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TMI Blog2007 (7) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 and 304 of the Constitution was originally dealt with and rebutted on the basis of the law laid down by the Supreme Court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654; [1995] Supp. 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1; AIR 1996 SC 2344, wherein it was held that in order to establish the tax as compensatory, some connection between the tax and the trading facilities extended to the dealers directly or indirectly is sufficient to characterise it as compensatory tax. The judgment of the Division Bench is R. Gundhi v. Union of India reported in [1997] 3 CTC 255. Special leave petitions were filed in the Supreme Court against the Division Bench judgment and those special leave petitions and certain connected matters were referred to a Larger Bench by order dated September 26, 2003 as the Bench hearing the matters doubted the correctness of the view expressed in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and Bihar Chamber of Commerce [1996] 103 STC 1 (SC); AIR 1996 SC 2344. The matters were dealt with by the Constitution Bench in Jindal Stainless Ltd. v. State of Haryana [2006] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e placing material before the court to prove that the payment of compensatory tax is reimbursement/re-compensate for the quantifiable/measurable services provided or to be provided to the payers. It was submitted that the essence of compensatory tax is that the services rendered or facilities provided should be more or less commensurate with the tax levied and tax should not be patently more than what was required to provide trading facilities. It was submitted that the tax imposed for augmenting general revenue of the State is not compensatory; that any tax law, which is designed or which has the effect of disrupting the trade movement in inter-State trade and commerce between States is contrary to the concept of freedom of trade embodied in article 301 of the Constitution. It was urged that as seen from the Statement of Objects and Reasons of the Act, the Act has been enacted to curb the evasion of sales tax on the sale of motor vehicles which are purchased outside the State and brought into this State and the State has not discharged the burden to prove that the tax levied and collected under the impugned Act is for the purpose of providing trade facilities. It was submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State in all local areas and it is enough, if the traders are provided substantial facilities as a class. The Constitution Bench in Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC); [2006] 7 SCC 241 concluded as follows (paras 49 and 50 in STC; paras 52 and 53 in SCC): Conclusion: 49. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 followed by the judgment in the case of Bihar Chamber of Commerce case [1996] 103 STC 1 (SC); AIR 1996 SC 2344 was well founded. 50. We reiterate that the doctrine of 'direct and immediate effect' of the impugned law on trade and commerce under article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide para 19 of the report, will continue to apply and the test of 'some connection' indicated in para 8 (of SCC) (page 658 of STC) of the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s violative of article 301 of the Constitution, the court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. If the provisions are ambiguous or even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/facility provider to show by placing the material before the court, that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to its payer(s). As soon as it is shown that the Act invades freedom of trade it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of article 304(b) [See: para 35 of (AIR) the decision in Khyerbari Tea Co. Ltd. v. State of Assam reported in AIR 1964 SC 925]. Scope of articles 301, 302 and 304 vis-a-vis compensatory tax: 44.. As stated above, taxing laws are not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isite for the exercise of the power under article 304(b) by the State Legislature is that previous Presidential sanction is required for such legislation. In the light of the principles laid down in Jindal's case [2006] 145 STC 544 (SC); [2006] 7 SCC 241, we shall now proceed to examine whether the tax levied under the impugned Act is compensatory or not. The preamble of the Act states that the Act is to provide for the levy of tax on entry of motor vehicles into local areas either for use or sale therein. The Statement of Objects and Reasons attached to the Bill introduced in the Legislative Assembly in respect of the Act was as under: In order to curb the evasion of sales tax on the sale of motor vehicles which are purchased outside the State and brought into this State, the Government have decided to levy tax on entry of motor vehicles into local areas of this State either for use or sale therein which is liable for registration in the State under the Motor Vehicles Act, 1988 (Central Act 59 of 1988). It has also been decided not to levy the tax in respect of vehicles registered in the Union Territory or in other States fifteen months prior to registration in the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992-93 42.07 293 335.07 144.53 190.54 1993-94 69.51 314 383.51 131.46 252.05 1994-95 105.27 372 477.27 187.28 289.99 1995-96 157.77 392 549.77 207.81 341.96 1996-97 185.96 425 610.96 435.54 175.42 1998-99 182.63 523 705.63 604.1 101.53 1999-00 220.57 582 802.57 734.68 67.89 2000-01 276.33 631 907.33 1155.22 -247.89 2001-02 296.66 650 946.66 674.14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost in turn becomes the basis of reimbursement/recompense for provider of services/facilities. As held in Jindal's case [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the compensatory tax is a charge for offering trade facilities and they are based on the principle of equivalence. Applying the above test, we are of the opinion that maintaining of roads, providing bridges, etc., cannot be said to be 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., are 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. The roads, bridges expenditure test, which was applied in Automobile Transport case A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Jindal's case [2006] 145 STC 544 (SC); [2006] 7 SCC 241, it cannot be said that maintaining of roads, providing bridges, etc., is compensatory in nature so as to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It was held that there is no connection or nexus with the collection of entry tax and its utilisation for the benefit of traders/ manufacturers from whom such tax is collected and that consequently the levy of entry tax is unauthorised and violative of article 301 of the Constitution. To the same effect is the decision of the Division Bench of the Kerala High Court rendered on December 18, 2006 in O.P. No. 434 of 1996 [Thressiamma L. Chirayil v. State of Kerala [2007] 7 VST 293 (Ker)] rep. by the Deputy Commissioner of Agricultural Income-tax and Sales Tax, Kottayam and another. This is again referred to in the recent decision rendered by a Division Bench of the Jharkhand High Court in Tata Iron Steel Company Ltd., Jamshedpur v. State of Jharkhand [2007] 6 VST 587 [W.P. (T) No. 5354 of 2004, dated August 14, 2006]. A Division Bench of the Bombay High Court in Eurotex Industries and Exports Ltd. v. State of Maharashtra [2004] 135 S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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