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TMI Blog2014 (9) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... nto local area from any place outside the State for consumption or use therein. 2. All the petitioners are engaged in trade or manufacture and registered under the Jharkhand Value Added Tax Act, 2005 and Central Sales Tax Act, 1956 as dealer. The petitioners, during the course of their business, import scheduled goods as specified under the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011 (hereinafter referred to as the Act of 2011) from outside the State of Jharkhand for their works at various places in the State of Jharkhand. By section 3 of the Act of 2011, liability has been imposed upon the petitioners to pay entry tax on the value of those scheduled goods which they are importing in the State of Jharkhand and which are used in their works. The objection of the petitioners is that levy of such entry tax directly interferes the free movement of goods and imposes unreasonable restrictions upon free trade and therefore, it has violated article 301 which provides that trade, commerce and intercourse throughout the territory of India shall be free and power to impose restriction has been given to Parliament in article 302. The Parliament may impose restriction on freed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or it is coupled with the requirement of a previous sanction from the President as introduced in the proviso to article 304(b) of the Constitution. The legislation mentioned in article 304(b) of the Constitution is, thus, made subject to the requirements-(i) test of reasonable restriction, and (ii) prior sanction of the President. 4. According to the learned counsel for the petitioners, verbatim similar enactment imposing same entry tax came for consideration before this court in the case of Tata Iron & Steel Company Ltd. v. State of Jharkhand reported in [2007] 6 VST 587 (Jharkh) and a Division Bench of this court, after relying upon the decision rendered in the case of Jindal Stainless Ltd. v. State of Haryana reported in [2006] 145 STC 544 (SC); [2006] 283 ITR 1 (SC); [2006] 6 RC 457; [2006] 7 SCC 241, held that provisions of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993, as adopted by the State of Jharkhand vide notification dated December 15, 2000 and as amended vide the Jharkhand Entry Tax on Consumption, Use or Sale thereof (Amendment) Ordinance, 2001, (Jharkhand Ordinance 2 of 2002) do not satisfy the requirement under ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the entry tax collected from April 1, 2006 till the date of notification has been utilized for the said purposes referred above and thereafter, this court held that levy of entry tax was discriminatory being violative of article 304(a) of the Constitution of India. 6. The learned counsel for the petitioners submitted that even after, when the Division Bench of this court already declared, section 11 of the Jharkhand Value Added Tax Act, 2005 and the amendment made therein by the Act of 2007 ultra vires and unconstitutional as being opposed to article 301 of the Constitution of India and are not saved by article 304 of the Constitution of India, the State Government again enacted same law and further without even examining the relevant details of expenditure which is required for giving specific benefits to the payers of the said tax under the Act. 7. The learned counsel for the petitioners drew our attention to the relevant provisions of the earlier enactment 2007 and notification issued thereunder dated March 29, 2008 for comparing it with the Act of 2011 and only difference is that earlier by separate notification a development fund was created, whereas under the Act of 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the tax-payers under the Act of 2011. In sum and substance, the tax levied by the Act of 2011 is not compensatory in character and is for augmentation of State revenue and admitted position is that no sanction of the President has been obtained and therefore, the impugned Act along with its amendment being not compensatory in character is not saved by article 304(b) of the Constitution of India. It is also submitted that if the tax is held to be compensatory in nature, then the State failed to procure its utilization for the tax-payers. 9. In addition to the above, the entry tax is levied only on the goods which are imported from outside the State and does not apply to goods which are moved from one local area into another. Therefore, the Act is discriminatory in character and violates article 304(a) of the Constitution of India. It is also submitted that in the definition, "consumption or use" as defined under section 2(t) of the Jharkhand Entry Tax Act, 2011, distinction has been sought to be made by the State of Jharkhand with respect to goods brought in by the registered dealer vis-a-vis unregistered dealer for consumption or use in the State of Jharkhand. Apart from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on sale of such goods. At page 21 of the counter-affidavit filed on behalf of the respondent-State dated November 30, 2011, it is specifically admitted as under: "The Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011: a compensatory tax on entry of some 63 goods entering into the State from outside the State for consumption or use only and as passed by the State Legislature was promulgated for the development of trade, infrastructure, commerce and industry for the local area(s), hereinafter referred to as 'Entry Tax 2011'." After admitting that the tax sought to be imposed by the Act of 2011 is compensatory in nature, in counter it has been stated that this imposition is completely different from the earlier Bihar 1993 Act as well as from Jharkhand VAT Act, 2005. To justify the stand of the State and in support of their argument and to show the tax is compensatory in nature, the State specifically submitted that to carry out the purposes of this Act, the State Government issued notification No. S.O. 163 dated August 25, 2011 specifying creation of Jharkhand Trade Development Fund for a period of five years and further specifying the manner, conditions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be valid, but so far as article 301 is concerned, no complaint can, prima facie, be made under that article unless, of course, it is a colourable exercise of the regulatory power, aimed at the restriction of the free-flow of trade, commerce and intercourse. But if the freedom of trade, commerce and intercourse is violated by a non-regulatory law, the individual who affected may have his remedy in a court of law. Therefore, according to the respondent-State, the regulatory measures will not constitute restriction under either of provisions. Learned Advocate-General appearing for the State also relied upon the judgments of the honourable Supreme Court delivered in the case of State of Madras v. N.K. Nataraja Mudaliar reported in [1968] 22 STC 376 (SC); AIR 1969 SC 147 and of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan reported in AIR 1962 SC 1406 as well as on Jindal Stainless Ltd. case [2006] 145 STC 544 (SC); [2006] 283 ITR 1 (SC); [2006] 6 RC 457; [2006] 7 SCC 241 and gave his own interpretation to above judgment in State's favour. 12. The learned Advocate-General appearing for the respondent-State was more empathetic in submitting that Bhagatram 's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest of trader community and for that purpose, created a fund for the purpose of development of trade, infrastructure, commerce and industry of the local areas. As per the scheme of the Act of 2011 itself, it is mandatory for the State Government to create the Jharkhand Trade Development Fund as defined in clause (f) of section 2 of the Act of 2011 and that fund is required to be deposited with the Government Treasury under the specified head for the purpose of its utilization exclusively for the development of trade, commerce and industry in the State of Jharkhand, which shall include the following. 15. It is submitted by learned Advocate-General that clauses (a) to (d) under sub-section (3) of section 4 of the Act of 2011 is illustrative when it has given some of the purposes for which the fund will be utilized and in addition to the above, the fund can be utilized for more purposes which may be termed for the development of trade, commerce and industry in the State of Jharkhand and therefore, in sub-section (3), before giving the list of the purposes for which "fund will be used" as words have been used shall include the followings. Therefore, it is premature to declare that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is compensatory in nature, sanction of the President of India is not required under article 304(b). In view of the above, the question remained for our consideration is not that whether the tax levied by the Act of 2011 is compensatory in nature or not and it is the admitted case of the State that the said tax is compensatory in nature. Therefore, the question for determination before us is whether the tax levied by the Act of 2011 gives quantifiable and measurable benefits to the tax-payers under the Act of 2011. The honourable Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 283 ITR 1 (SC); [2006] 6 RC 457; [2006] 7 SCC 241 held that concept compensatory tax is not there in the Constitution but is judicially evolved in Automobile Transport case AIR 1962 SC 1406 as part of regulatory charge. Regarding what is tax, honourable Supreme Court held in paragraph 40 (37 in 145 STC 544) as under: "40. Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the tax-payer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... happen in the case of a tax as such. A tax may be progressive or proportional to income, property, expenditure or any other test of ability or capacity (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 the 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 19. Therefore, if the tax is compensatory, it is required to be based on the test of requirements laid down by the honourable Supreme Court in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 283 ITR 1 (SC); [2006] 6 RC 457; [2006] 7 SCC 241. As we have already noticed that it is a case of the State that the tax is compensatory, we are required to examine that whatever tax has been imposed for the development of trade, commerce and industry in the State of Jharkhand which will benefit the tax-payers under the Act of 2011. 20. The learned counsel for the State submitted that the honourable Supreme Court in the case of Bhagatram case [1995] 96 STC 654 (SC); [1995] Supp. (1) SCC 673 held that if, there is some link between the tax and the facilities extended to the trade directly or indirectly by "some connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantifiable data on the basis of which compensatory tax is sought to be levied. The honourable Supreme Court in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 283 ITR 1 (SC); [2006] 6 RC 457; [2006] 7 SCC 241 held that, the Act must facially indicate the benefit which is quantifiable or measurable and it must broadly indicate proportionality to the quantifiable benefit and 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). The honourable Supreme Court further held that since if 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). To justify the validity of the Act of 2011, though in the counter, it has been stated that the Act of 2011 is entirely different than the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etary, Jharkhand ex-officio Chairman (b) Finance Secretary, Jharkhand Member, Secretary (c) Secretary-cum-Commissioner, Commercial Taxes Department, Government of Jharkhand Co-ordinator (d) Secretary, Road Construction Department, Government of Jharkhand ex-officio Member (e) Secretary, Agriculture and Sugarcane Department, Govt. of Jharkhand ex-officio Member (f) Secretary, Industries Department, Government of Jharkhand ex-officio Member (g) Secretary, Energy Department, Government of Jharkhand ex-officio Member (h) Secretary, Drinking Water and Sanitation Department, Government of Jharkhand ex-officio Member 5. The headquarter of the said Committee shall be at Ranchi. 6. High Level Committee shall identify and sanction schemes to be completed from the proceeds of the fund keeping in view necessary facilities and infrastructure to be created for the benefit of entry tax payers as far as possible commensurate with their respective contribution by such class of tax-payers. 7. The Member Secretary of the Committee shall convene the meeting, at least once a year to allocate the proceeds of the amount so collected, to the different respective Departments in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) The State Government by notification shall form a high level committee, which shall determine the manner of disbursement of the fund for the purposes as carried out in this section." 22. A bare perusal of the provisions for the Trade Development Fund created by the notification dated March 29, 2008 under the Act of 2005, amended in the year 2008, and the Trade Development Fund under the Act of 2011, clearly demonstrates that the provision is similar without there being any change and therefore, the State's submission in the counteraffidavit that the new Act is entirely different is liable to be rejected. 23. Now the question arises as to whether the State has demonstrated in the enactment itself, facially or patently, quantifiable data on the basis of which compensatory tax sought to be levied is equal to the service and benefit to the tax-payers. The State's only contention is that by a notification constituted a high-level committee and made provision for separate account in the treasury in separate head but that is not quantifiable data on the basis of which compensatory tax is sought to be levied. But this exercise of the State Government of constituting a commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. In spite of this, the State again did not choose to place even the data which could have been as full project report for levy of the tax and utilization of its fund by making assessment of collection of tax and its utilization in future when fund will be made available to the State Government by imposition of tax so as to satisfy the test of services and facilities "to be provided to its tax-payers". 24. However, we doubt that even such projection would have saved the validity of the Act of 2011 in view of the fact that in the Act of 2011 itself, the State has provided financial utilization exclusively for the development of trade, commerce and industries in the State of Jharkhand by making provisions of construction, development and maintenance of the roads and bridges for linking the market and industrial area to their hinterlands, for providing finance, aids, grants and subsidies to financial, industrial and commercial units; creating infrastructure for supply of electrical energy and water supply to industries, marketing and other commercial complexes and creation, development and maintenance of other infrastructure for the furtherance of trade, commerce in general, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting with the levy of compensatory tax. The State Government enacted the law in wilderness in hope that the State may collect the tax and thereafter it may appropriate the tax for the benefit and services of the tax-payers and that too, without there being any data base or project report and then if it fails to justify the imposition of tax, then tax may not be refunded to the tax-payers with the plea of traders' unlawful enrichment. The statute cannot be enacted so as to create liability of the tax-payers and ultimately of the public by taking chance of it being constitutionally valid, with all probabilities of being violative of the provisions of the Constitution of India. 26. Therefore, we are of the considered opinion that the Act of 2011 is admittedly a levy of compensatory tax but without furthering the principle of equivalence and is not providing quantifiable and measurable benefits to the tax-payers and is even not broadly proportional to the benefit. The State further failed to discharge its burden by placing material or even calculation or data before this court that payment of compensatory tax is reimbursement for the quantifiable or measurable benefits provide ..... X X X X Extracts X X X X X X X X Extracts X X X X
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