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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 ..... pply 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, which services and facilities have already declared to be not only for the benefit of the tax-payer. Therefore, basic purposes for utilization have been shown in the clauses (a) to (d) of sub-section (3) of section 4 of the Act of 2011. Works cannot be said to be benefits and services to tax-payer community from whom tax is sought to be recovered under the Act of 2011. The above benefits are required to be borne from the general revenue of the State so far as it relates to the construction of roads and bridge and finance, aid, grant and subsidies to financial or industrial or commercial units are provided by the State Financial Corporation as well as by the other financial institutions and neither in the Act nor in the notification issued under the Act, any provision has been made so as to provide any scheme to give finance, aid, grants and subsidies to financial, industrial and commercial units. The State should have first collected the quantifiable data to fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant : M/s. Dr. D. Prasad, B. Poddar, Senior Advocates, I. Sinha, S. Gadodia, B. Kumar, P. Poddar, A.K. Sah, P.N. Rai, R.R. Sinha, R.K. Das, A.N. Sen, R. Roy and R.K. Prasad For the Respondents : M/s. Anil Kumar Sinha, Advocate-General, R. Ranjan, AAG and A. Kumar PRAKASH TATIA C.J. This bunch of writ petitions have been preferred to challenge the validity of section 3 of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011 being ultra vires to article 301 read with article 304(a) of the Constitution of India and is not saved by article 304(b) of the Constitution of India with consequential relief of order of restraint against the respondent-State of Jharkhand from enforcing the provisions of the Jharkhand Entry Tax Act, 2011, whereby and whereunder entry tax has been sought to be levied and collected on scheduled goods, making entry exceeding ₹ 10,000 into 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es only to Parliament and to be resorted only in a specified situation indicated in article 303(2) of the Constitution. Article 304(a) of the Constitution authorizes imposition of tax on the goods imported from the neighbouring State at par in such a manner as not to create any discrimination between similar goods manufactured and produced inside the State with regard to State taxation within the allocated field. Similarly article 304(b) of the Constitution is analogous to article 302 for it makes the State power contained in article 304(b) of the Constitution free from the prohibition contained under article 301 in view of the opening words of article 304 of the Constitution. However, there is also difference between the power under article 302 and those of article 304 and the difference is that under article 302 of the Constitution restrictions are not subject to the test of reasonableness 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the quantifiable/measurable benefit provided or to be provided to its tax-payers. The Division Bench observed that, providing roads and bridges is not compensatory in nature so as to constitute special advantage to trade, commerce and intercourse and expenses for maintenance and construction of roads and bridges are met from general revenue of the State and it is the statutory obligation and duty of the State to provide facilities like roads and bridges, etc. Providing supply of electrical energy and water to the industries, marketing and commercial complexes are not the facilities or special facilities to the traders. This court held that purposes for which the trade development fund has been created do not directly facilitate trade and commerce and do not specially benefit the trade people in the local areas from which such entry tax is collected. In that matter, the State failed to show that 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 counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for finance, aid, grants and subsidies to financial, industrial and commercial units, as provided under the Trade Development Fund, cannot make the said fund as compensatory and creation of infrastructure for supply of electrical energy and water supply to industries, marketing and other commercial complexes is common burden and responsibility of the welfare State and no other benefit or advantage is provided to trade people of the local area in which such entry tax is levied and collected. Further it is submitted that supply of electrical energy cannot be held compensatory for meeting the outlay incurred for special advantage to trade, commerce and intercourse and water and electricity are not connected with the facilities for the purpose of trade and such facilities are available for the general development of the State and to be provided necessarily to the general public and not particularly only 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther existing taxes such as turnover tax, surcharge, additional surcharge and Special Additional Tax (SAT) would be abolished. There will not be any reference to these taxes in the VAT Bills. The States that have already introduced entry tax and intend to continue with this tax should make it vatable. If not made vatable, entry will need to be abolished. However, this will not apply to entry tax that may be levied in lieu of octroi. Therefore, the adopted Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 was repealed by section 96 of the Jharkhand Value Added Tax Act, 2005 and entry tax was again levied by section 11 of the said Jharkhand Value Added Tax Act, 2005 on consumption, use or sale therein on some 17 goods entering into the State or into a local area from outside the State. However, entry tax levied under VAT Act, 2005 was adjustable against the tax payable 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 goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be invested directly in accordance with the provisions under the Act of 2011, specifically as provided for the purposes specified in section 4(3)(a) to (d) of the Act of 2011. It is also submitted that in the case of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan reported in AIR 1962 SC 1406, the honourable Supreme Court has held that it was not correct to say that while article 19(1)(g) guaranteed the individual's right to carry his trade, article 301 guaranteed free flow of volume of trade against geographical barriers and article 301, according to the majority, also aimed at the freedom of the individual from restrictions, not necessarily geographical, but since regulatory measures were outside the purview of article 301, the scope of the two provisions is not identical. If the impugned law is merely regulatory, its reasonableness will have to be determined under article 19 before it can be held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Haryana reported in [2004] 134 STC 303 (SC); [2003] 1 RC 728; [2003] 8 SCC 60, Bhagatram [1995] 96 STC 654 (SC); [1995] Supp. (1) SCC 673 came up for consideration before the honourable Supreme Court in Jindal Stainless Ltd. case [2006] 145 STC 544 (SC); [2006] 283 ITR 1 (SC); [2006] 6 RC 457; [2006] 7 SCC 241 and therefore, Constitution Bench of the honourable Supreme Court in the case of Jindal Stainless Ltd. v. State of Haryana (2nd Jindal Stainless case) reported in [2010] 30 VST 678 (SC); [2010] 4 SCC 595 referred the matter to the larger Bench for consideration of the judgment delivered in the case of Atiabari Tea Co. Ltd. v. State of Assam reported in AIR 1961 SC 232; [1961] 1 SCR 809 for reconsideration. 14. In sum and substance, learned Advocate-General submitted that it is not disputed that entry tax levied by the Act of 2011 is a compensatory tax. The tax has been levied as it became necessary in the interest 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 Jhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons given in various judgments which has been cited by the learned counsel for the parties, some of which we have already referred and we do not find any reason to reproduce the facts of the earlier cases and decisions thereon in view of the fact that the issue has been considered by the honourable Supreme Court on various occasions in several judgments, which have been again reconsidered in detail by the Constitution Bench of the honourable Supreme Court 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. 18. Before proceeding to decide the issues referred above, it will be appropriate to make it clear that the Act of 2011 has been enacted without sanction of the President of India under proviso to article 304(b) of the Constitution of India and the case of the State is also that since the Act of 2011 imposes entry tax, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 in 145 STC 544) of the same judgment of Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 283 ITR 1 (SC); [2006] 6 RC 457; [2006] 7 SCC 241, which is as follows, tax and compensatory tax have been compared (39 in 145 STC 544): 42. 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 income, property, expenditure or any other test of ability or capacity (principle of ability). Taxes may be progressive rather than proportional. Compensatory taxes, li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t but that circumstance is not an essential ingredient of compensatory tax. 44. Since compensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters. 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 (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 criteri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Rajasthan AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide para 19 of the Report (AIR), will continue to apply and the test of 'some connection' indicated in para 8 (of SCC) of the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC) and followed in the case of State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC) is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject-matter of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment. In view of the above, the State has to pass test of direct and immediate effect of the impugned Act of 2011 on trade, commerce and intercourse under article 301. 21. Admittedly the State has to pass the test of discharge its burden whether the impugned enactment facially or patently indicates quantifiable 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 hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;Fund' shall be exclusively utilized for facilitating trade, commerce and industry throughout the State of Jharkhand which shall include the following: (a) construction, development and maintenance of roads and bridges for linking the market and industrial areas to their hinterlands; (b) providing finance, aids, grants and subsidies for development of infrastructure to facilitate free movement of goods; (c) creating infrastructure for supply of electrical energy and water supply to augment trade and commerce in the State; (d) creation, development and maintenance of other infrastructure for the furtherance of trade, commerce and industry in general. 4. There shall be constituted a High Level Committee under the Chairmanship of the Chief Secretary for specifying the manner in which the proceeds of the 'Fund' shall be utilized. The Committee shall be consisting of a Chairman, a Member-Secretary and the following ex-officio members: (a) Chief Secretary, Jharkhand ex-officio Chairman (b) Finance Secretary, Jharkhand Member, Secretary ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nchi. Section 4 of the Act of 2011 is as under: 4. Tax to be appropriated into the Fund. (1) The entry tax levied and collected under this Act, shall be appropriated into the 'fund', as created under clause (f) of section 2 of this Act. (2) The tax payable under section 5 shall continue to be levied till such time as is required to provide and improve the infrastructure within the State; such as power, road, market condition, etc., with a view to facilitate better market condition for trade, commerce and industry. (3) The proceeds of the 'fund' shall be utilized, exclusively for the development of trade, commerce and industry in the State of Jharkhand, which shall include the following: (a) construction, development and maintenance of roads and bridges for linking the market and industrial areas to their hinterlands, (b) providing finance, aids, grants and subsidies to financial, industrial and commercial units, (c) creating infrastructure for supply of electrical energy and water supply to industries, marketing and other commercial complexes, (d) creation, development and maintenance of other infrastructure for the furtherance of trade, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 after its' implementation by showing that the State has, in fact, utilized fund for development of trade and commerce for the benefit of traders. However, in the Act of 2011 under clauses (a) to (d) in sub-section (3) of section 4, the purposes have been given, for which trade development fund will be utilized. These purposes have been considered by the Division Bench of this court in the case of Tata Iron Steel Company Ltd. [2007] 6 VST 587 (Jharkh) in paragraph 44 and after considering these purposes, this court held that the benefits referred above mentioned in the notification of 2008 are not the benefits and services to the traders only and substantially these are the benefits and services required to be made available by the State Government from general revenue of the State Government and these are not special or additional or incidental services for the trade community only. In spite of the decision of this court in Tata Iron Steel Company Ltd. [2007] 6 VST 587 (Jharkh), no separate earmarked facility has been planned for the traders and there is absolutely no correlation to the revenue generated under the Act and the expenditure incurred by the local authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion has been made so as to provide any scheme to give finance, aid, grants and subsidies to financial, industrial and commercial units. Not only this but for these purposes no data base has been prepared by the State and consequently it had not been provided to this court in spite of the fact that honourable Supreme Court as back as in the year 2006 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 has declared that whenever such law is impugned as violative of article 301 of the Constitution of India and facially and patently does not indicate quantifiable data on the basis of which compensatory tax is sought to be levied, then burden lies on the State to show by placing materials before the court that payment of compensatory tax has quantifiable and measurable benefits provided or to be provided to its tax-payers but the State did not produce any such data base for any of the clauses made in clauses (a) to (d) of sub-section (3) of section 4 of the Act of 2011. 25. We do not find any force in the submission of the learned counsel for the respondents that it will be premature to judge the validity of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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