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TMI Blog2007 (3) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... dal's case[ 2006 (4) TMI 120 - SUPREME COURT] , the compensatory tax is a charge for offering trade facilities and it is based on the principles of equivalence. Applying the above test, it cannot be said that maintaining of roads, providing bridges etc., is compensatory in nature so as to constitute special advantage to trade, commerce and intercourse. Even otherwise, a welfare State is bestowed with the responsibilities of providing good roads and bridges for the benefit of the tax paying citizens and hence to contend that the impugned levy is being raised only for the said purpose is not justified. Maintenance of roads, bridges, etc., is generally met from the general funds or revenue. Whether goods are transported into the State or outside State or abroad, the State has got a duty to provide facilities like roads, bridges, etc., which are being enjoyed not only by the persons who bring the goods notified for levy of entry tax, but also by others. It is necessary to bear in mind that the roads, bridges expenditure test was applied in Automobile Transport's case 1962 (4) TMI 91 - SUPREME COURT] as the tax impugned therein was the tax on motor vehicles which use the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s into Local Areas Act, 2002 insofar as it purports to levy entry tax on furnace oil and low sulphur waxy residue oil is unauthorised and unconstitutional. Thus, we hold that the impugned Act does not satisfy the test laid down for compensatory tax and as no Presidential assent has been obtained under article 304(b) of the Constitution, the provisions of the impugned Act are ultra vires article 301 of the Constitution. (b) Whether the impugned levy of entry tax is violative of article 304(a) of the Constitution? - In Laxmi Paper Mart [ 1997 (2) TMI 447 - SUPREME COURT] , the Supreme Court has emphatically said that once the discrimination is made out, the enquiry by court ends. The price structure of the imported goods vis-a-vis the locally manufactured goods or the economics of the importer need not be gone into (supra). Even otherwise, the submission of the learned Advocate-General is not factually correct. For example, there is no local sales tax levied on cigarettes and other tobacco products. Therefore, section 4(2) does not have any application to cigarette and other tobacco products and it cannot be contended that there is no discrimination. As regards, any other sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 809 to 15810/02, 15830/02, 15833/02, 15862/02, 15896/02, 15898/02, 15902/02, 15908/02, 16430 to 16432/02, 16433/02, 16434/02, 16959 to 16962/02, 16469 to 16472/02, 18225/02, 18871 to 18874/02, 18894/02 to 18898/02, 18899 to 18901/02, 18902 to 18905/02, 19003/02, 19284 to 19286/02, 19326/02, 19356/02, 19570/02, 19958 19959/02, 20054 to 20058/02, 20332/02, 20466/02, 20738/02, 20790/02, 20791 to 20793/02, 21268/02, 21566/02, 21655/02, 21815/02, 21816 21817/02, 21818/02 21819/02, 21823/02, 22016/02, 22023 to 22027/02, 22039 to 22043/02, 22072 to 22075/02, 22260/02, 22285/02 to 22287/02, 22288 to 22291/02, 22302 to 22306/02, 22408/02, 22458/02, 22519 22521/02, 22541 to 22544/02, 22545/02, 22597/02, 22679 to 22685/02, 22738/02, 22956 to 22958/02, 23103/02, 23140/02, 23175/02, 23176/02, 23263 to 23266/02, 23443/02, 23553/02 23554/02, 23738 to 23742/02, 23941 to 23943/02, 24143/02, 24181 to 24184/02, 24385/02, 24419 to 24420/02, 24525 24526/02, 25021/02, 25346/02, 25373/02, 29937/02, 29963/02, 30035/02, 30532/02, 30668 to 30673/02, 30906/02, 31195/02, 31198/02, 31241/02, 31535 to 31540/02, 31541 to 31544/02, 31612 31613/02, 31633/02, 31690/02, 32425/02, 32460 32461/02, 3246 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35490, 29266, 35899, 35971, 35972, 35973, 35994, 36078, 36115, 36152, 36493, 36522, 36758, 36990 to 36992, 37026, 38543, 38544, 38653, 38654, 38690, 38802/2003, 158/2004, 223, 484, 510, 675, 955, 977, 989, 1175, 1204, 1713, 2515, 2691, 2692, 2693, 2839, 2960, 3091, 3153 to 3158, 3161 to 3163, 3574, 3716, 3721, 24153 to 24168, 37208, 37807, 37752, 37768, 37798, 37989, 38057, 38058, 38093, 38442, 2014, 15461, 15634, 15707, 15711, 15912, 7340, 7341, 15110, 15227, 15453, 15487, 15492, 20305, 20306, 21026/2004, 21162, 21192, 21193, 21196/04, 21246/04, 26042to 26044/04, 27017/04, 28718/04, 29915/04, 29919/04, 30678/04, 35055/04, 36909/04, 22292/04, 30636/03, 39534/04, 37582/04, 37626/04, 38024/04, 38033/04, 24199/04, 11412/04, 11740/04, 12769/04, 12770/04, 3929 to 3931/04, 20764, 20765/05, 18864/05, 18873 18874/05, 26122 26123/05, 26147 to 26149/05, 26949/05, 30564/05, 32662/05, 100/05, 595 to 597/05, 1144 1145/05, 1458/05, 1495/05, 1799 1800/05, 1527/05, 2153 2154/04, 3824/04, 4676/04, 4676/04, 4679/04, 4730/04, 5926 to 5928/04, 5604 5605/04, 5785*04, 5880/04, 6192/04, 6440/04, 6548 to 6551/04. 6915/04, 7418/04, 7421/04, 7453/04, 7472/04, 8719/04, 8964/04, 9078/04, 9156/04, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , W.P. 12553/02 to 12555/02 W.P. No.15667 to 15669/02 W.P. 36503/02, Mr. C.Natarajan SC for Mr. Inbarajan, W.P. 13457/02, 14246, 14247/02, 14578/02, 14581/02, 14593/02, W.P. 18871 to 18874/02, 18894 to 18898/04, 18899/02 to 18901/02, W.P. 18902 to 18905/02, W.P. 19958/02, 19959/02, 21268/02, 21655/02, 21816/02, 21818/02, 22016/02, 22023 to 22027/02, 22039 to 22043/02, 22072 to 22075/02, 22260/02, 22285 to 22287/02, 22288/02 to 22291/02, 22304/02, 22519, 22521/02, 22541 to 22544/02, 22545/02, 22679 to 22685/02, 22738/02, 23140/02, 23553/02, 23941 to 23943/02, 24143/02, 25346/02, 29937/02, 34266/02, 22961/02, 24352/02, 32412/02, W.P. 39275/02, 19955 to 19957/02, 34788/02 42261/02, 4113/03, 5458/03, 9743/03, 24069/03, 29841/03, 510/04, 38057/03, 595 to 597/05, 27709/04, 28048 to 28052/04, 28200/04, 26667/04, W.P. 26668/04, 30282/04, 30283/04, 38420/04, 905/05, 28971 to 28973/04, 23881/05, 23882/05, 23923/05., Mr. R.Venkatraman SC Assisted by Mr. T.RameshKutty, W.P. 23333/04, W.P. 23988/04 to 23990/04, 28708/03, Mr. K.Venkatasubramaniam for M/s. R.V. Chitra Associates, W.P. 9244/2003, 13450/2003, 16659/03, 29085/03, W.P. 29913/2003, W.P. 30886/03, 2014/04, 30636/03, W.P. 29963/02, 4274 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90/03, 3779/03, 3765/03, 14049 14050/03, 20767/03, 28938/03, 29657/03, 5785/04, 7421/04, 9393/04, 29679/04, 13913/04, 5656/05, 15999/05, 40150/05, 26440 26444/04., S. Mohan W.P. 19326/02, W.P. 20738/02, 21815/02, 25021/02, 31198/02, 25068/02, 46689 to 46691/02, 8964/04., M.MD.Ibrahim Ali, W.P. 19570/02, W.P. 22597/02, 30035/02, 37718/02, 20229/02, 77148/03., Palani Selvaraj, W.P. 20054/02, 25373/02, 23642/02, 34304/02, 35866/02, 38183/02, 45191 45192/02, 979/03, 13567/03, 30144/03, 3721/04, 21026/04, 36909/03, 100/05, 1527/05, 7418/04, 29469/04, 25650/04, 6315 to 6319/04, 21903/05, 9000/06., R. Vijayakumar, W.P. 21823/02, M/s. Subbaraya Aiyar Padmanaban W.P. 22408/02, A.R. Jayasankar, W.P. 22956 to 22958/02, 32734 32735/02, 35847/02, 2313/03, 14057/03, 24536/03, 24540/03, 32823/03, 32824/03, 32826/03, 32846/03, 32850/03, 32851/03, 36990 to 36992/03, 39534/04, 5880/04, 10655/04, 1976/04, 13325/04., K.Ramagopal, W.P. 23103/02, 35691/02, 3353/03, P.Radhakrishnan W.P. 23263 to 23266/02, 19603/02, K.R.Krishnan W.P. 23738 to 23742/02, 24181 to 24184/02, 24525 24526/03, 31612, 31613/02, 31633/02, 32460/02, 32461/02, 32463 32464/02, 29649/02, 29890/02, 39791/02, 23908 to 23919/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2487/02, 1259/03, 16757/03, 21723/03, 223/04, 3161 to 3163/04, 9620/04, 13561, 13562/04, 22325/04, 24547/05, 7804/04., S.Vijaya Raghavan W.P. 1155/03, 3513/03, B.Ravi Raj. W.P. 2740/03, T.R.Sathiyamohan W.P. 4513/03, M.Ganeshan W.P. 8608/03, 8124/03, 29277/03, C.S.Krishnamoorthy W.P. 7942/03, R.S.Pandiyaraj, W.P. 82230/03, 10429/03, 36522/03,3153 to 3158/04, 37989/03, 6548 to 6551/04, 9078/04, 9806/04, 9980/04, 5143, 5144/04, 22948/04, 1372/04, 14644 to 14647/04, W.P. 24699/05, 23841/04, 22795/05, 24997/05, 4945/06, 4105/05 N.R.Rajagopalan W.P. 10429/03, 29789/04, 29870/04, 24635/04, T.R.Senthilkumar W.P. 13960/03, Karthik Seshadri W.P. 19842/03, V.Bala subramaniyan W.P. 21315/05, A.P.SrinivasBaby W.P. 24119/03, 29476/03, S.A.Rajan, W.P. 24745/03, R.Seeniappan W.P. 26710/03, 28718/04, 28720/04, 518/06, V.Sanjeevi W.P. 27049/03, 6440/04, 8644/05, M.Mohamd Riyaz W.P. 27479/03, 33271/03, 33319/02, 37026/03, 38543/03, 158/04, 989/04, 15487, 15492/02, 12769/04, 12770/04, 35055/03, 4676/04, 9156/04, 27175/04, 17096, 17163/04, 22614/04, 16599/04, 18736/04, 5840/04, 34410, 34410/04., M.Alagarsamy W.P. 28289/03, R.Venkatakrishnan W.P. 32767/03, B.Saravan W.P. 38544/03, N.Sriprakash W.P. 386 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntending that the Act and the notifications issued thereunder are unconstitutional on diverse grounds. The main ground of attack is that the tax sought to be levied under the Act is neither regulatory in nature nor does it satisfy the tests laid down for a compensatory tax. The tax being discriminatory in nature and being levied on the entry of goods into a local area is a direct and immediate impediment to the freedom of trade guaranteed under Article 301 of the Constitution. No Presidential assent has been obtained under Article 304(b) of the Constitution for the levy of the entry tax under the Act. The demand and collection of entry tax under the impugned Act is therefore illegal, unauthorised and violative of Articles 301 and 304 of the Constitution. 4. It is necessary at this stage to notice the broad features of the Act. The long title and the preamble of the Act demonstrates the purpose for which the Act was enacted, it being to provide for the levy of tax on the entry of scheduled goods into local areas for consumption, use or sale thereunder. Section 3 of the Act, which is the charging section, reads as under: - 3. Levy and Collection of tax - (1) Subject to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; has to be read with the definion of 'importer' in Section 2(g) because under Section 3(2) the tax is payable only by the 'importer' as defined by Section 2(g), which reads as follows: - Section 2(g): importer means a person who brings or causes to be brought any scheduled goods whether on his own account or on account of a principal or any other person, into a local area, from any place outside the State for consumption use or sale therein or who owns the scheduled goods at the time of entry into the local area . 8. Section 4 provides for reduction in tax liability in certain cases and reads as follows:- Section 4 Reduction in tax liability (1) Where an importer of any scheduled goods liable to pay tax under this Act, being a dealer in scheduled goods becomes liable to pay tax under the General Sales Tax Act and additional sales tax under the Tamil Nadu Additional Sales Tax Act, 1970 (Tamil Nadu Act No.14 of 1970), by virtue of the sale of such scheduled goods, then his liability under those Acts shall be reduced to the extent of tax paid under this Act. (2) Where an importer who, not being a dealer in scheduled goods, had purchased the schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e local area for consumption, use or sell therein. Therefore, if levy of entry tax is claimed to be compensatory in nature such levy would have to be, in the first instance, confined to a local area, and secondly, the trade facilities sought to be provided also should be confined to such local area. Further, the expenses for such facilities and the levy by which such expenses are to be met must bear reasonable and rationale relationship. It was urged that entry tax levied under the impugned Act lacks basic ingredients for a valid compensatory tax as neither under the impugned Act nor in connection with it, any specific facility, convenience or services is provided to the assessees who are required to pay impugned tax nor is there any co-relationship between the quantum of tax recovered from the assessees and the value of convenience/facility or services provided. It was submitted that the Act has not received the assent of the President as required under Article 255 of the Constitution nor the Bill was moved on the floor of the Assembly with the previous sanction of the President as required under the proviso to Section 304(b) of the Constitution, and thus, the Act is not saved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the plea that there is discrimination is untenable as the levy of entry tax is on all scheduled goods that enter the State. He pointed out that Section 4(2) of the Act provides for set-off when the importer sells goods in the situation contemplated under Section 3(3) of the T.N.General Sales Tax Act or T.N.Additional Sales Tax Act. According to him, the issue of discrimination cannot be worked out by merely referring to an isolated taxing statute like the present one, but the sum total of the taxes levied by the State including under the T.N. General Sales Tax Act and the Additional Sales Tax Act will have to be taken into account. He, therefore, submitted that there is no violation of Article 304(a) of the Constitution. 12. In view of the rival contentions raised at the Bar, two questions arise for our consideration, namely, a) Whether the levy of entry tax under Tamil Nadu Act 20 of 2001 can be justified as a compensatory tax? b) Whether the impugned levy of entry tax is violative of Article 304(a) of the Constitution? Re. Question(a): - 13. Articles 301, 302, 303 304 are relevant for the purpose of deciding the controversy: 301. Freedom of trade, commerce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e free. Article 302 gave power to Parliament to impose general restrictions upon that freedom. But a restriction is put on this relaxation by Article 303(1) which prohibits Parliament from giving preference to one State over another or discriminating between one State and another by virtue of the entries relating to trade and commerce in Lists I and III of Seventh Schedule and a similar restriction is placed on the States, though the reference to the States is inappropriate. Each of the clauses of Article 304 operates as a proviso to Articles 301 and 303. Article 304(a) places goods imported from sister-States on a par with similar goods manufactured or produced inside the State in regard to State taxation within the allocated field. Article 304(b) is the State analogue to Article 302, for it makes the State's power contained in Article 304(b) expressly free from the prohibition contained in Article 303(1) by reason of the opening words of Article 304. Whereas in Article 302 the restrictions are not subject to such requirement of reasonableness, the restrictions under Article 304(b) are so subject. 15. In Atiabari Tea Co. Vs. State of Assam, AIR 1961 SC 232 the constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. In Automobile Transport (Rajasthan) Ltd. Vs. State of Rajasthan, AIR 1962 SC 1406 validity of Section 4(1) of the Rajasthan Motor Vehicles Taxation Act, 1951 was challenged. The section levied a tax on all motor vehicles used in any public place or kept for use at the rates specified in the Schedules. Violation of the provision invited penalties provided under Section 11. Certain operators challenged the Act as violative of Articles 301 and 304(b). Since serious doubts were expressed with respect to the propositions enunciated by the majority and by Shah, J. in Atiabari Tea Co. (supra) the matters were referred to a larger Constitution Bench of seven Judges. By a majority 4:3 (S.K.Das, Kapur and Sarkaria, JJ. Joined by Subba Rao, J.), the Supreme Court upheld the constitutionality of the Act on the ground that the taxes levied by it are compensatory in nature and, therefore, outside the purview of Article 301. Once outside the purview of Article 301, it was held, Article 304 was also not attracted. The Court observed in paragraph 19 that: The taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Bihar Vs. Bihar Chamber of Commerce is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment. 20. It is thus, seen that the Constitution Bench decision in Jindal s case has re-affirmed the working test laid down in Automobile Transport that for any tax to be compensatory, it is necessary to examine whether the trades people are having the use of certain facilities for the better conduct of business and paying not patently much more than what is required for providing the facilities. 21. At this juncture, it is necessary to take note of what has been stated about the scope of Articles 301, 302 304 vis- -vis compensatory tax by the Constitution Bench in Jindal s case which read as follows: (SCC pp.268 269) 45. To sum up, the basis of every levy is the controlling factor. In the case of a tax , the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of a fee , the basis is the special benefit to the payer (indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenged on the ground of violation of Article 301, the Court has not only to examine the pith and substance of the levy but in addition thereto, the Court has to see the effect and the operation of the impugned law on inter-State trade and commerce as well as intra-State trade and commerce. 48. When any legislation, whether it would be a taxation law or a non-taxation law, is challenged before the Court as violating Article 301, the first question to be asked is: what is the scope of the operation of the law? Whether it has chosen an activity like movement of trade, commerce and intercourse throughout India, as the criterion of its operation? If yes, the next question is: what is the effect of operation of the law on the freedom guaranteed under Article 301? If the effect is to facilitate free flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by Parliament or the State Legislature. Clause (b) of Article 304 confers a power upon the State Legislature similar to that conferred upon Parliament by Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eople 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. In Jindal Stripe Limited v. State of Harayana (supra) , the Supreme Court observed in paragraph-16 at pp.65 66 thereof that the following propositions are deducible from the cases noticed therein: ..... ...... ...... ....... ....... ....... ...... ....... ........ 4. Tax imposed for augmenting general revenue of the State such as sales-tax is not compensatory ........ 23. In the counter filed by the State, the test of some connection or the existence of an even indirect link as propounded by the decisions in Bhagatram Rajeevkumar Vs. CST, State of Bihar Vs. Bihar Chamber of Commerce (supra) was pressed into service. Both the decisions have been overruled and hence, the reliance placed by the State on the aforesaid decisions is rather misplaced. In the wake of decision of the Constitution Bench in Jindal s case the State has filed an additional counter whereby the State has sought to project certain figures of expenditure incurred from the year 2002 03 to 2005 06 in the matter of laying r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading facilities including layingand maintenance of roads and provision of markets and welfare measures and further that for the said purposes it is considered necessary to levy and collect tax on the goods entering into the local areas of the State for consumption, use or sale therein, the compensatory nature of the levy stands demonstrated and made patent from the statistical data furnished above in relating to the expenditure involved for the purposes and objects mentioned in the impugned enactment corresponding to the actual amount collected by way of tax. Therefore, it is most respectfully submitted that the principles laid down by the Constitutional Bench in the case of Jindal Stainless Steel Ltd., v. State of Harayana reported in 2006 (7) SCC 241 stands satisfied and the burden of the State to establish the reimbursement/recompense made by way of quantifiable benefit to the trading public from and out of the tax proceeds also stands discharged. Inasmuch as the impugned levy being a compensatory tax, there is no violation of Article 301 as such and consequently the requirement of presidential sanction contemplated under Article 304(b) does not arise. 25. We are afraid th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed in Jindal Stripe Ltd., Vs. State of Haryana (supra) (SCC para.14, pp.64 65): - Right from 1962 upto 1995 this working test was applied by this Court only in relation to motor vehicle taxes for deciding whether it was compensatory or not. The decisions proceeded on the principle adumbrated in Automobile Transport, which was paraphrased by Mathew, J. speaking for the Bench of three Judges in G.K.Krishnan Vs. State of T.N. That the very idea of a compensatory tax is service more or less commensurate with the tax levied. As the operation of motor vehicles has direct relation the use of roads/bridges, the statistics relating to receipts and expenditure for construction roads and bridge for some years was considered in each case in order to judge whether the tax was not patently more than what was required provide facility, and therefore, compensatory. [Please see Sk.Madarsaheb Vs. State of A.P., Bolani Ores Ltd. Vs. State of Orissa, G.K.Krishnan Vs. State of T.N., International Tourist Corporation Vs. State of Haryana, Malwa Bus Service (P) Ltd. Vs. State of Punjab, Meenakshi Vs. State of Karnataka, B.A.Jayaram Vs. Union of India and State of Maharashtra Vs. Madhukar Balk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es under Tamil Nadu Motor Vehicles Taxation Act, 1974 wherein the parameters of levy are based on the laden weight of the motor vehicle. Different yardsticks of levy are contemplated under the said Act such as stage carriers, contract carriers, private vehicles, etc., which also add to the coffers of the exchequer. The figures of revenue earned by the levy under the Motor Vehicles Taxation Act or the money spent out of the said levy have not been disclosed. We, therefore, find substance in the contention of the petitioners that the legislation has been enacted only with an eye of raising or augmenting general revenue and not as reimbursement or recompense as held in Jindal s case. 29. In Indian Oil Corporation Ltd., v. State of U.P, 2004 Vol137 STC 399 (All.), the validity of U.P.Tax on Entry of Goods Act, 2000 was challenged as violative of Articles 301 304 of the Constitution. The Division Bench of the Allahabad High Court allowing the petitions has held: - (i) that the term local area defined in Section 2(c) of the Act includes a municipality and municipal corporation. Hence, the crude oil had certainly been brought into a local area as Mathura was a municipality. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c., is compensatory in nature so as to meet the outlay incurred for some special advantage to trade, commerce and intercourse. Providing the above facilities and its use may incidentally bring in net revenue to the Government, but that circumstance is not an essential ingredient of compensatory tax. It was held that there is absolutely no connection or nexus with the collection of entry tax and its utilization for the benefit of traders/manufacturers from whom such tax is collected and consequently, the levy of entry tax is unauthorized and violative of Article 301 of the Constitution. 31. In yet another recent decision rendered in the aftermath of the Jindal s case, a Division Bench of the Jharkhand High Court in W.P (T) No.5354 of 2004 (The Tata Iron Steel Company Ltd., Jamshedpur v. The State of Jharkhand and Others) by judgment and order dated 14.08.2006 held that the State of Jharkhand was not in a position to furnish any relevant data of facilities provided or to be provided to the assessees, and hence the levy on entry tax under Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale thereof Act, 1993 was not compensatory in nature and hit by Article 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46 paragraph 8) Article 304 contains two clauses. Clause (a) states that 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 that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced (emphasis supplied). The wording of this clause is of crucial significance. The first half of the clause would make it appear at the first blush that it merely states the obvious: one may indeed say that the power to levy tax on goods imported from other States or Union Territories flows from Article 246 read with Lists II and III in the Seventh Schedule and not from this clause. That is of course so, but then there is a meaning and a very significant principle underlying the clause, if one reads it in its entirety. The idea was not really to empower the State Legislatures to levy tax on goods imported from other States and Union Territories but to declare that that power shall not be so exercised as to discriminate against the imported goods vizhttps:// a-vis locally manufactured goods. The clause, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjected to higher rate of tax than hides or skins purchased in raw condition in the State and tanned within the State. This distinction was attacked as violative of Articles 301 and 304 (a) of the Constitution. Following the law laid down in Atiabari Tea Co. Ltd. and Automobile Transport (supra) the Constitution Bench held: It is therefore now well settled that taxing laws can be restrictions on trade, commerce and intercourse, if they are not what can be termed to be compensatory taxes or regulatory measures. Sales tax, of the kind under consideration here, cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against Article 301 and will be valid only if it comes within the terms of Article 304(a). Article 304(a) enables the legislature of a State to make laws affecting trade, commerce or intercourse. It enables the imposition of taxes on goods from other States if similar goods in the State are subjected to similar taxes, so as not to discriminate betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch observed: (SCC pp.755-56, para 12) There can be no dispute that taxation is a deterrent against free flow. As a result of favourable or unfavourable treatment by way of taxation, the course of flow of trade gets regulated either adversely or favourably. If the scheme which Part XIII guarantees has to be preserved in national interest, it is necessary that the provisions in the article must be strictly complied with. One has to recall the farsighted observations of Gajendragadkar, J. in Atiabari Tea Co. case and the observations then made obviously apply to cases to the type which is now before us. 39. In the case of Andhra Steel Corporation Vs. Commr. of Commercial Taxes, 1990 Suppl. SCC 617, a provision in Section 5 (4) of the Karnataka Sales Tax Act which granted exemption to sale of finished goods manufactured out of locally produced raw material while denying it to the sale of finished goods manufactured out of imported raw material was held to be unconstitutional and contrary to Article 304(a) of the Constitution. The Court distinguished its earlier decisions in State of Madras Vs. N.K.Nataraja Mudaliar, AIR 1969 SC 147 and Rattanlal Co. Vs. Assessing Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States. It matters not how this discrimination is brought about. A limited exception has no doubt been carved out in Video Electronics but, as indicated hereinbefore, that exception cannot be enlarged lest it eat up the main provision. So far as the present case is concerned, it does not fall within the limited exception aforesaid; it falls within the ratio of A.T.B. Mehtab Majid and the other cases following it. It must be held that by exempting unconditionally the edible oil produced within the State of Jammu and Kashmir altogether from sales tax, even if it is for a period of ten years, while subjecting the edible oil produced in other States to sales tax at eight per cent, the State of Jammu and Kashmir has brought about discrimination by taxation prohibited by Article 304(a) of the Constitution. 41. In State of U.P. Vs. Laxmi Paper Mart, (1997) 2 SCC 697 the Court held that exempting the exercise books produced in the State and subjecting the exercise books produced outside the State, but sold in U.P. to sales tax at the rate of 5% is discriminatory and therefore, offends clause (a) of Article 304 of the Constitution. Following the decision in A.T.B.Mehtab Majid s case (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r refined oil which has been obtained from groundnut that has not been taxed under the Andhra Pradesh Act. The groundnut oil imported by the appellant from Karnataka for sale in Andhra Pradesh cannot be taxed at a rate higher than the rate prescribed in Entry 24(b). 43. Similar is the view taken in Weston Electroniks Vs. State of Gujarat, (1998) 2 SCC 568; W.B.Hoisery Assn. Vs. State of Bihar, (1983) 4 SCC 134; Lohara Steel Industries Ltd. Vs. State of A.P., (1997) 2 SCC 37. 44. In the present case, the impugned legislation levy entry tax only on goods which are imported into the State of Tamil Nadu from any place outside the State, for consumption, use or sale within the State. In other words, the goods which are produced or obtained within the State of Tamil Nadu do not attract any entry tax at all on their entry into a local area within the State. According to the petitioners this has led to monopolizing the local manufacturers who procure materials locally as against manufacturers who import from outside the State. For example, before the impugned enactment the manufacturer who imported from outside the State could procure the materials simplicitor as against C- Declarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed goods, then no discrimination can be alleged in terms of article 304(a). 19. In our opinion, the argument advanced on behalf of the State of Karnataka cannot be accepted as valid and sustainable. This issue has also been repeatedly attended to by the Supreme Court by clearly pronouncing that it is the rate of tax under a particular taxing statute which should be taken as the determining factor for ascertaining the discrimination contemplated under Article 304(a). In the case of Rattan Lal and Co. Vs. Assessing Authority, (1970) 25 STC 136 (SC) at p.147; AIR 1970 SC 1742 (para 15), it has been declared by the Supreme Court so long as the rate is the same Article 304 is satisfied . The Supreme Court refused to adjudicate the discrimination aspect by taking into account any other factor. 46. In Laxmi Paper Mart (supra), the Supreme Court has emphatically said that once the discrimination is made out, the enquiry by court ends. The price structure of the imported goods vis- -vis the locally manufactured goods or the economics of the importer need not be gone into (supra). Even otherwise, the submission of the learned Advocate General is not factually correct. For example, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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