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TMI Blog2006 (11) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, Article 302 relaxes this limitation in favour of Parliament by allowing the Parliament to impose restrictions in public interest. While so allowing the Parliament to impose, in public interest, restrictions on the freedom of movement of goods, Clause (1) of Article 303 restricts the Parliament from making any law, even in public interest, if such law gives preference to one State over another. This restriction is, however, subject to one exception, the exception being that the Parliament can make law, which may even be discriminatory or which may give preference to one State over another, if such discriminatory law is aimed at meeting the scarcity of the goods, in question, in any part of the territory of India. As far as the State Legislatures are concerned, Clause (1) of Article 303 imposes one additional limitation, the limitation being that a State Legislature cannot make law giving preference or making discrimination between one State and another. What is, now, extremely important to note is that the limitation, on the part of the State Legislatures, to impose tax, which interferes with the freedom of the trade, commerce and intercourse, is lifted by Article 304(a) by allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the goods, which are exempted from payment of local sales tax enter into, on being imported from outside the State, a local area of the State, the same becomes liable to payment of entry tax. Similar is the position as regard the goods, produced or manufactured within the State, but are not liable to payment of local sales tax, for, even when such goods, though produced or manufactured within the State, enter into a local area from another local area, the same becomes liable to payment of entry tax. As regard the goods taxable under the local sales tax , it is noteworthy that when such goods, manufactured or produced within the State, go out of a local area and enter into another local area, such entry is subject to the levy of entry tax, but if, upon such entry, the goods are sold and if such sale is subject to local sales tax, the entry tax is not leviable. Similarly, such goods, which are taxable under local sales tax enactment, enter into a local area, on being imported into the State, the same becomes liable to payment of entry tax; but when, after entering into a local area, such goods are sold within that local area and since such sale is subject to local sales tax, no en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fail and is accordingly rejected. Conclusions: - What crystallizes from the discussions held above, as a whole, is that the tax sought to be levied, under Section 3 of the impugned Act, on the goods specified in the Schedule as modified by the impugned notifications, issued under Sub-section (4) of Section 3 of the AET Act, 2001, the impugned Ordinance, 2005, the Assam Entry Tax (Amendment) Act, 2005, are all ultra vires, unconstitutional, null and void to the extent that the same impose entry tax on those specified goods, which form the subject-matter of the present set of writ petitions. The demand for payment of entry tax raised against the petitioners cannot, therefore, be sustained. There is yet another aspect of this case, which needs some observation by this Court. In WP(C) No. 2650/05, an interim direction was passed to the effect that the petitioners shall file return under the AET Act, 2001, in respect of the goods, which form the subject-matter of their writ petition and that, in tune with the liability of tax payable by the petitioners, the petitioners shall furnish to the respondents/authorities concerned bank guarantee of such amount(s) of entry tax, which is leviabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependence achieved success, for, with the end of the Second World War, countries were struggling to overcome the disastrous consequences, which the war had brought. It was an age, when the people, all over the world, were struggling for space and everyone wanted to have greater say in the governance of their respective countries. British empire had fragmented and struggle to occupy he void created by the fall of the British empire had had fragmented and struggle to occupy the void created by the fall of the British empire intestified. It was in such a period of transition from colonial rule to a rule of self-governance that the constitution of India was in prepared. What our constitution-makers witnessed and experienced had its reflection in our Constitution. The concept of entry tax is a concept routed in history. Before the industrial revolution, the society, world over was mainly agriculture based, there were small principalities and very little quantity of goods moved from one area to another, because gods were, ordinarily, produced for consumption by the producers themselves, such as, land-owners and their tenants. Petty artisans, normally, produced very little commodities for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment imposing entry tax, legislated under Entry 52, necessarily have a direct and immediate impact on the movement of goods and, if so, how to decide whether such an enactment falls within the ambit of the freedom of trade, commerce and intercourse guaranteed under Article 301 or not? Can an entry tax be sustained if the same is not compensatory in nature or are there any exceptions thereto? When does such legislation require President's sanction in terms of the proviso to Article 304(b)? Whether the Assam Entry Tax Act, 2001 (hereinafter referred to as the AET Act, 2001 ), notifications, issued under Section 3(4) thereof, imposing entry tax on goods, such as, biscuits, textiles and fabrics, crude oil, tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture, the Assam Entry Tax (Amendment) Ordinance, 2005 (hereinafter referred to as the AET (Amendment) Ordinance, 2005 ) or the Assam Entry Tax (Amendment) Act 2005 (hereinafter referred to as the AET (Amendment) Act, 2005 ) are compensatory in nature? What is the difference between tax simpliciter, on the one hand, and tax imposed for regulatory or compensatory purposes, on the other? Are the AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry tax, thus, falls only on those persons, who, such as the present writ petitioners, pay sales tax on the purchase of raw materials and sale of finished goods to States other than the State of Assam. Entry tax, under the AET Act, 2001, is a single point tax as the entry tax can be levied only at one stage. Once entry tax has been paid, or liability has been incurred, on the entry of any of the scheduled goods into any local area, the entry tax cannot be levied thereafter, though the goods, which have been so taxed, may be moved from one local area to another local area and so on irrespective of the fact whether the movement of the scheduled goods, out of a local area, is by way of stock transfer, inter-State sale or sale in the course of export or import. By impugned notifications, issued under Sub-section (4) of Section 3 of the AET Act, 2001, when the goods, namely, biscuits, textiles and fabrics, crude oil, tobacco including cigarette, charoots, cigar, biri, zarda, khaini, sada and smoking mixture, were added to the schedule of the goods under the AET Act, 2001, and were, thus, brought under the tax net of the said Act, these notifications were challenged by the present set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll to exempt goods relating to Prasar Bharti and all kind of textiles and fabrics, as agreed to by them vide their letters No. (i) FTX. 31/89/Pt/93 dated 8th November, 1999 and (ii) FTX. 31/89/Pt/104 dated 30th March, 2000 before introduction of the Bill in the State Legislature. (emphasis supplied) 7. Section 3 of the AET Act, 2001, is the charging Section and it provides that entry tax can be levied and collected on the entry of goods specified in the Schedule appended to the AET Act, 2001, into any local area for consumption, use or sale therein at the rate shown against each item in the Schedule and such tax shall be paid by every importer of such goods. Before Section 3 under went amendment and Sub-section (4) thereof was deleted, Sub-section (4) of Section 3 empowered the State Government, by publication of notification in the Official Gazette, to add to, delete, amend or otherwise modify the said Schedule and also to vary the rates of tax of the goods specified in the Schedule. 8. However, the amended Section 3, now, reads' as follows: 3. Levy of tax. - (1) There shall be levied and collected an entry tax on the entry of the goods specified in the Schedule into any local ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to the Schedule of the said Act. By various other notifications, the Government, from time to time, included some other articles to the Schedule of the said Act. 10. The relevant dates of the notifications along with the numbers and dates thereof are, for the sake of convenience, quoted hereinbelow: Biscuits No. FTX.90/2003/5 dated 21-8-2003 All varieties of textiles, viz., cotton, woollen or silken, including rayon, art silk and nylon textiles, whether manufactured by handloom, power loom or otherwise. FTX.90/2003/5 dated 26-8-2003 Crude oil No. FTX.2694/2 dated 29-9-2004 Tobacco including cigarette, cheroots, cigar, biri, zarda, khoini, sada and smoking mixture No. FTX.89/2004/Pt/15 dated Bitumen FTX 146/2001/5 dated 8-1-2002 Marble tiles FTX. 146/2001/5 dated 8-1-2002 Marbles FTX. 146/2001/5 dated 8-1-2002 Decorative slabs FTX. 146/2001/5 dated 8-1-2002 Plant and machineries FTX. 146/2001/5 dated 8-1-2002 Light diesel oil FTX. 146/2001/5 dated 8-1-2002 Furnace oil FTX. 146/2001/5 dated 8-1-2002 Tiles FTX. 146/2001/5 dated 8-1-2002 Pulses, cereals in all forms FTX. 146/2001/5 dated 8-1-2002 Medical equipment FTX. 146/2001/5 dated 8-1-2002 Medical equipment like ultra-sound sca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of textiles, namely, cotton, woollen or silken including rayon, art silk and nylon textile, whether manufactured by handloom, power-loom or otherwise, crude oil and tobacco including cigarette, cheroots, cigar, biri, zarda khaini, sada and smoking mixture, and fall under Serial Nos. 23, 25, 38 and 47(a) respectively. 13. In course of time, the AET Ordinance, 2005, was replaced by the AET (Second Amendment) Act, 2005, which, having received, on 7.9.2005, the assent of Governor of Assam, came into force with retrospective effect, i.e., with effect from 12.5.2005. What is, however, important to note is that apart from ratifying the AET Ordinance, 2005, the AET (Second Amendment) Act, 2005, also introduced three new sections to the AET Act, 2001, namely, Sections 3A, 8A and 8B, Section 3A having provided for composition of entry tax, Section 8A having made provisions for utilization of the fund, collected by way of entry tax, and Section 8B having made provisions for presumption that the incidence of entry tax has been passed on to the buyer. 14. Following the coming into force of the AET (Second Amendment) Act, 2005, the writ petitions were, once again, amended to include challenge to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing upper ceiling limits in this regard. Such delegation of primary power of taxation by the State Legislature to the State Government is, according to Mr. Shanti Bhusan, nothing, but abdication of the essential legislative function by the State Legislature, The power of taxation, submits Mr. Shanti Bhusan, cannot be delegated to the Government empowering it to tax any new item and to vary the rates of tax unless the Legislature provides to the Government the necessary guidelines in this regard. The power to impose tax, further submits Mr. Bhusan, is a substantive power and such substantive power cannot be delegated in the manner as has been done in the present case. 18. In support of his submission that by leaving the executive completely free to bring any new item within the purview of the AET Act, 2001, and also to fix the rate of the tax so imposed without providing the executive with any guidelines in this regard, the Legislature has abdicated its essential legislative function, Mr. Bhushan places reliance on Devi Das Gopal Krishnan v. State of Punjab and Ors. [1967] 3 SCR 557 . 19. Reiterating his submission that the Legislature cannot leave the executive with complete freedo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Mysore v. H. Sanjeeuiah [1967] 2 SCR 673 to demonstrate that no restrictions, on the freedom of trade and commerce, can be imposed by the executive under Article 304(b) in exercise of delegated authority. 22. The submissions made above by Mr. Shanti Bhusan on the question of excessive delegation have been adopted by the other learned Counsel, appearing on behalf of the various writ petitioners, in the present set of writ petitions. Moreover, Dr. B.P. Todi, learned senior Counsel for the petitioners, who are textile merchants, has further pointed out that the inclusion of all varieties of textiles by the impugned notification, dated 26.8.2003, clearly shows that though, at one stage, all kinds of textiles and fabrics were, in terms of the denial to accord sanction by the President, excluded from the ambit of the AET Act, 2001, while bringing into force the Act, on 1.10.2001, yet the State Government, subsequently, by making use of the unbridled powers vested in it by Sub-section (4) of Section 3, has issued the impugned notification, dated 26.8.2003, aforementioned, imposing entry tax on various goods including all varieties of textiles and fabrics. 23. Controverting the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate of M.P. (1958) 9 STC 258, has not, contends Mr. Shanti Bhushan, laid down the proposition that the Legislature, without providing guidelines, can delegate absolute power to the Government to impose tax on new items by way of notification and to vary the rate of tax without providing any upper ceiling limits in this regard. 27. Mr. Shanti Bhusan submits that the decision of Apex Court, in Sitaram Bishambher Dayal v. State of U.P. AIR 1972 SC 1168, in fact, supports the case of the petitioners inasmuch as the Apex Court, in Sitaram Bishambher Dayal (supra), has clearly held that if the Legislature provides necessary guidelines, the power to fix the rate of tax can be delegated to the executive. Similarly, submits Mr. Shanti Bhusan, in Hiralal Ratanlal v. State of U.P. reported in (1973) 31 STC 178, the Supreme Court has clearly held that the Legislature cannot delegate its essential legislative function. 28. Referring to the decision in Corporation of Calcutta v. Liberty Cinema [1965] 2 SCR 477 , Mr. Shanti Bhushan has further submitted that the controversy, in the present case, with regard to fixation of rates of tax by the State Government, is as to whether the Legislature can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x, rates at which it is to be charged, etc. Such a liberty is given to the Legislature, because, the Legislature often finds it convenient and necessary to delegate subsidiary and auxiliary power to the delegatee to carry out the policy laid down by the legislation as a part of the administrative law. The Legislature must, however, in such a case, lay down the legislative policy and principles so as to afford the executive necessary guidelines enabling it to implement the policy. See Shalimar Chemical Works Ltd., In re AIR 1997 SC 2502 . 31. In Avinder Singh v. State of Punjab [1979] 1 SCR 845 , the Supreme Court laid down the tests for valid delegation of legislative power. These tests are: 1. That Legislature cannot efface itself; 2. It cannot delegate the plenary or the essential legislative function; 3. Even if there be delegation, Parliamentary control over delegated legislation should be a living continuity as a constitutional necessity. It was further observed, in Avinder Singh v. State of Punjab (supra), thus: While what constitutes an essential feature cannot be delineated in detail it certainly cannot include a change of policy. The Legislature is the master of legislativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self to the mode of implementation of the policy and purpose of the Act. 33. In the case at hand, while Sub-section (4) of Section 3, prior to its amendment by the AET (Amendment) Ordinance 2005, empowered the State Government to add new entries into the Schedule appended to the AET Act, 2001, and to vary the rates of tax on the goods, so included in the Schedule or which already stood included in the Schedule, what is of immense importance to note is that the Act, in question, gave no guidelines to the State Government as to how it would determine as to which item shall be brought within the ambit of the said Act nor did the Legislature lay down the upper ceiling limits of the rates at which such tax could have been imposed. The State Government was even left with complete freedom to bring any item of goods within the ambit of the AET Act, 2001. The State Legislature, thus, totally effaced itself by giving the State Government complete freedom to impose entry tax on any goods at any rate. No wonder, therefore, that while passing the enactment, though textile and fabrics were, on the specific direction of the President, once excluded, the same were brought in by way of impugned not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exible power. It must be capable of being modulated to meet the exigencies of the situation. In a Cabinet form of Government, the Executive is expected to reflect the views of the Legislature. In fact, in most matters it gives lead to the Legislature. Present position as regard the delegation of legislative power may not be ideal, but in absence of any better alternative there is no escape from it The Legislature has neither time nor the required detail information, nor even the mobility to deal in detail with innumerable problems arising time and again. In certain matters, they can only lay down the policy and guidelines in as clear a manner possible. In the case of Hiralal Ratanlal v. State of U.P. reported in (1973) 31 STC 178(UP) (sq, also, the Apex Court held that- It is true that Legislature cannot delegate its legislative functions to any other body. But subject to that qualification, it is permissible for the Legislature to delegate the power to select the person on whom the tax is to be levied or the goods or the transactions on which the tax is to be levied. 36. As a matter of fact, even in Liberty Cinema's case (supra), though the Constitution Bench held that the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that same as Article 301, Article 286 also aims at preserving the economic unity of India and, hence, the Parliament has, by enacting the Central Sales Tax Act, 1956, made provisions therein to ensure that imposition of sales tax by the States does not cause hindrance to the inter-State trade and commerce or upset the economic unity of India. With this end in view, points out Dr. Saraf, Section 14 of the Central Sales Tax Act, 1956, declared certain goods to be of special importance in inter-State trade and commerce. Though tobacco, further points out Dr. Saraf, had not been included in the list, which appeared under Section 14, tobacco and its products were added to this list, in the year 1958, making tobacco and its products as goods of special importance in inter-State trade and commerce. Similarly, submits Dr. Saraf, crude oil was also added to this list of goods of special importance at a later stage. Dr. Saraf has also submitted that in order to ensure that no hindrance is caused by unreasonable imposition of local sales tax by States on these declared goods, Section 15 of the Central Sales Tax Act, 1956, requires that a tax, payable in respect of any sale or purchase of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Finance Commission, the States are, now, according to Mr. Choudhury, not only empowered to make laws under Entry 52 of the State List, such as, the present entry tax, but also to impose sales tax by taking recourse to Entry 54 of the State List. 43. Let me, now, consider the correctness or merit of the rival submissions made on the question as to whether, in the face of the fact that the Central Sales Tax Act, 1956, declares some goods, such as tobacco, crude oil, etc., as goods of special importance in the inter-State trade and commerce, the fact that the Central Sales Tax Act, 1957, imposes a ceiling on the maximum limit to which sales tax can be imposed on sale or purchase of such goods and also the fact that under the ADE Act, the States do take their share in the additional excise duty, whether the States are barred from levying entry tax. It is of utmost importance to note, in this regard, that Part XI of the Constitution of India, which embodies Articles 245 to 255, deals with the distribution of legislative powers of the Union and the States. The three lists of the Seventh Schedule to the Constitution of India are not powers of legislation, but fields of legislation. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters, which are outside the authorized field. 46. The doctrine of 'pith and substance' has been developed in Canada. The leading Canadian cases on this doctrine are : Citizens. Insurance Co. v. Parsons 7 AC. 96; Russell v. The Queen 1882 7 AC. 829; Attorney General for Canada v. Attorney General for British Columbia 1930 AC. 111. 47. The Federal Court in AL.S.P.P.L. Subrahmanyam Chettiar v. Muattuswami Goundan AIR 1941 FC 47 followed the doctrine. In Prafulla Kumar Mukherjee v. Bank of Commerce Ltd. Khulna AIR 1947 PC 60, the Privy Council referred to Subramanayam Chettiar's case in dealing with the question of distribution of powers and laid down the test of pith and substance. The Privy Council, while referring to Subramanayam Chettiar's case, quoted Sir Gwyer, CJ, thus: It must inevitably happen from time to time that legislation, though purporting to deal with a subject in one list, touches also on a subject in another list, and the different provisions of the enactment may be so closely intertwined that a blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the permitted field, any incidental encroachment by it on a forbidden field does not affect the competence of the Legislature to enact the law. Effect is not the same thing as subject-matter. If a State enactment, otherwise valid, has the effect on a matter in Union List, it does not cease to be a legislation with respect to an entry in State List or Concurrent List. 50. The doctrine of pith and substance introduces a degree of flexibility into the otherwise rigid scheme of distribution of powers. It gives an additional dimension to the powers of the Centre as well as the States. The reason behind the rule is that if every legislation were to be declared invalid, however slight or incidental the encroachment into the other field is, then, the power of each Legislature will be drastically circumscribed to deal effectively with the subjects entrusted to it. The doctrine gives quite a good deal of manoeuvrability to the courts and furnishes them with a tool to uphold legislation, for, it is for them to decide its true nature and character and, thus, they have a number of choices open to them and, most often, the courts by putting a favourable interpretation on the legislation, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty of the court. When, however, reconciliation is not possible, as here, then the court will have to examine the entries in relation to legislative power in the Constitution. (emphasis is added) 53. From the concurring judgment of Ruma Paul, J, in the ITC Ltd. (supra), it is clear that the majority accepted that the non-obstante clause in Article 246(1) and the words subject to , in Articles 246 and 243, establish supremacy of Parliament and if any of the entries in the three Lists overlap, the entry in List I will prevail. Coupled with this, some entries in the State List have been expressly made subject to the power of the Parliament to legislate either under List I or under List III. This becomes clear from the following observations made in the ITC Limited (supra)(Per Ruma Paul, J) at para 129 and 130: 129. That the legislative power of Parliament in certain areas is paramount under the Constitution is not in dispute. What is in dispute is the limits of those areas as judicially defined broadly speaking parliamentary patrimony is provided under Articles 246 and 254 of the Constitution. The first three clauses of Article 246 of the Constitution relate to the demarcation of le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may do so incidentally while essentially legislating within the entries under the Union List. Conversely, the State Legislatures may encroach on the Union List, when such an encroachment is merely ancillary to an exercise of powers intrinsically under the State List. The fact of encroachment does not affect the vires of the law even as regards the area of encroachment. This principle commonly known as the doctrine of pith and substance, does not amount to an extension of the Legislative fields. Therefore, such incidental encroachment in either event does not deprive the State Legislature in the first case or Parliament in the second of their exclusive powers under the entry so encroached upon. In the event the incidental encroachment conflicts with legislation actually enacted by the dominant power, the dominant legislation will prevail. 54. From a close reading of the above observations of the court (per Ruma Paul, J), it is clear that if any of the legislations made by the State with respect-to any entry in the State List collides with parliamentary legislation made with respect to any of the entries in the Union or Concurrent List and if a situation arises, where the two enac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, enacted by the Parliament, in exercise of its powers under Article 286, are measures taken to ensure that imposition of sales tax by the States does not cause hindrance or obstruction in the inter-State trade and commerce and upset thereby the economic unity of the nation. Section 14 of the CST Act declares certain goods as goods of special importance in inter-State trade and commerce. This list of goods of special importance, admittedly, includes tobacco, its products and crude oil. If an entry tax is not a regulatory or compensatory in nature, it requires, amongst others, sanction of the President for the obvious reason that the Union Government has to ensure that the freedom of trade, commerce and intercourse throughout India is protected and a State is not allowed to impose such tax, which may burden the inter-State trade and commerce in respect of any of such declared goods. 58. Section 15 of the CST Act places some restrictions with regard to imposition of tax on sale or purchase of declared goods within the State, one of these restrictions being that a tax, payable in respect of any sale or purchase of any declared goods inside a State, shall not exceed 4 per cent of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not more than one stage, the fact remains that a tax imposed under Entry 52 of the State List, such as the present entry tax, is not a sales tax. Logically, therefore, merely on the ground that a particular commodity is a commodity included in the list given under Section 14 of the CST Act, inclusion of such a commodity in such a list cannot be taken to have, and, in fact, has not, denuded the States of its legislative freedom to impose a tax in terms of Entry 52 of the State List. Thus, it is clear that the impugned entry tax is not in violation of Sections 14 and 15 of the CST Act, 1956. 61. Let me, now, consider if the impugned entry tax is violative of the ADE Act. If put in a narrow compass, Dr. Saraf's submissions on the subject of the ADE Act are, thus: Since the ADE Act was a result of an agreement reached by the States with the Union Government and the ADE Act is intended to prevent levy of all forms of taxes leviable on the goods by the States, no State cannot, now, while receiving its share in the collection of additional duty of excise impose entry tax by taking recourse to Entry 52 of the State List. 62. While dealing with the question as to whether the impugned e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial year unless the Central Government by special order otherwise directs. 63. A patient examination of the proviso to Rule 2 makes it clear that if, during a financial year, a State levies and collects a tax on the sale or purchase of any of the Scheduled goods by or under a law made by such a State, no sums shall be payable to such a State in respect of that financial year unless the Central Government, by special order, otherwise, directs. Thus, the ADE Act make no reference to any tax other than the tax on sale or purchase of goods. Viewed from this angle, there can be no escape from the conclusion that if an entry tax, by taking recourse to Entry 52 of the State List, imposed by a State is, otherwise, in conformity with the provisions of the Constitution, such a levy cannot be interfered with on the ground that the State receives its share of revenue under the ADE Act. The ADE Act, it needs to be borne in mind, has been enacted by Parliament under Entry 84 of the Union List; whereas the impugned Act has been made by the State concerned on the basis of the field of legislation reserved for the States under Entry 52 of the State List. 64. The Parliament is not competent to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of a statement of fact coupled with a recommendation. All that it says is that the States had imposed several duties and other imposts upon tobacco which were casting an unduly heavy burden upon it and that, therefore, there should be coordination between different taxes on tobacco levied by the Central Government, the States and the local authorities. For that purpose, the Commission recommended the constitution of an Inter-State Taxation Council. Admittedly, no such Council has ever been constituted. Similarly, the letter of the then Finance Minister, Shri T.T. Krishnamachary, relied upon by Shri Ganesh, which we have set out hereinabove, is also not quite clear. The extract speaks, in the first instance, of a complete exemption from sales tax or purchase tax or any other impost by whatever name called on these commodities under the respective State laws but then it immediately proceeds to explain, what it means by the said expression, by saying, (I) In other words, the State which does not exempt completely all these three commodities from its sales tax Act or any other similar legislation will not be entitled to partake in the distribution of the proceeds of the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ringement of the guarantee given by Article 301, but only those restrictions, which have direct and immediate impact on the freedom of trade and commerce. Placing reliance on the State of Karnataka v. Hansa Corporation [1981] 1 SCR 823 and Jindal Strips Ltd. v. State of Haryana reported in (2003) 8 SCC 60 , Mr. Shanti Bhusan has contended that the entry tax, as originally, contemplated under the AET Act, 2001, and even after its subsequent amendment by the AET (Second Amendment) Act, 2005, is clearly a tax on the movement of goods into a local area and such tax has, therefore, a direct impact on the movement of goods. 68. Seeking to derive support from the decision in Automobile Transport Ltd. v. State of Rajasthan and Ors. [1963] 1 SCR 491 and Jindal Stainless Ltd. and Ors. v. State of Haryana and Ors. reported in [2006] 283 ITR 1(SC) , Mr. Shanti Bhusan submits that a tax, such as, the present entry tax, which impedes movement of goods can be saved only when it is either regulatory or compensatory in nature. In the case at hand, respondents contend, points out Mr. Shanti Bhusan, that the AET Act, 2001, is compensatory in nature, but a careful analysis of the provisions of this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nadu reported in [1975] 2 SCR 715 , International Tourist Corporation v. State of Haryana reported in [1981] 2 SCR 364 , and Kamaljit Singh v. Municipal Board, Pilkhowa reported in AIR 1987 SC 56 . 70. Pointing out that the AET Act, 2001, not being compensatory, in nature, ought to have received, in the facts and circumstances of the present case, prior sanction from the President in accordance with the mandatory requirements of the proviso to Article 304(b), Mr. Shanti Bhusan submits that no sanction from the President was obtained, at any stage, for imposing entry tax on the import of tobacco and its products inasmuch as tobacco and its products had not been included in the Bill, which had received sanction of the President, when the same was, initially, sent to the President for obtaining his sanction in terms of Article 304(b). Even when these items, points out Mr. Shanti Bhusan, were subsequently added to the Schedule by way of the impugned notification issued under Sub-section (4) of Section 3 of the impugned Act or by way of impugned Ordinance or impugned AET (Second Amendment) Act, 2005, no fresh sanction from the President was sought and/or obtained. Mr. Shanti Bhusan subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, ought to have received President's prior sanction, but the same having not received, according to Mr. Shanti Bhusan, the requisite sanction of the President, the impugned Act is, submits-Mr. Shanti Bhusan, not sustainable in law. 71. Adopting the above arguments of Mr. Shanti Bhusan and lending support to the same, Dr. A.K. Saraf, learned senior Counsel, has put great emphasis on Section 5 of the impugned Act. Dr. Saraf has specifically pointed out not only to the provisions of Section 5 of the AET Act, 2001, (as the same stood under the AET Act, 2001), but also to the provisions of Section 5 as the same, now, stand under the AET (Second Amendment) Act, 2005, and submitted that the Preamble to the AET Act, 2001, the provisions contained in the enactment, the object and reasons therefore make it clear that the legislative intent is to arrest alleged evasion of local sales tax and also to augment general revenue of the State. The imposition of entry tax, contends Dr. Saraf, is, thus, a colourable exercise of power inasmuch as the Act never intended to impose entry tax as a compensatory measure for providing trading facilities; rather, the Act, reiterates Dr. Saraf, aimed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 8A with the help of the AET (Second Amendment) Act, 2005. This Section (Section 8A), points out Dr. Saraf, clearly shows that even this section, which has been added to show utilization of the fund collected by way of entry tax, does not really promise, far less guarantee, that the fund, so collected, would be spent on providing facilities to the traders; rather, Section 8A, contends Dr. Saraf, clearly provides that it is the State Government, which would determine as to what sums of the proceeds would be utilised for the purpose of development of trading facilities, maintenance of roads and other infrastructure in the local area. In the face of these provisions, contends Dr. Saraf, it is impossible to hold that the entry tax, imposed under the impugned Act, is a valid piece of legislation and since, according to Dr. Saraf, requisite sanction of the President is not available to the imposition of tax on the items, which have been included by way of amendment of the Schedule to the Act, such levy cannot be sustained. 74. While adopting the submissions made by Mr. Shanti Bhusan and Dr. A.K. Saraf, Dr. B.P. Todi, learned senior Counsel, appearing on behalf of the petitioners, who ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately, impeding free flow of trade. In the absence of any such specific case having been made out, the petitioners, according to Mr. Choudhury, erroneously seek to get the AET Act, 2001, declared violative of Article 301. This apart, according to Mr. Choudhury, it is the specific stand of the respondents, as reflected from their consolidated affidavit-in-opposition, dated 3.3.2006, that the entry tax, in the present case, is compensatory in nature and, in fact, the State Government has been spending on development of infrastructure to facilitate trade and commerce within the territories of various local bodies and the amount, so spent, is higher than the amount collected by way of entry tax. In these circumstances, submits Mr. Choudhury, there can be no escape from the conclusion that the entry tax, in the present case, is compensatory in nature and since the levy is compensatory, the levy cannot be treated as a restriction and no prior sanction of the President was required in the present case. 77. Even assuming, contends Mr. K.N. Choudhury, learned Additional Advocate General, that the impugned notification and/or amendments made to the AET Act, 2001, needed previous sancti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned notification, dated 28.2.2005, or otherwise. Pointing out to the decision in Hansa Corporation (supra), Mr. Choudhury has submitted that this judgment has been sought to be used by the petitioners in support of their proposition that whenever a State Legislature has attempted to impose a tax on the movement of goods, it has always obtained President's sanction. As a matter of fact, points out Mr. Choudhury, assent of the President was subsequently obtained in respect of the legislation, which forms the subject-matter of Hansa Corporation (supra), and, hence, this decision is not an authority for the proposition that for every amendment of an Act, which had, otherwise, required previous sanction of the President, a fresh sanction has to be obtained. 79. Article 301, submits Mr. Choudhury, restrains a Legislature from enacting a law, which causes restrictions or impediments, directly and immediately, on the free flow of trade, commerce and intercourse. In the case at hand, the petitioners have not been able to show, insists Mr. Choudhury, that the entry tax is a tax, which impedes, directly or immediately, free flow of trade and commerce. 80. So long as the tax, in the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be construed, submits Mr. Choudhury, that the impugned Act was passed solely for augmenting general revenue of the State. Mr. Choudhury further submits that assuming, while not admitting, that the impugned levy is not compensatory in character, still it would be open to the State of Assam to sustain the restriction, if any, on the ground that the tax is levied not merely to raise general revenue for the State, which itself is a public purpose, but that the tax is raised and utilized for the purposes indicated in Section 8A inserted by the AET (Second) Amendment Act, 2005. Referring to the decision of the Apex Court, in Jindal Stainless Ltd. v. State of Haryana (2006) 145 STC 544 (P H), Mr. Choudhury submits that the Constitution Bench in Jindal Stainless (supra) failed to notice the holding at para 39 in Khyerbari Tea Co. v. State of Assam [1964] 5 SCR 975 , which laid down the test of some relation between the tax collected and the facilities provided in the realm of compensatory tax, which the decision in Bihar Chamber of Commerce (supra) speaks of. 82. In support of his plea that the respondents have successfully furnished materials to show the working relationship between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its other products, which have, now, been added by way of amendment of the Schedule to the impugned Act, was ever obtained. Mr. Shanti Bhusan has also submitted that the mere fact that the present levy is traceable to Entry 52 of the State List is no answer to the question, which has been raised by the writ petitioners contending that the impugned levy is in violation of Article 301. Whether a levy is under Entry 52 or under any other Entry, a levy imposed must, according to Mr. Shanti Bhusan, withstand the tests of Article 301. 85. Referring to the three decisions, namely, Syed Ahmed Aga (supra), Subodhya Chit Fund (supra) and Widia (India) Ltd. (supra), which the learned Additional Advocate General has relied upon to contend that every amendment of an enactment made under the proviso to Article 304(b) does not require President's prior sanction or assent, Mr. Shanti Bhusan has submitted that all these three cases have no application to the facts of the present case. In Syed Ahmed Aga (supra), points out Mr. Shanti Bhusan, the court has clearly held that it is only an additional restriction from the special point of view of Article 304(b), which requires President's sanct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanction to the original Bill was given, it would, now, be wrong to suggest, on the part of the respondents, that the amendments have not created any additional restriction under Article 301 of the Constitution. Seeking to draw support from the decision in Syed Ahmed Aga (supra), Mr. Shanti Bhusan submits that the present levy on tobacco and tobacco products is an additional restriction and this would require sanction of the President. For so contending, Mr. Shanti Bhusan places reliance on the observations made in Syed Ahmed Aga (supra), which run thus, It is only an additional restriction from the special point of view of Article 304(b), which require President's sanction. 88. At any rate, submits Mr. Shanti Bhusan, the decision of the Constitution Bench, in Kaiser-i-Hind (supra), will prevail over the ratio of the decisions in all the three cases, which the learned Additional Advocate General has relied upon. In Kaiser-i-Hind (supra), points out Mr. Shanti Bhusan, the Constitution Bench has clearly held that the powers actually exercised by the President under Article 304(b) are a special constituent power vested with the Head of the Union as the protector and defender of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy, in the name of entry tax, cannot be claimed to be sustainable. There is obviously, contends Mr. Shanti Bhusan, no similarity between the facts of the two cases, namely, the Hansa Corporation (supra) and the present one. With the overruling of the decision rendered in Bhagatram Rajeeb Kumar (supra), it has, now, become transparent, submits Mr. Shanti Bhusan, that in order to save an entry tax, the State must satisfy that the tax, which it has imposed, is against providing certain facilities for better conduct of trade and commerce by persons on whom the tax is imposed. According to Mr. Shanti Bhusan, the respondents have, in the present case, miserably failed in showing that the entry tax was aimed at, or has, in any way, been utilized for providing trading facilities to the persons, who are affected by the impugned levy, the levy is not sustainable in law and the concept of some connection or relationship, which Bhagatram Rajeeb Kumar (supra) developed and which the decision in Bihar Chamber of Commerce (supra) followed, can be of no avail to the respondents in the present case. 92. Responding to the State 'respondents' contention that the tax levied under the AET Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. 304. Restrictions on trade, commerce and intercourse among States. -Notwithstanding anything in Article 301 or Article 303, the Legislature of a State may by law- (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in the State are, subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produces; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purpose of Clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. 95. Article 1, if I may point out, conceives India as a Union of States and declares that the territory of India shall comprise of the territories of the States, the Union territories and such other territories as may be acquired. 96. It is in the backdrop of the fact that Article 1 conceives India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries all over the world, and in order to give India strong economic base, the makers of our Constitution incorporated, in Part XIII, a specific constitutional scheme for conduct of trade, commerce and intercourse and while making this scheme, they naturally considered and treated India as one economic unit. No wonder, therefore, that the trade, commerce and intercourse were guaranteed to be free throughout the territory of India, which, as Article 1 reflects, consists of various States and Union territories. However, as the conduct of every facet of life needs some regulations and regulatory measures, the freedom of trade, commerce and intercourse too could not have been left absolutely free or completely without any regulation. It is, in this light, that the words Subject to the other provisions of this part , occurring in Article 301, need to be read. Some of these aspects of our Constitutional scheme succinctly surface from the decision of the Constitution Bench, in Atiabari Tea Co. Limited v. State of Assam [1961] 1 SCR 809 , wherein the court, at paragraph 33, observed as follows: In drafting the relevant Articles of Part XIII there makers of the Constitution were fully co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion makers wanted to ensure freedom of movement and exchange of goods throughout the territory of India in order to strengthen the economic base of the nation and for sustaining and improving the living standard of our countrymen. 100. Pointing out that by granting freedom of trade throughout India, Article 301, primarily, aims at removing the barriers in the movement or transportation part of the goods, the Supreme Court, in Atiabari Tea Company Limited (supra), observed as follows: 49. Let us now revert to Article 301 and ascertain the width and amplitude of its scope. On a careful examination of the relevant provisions of Part XIII as a whole as Well as the principle of economic unity which it is intended to safeguard by making the said provisions, the conclusion appears to us to be inevitable that the content of freedom provided for by Article 301 was larger than the freedom contemplated by Section 297 of the Constitution Act of 1935, and whatever else it may or may not include, it certainly includes movement of trade which is of the very essence of all trade and is its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 considerations ; 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 of the Parliament and State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus, considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions ; but it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or the transport of goods from one part of the country to other that is intended to be saved, and if any Act imposes any direct restrictions on the very movement of such goods it attracts the provisions of Article 301, and its validity can be sustained only if it satisfies the requirements of Article 302 or Article 304 of Part XIII. At this stage we think it is necessary to repeat that when it is said that the freedom of the movement of trade cannot be subject to any restrictions in the form of taxes imposed on the carriage of goods or their movement all that is meant is that the said restrictions can be imposed by the State Legislatures only after satisfying the requirements of Article 304(b). It is not as if no restrictions at all can be imposed on the free movement of trade. 103. What, thus, surfaces from the above discussion, is that Article 301 guarantees freedom of trade, commerce and intercourse throughout the territory of India. It is, however, not freedom from all laws that Article 301 aims at protecting; rather it guarantees fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are subjected, but not so as to discriminate between the imported goods and the goods manufactured in the State. In other words, Article 304(a) authorizes State Legislature to impose non-discriminatory tax on goods imported from sister States even if such law interferes with the freedom of trade, commerce and intercourse guaranteed by Article 301. The ban imposed, under Article 303(1), stands lifted even when discriminatory restrictions are imposed by the State Legislature if the legislation fulfils three conditions, which Article 304(b) embodies, namely, that such restrictions shall be reasonable, the same shall be in public interest and, above all, no Bill or amendment for the purpose of Clause (b) or for making amendment thereto shall be introduced or moved in the Legislature of any State without previous sanction of the President. 1b be more precise, one can point out that even restrictions, which may be reasonable and are also in public interest, cannot be imposed on the freedom of trade and commerce unless prior sanction of the President has been procured by the State before introduction of the Bill or before making the legislation. 106. In short, while Article 301 guarantees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han) Ltd. (supra), described as the narrow view, was that taxation simpliciter was not within the ambit of Article 301 and a tax, on the movement of goods or passengers, did not necessarily connote impediment or restraint in the matter of trade and commerce. Drawing a distinction between laws of taxation, which are enacted for the purpose of general revenue, and taxation laws, which are enacted for the purpose of making discrimination or giving preference, the learned Chief Justice took the view that taxing statutes, enacted for the purpose of general revenue, were outside the purview of Article 301 and it is only those laws of taxation, which were made for the purpose of making discrimination or giving preference, which fall within the ambit of Article 301. The learned Chief Justice concluded these views in the following words: Thus, on a fair construction of the provisions of Part XIII, the following propositions emerge : (1) trade, commerce, and intercourse throughout the territory of India are not absolutely free, but are subject to certain powers of legislation by Parliament or the Legislature of a State; (2) the freedom declared by Article 301 does not mean freedom from taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that tax laws are governed by Part XII of the Constitution and were outside Part XIII. The majority did not also agree with the views expressed by Shah, J. Hence, speaking for the majority, in Atiabari Tea Company Ltd. (supra), Gajendragadkar, J, observed as follows: 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 of the Parliament and the State Legislatures to levy taxes, and generally; but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus, considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301. The argument that all taxes should be governe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Rajasthan) Ltd. (supra), would, if accepted, result into stoppage of every Bill undermining thereby effective legislation, which may, at times, be, otherwise, urgent in nature. Pointing to the difficulties in accepting the views expressed by Shah, J, the court, in Automobile Transport (Rajasthan) Ltd. (supra), observed as follows: 11. The most serious objection to the widest view canvassed before us is that it ignores altogether that in the conception of freedom of trade, commerce and intercourse in a community regulated by law freedom must be understood in the context of the working of an orderly society. The widest view proceeds on the footing that Article 301 imposes a general restriction on legislative power and grants a freedom of trade, commerce and intercourse in all its series of operations, from all barriers, from all restrictions, from all regulation, and the only qualification that is to be found in the Article is the opening clause, namely, subject to the other provisions of Part XIII. This in actual practice will mean that if the State Legislature wishes to control or regulate trade, commerce and intercourse in such a way as to facilitate its free movement, it must ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept of freedom of trade, commerce and intercourse postulated by Article 301 must be understood in the context of an orderly society and as part of a Constitution which envisages a distribution of powers between the States and the Union, and if so understood, the concept must recognize the need and the legitimacy of some degree of regulatory control, whether by the Union or the States. this is irrespective of the restrictions imposed by the other Articles in Part XIII of the Constitution. We are, therefore, unable to accept the widest view as the correct interpretation of the relevant articles in Part XIII of the Constitution. 112. As regards the narrow view expressed by the learned Chief Justice, in Atiabari Tea Company Ltd. (supra), which was to the effect that taxing laws were governed by the provisions of Part XII and except when a tax law is made under Article 304(a), Article 301 did not come into play or, in other words, none of the provisions of Part XIII, except Article 304(a), extended to taxing laws, it may be pointed out that the majority, in Automobile Transport (Rajasthan) Ltd. (supra), did not accept this view; rather, accepting the majority views expressed in Atia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt as correct the argument that the provisions of Article 303 must delimit the general terms of Article 301. It seems to us that so far as Parliament is concerned, Article 303(1) carves out an exception from the relaxation given in favour of Parliament by Article 302 ; the relaxation given by Article 302 is itself in the nature of an exception to the general terms of Article 301. It would be against the ordinary canons of construction to treat an exception or proviso as having such a repercussion on the interpretation of the main enactment so as to exclude from it by implication what clearly falls within its express terms. 113. Having, thus, agreed with the views expressed by the majority, in Atiabari Tea Company Ltd. (supra), the 7 Judges Bench, in Automobile Transport (Rajasthan) Ltd. (supra), further held that regulatory measures, which do not impede the freedom of trade, commerce and intercourse, and compensatory taxes for use of the trading facilities are not hit by Article 301, for, such regulatory measures or compensatory taxes, instead of hampering trade, commerce and intercourse, facilitate them. In short, in the opinion of the majority, in Automobile Transport (Rajasthan) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and maintaining the roads in a good state of repairs. Whether a tax is compensatory or nor cannot be made to depend on the preamble of the statute imposing it. Nor do we think that it would be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used to providing any facilities. It is obvious that if the preamble decided the matter: then the mercantile community would be helpless and it would be the easiest thing for the Legislature to defeat the freedom assured by Article 341 by stating in the preamble that it is meant to provide facilities to the tradesmen. Likewise actual user would often be unknown to tradesmen and such user may at some time be compensatory and at 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. 20. Nor do we think tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h unfettered freedom under Article 301, will still be protected from the vice of unconstitutionality if such taxes are compensatory. In short, thus, the concept of compensatory tax is an exception to Article 301. 116. It is, now, pertinent to point out that a three Judges Bench of the Apex Court, in its later decision, in G.K. Krishnan and Ors. v. State of Tamilnadu and Ors. reported in (1995) 1 SCC 375, speaking through Mathew, J, observed that the very idea of a compensatory tax is a service more or less commensurate with the tax levied. Thus, even in G.K. Krishnan (supra), the Apex Court took the view that compensatory tax is more or less commensurate with the services offered or facilities provided. However, in Bhagatram Rajeeb Kumar v. Commissioner of Sales Tax reported in [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673, though the State had demonstrated that the levy was compensatory, the court further observed thus: 'the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to dealers directly or indirectly, the levy cannot be impugned as invalid. For coming to this conclusion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities. It is enough if some connection is established between the tax and the trading facilities provided. The connection can be a direct one or an indirect one, as held by this Court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 (at page 658 of STC; SCC at page 678, para 8). The concept of compensatory nature of tax has been widened 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the persons subject to such tax. The relevant observations made, at para 23, of Jindal Stripes Ltd. (supra), runs, thus, It is contended by the appellants, with considerable force, that if the concept of compensatory tax has to be understood in the manner in which it has been viewed by the court in the decisions of Bhagat Ram and Bihar Chamber of Commerce, there will be no practical distinction between a tax raised for general revenue purposes and a compensatory tax meant for the specific purpose of providing facilities or service's to the persons subjected to the tax. All State revenues are presumably expended or at least are extendible only for the welfare of the nation or the State as a whole. This may result in a general economic up liftment and the betterment of all facets of life including ultimately and in an indirect sense the trading community. The approach in the two decisions noted does away with the difference between taxes in general and compensatory taxes. If that is the law then any tax could pass the test of compensatory tax judged from the standard applied. Then no tax can impinge on the freedom ordained by Article 301, a result which, it is pointed out, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that the Australian Constitution provides for complete freedom of trade and commerce, the decisions of the Privy Council and Australian High Courts have taken the view that Section 92 leaves open the regulation of trade and commerce, at all events, until the regulations enacted provide that the regulation does not impede the true freedom of inter-State commerce. These decisions are based on the principle that all trade and commerce must be conducted subject to law. Thus, there lies, points out the Constitution Bench, in Jindal Stainless Ltd. (supra), a distinction between taxing laws and regulatory laws and that the regulatory laws give rise to regulatory charges and this is how the concept of payment for revenue and the concept for payment for regulation arose and it was from this point of view that the court, in Automobiles Transport (Rajasthan) Ltd. (supra), had taken the view that compensatory tax constitutes an exception to the freedom of trade, commerce and intercourse, which Article 301 guarantees. It has also been pointed out, in Jindal Stainless Ltd. (supra), that the concept of compensatory had not been discussed in Automobiles Transport (Rajasthan) Ltd. (supra) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue and concept of Payment for Regulation arose. This is how the regulatory power stood excluded from the taxing power and on that reasoning in Automobile Transport case, this Court took the view that compensatory taxes constitute an exception to Article 301. It is a judicially evolved concept. However, the basis of that concept was not discussed by this Court in that case which we have done in this case. Suffice it to state at this stage that the basis of special assessments, betterment charges, fees, regulatory charges is recompense/reimbursement of the cost or expenses incurred or incurable for providing services/facilities based on the principle of equivalence unlike taxes whose basis is the concept of burden based on the principle of ability to pay. At this stage, we may clarify that in the above case of Automobile Transport, this Court has equated regulatory charges with compensatory taxes and since it is the view expressed by a Bench of seven Judges, we have to proceed on that basis. The fall-out is that compensatory tax becomes a sub-class of fees. 124. Having noted, in detail, the parameters of not only Article 301, but also of Articles 302,303 and 304, the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or non-taxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of the operation of such a law is to impede the activity, then the law is a restriction under Article 301. However, if the law enacted is to enforce discipline or conduct under which the trade has to perform or if the payment is for regulation of conditions or incidents of trade or manufacture then the levy is regulatory. This is the way of reconciling the concept of compensatory tax with the scheme of Articles 301, 302 and 304. For example, for installation of pipeline carrying gas from Gujarat to Rajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come in the category of manifestation of regulatory power. However, a tax levied on sale or purchase of gas which flows from that very pipe is a manifestation of exercise of the taxing power. This example indicates the difference between taxing and regulatory powers. See : Essays in Taxation by Seligman. 126. The Constitution Bench proceeds further to observe, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city (principle of ability). Taxes may be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to benefits. They are based on the principle of equivalence. However, a compensatory tax is levied on an individual as a member of a class, whereas a fee is levied on an individual as such. If one keeps in mind the principle of ability vis-a-vis the principle of equivalence , then the difference between a tax on one hand and a fee or a compensatory tax on the other hand can be easily spelt out. Ability or capacity to pay is measurable by property or rental value. Local rates are often charged according to ability to pay. Reimbursement or recompense are the closest equivalence to the cost incurred by the provider of the services/facilities. The theory of compensatory tax is that it rests upon the principle that if the government by some positive action confers upon individual(s), a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it. The basic difference between a tax on one hand and a fee/compensatory tax on the other hand is that the former is based on the concept of burden whereas compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. It may incidentally bring in net-revenue to the government but that circumstance is not an essential ingredient of compensatory tax. 129. Having, thus, made it clear as to how a compensatory tax differs from a tax imposed as a measure of collection of general revenue, the court, in Jindal Stainless Ltd. (supra), has pointed out that whenever a tax law is impugned as violative of Article 301, the court has to determine its effect on the operation of the impugned law on the inter-State and inter-State movement of goods, for, movement or transportation of goods constitutes an integral part of trade. If the court finds, on such examination, that the tax imposed is causing impediment, it cannot survive unless it complies with the provisions of Article 304(b) ; but if the tax, so imposed, facilitates trade instead of causing hindrance thereto and it is for providing such facility to the traders, as a class, that the tax has been imposed, then, such imposition of tax would be compensatory. Laying down the law, so indicated, the Supreme Court, in Jindal Stainless Ltd. (supra), further observed, at para 43, 43. Applying the above tests/parameters, whenever a law is impugned as violative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade directly or indirectly, the levy cannot be impugned as invalid. In our view, this test of some connection enunciated in Bhagatram's case is not only contrary to the working test propounded in Automobile Transport's case but it obliterates the very basis of compensatory tax. We may reiterate that when a tax is imposed in the regulation or as a part of regulatory measure the controlling factor of the levy shifts from burden to reimbursement/recompense. The working test propounded by a Bench of seven Judges in the case of Automobile Transport and the test of some connection enunciated by a Bench of three Judges in Bhagatram's case cannot stand together. Therefore, in our view, the test of some connection as propounded in Bhagatram's case is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeeb Kumar v. Commissioner of Sales Tax, M.P. and State of Bihar v. Bihar Chamber of Commerce stand overruled. 131. From what have been observed, at para 47, in Jindal Stainless Ltd. (supra), there remains no escape from the conclusion that whenever a tax is impugned as violative of Article 301, the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State must satisfy, when a levy is challenged as violative of Article 301, that what the traders are required to pay is not patently much more than what is required for providing the facilities . 133. Coupled with the above, what also needs to be clarified is that when a tax is imposed on the entry of goods into a local area for the purpose of use, consumption or sale therein, it has an immediate impact on the movement of the goods. That such a measure would fall within the ambit of Article 301 is clearly indicated by the Constitution Bench, in Hansa Corporation (supra), when it observed, 32. The next limb of the contention is that the impugned tax being leviable on the entry of goods into a local area will have a direct and immediate impact on the movement of goods and consequently would infringe freedom of inter-State trade guaranteed by Article 301. To the extent the impugned tax is levied on the entry of goods in a local area it cannot be gainsaid that its immediate impact would be on movement of goods and the measure would fall within the inhibition of Article 301. (emphasis is supplied) 134. In Jindal Stripes Ltd. (supra), too, the court, while making the reference, observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e levy, collection and utilization of entry tax. PREAMBLE: 1. Whereas it is expedient to provide for an imposition of a tax on the entry of goods into any local area in Assam for consumption, use or sale therein and for matters connected therewith. Statement of Objects and Reasons It has come to the notice of the Government that many bulk consumers such as tea companies, oil companies, etc., take recourse to inter-State purchase several items required for their own consumption with a view to availing benefit of lower rate of tax under the Central Sales Tax Act. This practice deprives the State of a substantial amount of revenue. 2. Further it is observed that due to disparity in the rate of tax in different States, motor vehicles are purchased outside the State and then brought into the State for use. 3. In order to curb such losses of revenue and thereby mobilize additional; resources, the Govt. has decided to levy tax on entry of selected items, including motor vehicles, which are imported into Assam from other States for own use and consumption. This Bill seeks to achieve above objects. 138. From a careful reading of the Preamble to the Assam Entry Tax, 2001, the Statement of Ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or criteria would be applied by the State Government to determine as to what portion of the proceeds of the entry tax would be utilized for the purpose of development of trading facilities like maintenance of roads and other infrastructure in the local areas. In fact, a dispassionate and close scrutiny of the contents of Section 8A makes it abundantly clear that the Statute does even not make it obligatory for the State Government to utilize the revenue, collected by imposition of entry tax, for the purpose of providing trading facilities only, because Section 8A, if taken to logical conclusion, permits the State Government to spend an insignificant part of the total revenue, collected by way of entry tax, for development of trading facilities. Thus, the revenue, realized by imposition of entry tax, can be used, would be used, and has, in fact, been used for the purposes other than providing trading facilities. To be precise, and if I may repeat, the impugned Act does not clearly spell out what trading facilities have been provided or would be provided to those, who pay entry tax. The State Government, for the purpose of proving that the entry tax is compensatory in nature, relies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in future, so as to justify the imposition of the entry tax. The averments made, in the affidavit, are wholly vague inasmuch as these averments reveal, at best, the total grants, which the State Government has made to the local bodies. These grants would obviously include grants for expenses incurred in the local areas not only for the facilities, which may have been, incidentally, provided to the traders or importers of goods in the State of Assam, but also to the public at large. The State Government merely avers, in its affidavit, that the revenue realized from the entry tax is utilized for development of infrastructure to facilitate trade and commerce in the local areas. These averments do not, however, indicate as to what infrastructural developments have been made or are being made to facilitate trade and commerce in the local areas. In fact, the State Government's affidavit heavily relies on the concept of compensatory tax as had been propounded in Bhagatram Rajeeb Kumar (supra) and followed and amplified in Bihar Chamber of Commerce (supra). In fact, before the decision in Jindal Stainless Ltd. (supra) was rendered, the State Government's stand had been that so long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner-company. The petitioner Company is responsible for payment only in respect to the crude delivered to the tanks of the petitioner-company. It may be further relevant to state herein that any loss of crude in transit is to be borne by ONGC/OIL and custody and transfer takes place only after delivery of crude to the tanks belonging to the petitioner-company. It is further stated that before delivery of the crude into the tanks of the petitioner the title remains with OIL/ONGC. It is only after the crude oil delivered is ascertained by the joint dipping inspection that the title of the crude is transferred to the petitioner-company. xiii. It may be relevant herein to mention that in respect to crude oil the State does not provide any facility whatsoever. It is stated that no road or public facility is use for the transportation of crude oil which moves entirely through pipe lines installed by oil companies at considerable expense on land on which they have acquired right of way at their own expense and which are policed and maintained by oil companies entirely at their own expense. The State provides no facility and incurs no expense whatsoever in facilitating the trade or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the impugned Act embodies provisions for exemption. This Section states as follows: Section 5 Notwithstanding anything contained in Section 3 and Section 4 and subject to production of documentary proof, no tax under this Act shall be levied in respect of the specified goods which are also subject to levy of taxes under the provisions of the Assam Value Added Tax Act, 2003 Assam Act VIII of 2005. (i) If the sale of such specified goods inside the State, made by an importer are sales within the meaning of Clauses (43) of Section 2 of the said Act, excepting sales falling under Sub-clauses (ii), (iii) and (iv) of the said clause and if he is liable to pay tax on such sales as a registered dealer under the Assam Value Added Tax Act, 2003 (Assam Act No. VIII of 2005) (ii) If the sale of such specified goods are made by the importer in the course of inter-state trade or commerce or in the course of export out of the territory of India or such goods are otherwise dispatched outside the State by way of stock transfer and if he is registered dealer under the Central Sales Tax Act, 1956 (Central Act 74 of 1956). 147. It may be noted that prior to the amendment of Section 5 of the Assam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve averred as follows: 6. That with regard to the statements made in paragraph 5 of the writ petition, the deponent respectfully begs to state that a plain reading of the Preamble of the Act of 2001 makes it abundantly clear that the Assam Entry Tax Act, 2001 has been enacted to levy tax on entry of goods into any local area in Assam for consumption, use or sale therein and for matters connected therewith. The prime intendment behind the enactment is broadening the tax base and seeking additional resources to increase the tax yield. 150. In paragraph 23 of the above affidavit, the respondents further clarified the intention behind the enactment of the impugned Act in the following words: The same as discernible from the preamble as well as other provisions of the Act which is to broaden the tax base and to seek additional resources to increase the tax yield. 151. The stand, now, taken by the State respondents that the levy is compensatory in nature is noticeably different from what the stand the respondents had taken earlier in their affidavits as indicated hereinabove. 152. Thus, the above averments, made, in their affidavit, by the State respondents, clearly indicate that the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red dealer for resale in the State. 153. The State respondents, it may also be pointed out, relies on the fact that the Apex Court has struck down the levy of luxury tax as ultra vires and that the impugned levy had to be imposed by the State in replacement of the States luxury tax. In order to justify imposition of entry tax, as a replacement of luxury tax, the State cites the decision in Hansa Corporation (supra), wherein the Supreme Court, having held that the entry tax imposed therein is in replacement of octroi, upheld such levy. While considering this aspect of the matter, it needs to be noted that in Hansa Corporation (supra), the State of Kerala had been validly levying octroi in proper exercise of its legislative powers; but since the levy of octroi was being misused, it abolished octroi and imposed entry tax. As the enactment, imposing entry tax, had received assent of the President, the Supreme Court held the imposition of the tax as valid. The facts of the case, in Hansa Corporation (supra), were, thus, not similar to the ones at hand. This apart, in the case at hand, the luxury tax was struck down by the Apex Court as ultra vires and in such circumstances, when the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted, in this regard, is that the various entries, in the three Lists of the Seventh Schedule to the Constitution, are not really powers of legislation, but fields of legislation. The entries, in these Lists, are mere legislative heads or fields of legislation and these entries are, thus, of an enabling character; whereas the powers to legislate are given to the Union and the State Legislatures under Articles 245 to 255, the entries are designed to define and delimit the respective areas and legislative competence of the Union and the State Legislatures. See Calcutta Gas Co. Proprietary) Ltd. v. State of West Bengal AIR 1962 SC 1044 Harakchand Rattanchand Banthia v. Union of India reported in [1970] 1 SCR 479 Union of India v. H.S. Dhillon reported in [1972] 83 ITR 582(SC) , and State of Bihar v. Kameswar Singh [1952] 1 SCR 1020 . 156. Thus, Entry 52 of the State List does not, in itself, give the power to the State Legislatures to make enactment of entry tax, the power to legislate entry tax arise from Article 246(2) read with Entry 52, for, while Article 246(2) empowers the State Legislature to legislate on the subjects enlisted in the State List, Entry 52 allows the State to imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... movement of trade and commerce, a restriction, imposed on the freedom of such movements, cannot be lightly sustained unless such restriction is shown to be reasonable and in public interest. In the present case, levy could not be proved to be regulatory or compensatory in nature. Heavy burden, therefore, rested on the State respondents to ! show that the levy is reasonable and in public interest. The respondents have not been able to discharge this duty inasmuch as they have not been able to show as to how the imposition of the impugned levy can be said to be reasonable and/or in public interest. The analysis of the provisions of the impugned Act clearly shows that this Act is nothing, but an enactment aimed at augmenting the general revenue of the State. A legislation made aiming at augmenting revenue of the State cannot, by itself, be said to be in public interest or a reasonable restriction. 161. Be that as it may, even if one does not go into the question as to whether the impugned tax imposes reasonable restriction or not, and whether such a levy is in public interest or not, it must, at least, be shown by the State that the levy satisfies the proviso to Article 304(b), namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any effort or exercise shown to have been undertaken, when questioned before courts, the State law cannot be permitted or allowed to have predominance or an overriding effect over the Central enactment of Parliament to which no specific reference of the President at all has been invited to. This, in my view, is a must and an essential requirement to be satisfied, in the absence of which the consideration claimed would be one in a vacuum and really oblivious to the hoard of legislations falling under the Concurrent List in force in the country and enacted by Parliament. To uphold as valid the claim for any such blanket assent or all-round predominance over any and every such law whether brought to the notice of the President or not, would amount to legitimization of what was not even in the contemplation or consideration on the basis of some assumed consideration. In order to find out the real state of affairs as to whether the assent in a given case was after a due and proper application of mind and effective consideration as envisaged by the Constitution, this Court as well as the High Court exercising powers of judicial review are entitled to call for the relevant rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Article 304(b), is a momentous power and cannot be lightly dealt with. Viewed thus, I find considerable force in the submission of Mr. Shanti Bhusan that when the Constitution requires President's prior sanction to a Bill, such as, the present one, the President needs to be informed as to what restrictions a State Legislature seeks to impose, on what goods such restrictions are sought to be imposed and what is the rate at which the State Legislature seeks to impose the tax so that the President can effectively apply his mind and after due and effective application of mind, it will be open to the President to either accord sanction to the introduction of such a Bill or decline the same. In fact, in Kaiser-i-Hind (P.) Ltd. (supra), the Constitution Bench has pointed out that unless pointed attention of the President is drawn to the item on which the tax is sought to be imposed, the mandatory requirement of the proviso to Article 304(b) would not be satisfied. 166. When any provision of law requires sanction, granting of sanction cannot be treated as a mere formality, but an active exercise of mind based on consideration of all the relevant materials. Thus, when a Bill, imposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is restrictive in nature, can be imposed in the case of a proposed item and/or at the rate at which the State Legislature proposes to impose such a tax. 168. It is the submission of Mr. Choudhury that since the Act empowers the State Legislature to amend the Schedule by adding any item thereto, no further sanction of the President is necessary if any item is, now, required to be added to the Schedule. 169. While considering this argument, it needs to be noted, as already pointed out above, that sanction granted by the President under Article 304(b) is not a mere formality; but a constitutional requirement. In such circumstances, the power, given under the impugned Act, to add new items to the Schedule has to be read subject to the condition that such addition is possible only with the sanction of the President. If such requirement is not read into the provisions of the impugned Act, nothing can legally stop the State Legislature from introducing any item into the Schedule, which may not be, in the national interest, to do. No wonder, therefore, that the State has imposed entry tax, even on textile, which the President had specifically declined. Such a blanket power, which may have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bill, such a restriction cannot be imposed without President's sanction. Viewed, thus, when an item, which was not included for the purpose of receiving sanction of the President, is sought to be subsequently included, it would require President's active application of mind and granting of prior sanction. The imposition of entry tax on the items, which were not included in the Bill, are nothing, but new restrictions or, at any rate, additional restrictions and such restrictions cannot survive unless President's sanction is obtained for this purpose. 172. Because of what have been discussed and pointed out above, there remains absolutely no doubt that the impugned amendment introduced by way of the impugned notifications, dated 21.8.2003, 26.8.2003, 29.9.2004 and 28.2.2005, impugned Ordinance, 2005, and the AET (Second) Amendment Act, 2005, which have included, in the Schedule to the impugned Act, the goods, which form the subject-matter of this set of writ petitions, is not sustainable, for, the State Legislature has not obtained the President's sanction thereto. Whether the Assam Entry Tax Act, 2001, is in violation of Articles 14 and 304(a) of the Constitution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shanti Bhushan, that the law, which imposes entry tax, must not discriminate between the goods, which are produced inside the State of Assam, and the goods, which are produced outside the State, but imported into a local area of the State for consumption, use or sale therein, for, in either case, the taxable event, according to Mr. Shanti Bhushan, is entry of goods into a local area. Thus, the taxable event, in either case, being entry of goods into a local area, the State of Assam, submits Mr. Shanti Bhushan, cannot discriminate, while levying entry tax, between the goods, which are imported into a local area from outside the State, and the goods, which are imported into one local area from another local area of the State, merely because of the fact that in the former category of cases, the goods are produced or manufactured outside the State of Assam and in the latter category of cases, the goods are produced or manufactured inside the State of Assam. 175. In support of his submission that the AET Act, 2001, is discriminatory and violative of Article 304(a), Mr. Shanti Bhushan places reliance on Anand Commercial Agencies v. C.T.O., Hyderabad reported in AIR 1997 SC 4067 See parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se imported from other States, is same, nothing more is required to be shown to dispel the argument of discrimination under Article 304(a) even though the resultant tax levied on imported goods may be different from the ones manufactured or produced inside the State of Assam. Referring to Widia (India) Ltd. v. State of Karnataka, reported in AIR 2003 SC 3095 , Mr. K.N. Choudhury has pointed out that a State may levy tax on goods imported from other States and so long as such levy remains similar for goods, which are manufactured inside the State, and the ones, which are manufactured outside the State, the levy cannot be to be discriminatory in law. In the present case, submits Mr. K.N. Choudhury, the impugned Act makes no discrimination between manufacturers of tobacco, tobacco products, biscuits, etc., whose goods are imported into the State of Assam, and the manufacturers of these goods inside the State of Assam. It is also contended by Mr. K.N. Choudhury that the decisions, relied upon by the petitioners, to show that the impugned levy is discriminatory, in nature, are not applicable to the facts of the case at hand. The impugned Act makes, reiterates Mr. K.N. Choudhury, no disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed on the local goods imported into a local area, it would amount to clear violation of Article 304(a) if similar goods are made subject to entry tax merely on the ground that these goods are not manufactured or produced within the State of Assam. 183. While considering the question as to whether the impugned levy is or is not discriminatory in nature, one needs to bear in mind the constitutional scheme as reflected by Articles 301, 302, 303 and 304. A careful and combined reading of all these articles shows that while guaranteeing, with the help of Article 301, freedom of trade, commerce and intercourse throughout the territory of India and thereby putting a limitation, on the part of the Parliament as well as Legislatures of the States, not to make law, creating fiscal barriers, which would cause impediment in the free flow of goods, Article 302 relaxes this limitation in favour of Parliament by allowing the Parliament to impose restrictions in public interest. While so allowing the Parliament to impose, in public interest, restrictions on the freedom of movement of goods, Clause (1) of Article 303 restricts the Parliament from making any law, even in public interest, if such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in mind. In Kalyani Stores (supra), the question was whether the State of Orissa was entitled to impose a particular class of tax on foreign liquor, which were imported into the State of Orissa, when foreign liquour was not being manufactured or produced within the State of Orissa. Made the Constitution Bench, in Kalyani Stores (supra), clear, in no uncertain words, the position of law in these words, 4... It seems, therefore, that countervailing duties are meant to equalize the burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcoholic liquors manufactured or produced in the State. If no alcoholic liquors similar to those produced or manufactured imported into the State are produced or manufactured, the right to impose counterbalancing duties of excise levied on the goods manufactured in the State will not arise. It may therefore be accepted that countervailing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being levied. 185. From the above observations made in Kalyani Stores (supra), it becomes abundantly clear that no State can impose a tax on import of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y tax, in the present case, suffers from discrimination, the test would be whether the imposition of the impugned entry tax makes any discrimination between the goods, which are produced within the State, and the goods, which are imported into the State. A challenge to the violation of Article 304(a) can be sustained only when it is shown that the discrimination is in respect of a given item of goods and the challenge can be met if it can be shown that the item, in question, suffers from no discrimination. 188. In short, under Article 304(a), the tax, sought to be imposed, must not make any discrimination between the goods, which are imported from sister States, and the goods, which are produced or manufactured within the State. If the goods, similar to the ones, which are imported into the State, but not manufactured or produced in the State, such a State cannot impose a tax on such imported goods, for, the State, in such a case, cannot impose such a tax on similar goods within the State, because of non-production of similar goods within its State. The tests, therefore, are as to whether the State, which imposes a levy, produces or not the goods, which it seeks to tax on import of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. Some of these commodities are exempted from payment of local sales tax. Let us, therefore, take, for a moment, the case of those goods, which are exempted from payment of local sales tax while considering these aspect of the matter, what needs to be pointed out is that the levy of entry tax is, admittedly, on the entry of goods into a local area from outside the State as well as on the entry of goods from one local area of the State into another local area of the State. Thus, when the goods, which are exempted from payment of local sales tax enter into, on being imported from outside the State, a local area of the State, the same becomes liable to payment of entry tax. Similar is the position as regard the goods, produced or manufactured within the State, but are not liable to payment of local sales tax, for, even when such goods, though produced or manufactured within the State, enter into a local area from another local area, the same becomes liable to payment of entry tax. As regard the goods taxable under the local sales tax, it is noteworthy that when such goods, manufactured or produced within the State, go out of a local area and enter into another local area, such entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assam Entry Tax (Amendment) Act, 2005, are all ultra vires, unconstitutional, null and void to the extent that the same impose entry tax on those specified goods, which form the subject-matter of the present set of writ petitions. The demand for payment of entry tax raised against the petitioners cannot, therefore, be sustained. 196. There is yet another aspect of this case, which needs some observation by this Court. In WP(C) No. 2650/05, an interim direction was passed to the effect that the petitioners shall file return under the AET Act, 2001, in respect of the goods, which form the subject-matter of their writ petition and that, in tune with the liability of tax payable by the petitioners, the petitioners shall furnish to the respondents/authorities concerned bank guarantee of such amount(s) of entry tax, which is leviable under the impugned notification. Even after the amendments were made, these directions were continued. 197. Aggrieved by the interim directions, given by this Court as indicated hereinabove, the respondents preferred an appeal, which gave rise to writ Appeal No. 412/05. On 22.6.2005, while admitting the appeal, the operation of the interim directions, passed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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