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TMI Blog2006 (12) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This Act, thus, covers not only the vehicles bringing goods into the State, but also vehicles carrying goods from one local area of the State to another local area. However, those, who pay entry tax on import of goods into a local area of the State, were, initially, exempted from payment of local sales tax, when the goods, so imported, become liable for payment of local sales tax. This exemption has been withdrawn in respect of a specified mode of sale of goods and it is such withdrawal of exemption, which forms the subject-matter of challenge in the present set of writ petitions. The petitioners herein, who are largely contractors and importers of cement into the State of Assam, for use in the execution of works c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es tax on the transfer of property in goods, involved in the execution of works contract, by treating or deeming such a transaction as a sale, though such a transaction is, ordinarily, not a sale. In terms of such a change in the definition of tax on the sale or purchase of goods incorporated by clause (29A) of article 366, section 2(33) of the AGST Act, 1993, which contains the definition of the term sale , has also been amended. As per the amended definition of sale , in the AGST Act, 1993, transfer of property in goods involved in execution of works contract shall be deemed to be a sale and such a deemed sale shall be liable to payment of local sales tax. Thus, the transfer of property in goods, involved in the execution of a works contract, is not an actual sale; yet such a transfer has been made a deemed sale in order to enable the State Government to impose sales tax under the AGST Act, 1993. In the backdrop of these changes in the definition of sale in the AGST Act, 1993, when the AET Act, 2001, is considered, it would transpire that section 2(2) states that all expressions used, but not defined in this Act and defined in the Assam General Sales Tax Act, 1993 (Assam Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sales tax. In short, though the petitioners are charged sales tax, under the AGST Act, 1993, for using the goods imported by them into a local area in execution of their works contract on the ground that such use of goods amounts to sale, they are not given the benefit of exemption from payment of local sales tax even if they have paid entry tax on import of the goods, into the local area, for the purpose of use thereof in execution of a works contract; whereas, a person, who is, otherwise, required to pay local sales tax for the actual sale of the goods imported into a local area, has been granted exemption from payment of local sales tax on the ground that he has paid entry tax in respect of the goods so imported. There is, submit the writ petitioners, no reasonable basis for such classification and may, therefore, be interfered with. That apart, the imposition of entry tax on the use of property in execution of works contract is, contends the writ petitioners, unconstitutional inasmuch as levy of entry tax is not compensatory and is in violation of article 304(b) of the Constitution of India. In support of these submissions, reliance has been placed on Raja Jagannath Baksh Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract is an indivisible contract and turnover of the goods, used in the execution of works contract, would not, therefore, be exigible to sales tax. With the pronouncement of the decision in Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560, it became unconstitutional for the Governments Central as well as States to levy sales tax on the turnover of goods used in the execution of works contract. In order to overcome this difficulty, Parliament amended, with the help of the Constitution (Forty-sixth Amendment) Act, 1982, article 366 by introducing clause (29A) into article 366. With the amendment, so made, the relevant provisions of article 366, now, read as follows: 366. Definitions. In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say (29A) 'tax on the sale or purchase of goods' includes (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a works contract, observed and held (page 396 of STC) as follows: 32. Before proceeding further it is necessary to understand what sub-clause (b) of clause (29A) of article 366 of the Constitution means. Article 366 is the definition clause of the Constitution. It says that in the Constitution unless the context otherwise requires, the expressions defined in that article have the meanings respectively assigned to them in that article. The expression 'goods' is defined in clause (12) of article 366 of the Constitution as including all materials, commodities and articles. It is true that in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC); [1959] SCR 379 this court held that a works contract was an indivisible contract and the turnover of the goods used in the execution of the works contract could not, therefore, become exigible to sales tax. It was in order to overcome the effect of the said decision Parliament amended article 366 by introducing sub-clause (b) of clause (29A). Sub-clause (b) of clause (29A) states that 'tax on the sale or purchase of goods' includes among other things a tax on the transfer of property in the goods (w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Here again we have to read the expression 'a tax on the sale or purchase of goods' found in article 286 as including the transfer of goods referred to in sub-clause (b) of clause (29A) of article 366 which is deemed to be a sale of goods and the tax leviable thereon would be subject to the terms of clause (1) of article 286. Similarly, the restrictions mentioned in clause (2) of article 286 of the Constitution which says that Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1) of article 286 would also be attracted to a transfer of goods contemplated under article 366(29A)(b). Similarly, clause (3) of article 286 is also applicable to a tax on a transfer of property referred to in sub-clause (b) of clause (29A) of article 366. Clause (3) of article 286 consists of two parts. Sub-clause (a) of clause (3) of article 286 deals with a tax on the sale or purchase of goods declared by Parli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 370 (SC); [1989] 2 SCC 645, it becomes abundantly clear, if I may repeat, that in Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560, the apex court held that turnover of the goods, used in the execution of the works contract, was not exigible to sales tax, for, a works contract is an indivisible contract. With the pronouncement of this decision, the Governments both Central as well as States were unable to levy sales tax on the turnover of the goods used in the execution of a works contract. By inserting clause (29A) to article 366, it became constitutionally possible for the Government to impose sales tax on the transfer of property, in the goods involved in the execution of a works contract, by deeming such a transfer of property, in the goods, as a sale. In terms of the amendment of article 366, the expression a tax on sale or purchase of goods , occurring in entry 54 of the State List, now, includes a tax on the transfer of property in goods involved in the execution of a works contract. Under entry 54, therefore, it is, now, possible for the State to impose sales tax not only on actual sale or purchase of goods, but also on the transfer of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale 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 of 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 mobilise additional resources, the Government 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. A careful reading of the Preamble and the Statements of Objects and Reasons of the impugned Act shows that this Act has been enacted with a view to arresting evasion of sales tax, i.e., the tax leviable under the AGST Act, 1993. In other words, when the State found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual sale or for the purpose of being used in the execution of a works contract, such entry would be exigible not only to entry tax, but also to local sales tax. The question, now, is if the amendment of section 5 has made, as alleged by the writ petitioners, any discrimination in levying local sales tax on these two types of sale therein irrespective of the fact whether there is an actual sale by transfer of property in goods or there is a deemed sale by way of use of the goods in execution of a works contract. My quest for an answer to the question, posed above, brings me to section 5 of the AET Act, 2001. This section grants exemption from payment of entry tax by an importer of goods into a local area for sale therein. Section 5, as the same stood before it underwent amendment by the AET (Second) Amendment Act, 2002 (which is under challenge in these writ petitions) read as follows: 5. Reduction in tax liability. Where an importer who has paid tax under this Act becomes liable to pay tax under the Assam General Sales Tax Act, 1993 (Assam Act No. XII of 1993) in respect of the same goods then the amount of tax payable under the Assam General Sales Tax Act, 1993 (Assam Act X ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge in the present set of writ petitions on the ground that section 5 makes a discrimination between actual sale and deemed sale, though both types of transactions amount to sale within the meaning of sale under the sales tax laws. The classification between actual sale and deemed sale, while granting exemption from payment of local sales tax, is, according to the petitioners, a hostile discrimination and has no rational nexus with the object sought to be achieved by the AET Act, 2001, for, the object is to arrest evasion of local sales tax and when entry tax has been paid by an importer, he shall not be made to pay local sales tax too merely for the reason that he has imported the goods for being used in the execution of works contract and not for sale, though no distinction under the local sales tax law exists between the said two types of sale. The distinction, so drawn, is, according to the petitioners, discriminatory and violative of article 14 of the Constitution of India. While considering the question of discrimination, which has been raised in the present set of writ petitions, it needs to be noted that a taxing statute is also a law within the meaning of article 13 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on what objects to levy what rate of tax and it is not for the courts to consider whether some other objects should have been taxed or whether a different rate should have been prescribed for the tax. It is also true that the Legislature is competent to classify persons or properties into different categories and tax them differently, and if the classification thus made is rational, the taxing statute cannot be challenged merely because different rates of taxation are prescribed for different categories of persons or objects. But, if in its operation, any taxing statute is found to contravene article 14, it would be open to courts to strike it down as denying to the citizens the equality before the law guaranteed by article 14. I have already pointed out above, while discussing the effect of the amendment of article 366 by insertion of clause (b) of clause (29A) thereto and the consequential amendment made in the definition of sale in section 2(33) of the AGST Act, that a tax on sale or purchase of goods would include, within its sweep, transfer of property in goods used in the execution of works contract. Thus, with the amendments, as indicated hereinbefore, both actual a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drachud, J, as he then was) in In re The Special Courts Bill, 1978 [1979] 2 SCR 476; AIR 1979 SC 478. It not only contains a lucid statement of the propositions arising under article 14, but being a decision given by a Bench of seven Judges of this court, it is binding upon us. That decision sets out several propositions delineating the true scope and ambit of article 14 but not all of them are relevant for our purpose and hence we shall refer only to those which have a direct bearing on the issue before us. They clearly recognise that classification can be made for the purpose of legislation but lay down that: '1. The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the classification. The apex court in Shashikant Laxman Kale [1990] 4 SCC 366, has further indicated the manner in which the purpose or object of a legislation can be determined. The relevant observations, made in Shashikant Laxman Kale [1990] 185 ITR 104 (SC); [1990] 4 SCC 366, are reproduced hereinbelow: (at page 113 of ITR) 15. It is first necessary to discern the true purpose or object of the impugned enactment because it is only with reference to the true object of the enactment that the existence of a rational nexus of the differentia on which the classification is based, with the object sought to be achieved by the enactment, can be examined to test the validity of the classification. In Francis Bennion's Statutory Interpretation, 1984 Edition, the distinction between the legislative intention and the purpose or object of the legislation has been succinctly summarised at page 237 as under: 'The distinction between the purpose or object of an enactment and the legislative intention governing it is that the former relates to the mischief to which the enactment is directed and its remedy, while the latter relates to the legal meaning of the enactment.' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the validity of a classification, the court has to determine the rational nexus of the differentia on which the classification is based and the rational nexus would obviously warrant the court to determine the purpose or object with which the legislation has been made. From the decision in Shashikant Laxman Kale [1990] 4 SCC 366, it is also clear that for the purpose of determining the purpose or object of a legislation, it is permissible to look into the Statement of Objects and Reasons of the Bill, which actuated the State to provide a remedy by making the classification. I have already indicated above that the object of the AET Act, 2001, is to realise sales tax from those transactions, which, otherwise, used to escape payment of sales tax. If the object was to arrest evasion of sales tax due to the State under the AGST Act, 1993, it logically follows that one, who pays local sales tax, shall not be liable to pay entry tax. What has, however, happened, in the present case, is that with the amendment of section 5 by the AET Act, 2002 while those, who import goods into a local area for sale therein, are exempted from payment of sales tax on the ground that they have pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to pay local sales tax too by segregating them from those, who import goods, into a local area, for the purpose of sale therein. While considering the present writ petitions, it may be noted that in order to sustain imposition of a tax, three essential conditions have to be satisfied. First, the imposition of tax must be within the competence of the Legislature imposing it; secondly, the tax imposed must be for public purpose and, thirdly, the levy shall not violate the rights guaranteed by Part III of the Constitution, for, a taxing statute is also subject to article 14, though larger discretion is granted to the Legislature for the purpose of making classification in taxing statute. As already indicated above, the object of the AET Act, 2001, is to arrest evasion of local sales tax. It is certainly not to tax twice over a person, who has already paid local sales tax. The unamended section 5 of the AET Act was, thus, in tune with the object of the impugned Act, for, section 5 did not make any distinction between those, who are covered by section 2(33)(i) of the AGST Act, 1993, and those, who fall under section 2(33)(ii) of the AGST Act, 1993. While the object of the Act s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of levy of entry tax on consumption or use, but not for sale thereof. The assessee's contention, in Geo Miller Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209, was that since the definition of the word sale , occurring in article 366(29A), includes transfer of property in goods in execution of works contract, the same meaning should be adopted in the M.P. Entry Tax Act, 1976. Rejecting this contention, the apex court pointed out that the M.P. Entry Tax Act had specifically excluded the definitions of goods and sale , which occur in M.P. Sales Tax Act, and, hence, imposition of sales tax on goods used in execution of works contract cannot be said to be outside the purview of the M.P. Entry Tax Act, 1976. In the case at hand, however, entry tax has been imposed not merely on consumption or use of the goods, but also when the goods are imported into a local area for the purpose of sale therein. Thus, no distinction is left between actual sale and deemed sale, particularly, when the object of the AET Act, 2001, is not to impose sales tax on those, who pay entry tax, and since the petitioners pay entry tax for import of goods used in execution of works contract, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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