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TMI Blog2004 (1) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... enue raised by it will be utilised. There is also no provision therein stating that the revenue raised by it will be used for facilitating trade and commerce. Hence, the amounts realised under the impugned Act can be used for any purpose. Hence, in our opinion it is not a compensatory tax. It may be noted that article 301 states that it is subject to the other provisions of Part XIII. Hence, it is not subject to article 246 as article 246 is in Part XI of the Constitution. Hence, power to legislate under article 246 of the Constitution has to be read as subject to article 301 of the Constitution. It follows that the State Legislature cannot make a law which violates article 301 of the Constitution. Hence, the scope of the legislative field contained in entry 52, List II of the Seventh Schedule has to be restricted and treated as subject to article 301 and other articles in the main body of the Constitution. There is nothing to show that the President of India has given previous sanction to the Bill in connection with the impugned Act and all we can gather from the letter dated 19th January, 2000 is that the Government of India has no objection to the introduction of the U.P. Tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the Central Government apart from getting substantial revenue from the petitioners towards U.P. trade tax (sales tax). In para 6 of that affidavit it is mentioned that no facility whatsoever has been provided by the U.P. Government to Mathura Refinery for transportation of crude oil from outside U.P., which in fact is done by underground pipes built by the petitioner itself. By the notification dated June 18, 2001 exemption has been granted from payment of entry tax by the State Government to the petitioner-company being a 100 per cent export oriented unit, and the dispute is hence confined prior to June 18, 2001. Even by the subsequent notification dated February 18, 2003 machinery being imported for the purposes of installing it in the factory has been exempted and hence no entry tax is being levied even on those unit which are not 100 per cent export oriented unit on the import of machinery with effect from February 18, 2003. Thus, this petition and all the connected/similar petitions are allowed. The impugned Act is declared violative of articles 301 and 304 of the Constitution and is hence ultra vires. - HON'BLE MARKANDEY KATJU AND POONAM SRIVASTAVA, JJ. For the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipeline connecting the crude handling facilities in the Gulf of Kutch to Mathura refinery for the transportation of indigenous crude oil produced by the offshore oil fields of the western coast of India (particularly Bombay High) and of imported crude oil from the Gulf of Kutch to Mathura refinery at considerable cost. For this purpose land was acquired for the petitioner under the Petroleum Minerals and Pipelines (Acquisition of Right of User of Land) Act, 1962 for which compensation was paid by the petitioner and the right of user in respect of which vested in the petitioner No. 1. The pipeline was subsequently constructed beneath the said land linking Mathura refinery with the crude oil handling facilities in the Gulf of Kutch for the transportation of crude oil to Mathura refinery without the use of any infra-structure or facility whatsoever provide by the State of U.P. or by any local authority within U.P. 6. In paragraph 4-D of the writ petition it is alleged that the petitioner corporation had to compete with multi-nationals and the private sector in its business. Reliance industries, which is the biggest refinery and producer of petroleum products in India after the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States in which no entry tax is payable on crude oil brought into the State for processing. Because of the constraints of maintaining a competitive price and of Government policy, the Mathura refinery has been unable to pass on the burden of the additional tax to the consumers, and has had to itself absorb the additional burden of the entry tax. As a result, Mathura refinery has had to suffer a loss in the recoverable price of petroleum products sold by it to the extent of the tax it has had to pay on the crude oil utilised in the manufacture of products by virtue of the entry tax as stated above. This will severely impair the competitiveness of Mathura refinery as a producer of petroleum products. 9. It is alleged in paragraph 4-K of the writ petition that the State of U.P. is not providing any facility whatsoever to Mathura refinery for transport or import of crude oil to the said refinery. It is alleged that the petitioner No. 1 uses its own transportation system and infrastructure installed by it in the land in which the right of user is vested in it in terms of the Petroleum Minerals and Pipelines (Acquisition of Right of User of Land) Act, 1962. Hence it is alleged that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r protest in respect of the imported crude oil and imported machinery towards entry tax. Similarly for the assessment year 2001-02, the petitioner deposited Rs. 1,47,63,44,552 towards entry tax in respect of the imported crude oil and has also paid entry tax towards the machinery. Similarly entry tax has been paid by the petitioner for the year 2002-03. 15. A counter-affidavit has been filed and we have perused the same. The respondent has relied on entry 52, List II of the Seventh Schedule of the Constitution which states: Taxes on the entry of goods into a local area for consumption, use or sale therein. 16. The term local area has been defined in section 2(c) of the Act which includes a municipality and municipal corporation. Hence, in our view the crude oil has certainly been brought into a local area as Mathura is a municipality. We cannot therefore accept this submission of the learned counsel for the petitioner. The respondents are right in contending that it is wholly immaterial from where the goods have been brought into the local area. There is no doubt that the goods in question (crude oil) had entered into the local area of Mathura. 17. The basic question which arises i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al considerations we may profitably refer to the observations made by Cardozo, J., in Charles H. Baldwin v. G.A.F. Seeling Inc. [1934] 294 US 511 at page 523: 79 Law Ed. 1032 at p. 1038 while he was dealing with the commerce cause contained in article 11, section 8, clause (3) of the American Constitution. 'This part of the Constitution, observed, Cardozo, J., 'was framed under the dominion of a political philosophy less parochial in range. It was framed upon the theory that the peoples of the several states must sink or swim together and that in the long run prosperity and salvation are in union and not division'. 20. To understand the true purport of article 301 we must understand that in feudal times when society was mainly agricultural there were small principalities and often there were customs or toll barriers at the boundaries of every small principality. This hampered the free-flow of goods and was obstructing the growth of modern industry. 21. Modern industry being big as contrasted to feudal handicraft industry, requires a large market. Hence, if there are restrictions on the free-flow of goods from one part of the country to the other growth of modern industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords used in article 301 are very wide, and in a sense vague and indefinite that the problem of construing them and determining their exact width and scope becomes complex and difficult. However, in interpreting the provisions of the Constitution we must always bear in mind that the relevant provision 'has to be read not in vacuo but as occurring in a single complex instrument in which one part may throw light on another' [Vide James v. Commonwealth of Australia (1936) AC 578 at p. 613]. In construing article 301 we must, therefore, have regard to the general scheme of our Constitution as well as the particular provisions in regard to taxing laws. The construction of article 301 should not be determined on a purely academic or doctrinaire consideration; in construing the said article we must adopt a realistic approach and bear in mind the essential features of the separation of powers on which our Constitution rests. 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 remember in this connection that the article we are construing imposes a constitutional limitation on the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others not so. 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. It would be impossible to judge the compensatory nature of a tax by a meticulous test and in the nature of things that cannot be done. Nor do we think that it will make any difference that the money collected from the tax is not put into a separate fund so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may be. In the cases under our consideration the tax is based on passenger capacity of commercial buses and loading capacity of goods vehicles; both have some relation to the wear and tear caused to the roads used by the buses. In basing the taxes on passenger capacity or loading capacity, the Legislature has merely evolved a method and measure of compensation demanded by the State, but the taxes are still compensation and charge for regulation. 26. The above decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and if there is substantial or even some link between the tax and the facilities extended to such dealers, directly or indirectly the levy cannot be impugned as invalid.' Though not stated in the counter-affidavit, we can take notice of the fact that the State does provide several facilities to the trade including laying and maintenance of roads, waterways and markets, etc. As a matter of fact, since the levy is by the State, we must also look to the facilities provided by the State for ascertaining whether the State has established the compensatory character of the tax. On this basis, it must be held that the State has established that the impugned tax is compensatory in nature. This finding is by itself sufficient to negative the attack based on article 301 but even if we assume that the State has not established the said fact, even so the result is not different. 28. In our opinion we cannot interpret the decisions of the smaller Benches of the Supreme Court in Bhagatram Rajeev Kumar's case [1995] 96 STC 654; (1995) Supp 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce's case [1996] 103 STC 1; (1996) 9 SCC 136 to mean that they have overruled the larger Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution Bench decision of the Supreme Court in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406, it has been clearly stated that taxes are compensatory taxes which instead of hindering trade, commerce and inter-course facilitate them by providing roads and maintaining the roads in a good state of repairs. It has further been stated in paragraph 19 of the said decision 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. 35. Similarly, in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232, it has been observed by the five-Judge Bench decision of the Supreme Court (vide paragraph 50) that if the transport or movement of goods is taxed solely on the basis that the goods are thus carried or transported that, in our opinion, directly affects the freedom of trade as contemplated by article 301 . 36. Thus, both the aforesaid Constitution Bench decisions have clearly laid down that taxes which facilitate trade and comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satory, though the link between the tax and facilities may be indirect. This itself implies that if the tax is being raised for augmenting the general revenue of the State and not for the specific purpose of giving facilities to facilitate trade and commerce then it would not be a compensatory tax. To take a contrary view would really mean that there is no difference between a compensatory tax and a non-compensatory tax. However, a distinction has to be made between a compensatory and non-compensatory tax as pointed out by the Constitution Bench decisions of the Supreme Court, and we cannot interpret the smaller Bench decisions of the Supreme Court in a manner which leads to the conclusion as if the decisions in Atiabari Tea Co. Ltd's case AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. case AIR 1962 SC 1406 have been overruled or have become redundant and otiose. 43. Secondly, in our opinion, the true interpretation of the decision of the Supreme Court in Bhagatram Rajeev Kumar's case [1995] 96 STC 654; (1995) Supp 1 SCC 673 is that the observation in paragraph 19 of the Constitution Bench decision in Automobile Transport case AIR 1962 SC 1406 that Taxes are comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facilities provided for facilitating trade and commerce is only Rs. one lac obviously there is no broad corelation between the levy and the expenditure on the facilities, and in such a case the tax cannot be regarded as a compensatory tax. In the present case the respondents have not been able to establish any broad corelation between the entry tax being realised and the expenditure on the facilities for facilitating trade and commerce. For instance petitioner No. 1 in Civil Misc. Writ Petition No. 251 of 2003 has already paid more than Rs. 758 crores as entry tax under protest as is evident from paragraph 4 of the supplementary rejoinder affidavit in reply to the supplementary counter-affidavit filed by Sri B.P. Sonkar. Similarly other petitioners have also paid huge amounts of entry tax to the State Government. In none of the affidavits filed by the respondents has it been stated how much is the amount of the total entry tax collected under the impugned Act by the respondents and how much is the expenditure on facilities for facilitating trade and commerce. In our opinion, the burden was on the respondents to establish this broad corelation but they have failed to do so. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter-affidavit of Shri B.P. Sonkar states: That it is reiterated that no facility whatsoever has been provided by the U.P. Government to Mathura refinery for transportation of crude oil from outside the State of U.P., which is ultimately transported through underground pipelines built exclusively by the petitioner itself. 52. This averment makes it clear that no facility is provided by the U.P. Government, directly or indirectly, for transportation of the crude oil. The underground pipes for transporting the oil were built by the petitioner and not by the respondents. 53. In our opinion a tax to be a compensatory tax must be in the nature of a cess. A cess is a tax imposed for realising revenue which is utilised for a specific purpose. Thus, while a cess is also a tax, it is a tax of a special nature. It does not realise revenue which is used for general public expenditure but for specific expenditure for a specific purpose. For example, education cess would be a tax which generates revenue which is utilised for education purposes, e.g., school buildings, paying salaries to teachers, etc. Similarly, a health cess would be a tax which generates revenue which is utilised for health p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accept this supplementary counter-affidavit dated January 12, 2004 and we reject the same as it has been filed at a very belated stage. 59. Learned Senior Counsel for the respondent Sri S.P. Gupta has submitted that in view of entry 52 of List II to the Seventh Schedule of the Constitution the impugned Act cannot be held to be unconstitutional. Entry 52 states: Taxes on the entry of goods into a local area for consumption or use and sale therein. 60. It is well-settled that the various entries in the three Lists of the Seventh Schedule to the Constitution are not powers of legislation but fields of legislation vide Calcutta Gas Company (Proprietory) Ltd. v. State of West Bengal AIR 1962 SC 1044 (1049); Harakchand Rattanchand Banthia v. Union of India [1970] 1 SCR 479 (489); Union of India v. Dhillon (1971) 2 SCC 779 (792). Power to legislate is given in articles 246 to 253 and other provisions of the Constitution. The entries in the Lists are mere legislative heads and are of an enabling character. They are designed to define and delimit the respective areas and legislative competence of the Union and State Legislatures vide State of Bihar v. Sir Kameshwar Singh AIR 1952 SC 252. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Government of India have no objection to the introduction of the Uttar Pradesh Tax on Entry of Goods Bill, 2000, in the State Legislature under article 304(b) of the Constitution of India. 68. In our opinion, there is a difference between the Government of India and President of India. The aforesaid letter dated January 19, 2000 only states that the Government of India has no objection to the introduction of the impugned Act but it does not say that the President of India has given his previous sanction as required by the proviso to article 304(b) of the Constitution. 69. In this connection we may refer to the recent Constitution Bench decision of the Supreme Court in Kaiser-I-Hind Pvt. Ltd. v. National Textile Corporation Ltd. (2002) 8 SCC 182, where a distinction has been made (in paragraphs 76 and 77 of the said decision) between the ordinary powers of the President and the special powers in articles 31-A, 31-C, 254(2) and 304(b) of the Constitution. 70. No doubt in view of article 74(1) of the Constitution as amended by the 42nd amendment the President has to act in accordance with the advice of the Council of Ministers, yet to our mind there is difference between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. 75. Hence, even if the President of India has given previous sanction under the proviso to article 304(b), the petitioner has further to establish that the restriction on the freedom of trade, commerce and inter-course are: (i) reasonable and (ii) in the public interest. 76. The onus of establishing the reasonableness and that it is in public interest is on the respondent vide A.B. Abdul Kadir v. State of Kerala AIR 1976 SC 182 (vide paragraph 19) and (1980) 4 SCC 697 (vide paragraph 32) (State of Karnataka v. Hansa Corporation). 77. We are of the opinion that the restrictions imposed by the impugned Act are not reasonable and they are not in the public interest as they would hamper the progress and development of the national economy. 78. It may be reiterated that modern industry requires a large market. Article 301 envisages economic unity of the nation. India is one economic unit and hence restrictions cannot ordinarily be placed on free-flow of trade and commerce throughout the territory of India as that would hamper the growth of a powerful, modern industry. The restrictions can only be placed by Parliament in public interest as provided in article 302 of the Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alities, each principality having its customs or toll barriers which obstructed the free-flow of goods from one principality to another. Thus, before the French revolution of 1789 in France there were a large number of principalities having toll barriers and there were toll taxes (similar to entry tax) after every 30 or 40 km. throughout the territory of France. Similar was the condition in Germany which was fragmented into over 300 principalities before its unification under Bismack. This led to obstruction to the growth of modern industry, and hence was abolished by the enlightened leaders of those countries. The result was that there was thereafter rapid growth of industry and commerce in those countries. 84. In this connection we may refer to the decision of Mr. Justice Jackson of the U.S. Supreme Court in H.P. Hood Sons Inc v. Du Mond 336 US 525 who observed: This principle that our economic unit is the Nation, which alone has the gamut of powers necessary to control of the economy, including the vital power of erecting customs barriers against foreign competition, has as its corollary that the States are not separable economic units. As the court said in Charles H. Baldwin v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the public interest as the public interest requires that a big and powerful modern industry rapidly grows in this country so that India soon becomes a powerful, modern, industrial State (like U.S.A. or Europe). Unless India becomes a modern, powerful industrial State we will remain poor and hence will not get respect in the comity of nations. Today the real world is cruel and harsh. It respects power, not poverty or weakness. The truth is that Indians are not respected by Westerners is not because the colour of our skin is black or brown but because our country is poor. 92. In this connection we may point out that when China and Japan were poor nations the Chinese and Japanese were derisively called yellow races by the Westerners. Today they are powerful industrial nations, and now nobody can dare call Chinese and Japanese as yellow races. 93. Moreover, it is rapid industrialisation and growth of modern big industry which alone can generate the wealth which we require for providing for the welfare of our people, for setting up modern schools, engineering colleges, hospitals, scientific institutes, etc. Even a single primary school requires a huge amount of money of recurring na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... level of Information Technology in the State of Andhra Pradesh, Tamil Nadu (Chennai) and Karnataka. 98. All the machines for this project have been imported from foreign countries, namely, Switzerland, Germany, etc., and none of them have been purchased within India. The unit has been established in the Industrial Development Area of Greater NOIDA. 99. Sri Bharat Ji Agrawal has submitted that under entry 52 of List II of the Seventh Schedule a tax on entry of goods into a local area can only be for consumption, use or sale therein. He has submitted that the machinery imported was not for consumption, use or sale. The factory has been established where these machineries exist in their original form. Sri Agrawal relying on the judgment of the Supreme Court in S.M. Ram Lal Co.'s case (1969) UJ (SC) 373 has submitted that the word use in entry 52 is sandwiched between the words consumption and sale and it must take colour from the context in which it occurs. Hence, he has submitted that no entry tax can be charged on the machinery which has been installed in the petitioner's factory premises since they exist in their original form in the factory premises. 100. By the notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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