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TMI Blog2008 (10) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... Area Development Tax Ordinance, 2000 (Ordinance No. 10 of 2000). The Ordinance was later replaced by the Haryana Local Area Development Tax Act, 2000. Therein, provision was made for levy and collection of tax on entry of goods into local area. The validity of the said Act was challenged on the ground that it violated articles 301 and 304 of the Constitution. C. W. P. No. 6630 of 2000 (Jindal Strips Limited v. State of Haryana) and connected petitions were dismissed by this court on December 21, 2001. The said judgment is reported in Jindal Strips Ltd. v. State of Haryana [2003] 129 STC 534. Following the judgments of the honourable Supreme Court, inter alia, in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136, this court upheld the validity of the said Act. It was held that the entry tax was compensatory as per parameters laid down by the honourable Supreme Court in the said judgments and thus, did not violate articles 301/304 of the Constitution. On appeal to the honourable Supreme Court, the matter was referred to the Constitution Bench in Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the 2000 Act, by treating the same to have been collected under the 2008 Act, without ensuring appropriation of amount collected and already spent otherwise than by way of providing services to the payers and for the reasons for which the tax was held to be non-compensatory earlier, was liable to be struck down. In the reply filed, the State has defended the validity of the Act by submitting that the State Legislature had necessary competence under entry 52, List II of the Seventh Schedule to the Constitution. The levy provided under the Act was to facilitate trade and commerce in the State and the said levy was facially and patently compensatory in character and no violation of article 301 or 304 was involved. The assessees were to yet to file returns or deposit tax and at this stage, it could not be said that the levy will not satisfy the working test laid down by the honourable Supreme Court in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491. Broad correlation between the tax generated and value of service was required. The new Act was an improvement over the earlier Act. The amount collected is to be credited to a special fund and is to be ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already been spent as per the old Act. Reliance was also placed on judgment of the honourable Supreme Court in Vijayalakshmi Rice Mill v. Commercial Tax Officer, Palakol [2006] 147 STC 609; [2006] 6 SCC 763, in para 25 (para 26 of STC) to the effect that the decision of the Constitution Bench could not be interpreted to mean that sea change which had taken place in the concept of fee had vanished and the old concept of fee had been restored and that it was required to be established that particular individual was rendered specific services. The judgment of the Constitution Bench was not regarding the nature of fee and could not be regarded as an authority explaining nature of fee. Before we go into the issue of validity of the Act, it would be necessary to refer to the key provisions of the 2008 Act: "2. Definitions.-In this Act, unless the context otherwise requires,- ... (1) 'entry of goods into a local area' means taking or bringing goods into a local area from any place outside the State or from any place inside any other local area in the State; ... (t) 'local area' means an area within the limits of a Municipal Corporation established under the Haryana M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation.-Where the goods are received on its entry into a local area by a person other than an importer, the importer, if any, who further receives the goods from such person shall be deemed to have received the goods on entry into the local area: Provided further that an importer who incurred liability for payment of tax under the old Act, whose certificate of registration continues to be intact till the time of repeal of the old Act, shall continue to be so liable for tax under this Act as well. (3) The tax shall be levied, assessed and collected in such manner and in such instalments, if any, as may be prescribed. ... 25.. Utilisation of the proceeds of the levy.-(1) The proceeds of the levy under this Act shall be appropriated to the fund to be notified by the Government and shall be utilised exclusively for the development or facilitating the trade, commerce and industry in the State which shall include the following: (a) construction, development and maintenance of roads and bridges for linking the market and industrial areas; (b) construction, development and maintenance of roads linking the markets and industrial areas to railway stations, wherever possible; (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) It shall ensure that the funds generated under this Act shall be utilised exclusively for facilitating trade, commerce and industry in the State. (ii) It shall identify the areas which require immediate development or maintenance of infrastructure facilities out of proceeds of tax. (iii) It shall accordingly recommend allotment of proceeds of tax for the purposes specified in sub-section (1) of section 25. (iv) It shall recommend changes in the rate of tax in order to keep the levy as per the guidelines issued in this behalf from time to time. (v) It shall ensure that the proceeds of tax collected under this Act are not much more than the amount actually required for development of local areas. ... 33.. Validation.-Notwithstanding any judgment, decree or order of any court, Tribunal or authority, all actions taken, things done, rules made, notifications issued or purported to have been taken, done, made or issued and tax levied, assessed, collected, realised, received or liability accrued under the Haryana Local Area Development Tax Act, 2000 (13 of 2000), shall be deemed to have been validly taken, done, made, issued, levied, assessed, collected, realised, receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... local bodies. The same is to be utilised for development facilitating free flow of trade and commerce on infrastructural facilities such as roads, bridges, culverts, sewerage, drainage, sanitation, waste management, electricity, drinking water and other infrastructural facilities. At least 60 per cent of the amount is to be utilised. The Board is to ensure balanced development of the local areas and recommend allotment of proceeds of tax and changes in the rate of tax. The Board is also to ensure that the proceeds of tax are not more than the amount actually required for development of local areas. The petitioners have advanced two grounds for submitting that the impugned levy does not meet the facial test: (i) Compulsion to utilise the tax collected is only to the extent of 60 per cent and the amount of 40 per cent need not be accounted for, and (ii) Infrastructural facilities facilitating free flow of trade and commerce may not in fact, have any connection with the facilities for trade and commerce. 32.. Waste management, sanitation, drainage, water, electricity may be unconnected with the facilities for the purpose of trade. The said facilities may be made before general dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total collection and the expenditure is far less than the collection of much more amount under other statutes levying compensatory taxes to cover the cost of at least some of the very same services. The burden of proof on the State cannot be held to have been discharged." (underlining is ours). We may now deal with the issue of validity of the impugned Act. A reference to the provisions of the Act reproduced above shows that section 3 is the charging section which provides for levy of tax on entry of goods specified therein from any place outside the local area at a rate not exceeding five per cent of the value of the goods as may be specified by the State Government. The tax is to be paid by the importer. Section 25 provides for utilisation of proceeds of levy which are to be appropriated to a fund to be notified by the Government for development or facilitating trade, commerce and industry. Trade, commerce and industry have been given inclusive meaning in section 25 to include construction, development and maintenance of roads and bridges for linking the market and industrial areas; construction, development and maintenance of roads linking the markets and industrial areas to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y control was legitimate and could not be taken to interfere with the freedom under article 301. Regulatory measures or measures imposing compensatory taxes for use of trading facilities were held to be permissible. In Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241, after referring to earlier judgments in Atiabari Tea Co. Ltd. AIR 1961 SC 232 and Automobile Transport [1963] 1 SCR 491, it was observed: (see page 551 of STC) "9. The judgment of this court in Atiabari Tea Co. AIR 1961 SC 232 was delivered by a Constitution Bench of five judges. However, an exception to article 301 and its operation was judicially crafted in Automobile Transport AIR 1962 SC 1406. In that case, the challenge was to the Rajasthan Motor Vehicles Taxation Act, 1951. The challenge under article 301 was rejected by the Constitution Bench of seven judges of this court by holding, vide paragraph 19 that 'the taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads'. Vide paragraph 21 of the report, it was observed that: 'If a statute fixes a charge for a convenience or service provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicially evolved in Automobile Transport AIR 1962 SC 1406 as a part of regulatory charge. Consequently, we have to go into concepts and doctrines of taxing powers vis-a-vis regulatory powers, particularly when the concept of compensatory tax was judicially crafted as an exception to article 301 in Automobile Transport AIR 1962 SC 1406. Difference between exercise of taxing and regulatory power: 35.. In the generic sense, tax, toll, subsidies, etc., are manifestations of the exercise of the taxing power. The primary purpose of a taxing statute is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulatory power or whether it is the product of the exercise of the taxing power. If the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or non-taxing law chooses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the Government action and even if such benefit results from the Government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable. 39.. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services which costs in turn become the basis of reimbursement/recompense for the provider of the services/ facilities. Compensatory tax is based on the principle of 'pay for the value'. It is a sub-class of 'a fee'. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progressive or proportional to inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of 'a fee', the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of 'burden' to the concept of measurable/quantifiable benefit and then it becomes 'a compensatory tax' and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then article 301 is violated. Burden on the State: 43.. Applying the above tests/parameters, whenever a law is impugned as 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 compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by the 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 302 subject to the following differences: (a) While the power of Parliament under article 302 is subject to the prohibition of preference and discrimination decreed by article 303(1) unless Parliament makes the declaration under article 303(2), the State power contained in article 304(b) is made expressly free from the prohibition contained in article 303(1) because the opening words of article 304 contains a non obstante clause both to article 301 and article 303. (b) While the Parliament's power to impose restrictions under article 302 is not subject to the requirement of reasonableness, the power of the State to impose restrictions under article 304 is subject to the condition that they are reasonable. (c) An additional requisite for the exercise of the power under article 304(b) by the State Legislature is that previous Presidential sanction is required for such legislation." (underlining Here italicised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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