing stock, if capitalised. (2) The assessing authority may ask for any relevant evidence to satisfy itself about the genuineness and correctness of the deductions claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Haryana General Sales Tax Act, 1973 (Act 20 of 1973) and industrial units availing the facility of deferment of tax under section 25A thereof for the period of such exemption or deferment; and (iii) Export oriented industrial units exporting out of the territory of India 75 per cent or more of their products in terms of value in a given period not exceeding one year. ANNEXURE I Categories of industries included in the scope/definition of information technology industry (A) Computing devices, namely- Desktop Personal computer Servers Work station Nodes Terminals Network P.C. Home P.C. Lap-top computers Note book computers Palms Top Computer/PDA (B) Network controller cards/memories, namely: Network interface card (NIC) Adaptor-ethernet/PCI/EISA/Combo/PCMICA SIMMS-memory DIMMS-memory Central Processing Unit (CPU) Controller-SCST/Array Processors-Processor/processor power module/upgrade (C) Storage units, namely- Hard disk drives/hard drives RAID devices and their controllers Floppy disk drives C.D. ROM drives Tape drives-DLT drives/DAT Optical disk drives Other digital storage devices (D) Others- Key board Monitor Mouse Multi-media kits (E) Printe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on transactions which are otherwise outside the legislative competence of the State. In support of his arguments, Shri Shanti Bhushan relied on the decisions of the Supreme Court In Re: The Insurance Act of Canada [1932] AC 41, Attorney-General for Alberta v. AttorneyGeneral for Canada [1939] AC 117, K.C. Gajapati Narayan Deo v. State of Orissa AIR 1953 SC 375 and Federation of Hotel and Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC); AIR 1990 SC 1637. Shri Shanti Bhushan further argued that entry 52 of List II of the Seventh Schedule authorises the Legislature of a State to make law relating to tax on entry of goods into a local area for consumption, use or sale therein and it is not open to the State to tax only those goods which enter the local area for use or consumption and not for sale. 16.. Shri A.K. Ganguly, Senior Advocate argued that even though the impugned levy is ostensibly on the entry of goods in a local area in the State of Haryana, in substance, it is a tax on manufacturers who import raw material from outside the State of Haryana and it is a device to compel them to pay sales tax on all inter-State branch transfers of finished products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also exempted in terms of notification dated September 29, 2000 and a manufacturer, who does not sell the final product and simply adds the same to the stocks, is not liable to pay tax by virtue of section 5(1)(f) of the Entry Tax Act. 18.. S/Shri B.K. Jhingan, Mohan Jain, Parag Tripathi, Rajesh Bindal, Nikhil Nayyar, Rajiv Bhalla, Sanjiv Goel, S.K. Sarwal, Rakesh Aggarwal, S.K. Sud, Vikas Suri, D.S. Dhankar, Manish Jain, Rajiv Agnihotri and Hemant Kumar adopted the arguments of S/Shri Shanti Bhushan, A.K. Ganguly and Dr. A.M. Singhvi. 19.. Shri P.P. Rao, Senior Advocate for the State and the learned Advocate-General, Haryana, referred to entry 52 of List II of the Seventh Schedule, sections 2(5), (9), (12), (13) and (29), 3 and 5 of the Entry Tax Act and argued that the State Legislature is competent to levy such tax because the incidence of tax is on the entry of goods into a local area for consumption or use therein and not a tax on the import of goods from outside India or on manufacture of other products and export thereof either by way of branch transfer or otherwise. Shri Rao further argued that under entry 52, the State is not obliged to enact law for levy of entry tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that the Legislature did not have the competence to enact the same, the court can make an enquiry whether the Legislature has, in the particular case, transgressed the limits of its constitutional powers. Such transgression may be patent or direct. It may also be disguised, covert or indirect and if the court comes to the conclusion that even though the particular legislation appears to have been enacted by the Legislature within the sphere allocated to it but has, in fact, transgressed the limits of its constitutional powers, the legislation is called colourable legislation. 23.. In K.C. Gajapati Narayan Deo v. State of Orissa AIR 1953 SC 375, a Constitution Bench of the Supreme Court considered the constitutional validity of the Orissa Estates Abolition Act, 1952. One of the grounds on which the impugned legislation was challenged was that the State Legislature did not have the competence to do so and that it was a colourable piece of legislation. While dealing with the doctrine of colourable legislation, their Lordships of the Supreme Court referred to the judgments in Attorney-General for Ontario v. Reciprocal Insurers [1924] AC 328, Attorney-General for Alberta v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the Legislature is really doing.' In other words, it is the substance of the Act that is material and not merely the form or outward appearance, and if the subjectmatter in substance is something which is beyond the powers of that Legislature to legislate upon, the form in which the law is clothed would not save it from condemnation. The Legislature cannot violate the constitutional prohibitions by employing an indirect method. In cases like these, the enquiry must always be as to the true nature and character of the challenged legislation and it is the result of such investigation and not the form alone that will determine as to whether or not it relates to a subject which is within the power of the legislative authority-vide 1924 AC 328 at p. 337(B) (AttorneyGeneral for Ontario v. Reciprocal Insurers). For the purpose of this investigation the court could certainly examine the effect of the legislation and take into consideration its object, purpose or designvide Attorney-General for Alberta v. Attorney-General for Canada [1939] AC 117 at page 130(C). But these are only relevant for the purpose of ascertaining the true character and substance of the enactment and the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislature like the British Parliament, turns upon the construction of the entries in the legislative Lists. If a legislature with limited or qualified jurisdiction transgresses its powers, such transgression may be open, direct and overt, or disguised, indirect and covert. The latter kind of trespass is figuratively referred to as 'colourable legislation', connoting that although apparently the Legislature purports to act within the limits of its own powers yet, in substance and in reality, it encroaches upon a field prohibited to it, requiring an examination, with some strictness, the substance of the legislation for the purpose of determining what is that the Legislature was really doing. Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each Legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t does not include sale or possession of the imported goods. 83.. Duties of customs including export duties. Customs: A duty of customs being a tax on the act of importation or exportation, cannot be regarded as a tax on property. 92-A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. 92-B. Taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce. Entry 52, List II of the Constitution: 52.. Taxes on the entry of goods into a local area for consumption, use or sale therein." 27.. A bare reading of entry 41 of List I shows that it deals with trade and commerce with foreign countries: import and export across customs frontiers and has nothing to do with levy of tax on the entry of goods into the State. Therefore, it has no bearing on the determination of issue raised in these petitions. Entry 83 of List I refers to the duties of customs including export duties. The taxable event in the case of customs duty takes place when the goods are imported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpression that only certain manufacturers are being subjected to entry tax, but a careful examination of the entire scheme of the Entry Tax Act leads to an irresistible inference that it is not a tax on manufacturers who export goods out of Haryana by branch/consignment transfers or in the course of inter-State trade. 29.. The preamble of the Entry Tax Act shows that it was enacted to provide for levy and collection of tax on the import of goods into local areas of the State of Haryana for consumption or use therein and matters incidental thereto and connected therewith. As per section 2(5) term, "brings goods into a local area" means causing the entry of goods into a local area by bringing them into a local area or causing the goods to be brought inside the local area from any place outside the local area. The "entry of goods into a local area" has been defined under section 2(9) to mean taking or bring goods into a local area from any place outside the State or from any place inside any other local area in the State. "Gross turnover " has been defined under section 2(12). As per this definition, gross turnover used in relation to an importer with reference to a period of time me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his tax is on the entry of goods into a local area. Such entry into a local area may be from any place outside the State or from any place inside the State. The incidence of tax falls uniformly if the entry of goods in a local area is for consumption or use therein. No distinction for the purpose of incidence of tax has been made under the charging section 3 for the goods which enter into a local area from outside the State or from any place inside the State. 30.. Section 5(1) provides for various deductions from gross turnover. Clause (a) of sub-section (1) of section 5 provides for deduction of the value of the goods specified in Schedule "A". Clause (b) provides for a deduction from gross turnover of the value of the goods which have, without use or consumption been delivered outside the local area. Thus, the goods which have not been used or consumed are outside the purview of charging section wherein the incidence of tax has been confined on the entry of such goods which have been used or consumed in the local area. Clause (c) provides for deduction of the value of goods which have been subjected to tax under the Entry Tax Act. Clause (d) excludes the element of sales tax whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey are entitled to the benefit of deduction specified in section 5(1) or exemption/reduction in terms of notification issued under section 11 of the Act and the fact that the petitioners, who are importing bulk goods are liable to pay tax under the Entry Tax Act, cannot lead to an inference that the entry tax is, in reality and substance, a tax on sale and purchase of goods in the course of inter-State trade or branch/consignment transfers or export out of India and, therefore, the impugned legislation is beyond the legislative competence of the State or is a colourable piece of legislation. 32.. We are further of the view that the averments made in the written statement and the Statement of Objects and Reasons contained in the Bill which is said to have been prepared by the department cannot be made basis for declaring the impugned legislation as a colourable piece of legislation or beyond the legislative competence of the State. What has been incorporated in the written statement does not necessarily reflect the true intention of the Legislature which the court has to find out by reading the statute as a whole and on a conjoint reading of the preamble and various provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leaves out sale from its purview. In this connection, we may refer to the decision of the Supreme Court in Sri Krishna Das v. Town Area Committee, Chirgaon [1990] 77 STC 395. In that case, the appellant had challenged the validity of the bye-laws promulgated under the United Provinces Town Areas Act, 1914. One of the grounds of challenge was that the tax is discriminatory, inasmuch as, exemption was granted to some of the products and to those who entered the Town Area Committee by rail or motor transport. While rejecting the said grounds, the Supreme Court laid down the following principles: "It is for the Legislature or the taxing authority to determine the question of need, the policy and to select the goods or services for taxation. Courts cannot review the wisdom or advisability or expediency of a tax as the court has no concern with the policy of legislation, so long as they are not inconsistent with the provisions of the Constitution. It is only where there is abuse of its powers and transgression of the legislative function in levying a tax, it may be corrected by the judiciary and not otherwise. Taxes may be and often are oppressive, unjust and even unnecessary but this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the normal levy. In the present case the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and throughout the nexus is confined to despatches of tea rather than related to the tea estate. There is also no relationship or nexus between the tea estate and the varied treatment of accorded in respect of despatches of different kinds of tea. Thus, having regard to all the relevant provisions of the statute, including section 4(2)(aa) and section 4(4), in substance the impugned levy is a levy in respect of despatches of tea and not in respect of tea estates. The Bill or the amendments to the West Bengal Act in 1981 and 1982 had not been introduced or moved in the Legislature of the State with the previous sanction of the President. Therefore, the legislation does not fall within the saving provisions of article 304(b) and is hit by article 301. Thus, the impugned provisions brought into the West Bengal Act by the amendments in 1981 and 1982 so far as they purport to relate to tea estates are unconstitutional and void and cannot be given effect to. A legislation in respect of tea estates would be referable to entry 49 in List ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, beyond the competence of the State Legislature and is ultra vires." 37.. The propositions laid down in the aforementioned decisions are unexceptionable, but in view of the conclusion we have reached about the true nature of the impugned levy, we have no hesitation to hold that the impugned legislation cannot be declared unconstitutional on the ground of lack of legislative competence. Re: Question No. (ii): 38.. The second question can also be divided into the following two parts: (i) Whether the Entry Tax Act is unconstitutional being violative of articles 301 and 304 of the Constitution? (ii) Whether the impugned legislation is violative of articles 14 and 19(1)(a) and (g) of the Constitution? 39.. Shri Shanti Bhushan argued that the levy of entry tax under section 3 of the Entry Tax Act constitutes a restriction on the free-flow of trade and commerce and intercourse throughout the territory of India and is thus, violative of article 301 of the Constitution. He submitted that levy of 4 per cent entry tax as compared to the octroi leviable at the rate of 0.08 per cent is a clear deterrent to the free-flow of trade and commerce throughout the territory of India. He th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely restricts and impedes the free flow of movement of goods which are in the nature of raw material and which petitionerSony India Ltd. (C.W.P. No. 8700 of 2000) is compelled to import from outside the State of Haryana and also from outside India to enable it to manufacture colour TV sets and other audio visual products, like video cameras, computer monitors, etc. Shri Ganguly also referred to the plea of the respondents that the tax in question is compensatory in nature and argued that the bald assertion made in the written statement and section 22 of the Entry Tax Act cannot be taken as decisive of the compensatory nature of the tax. Learned counsel submitted that a tax can be treated as compensatory only if it is used for providing trading facilities to those who bear the burden of tax, but in the present case, no such facilities are provided. He further submitted that development of a local area is the general responsibility of the concerned local bodies and the State Government for which the latter can raise general revenue by exercising its taxing power under the Constitution subject to the condition that such tax must meet the test of article 301, i.e., it must not impede t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tax and submitted that the court should not accept the bald assertion made in the written statement. In this respect, he cited the decisions of the Supreme Court in G.K. Krishnan v. State of Tamil Nadu AIR 1975 SC 583 and State of Assam v. Labanya Probha Devi AIR 1967 SC 1575 (SC). 43.. On the other hand, Shri P.P. Rao and the learned AdvocateGeneral, Haryana, laid emphasis on the fact that the entry tax is compensatory in nature. They heavily relied on the provisions contained in Parts IX and IX-A of the Constitution and section 22 of the Entry Tax Act and submitted that the entire amount of entry tax would be distributed among the local bodies to be utilised for development of local areas. Shri Rao relied on the decisions of the Supreme Court in Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 and argued that the impugned levy would not affect the free-flow of movement of goods from one part of the country to the other within the meaning of article 301 of the Constitution. He then submitted that it is within the legislative competence of the State to impose tax on all goods and thereafter, grant deduction/rebate/exemption in some cases and this cannot be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist II of the Seventh Schedule, but this power is subject to the other provisions of the Constitution. This means that the power of the Legislature to make laws is also subject to the provisions of Part XIII of the Constitution. Article 301, which is first in the family of articles dealing with trade, commerce and intercourse within the territory of India, lays down that subject to other provisions of this Part (Part XIII), trade, commerce and intercourse throughout the territory of India shall be free. Article 302 declares that the Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of India as may be required in public interest. Article 303(1) contains a non obstante clause. It lays down that notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and the another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. Clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which has the effect of directly impeding the free flow of trade, commerce and intercourse; (3) the freedom envisaged in article 301 is subject to non-discriminatory restrictions imposed by Parliament in public interest (article 302); (4) even discriminatory or preferential legislation may be made by Parliament for the purpose of dealing with an emergency like a scarcity of goods in any part of India [article 303(2)]; (5) reasonable restrictions may be imposed by the Legislature of a State in the public interest [article 304(b); (6) non-discriminatory taxes may be imposed by the Legislature of a State on goods imported from another State or other States, if similar taxes are imposed on goods produced or manufactured in that State [article 304(a)]; and lastly (7) restrictions imposed by existing laws have been continued, except in so far as the President may by order otherwise direct (article 305). 46.. The majority consisting of Gajendragadkar, Wanchoo and Das Gupta, JJ. did not agree with the Chief Justice and held as under: "It is a federal Constitution which we are interpreting, and so the impact of article 301 must be judged accordingly. Besides, it is not irrelevant to rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shah, J., in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809. They also explained the majority view in the following words: "If the word 'free' in article 301 means 'freedom to do whatever one wants to do' then chaos may be the result; for example, one owner of a motor vehicle may wish to drive on the left of the road, while another may wish to drive on the right of the road. If they come from opposite directions, there will be an inevitable clash. Another class of examples relates to making a charge for the use of trading facilities, such as, road, bridges, aerodromes, etc. The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to anybody's freedom so long as they remain reasonable; but they could of course be converted into a hindrance to the freedom of trade. If the authorities concerned really wanted to hamper anybody's trade, they could easily raise the amount of tax or toll to an amount which would be prohibitive or deterrent or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 Here italicised. of their business and paying not patently much more than what is required for providing the facilities. Their Lordships further observed that it would be impossible to judge the compensatory nature of a tax by a meticulous test. 50.. The decisions of the Supreme Court in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491 came up for consideration before a Constitution Bench in Khyerbari Tea Co. Ltd. v. State of Assam AIR 1964 SC 925. Speaking for the Bench, Gajendra Gadkar, J. (as his Lordship then was), referred to the majority and minority views in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491 and observed as under: "In the Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan case [1963] 1 SCR 491; AIR 1962 SC 1406 the majority view expressed by Das, J., on behalf of himself and Kapur and Sarkar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stralian decisions which dealt with the scope and effect of section 92 of the Australian Constitution would be of no assistance in construing the effect of the provisions in Part XIII of our Constitution, because the legislative, historical and political background, the structure and the effect of the relevant provisions contained in Part XIII were in material particulars different from those of section 92 of the Australian Constitution; section 92 is absolute in terms and on its literal construction, admits of no exceptions. The Australian decisions, therefore, had to introduce distinctions, such as compensatory or regulatory tax laws in order to take laws answering the said description out of the purview of section 92. In our Constitution, however, though article 301 is worded substantially in the same way as section 92, articles 302 and 304 provide for reasonable restrictions being imposed on the freedom of trade subject to the requirements of the said two articles, and so the problem facing judicial decisions in Australia and in this country in regard to the freedom of trade and the restrictions which it may be permissible to impose on it, is not exactly the same. The minority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquor. By a majority of 4: 1, their Lordships of the Supreme Court upheld the challenge and observed as under: "The notification levying duty at the enhanced rate is purely a fiscal measure and cannot be said to be a reasonable restriction on the freedom of trade in the public interest. Article 301 has declared freedom of trade, commerce and intercourse throughout the territory of India, and restriction on that freedom may only be justified if it falls within article 304. Reasonableness of the restriction would have to be adjudged in the light of the purpose for which the restriction is imposed, that is, 'as may be required in the public interest'. Without entering upon an exhaustive categorization of what may be deemed 'required in the public interest', it may be said that restrictions which may validly be imposed under article 304(b) are those which seek to protect public health, safety, morals and property within the territory. Exercise of the power under article 304(a) can only be effective if the tax or duty imposed on goods imported from other States and the Tax or duty imposed on similar goods manufactured or produced in that State are such that there is no discrimination a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 25, 1951 issued under the Cochin Tobacco Act constitute such restrictions or impediments as directly and immediately hamper free-flow of trade, commerce and intercourse and, therefore, fall within the prohibition imposed under article 301 of the Constitution. Unless the High Court first comes to the finding on the available material whether or not there is infringement of the guarantee under article 301 of the Constitution, the further question as to whether the statute is saved under article 304(b) does not arise and the principle laid down by this Court in Kalyani Stores case [1966] 1 SCR 865; AIR 1966 SC 1686 cannot be invoked." 53.. In G.K. Krishnan v. State of Tamil Nadu AIR 1975 SC 583, the Supreme Court considered the challenge to the Madras Motor Vehicles Taxation Act, 1931 on the ground of violation of articles 14, 19(1)(g), 301 and 304 of the Constitution. Their Lordships referred to the majority judgment in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232, which had propounded the direct and immediate restriction test for judging the constitutionality of the taxing statutes in the context of article 301 and proceeded to observe as under: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a direct tax, the effect of which is to hinder the movement part of the trade. If the tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or commerce. ................... Strictly speaking, a compensatory tax is based on the nature and the extent of the use made of the roads, as, for example, a mileage or ton-mileage charge or the like, and if the proceeds are devoted to the repair, upkeep, maintenance and depreciation of relevant roads and the collection of the exaction involves no substantial interference with the movement. .............What is essential for the purpose of securing freedom of movement by road is that no pecuniary burden should be placed upon it which goes beyond a proper recompense to the State for the actual use made of the physical facilities provided in the shape of a road." 54.. We may now refer to some judgments of the Supreme Court and the High Courts in which the constitutionality of the entry tax was challenged on the ground of violation of articles 301 and 304. In State of Karnataka v. Hansa Corporation AIR 1981 SC 463, the Supreme Court examined the constitutionality of the Karnataka Tax on Entry of Goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State. If a State tax law accords identical treatment in the matter of levy and collection of tax on the goods manufactured within the State and identical goods imported from outside the State, article 304(a) would be complied with. There is an underlying assumption in article 304(a) that such a tax when levied within the constraints of article 304(a) would not be violative of article 301 and State Legislature has the power to levy such tax. Tax under the impugned legislation would be levied on scheduled goods either manufactured or produced within Karnataka State or imported from outside on their entry in a local area. Thus, this tax is non-discriminatory in that it does not discriminate between scheduled goods manufactured or produced within Karnataka State or those imported from outside. And the microscopic discrimination relied upon by the respondents that there is differential treatment accorded to goods produced within a local area and those imported from outside the local area is hardly relevant for the purpose of article 304(a). The High Court was accordingly right in concluding that the impugned tax satisfies the requirements of article 304(a). .............. The n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nreasonable restriction on the fundamental rights of the petty dealers to carry on their trade and observed as under: "Looking at the matter from a slightly different angle it must be confessed that if the contention of the respondents were to be upheld it would provide a fruitful source for evasion of tax. If petty dealers are to be excluded some criterion will have to be provided relatable to his turnover in scheduled goods for classifying who are petty dealers. That turnover will have to be kept reasonably high to make it rational but in that event the big registered dealer can always conveniently defeat the tax by bringing into the local area scheduled goods in the name of such petty dealer. It would be an incentive to a big registered dealer to set up a number of petty dealers and import scheduled goods into local area in the name of those petty dealers. To avoid any such contingency, if the tax is levied on the entry of scheduled goods in the local area at the hands of a dealer irrespective of his turnover a potential source of evasion can be checkmated. Viewed from either angle, non-exemption of petty dealers from the operation of the Act does not lead to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative competence of the Legislature which passes the Act and may have to be examined in certain cases by reference to the question as to whether fundamental rights of citizens have been improperly contravened, or other considerations which may be relevant in that behalf. Normally, it would be inappropriate and indeed illegitimate to hold an enquiry into the manner in which the funds raised by an Act would be dealt with when the court is considering the question about the validity of the Act itself.......'. In this case also the argument was that the Act impugned there was passed by the Parliament not for raising funds for the Union of India but for validating the illegal recovery of cesses made by the State Governments, and which funds had already gone into the Consolidated Funds of the respective States. Reliance was placed upon article 266 of the Constitution in that behalf. The aforesaid observations were made negativing the said contention. The court further observed: '....if the taxes or cesses recovered under an Act are not dealt with in the manner prescribed by the Constitution, what remedy a citizen may have and how it can be enforced, are questions on which we express n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay sales tax were exempted and that it was violative of article 301 of the Constitution. The relevant observations made on these issues are extracted below: "Liability to pay sales tax on the goods specified in Schedule II is thus not an essential ingredient of levy. The expression 'liable to tax' has been used to identify the person who shall pay the entry tax. To put it conversely if any goods mentioned in Schedule II are brought from outside the State by a person who is not liable to tax under the Sales Tax Act then entry tax shall not be realised from such person. The intention is to levy tax only when the goods are brought inside the State by a dealer carrying on business whose turnover is not less than Rs. 1,000 annually and not by any other person. In other words, the tax is leviable on all goods specified in Schedule II brought for consumption, use or sale; but it shall be realised only from those persons who are dealers registered under the Sales Tax Act and are liable to pay tax. The expression 'liability to tax' is determinative of the person from whom the tax shall be realised and not of the goods which could be subjected to levy. The construction suggested by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned enactment is ultra vires articles 19(1)(g), 286(3) and 304(a) of the Constitution. The petitioner relied on entries 92A and 92B of List II. While rejecting the argument that the State Legislature was not competent to enact such law and only the Parliament was competent to do so, the division Bench of the High Court observed as under: "Item 54 of List II of the Seventh Schedule to the Constitution relates to tax on sale or purchase of goods subject to the provisions of entry 92-A of List I. Item 52 of List II relates to tax on entry of goods into local area for consumption, use or sale therein. Item 92A of List I relates to the sale of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. Item 92-B of List I relates to tax on consignment of goods. Tax on sale or purchase, tax on entry of goods into local area for consumption, use or sale therein and tax on consignment of goods are different in nature and character and are imposed by local authorities under separate laws. Octroi is in the nature of a multipoint imposition. Various State Legislatures, with the intention of reducing harassment of dealers, abolis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment of tax and appeal or revision against the order of assessment. These provisions completely negative the contention of the petitioners that in pith and substance, entry tax contemplated under the Act is a tax on entry, irrespective of the purpose of entry and amounts to purchase tax. Therefore, article 286(3) of the Constitution and section 15 of the Central Sales Tax Act, 1956, are not attracted to this legislation. The point is answered against the petitioners. For the same reasons as aforesaid, it has to be held that levy of entry tax does not amount to levy of consignment tax and the contention that it offends article 92A of List I of the Constitution is not tenable." 63.. The challenge based on violation of article 304(a) of the Constitution was rejected by the High Court in the following words: "This is a provision enabling the State Legislatures to introduce certain restrictions on trade, commerce and intercourse amongst States. There may be State tax imposed on goods imported from other States or Union territories to which similar goods manufactured in that State are subject so as not to discriminate between the goods so imported and goods manufactured. What is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in annexure A.R-1 appended to the additional submissions made on behalf of the respondents in M.P. No. 2289 of 1989. It indicates that the statute had the view of raising financial resources to compensate local bodies consequent upon abolition of octroi with a view to simplifying the taxation structure. Annexure A.R-3 gives summary in respect of levy and details of allotment made to local bodies. The document shows that during the period 1976-77 till 1988-89, provision was made in the budget to compensate the municipalities and the amount budgeted was made over. It also shows that with effect from the year 1983-84, there has been a regular annual increase of 10 per cent in total compensation amount. Considering the Statement of Objects and Reasons and the particulars given in annexure A.R-3, the statutory changes referred to above have no significance. Entry tax remains compensatory in nature and, therefore, it is immune from challenge." 65.. In State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1, the Supreme Court examined the challenge to the constitutional validity of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 and accepted the argument of the Additional Solicitor-General that the tax was compensatory in nature and observed as under: "Where the local areas contemplated by the Act cover the entire State, the distinction between the State and the local areas practically disappears. (The situation would, no doubt, be different if the local areas are confined to a few cities or towns in the State and the levy is upon the entry of goods into those local areas alone. This is an important distinction which should be kept in mind while appreciating this aspect and also while examining the decisions of this Court rendered in 'fifties and sixties'). The facilities provided in the State are the facilities provided in the local areas as well. Interests of the State and the interests of the local authorities are, in essence, no different. It is not and it cannot be stipulated that for the purpose of establishing the compensatory character of the tax, it is necessary to establish that every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods into a local area for the purpose of consumption, use or sale therein, the requirement of entry 52 is satisfied. The character of the tax so levied is that of entry tax-by whatever name it is called. The decisions relied upon by Sri Ganesh do not say that the State must levy the tax and make over the collection part of it to local authorities nor do they say that after collecting it, the State must make Here italicised. over the proceeds to the local authorities. The highest that Sri Ganesh can legitimately put his submission is that the tax is meant for and must be utilised for the purpose of the local areas. It cannot further be stipulated that this utilisation should be through or by the concerned local authorities. In our opinion, the relevant requirement is satisfied in this case. As stated hereinbefore, the entire State of Bihar is divided into local areas. From the point of view of the entry tax, one may say that the State is a compendium of local areas. Spending for the purposes of the State is thus spending for the purposes of local areas. Situation may perhaps be different where the local areas are confined to a few cities or towns in the State. But where the loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, octroi is abolished in State of Rajasthan. Due to abolition of octroi, the local bodies, i.e., Panchayats, established under the Rajasthan Panchayati Raj Act, 1994, municipalities, established under the Rajasthan Municipalities Act, 1959 and notified area committees and cantonment boards suffered a financial dent, on account of abolition of octroi cannot be ruled out. In our considered opinion, after abolition of obnoxious features of octroi, a very modest impost is levied in the State of Rajasthan by enacting Act No. 13 of 1999. The State Legislature, in exercise of its legislative power, under clause (3) of article 246 of the Constitution, which provides that subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereunder, with respect to any of the matter enumerated in List II of the Seventh Schedule. In the present case, the State Legislature has exclusive power to legislate upon entry No. 52 of List II of the Seventh Schedule which provides making of laws on tax as on entry of goods into a local area, for consumption, use or sale therein. The State Legislature has enacted Act No. 13 of 1999, empowering Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensatory tax if it is levied on those using trading facilities which include roads, bridges, markets and such tax would retain its character as compensatory tax if some link is established between the tax and the facilities extended directly or indirectly to those who are required to pay the tax. (iv) If the amount collected by the levy of entry tax is meant to compensate the local bodies for the loss caused by abolition of octroi and/or augmentation of finances to enable them to provide municipal services more efficiently which would help the free-flow of trade or commerce, the impost will be regarded as compensatory in nature. (v) While examining the validity of entry tax, it would be inappropriate to the court to hold an enquiry into the manner in which the funds raised by levy of entry tax would be dealt with and it is sufficient that a provision is made for disbursing the amount to the local bodies for use in the local areas. (vi) The entry tax is not a tax on goods, but a tax on entry of goods into a local area for particular purposes and even if such tax, to some extent, imposes an economic impediment on the activity taxed, that by itself is not sufficient either to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions as may be specified therein, with respect to-(i) the preparation of plans for economic development and social justice; and (ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule. Identical provision is contained in article 243-W in respect of municipalities with the only difference that the said article refers to matters listed in Twelfth Schedule. Under article 243-H, the Legislature of a State is empowered to enact law and authorise a panchayat to levy, collect and appropriate such taxes, duties, tolls and fees and assign to a panchayat such taxes, duties, tolls, fees, levied and collected by the State Government for such purposes and subject to such conditions and limits as may be specified in the law. Similarly, under article 243-X, the Legislature of a State can enact law and authorise a municipality to levy, collect and appropriate such taxes, duties, tolls, fees and assign to a municipality such taxes, duties, tolls, fees levied and collected by the State Government for such purposes and subject to such conditions and limits as may be specified in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 21. Cultural activities. 22. Markets and fairs. 23. Health and sanitation, including hospitals, primary health centres and dispensaries. 24. Family welfare. 25. Women and child development. 26. Social welfare, including welfare of the handicapped and mentally retarded. 27. Welfare of the weaker sections, and in particular, of the Scheduled Castes and Scheduled Tribes. 28. Public distribution system. 29. Maintenance of community assets. Twelfth Schedule: 1. Urban planning including town planning. 2. Regulation of land-use and construction of buildings. 3. Planning for economic and social development. 4. Roads and bridges. 5. Water supply for domestic, industrial and commercial purposes. 6. Public health, sanitation conservancy and solid waste management. 7. Fire services." 72.. Soon after insertion of Parts IX and IX-A in the Constitution, the Legislature of the State of Haryana amended the Municipal Act and also enacted the Haryana Panchayati Raj Act, 1994 (for short, "the Panchayati Raj Act") repealing Punjab Gram Panchayat Act, 1952 and Punjab Panchayat Samiti Act, 1961, as applicable to the State of Haryana. This was done solely with the object of bringing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts-in-aid to schools, hospitals, dispensaries, poor-houses, leper-asylums and other educational or charitable institutions; (e) the training of teachers and the establishment of scholarships; (f) the giving of relief and the establishment and maintenance of relief works in time of famine or scarcity; (g) the supply, storage and preservation from pollution of water for the use of men or animals; (h) the planting and preservation of trees, and the establishment and maintenance of public parks and gardens; (i) the taking of a census, the registration of births, marriages and deaths, public vaccination and any sanitary measure; (j) the holding of fairs and industrial exhibitions; (k) the preparation and maintenance of a record of rights in immovable property; (l) all acts and things which are likely to promote the safety, health, welfare or convenience of the inhabitants or expenditure whereon may be declared by the committee, with the sanction of the State Government to be an appropriate charge on the municipal fund." 73.. Some of the services envisaged under the Eleventh and Twelfth Schedules and the relevant provisions of the Municipal Act and the Panchayati Raj Act may a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) of the Constitution. 75.. The deductions envisaged by section 5(1) or exemptions granted by the Government by issuing notification under section 11 of the Entry Tax Act are also uniformly applicable to all those who are liable to pay tax, i.e., those bringing the goods from outside the State into a local area or from one local area to another local area. Therefore, on this count also, the entry tax cannot be regarded as discriminatory and violative of article 304(a) of the Constitution. 76.. Before parting with this aspect of the case, we may refer to the judgments relied upon by the learned counsel for the petitioners. In Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] 14 STC 355, a Constitution Bench of the Supreme Court considered the validity of rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. The petitioner, who was a dealer in hides and skins, challenged the impugned rule on the ground that it had the effect of imposing higher rate of tax on tanned hides or skins imported from outside the State and sold within the State as compared to the tax imposed on hides or skins tanned and sold within the State. It was further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while taxing sale of finished goods manufactured out of imported raw material was discriminatory and violative of article 304(a) of the Constitution. Here italicised. 78.. In Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 (SC), the exemption granted to local manufacturers/ producers of edible oil from payment of sales tax under the Jammu and Kashmir General Sales Tax Act was declared violative of articles 301 and 304(a) of the Constitution on the ground that it was discriminatory qua those who were importing edible oil from outside the State. The two-judge Bench of the Supreme Court referred to Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809, Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491 and Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] 14 STC 355 (SC) and some other decisions and held as under: "In our opinion, it is this: the States are certainly free to exercise the power to levy taxes on goods imported from other States/ Union territories but this freedom, or power, shall not be so exercised as to bring about a discrimination between the imported goods and the similar goods manufactured or produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Gujarat [1988] 70 STC 52 (SC); AIR 1988 SC 2038, the levy of different rates of sales tax between electronic goods imported into the State of Gujarat and goods manufactured within that State was declared violative of articles 301 and 304(a) of the Constitution. 82.. In our opinion, the ratio of the above noted cases does not have any bearing on the issue before us. In those cases, the Supreme Court had considered the constitutionality of the provisions under which lower rates of sales tax had been imposed on the goods manufactured from the raw material procured from within the State as compared to the tax levied on the goods imported from other states or the levy of different sales tax on the imported goods vis-a-vis locally manufactured goods. The court held that the levy was discriminatory and violative of articles 301 and/or 304(a) of the Constitution. A careful reading of the ratio of Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] 14 STC 355 (SC) which appears to be the basis of all subsequent decisions, shows that their Lordships were clearly of the view that the sales tax in question was not compensatory tax or a regulatory measure. This is clearly borne o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. This necessarily means that the State Government cannot grant exemption arbitrarily to any particular importer or class of importers in respect of the particular items or goods. Therefore, the power conferred upon the State Government under section 11 of the Entry Tax Act to grant exemption or reduce the tax payable by any class of importers cannot be termed as excessive delegation, more-so because it is settled law that Legislature can leave it to the executive to determine details relating to the working of taxation laws, such as selection of persons on whom the tax is to be levied, the rates at which the tax is to be charged in respect of different classes of goods, etc. 86.. We may now advert to some of the decisions of the Supreme Court in which validity of delegated legislation has been considered. In Vasanlal Maganbhai Sanjanwala v. State of Bombay AIR 1961 SC 4, a Constitution Bench of the Supreme Court considered the challenge to the vires of section 6(2) of the Bombay Tenancy and Agricultural Lands Act, 1948 on the ground that the power conferred upon the provincial Government to issue notification in the official gazette to fix a lower rate of the maximum re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self-effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a court to hold on a fair, generous and liberal construction of an impugned statute whether the Legislature exceeded such limits. But the said liberal construction should not be carried by the courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the court to strike down without any hesitation any arbitrary power conferred on the executive by the Legislature." 88.. In Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills AIR 1968 SC 1232, the Supreme Court considered the validity of section 150 of the Delhi Municipal Corporation Act, 1957 under which the Corporation was vested with the power to levy optional tax. By a majority judgment, the Supreme Court upheld the impugned provision and observed as under: "Power conferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod employed for this purpose provided it is effective it may be said that there is guidance for the purpose of fixation of rates of taxation." (Underlining is ours) 89.. In Pandit Banarsi Dass Bhanot v. State of Madhya Pradesh [1958] 9 STC 388 (SC); AIR 1958 SC 909, the challenge to section 6(2), Central Provinces and Berar Sales Tax Act, 1947 on the ground that the power vested in the State Government to issue notification to amend the Schedules appended to the Act suffered from the vice of excessive delegation was rejected with the following observations: "...........it is not unconstitutional for the Legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like. ................ ................the power conferred on the State Government by section 6(2) to amend the Schedule relating to exemption is in consonance with the accepted legislative practice relating to the topic and is not unconstitutional." ................. Here italicised. 90.. In Hira Lal Rattan Lal v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AttorneyGeneral on behalf of the Revenue, it would be rendered void on the ground of excessive delegation of legislative power. The Legislature having laid down the legislative policy of giving relief to an assessee Here italicised. who is starting a new industrial undertaking or the business of a hotel, had necessarily to leave it to the Central Board of Revenue to determine what should be the amount of capital employed that should be required to be taken into account for the purpose of determining the quantum of the relief allowable under the section. What should be the quantum of the relief allowable to the assessee would necessarily depend upon diverse factors such as the impact of the relief on the industry as a whole, the response of the industry to the grant of the relief, the adequacy or inadequacy of the relief granted in promoting the growth of new industrial undertakings, the state of the economy prevailing at the time, whether it is buoyant or depressed and administrative convenience. These are factors which may change from time to time and hence in the very nature of things the working out of the mode of computation of the capital employed for the purpose of determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is free to approach the Government and claim exemption in respect of the particular goods by showing that it has been manufacturing the goods specified in annexure l appended to the notification. 96.. Before concluding, we may dispose of some ancillary arguments. Learned counsel for the petitioners argued that the entire State cannot be treated as a local area within the meaning of entry 52 of List II of the Seventh Schedule. According to them, the definition of local area contained in section 2(14) covers the entire boundary of the State of Haryana and, therefore, the impugned legislation cannot be treated to have been enacted with reference to entry 52. In support of this argument, they relied on the judgment of the Supreme Court in Diamond Sugar Mills Ltd. v. State of Uttar Pradesh AIR 1961 SC 652. 97.. In our opinion, there is no merit in the argument of the learned counsel. In State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC), the Supreme Court interpreted the definition of local area in the Bihar Entry Tax Act which is in pari materia to the impugned legislation and held that the entire State can also be treated as local area for the purpose of entry 52 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, says that the benefit of set-off/drawback/refund shall be available only if the manufactured goods are sold within the State of Gujarat. According to them it means that, where the manufactured goods are consigned by the manufacturer to his own depots or to his agents' depots outside the State of Gujarat, the benefit of drawback, etc., will not be available, which means that purchase tax shall be levied upon the purchase of raw material. This, say the appellants, is precisely what the old section 15-B provided for. According to them, the present section 15-B read with rule 42-E is nothing but a reincarnation of section 15-B as it stood prior to 1990 Amendment Act and falls squarely within the ratio of Goodyear [1990] 76 STC 71 (SC); (1990) 2 SCC 71. This argument raises in turn the question: how far is it permissible to refer to the Rules made under an Act while judging the legislative competence of a Legislature to enact a particular provision? The necessity and significance of the delegated legislation is wellaccepted and needs no elaboration at our hands. Even so, it is well to remind ourselves that Rules represent subordinate legislation. They cannot travel beyond the purvie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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