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TMI Blog2004 (1) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State do not bear sales tax, the goods entering the local area from outside the State are subjected to entry tax. Whether, entry tax under the Entry Tax Act can be levied on a commodity on which there is no sales tax levied under the BST Act? - The answer to the above question has to be in the negative because the proviso to section 3(1) of the Entry Tax Act clearly provides that the rate of entry tax shall not exceed the rate of tax specified for that commodity under the BST Act. Therefore, if there is no sales tax leviable on a commodity under the BST Act, then entry tax cannot be levied on that commodity. In our opinion, the words rate specified in section 3(1) of the Entry Tax Act have to be construed to mean the effective rate of sales tax payable on the said commodity under the BST Act. If the effective rate of sales tax is nil, then the entry tax has to be nil. If the entry tax exceeds the sales tax leviable on a commodity after taking into account the exemption granted under the BST Act, then it would be in violation of the proviso to section 3(1) of the Entry Tax Act, because the said proviso clearly provides that the entry tax on a commodity shall not exceed the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as it purports to levy entry tax on furnace oil and low sulphur waxy residue oil is unauthorised and unconstitutional. Petitions are allowed in the above terms and rule made absolute accordingly, with no order as to costs. Writ petition allowed. - KHANDEPARKAR R.M.S. AND DEVADHAR J.P. , JJ. The judgment of the Court was delivered by J.P. DEVADHAR, J.- Both these petitions raise common questions of law and hence both these petitions were heard together and are disposed of by this common judgment. 2.. In these petitions Constitutional validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 is challenged in so far as it purports to levy entry tax on entry of furnace oil and low sulphur waxy residue oil into any local area in the State of Maharashtra for consumption, use or sale therein. Although the legislative competence of the State to levy entry tax has been raised in the petition, the counsel for the petitioners have not pressed that ground at the final hearing of the petition and have restricted their challenge based on violation of articles 14, 19(1)(g), 301, 304 and 286 of the Constitution of India. 3.. Both the petitioners manufacture electricity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efunded under the aforesaid provisions. However, there is no provision for refund of entry tax paid on raw materials brought from outside the State and used in the manufacture of final product within the State. Thus, for manufacture of electricity, use of raw materials purchased within the State works out to be cheaper as compared to the raw materials brought from outside the State. 5.. Mr. Jagtiani, learned Senior Advocate appearing on behalf of Eurotex Industries Limited, submitted that the entry tax levied on furnace oil is liable to be struck down on the following grounds: (a) That the entry tax creates a tax barrier which affects the free-flow of goods from outside Maharashtra into Maharashtra on account of the differential rates and tax burden that furnace oil would have to bear depending on from where it is purchased. (b) That it discriminates between the petitioner and persons similarly placed only by virtue of the fact that the petitioners purchase furnace oil outside Maharashtra. (c) That the said Act violates the petitioner's fundamental right to free trade under article 19(1)(g) of the Constitution by imposing unreasonable restriction in the manner indicated above. 6.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts in the State of Maharashtra between 2001-2002 up to September, 2003 has increased substantially, if not exponentially. The additional/increased collection of sales tax only signifies that the volume of trade in petroleum products in Maharashtra has correspondingly increased on account of the imposition of the entry tax. 7.. It was submitted that article 301 is subject to the exceptions set out in Part XIII, viz., articles 302 and 304 of the Constitution, but neither of those articles are attracted in this case. Article 302 applies to laws made by Parliament and therefore, not applicable in the present case. Article 304 whilst empowering a State Legislature to impose tax on goods imported from other States is coupled with an injunction restraining that State from discriminating between goods so imported and similar goods manufactured in that State. It was submitted that the Entry Tax Act though on the face of it imposes the same rate of tax on furnace oil imported into Maharashtra as the BST Act does on furnace oil manufactured and sold in Maharashtra, but in effect, by virtue of section 42 read with rule 41D of the BST Act and Rules the rate of tax is anything but the same and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post facto sanction of the President as such has not been obtained for such enactment. 9.. It was next contended that the entry tax is neither compensatory nor regulatory in nature. The differential rates in tax vis-a-vis tax on locally manufactured goods may be tolerated to some extent if a tax which is imposed, is compensatory or regulatory. It was submitted that in the instant case the Entry Tax Act is not compensatory or regulatory in nature, for the following reasons: (A) Section 3(7) of the Entry Tax Act in terms provides that the entry tax shall be in addition to the levy of octroi. Thus intrinsically the said provision of the Act rules out its compensatory nature. (B) Section 3(7) further provides that the entry tax shall be in addition to any other entry tax collected by any authority including the local authority in respect of the movement of goods from one local area to another in the State. Once again this provides intrinsic evidence that the Act is not meant to be compensatory in nature. (C) The two affidavits filed by the State in terms state that the purpose of levying entry tax is to augment the State revenue. On the Here italicised. face of it, augmentation of reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said judgment has cast a doubt on the soundness of the ratio laid down in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); (1995) Supp 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); (1996) 9 SCC 136 and, therefore, the apex Court has referred the issue raised in Jindal Stripe Ltd. [2004] 134 STC 303 (SC); (2003) 8 SCC 60 to a larger constitutional Bench under article 145(3) of the Constitution. In this view of the matter, it was submitted that this Court ought not to consider itself bound by the ratio laid down in the case of Bhagatram [1995] 96 STC 654 (SC); (1995) 1 SCC 673 and Bihar Chamber of Commerce [1996] 103 STC 1 (SC); (1996) 9 SCC 136. It was submitted that if the aforesaid two judgments are taken to lay down the correct law on the questions of compensatory and regulatory nature of a taxing Act, then every fiscal legislation without exception will pass muster under the head "compensatory and regulatory ", for, any tax collected by a Government has necessarily to be utilised for the benefit of the citizen and for no other purpose. 11.. It was further submitted that by imposing entry tax the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheduled goods are brought within the local areas in the State of Maharashtra from a place outside Maharashtra but within the territory of India. In other words, the submission was that if the scheduled goods are brought into the local area from a place outside India, then entry tax is not leviable. Mr. Jetley, relying upon the decision of the apex Court in the case of 20th Century Finance Corpn. Ltd v. State of Maharashtra reported in [2000] 119 STC 182, submitted that the definition of "entry of goods" under the Act means goods brought into local area from any place outside the State for consumption, use or sale. Any place outside the State would mean any place or territory within India. It was submitted that the words "any place outside the State" cannot be said to include any State outside the territory of India. Accordingly, it was submitted that on the raw materials imported by the petitioners from a place outside India, the entry tax is not leviable. 14.. Mr. Jetley submitted that the term "import", "importer" and "local area " defined in section 2(1) of the Entry Tax Act refer to bringing goods from outside the State of Maharashtra and these expressions cannot be extended s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and, therefore, invalid as it imposes an unreasonable restrictions upon the freedom of trade, commerce and intercourse guaranteed by article 301 of the Constitution. 18.. The counsel further submitted that even if the impugned legislation was in public interest, the same having not being enacted with the prior or subsequent approval of the President of India, must be held to be violative of article 304(b) of the Constitution of India. It was submitted that by virtue of the impugned Act, the petitioners are required to pay entry tax at the rate of 15 per cent on the import of the raw materials from abroad and brought into the local area for the consumption/use as fuel for power generation. As against that, if the said raw material is locally purchased, the tax payable thereon would be 15.9 per cent by way of sales tax, turnover tax and surcharge under the provisions of the BST Act, but the same are refunded or given set-off under rule 41D of the BST Rules. The significance of this situation is that the persons importing the scheduled goods from outside the territory of India will have to pay entry tax and will not be entitled to claim any set-off, drawback or rebate of the same; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods are purchased by the importer. This ensures that the goods entering the local area from any place outside the State do not bear entry tax in addition to the sales tax in the State of purchase of goods. He submitted that section 3(5) of the impugned Act exempts entry tax on goods imported into a local area for the purpose of resale in the State or sale in the course of inter-State trade or commerce or exports within the territory of India. He submitted that the exemption ensures that no goods bear both State sales tax and also the entry tax. Similarly, the exemption in favour of the goods which enter a local area for the purpose of sale in the course of inter-State trade or commerce ensures that such goods bear the Central sales tax and do not in addition bear the entry tax. This provision puts the goods imported from outside the State into a local area on par with the goods within the State of Maharashtra. Both types of goods will bear only Central sales tax. He submitted that the sale in the course of exports are also exempted from the sales tax as well as entry tax. These goods which are sold in the course of exports and coming from a place outside Maharashtra, are put on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the BST Rules and the said Rules provide for conditional exemption. He submitted that the nature and quantum of exemption from tax is the State function and cannot be assailed on the ground of discrimination. Relying upon the decision of the apex Court in case of R.K. Garg v. Union of India [1982] 133 ITR 239 (SC); (1981) 4 SCC 675 the counsel submitted that it is not necessary for the State to exempt every tax-payer in order to grant exemption to some transactions. He submitted that there may be crudities, unequalities and even possibilities of abuse but on that count alone, the statute cannot be struck down as invalid. Relying upon the decisions of the apex Court in the case of Associated Tanners v. Commercial Tax Officer [1986] 62 STC 1; AIR 1987 SC 1922 and Shree Digvijay Cement Co. Ltd. v. State of Rajasthan [2000] 117 STC 395; AIR 2000 SC 630, it was submitted that mere fact that there is difference in the rate of tax on goods locally manufactured and those imported from outside the State would not amount to hampering trade between two States within the meaning of article 301 of the Constitution. He submitted that only direct and immediate restrictions are hit by article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Tourist Corporation v. State of Haryana (1981) 2 SCC 318, Suresh Chand Sri Gopal v. Union of India [1989] 72 STC 241 (AP), Meenakshi v. State of Karnataka (1984) Supp SCC 326 and Bishamber Dayal Chandra Mohan v. State of U.P. AIR 1982 SC 33, counsel submitted that even if there is substantial or some link between the tax and the facilities extended to such dealers directly or indirectly then the levy cannot be said to be invalid. 25.. Mr. Bharucha submitted that article 286 of the Constitution of India provides for restrictions as to imposition of tax on the sale or purchase of goods. He submitted that article 286 of the Constitution does not prohibit imposition of entry tax on the entry of goods into a local area. He submitted that under item 52, List II, Seventh Schedule to the Constitution, the State is empowered to levy taxes on the entry of goods into a local area for consumption, use or sale thereof. Relying upon the decision of the apex Court in the case of Kiran Spinning Mills v. Collector of Customs (2000) 10 SCC 228, he submitted that import of goods is completed when the goods cross the customs barrier. He submitted that the taxing event under the Entry Tax Act is lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, even though the goods entering the local area from within the State do not bear sales tax, the goods entering the local area from outside the State are subjected to entry tax. 28.. The first question, therefore, to be considered in the present case is, whether, entry tax under the Entry Tax Act can be levied on a commodity on which there is no sales tax levied under the BST Act? The answer to the above question has to be in the negative because the proviso to section 3(1) of the Entry Tax Act clearly provides that the rate of entry tax shall not exceed the rate of tax specified for that commodity under the BST Act. Therefore, if there is no sales tax leviable on a commodity under the BST Act, then entry tax cannot be levied on that commodity. 29.. The question then to be considered is, where the sales tax leviable on a commodity is exempted or made refundable under the BST Act and the rules made thereunder, then, whether entry tax can be levied on that commodity at the rate specified under the BST Act? For example, where the sales tax at 15 per cent levied and collected on a commodity is refunded as per the provisions of the BST Act, can entry tax still be levied at 15 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the goods entering the local area from within the State do not bear sales tax, levy of entry tax on goods entering the local area from outside the State would be unauthorised. 31.. Even otherwise, by virtue of the general exemption granted to the goods under section 42 of the BST Act read with the BST Rules, every manufacturer who purchases the said goods from a dealer in the State of Maharashtra is in an advantageous position in the sense that the cost of the said goods becomes cheaper by 12 to 15 per cent compared to the said goods imported from outside the State. The apex Court in the case of Anand Commercial Agencies v. Commercial Tax Officer, VI Circle, Hyderabad [1997] 107 STC 586; (1998) 1 SCC 101 has held as follows: "11. Freedom of trade, commerce and intercourse guaranteed by article 301 means freedom to carry on business throughout the territory of India without any obstruction and hindrance. The question whether a fiscal barrier will amount to interference with the right to carry on trade, commerce and intercourse throughout the territory of India is not an easy question to answer. Every State has a right to impose tax on subjects which fall within its jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the BST Act cannot be accepted. A perusal of section 42 of the BST Act and the Rules made thereunder clearly shows that special conditions are not attached for availing the exemption and in fact, every manufacturer is entitled to the refund/set off of tax paid on raw materials. The said exemption is neither restricted to any particular class of manufacturers nor it is granted for any special reason or for a specified period of time. Thus the goods which enter the local area from outside the State are subjected to entry tax, whereas, the goods which enter the local area from within the State do not suffer any tax because, the sales tax paid thereon is refunded under the BST Act. The direct and immediate consequence of the levy of entry tax is that, for a manufacturer the cost of the raw materials becomes cheaper by 12 to 15 per cent if purchased within the State and costlier by 15 per cent if purchased from outside the State. Here italicisied. 33.. By levy of entry tax on goods which enter the local area from outside the State while similar goods entering the local area from within the State do not bear sales tax, the State has in fact created a tax barrier in contravention of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate is without any merit because from the express words used in the Act it is seen that the entry tax is levied to ensure that the goods which enter the local area bear either the sales tax or the entry tax. Thus, from the provisions of the Entry Tax Act it is clear that the entry tax is not levied because some other States have levied entry tax on such goods. This reasoning is further fortified by the fact that the Entry Tax Act clearly provides that the rate of entry tax on any commodity shall not exceed the rate specified for that commodity under the BST Act, etc. Thus, by collecting entry tax on goods entering the local area from outside the State and refunding the sales tax on goods entering the local area from within the State instead of ensuring level playing field, the State has created uneven level playing field thereby discriminating between the imported goods and the local goods manufactured or produced in the State. A tax which discriminates between the imported goods and the locally manufactured goods and hampers the trade between the States violates the constitutional mandate and is therefore, liable to be declared as unconstitutional. 36.. It is true that by judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the apex Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1; (1996) 9 SCC 136, does not support the contention of the State, because, firstly, in that case, the entry tax was levied to compensate the loss of revenue on cess due to the decision rendered by the Supreme Court and secondly, the apex Court has held that in that case prior consent of the President was obtained by the State. In the present case, admittedly consent of the President had not been obtained till date. Moreover, in the present case, entry tax is levied and collected at 15 per cent on the footing that the sales tax is levied and collected on similar goods at 15 per cent when in fact the sales tax collected thereon is refunded as per the exemption notification issued under the BST Act and Rules. In other words, by the impugned legislation, raw materials required for manufacture of electricity are subjected to entry tax if brought into the local area from outside the State even though similar goods when enter the local area from within the State do not effectively bear sales tax. Apart from above, the ratio laid down by the apex Court in the case of Bihar Chamber of Commerce [1996] 103 STC 1; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively any sales tax is levied on that commodity. In the present case, the furnace oil and low sulphur waxy residue oil entering the local area from within the State do not bear sales tax and therefore, entry tax on those goods when enter the local area from outside the State cannot be levied. On the date on which entry tax was introduced on the goods in question, the general exemption granted on those goods under the BST Act and Rules made thereunder were in existence. Therefore, it cannot be said that the levy of entry tax was to ensure that all goods entering the local area bear either the entry tax or the sales tax. Thus the entry tax on furnace oil and low sulphur waxy residue oil instead of striking a balance, in fact creates imbalance between the imported goods and the local goods and in fact has defeated the very purpose of enacting Entry Tax Act. 39.. For all the aforesaid reasons, we hold that entry No. 13 to the Schedule to the Entry Tax Act in so far as it purports to levy entry tax on furnace oil and low sulphur waxy residue oil is unauthorised and unconstitutional. 40.. Petitions are allowed in the above terms and rule made absolute accordingly, with no order as to cos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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