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TMI Blog2016 (10) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... mmerce portals, for personal use or consumption of individual consumer. The impugned provisions of the Bihar Finance Act, 2015 (Bihar Act 9 of 2015), amending the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 and the Rules made thereunder and Notifications S.O. 176 & 18 both, dated 20.01.2016, are declared as ultra vires to the Constitution and are accordingly quashed. The impugned provisions as contained in Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 held to be discriminatory and violative of Article 304(a) of the Constitution of India read with Article 303 of Constitution of India. Petition allowed - decided in favor of petitioner. X X X X Extracts X X X X X X X X Extracts X X X X ..... reas for consumption, use or sale therein. The Bihar Entry of Goods Into Local Area Rules, 1993, (hereinafter referred to as the "1993 Rules") were framed to give effect to the provisions of the 1993 Act. However, the 1993 Act was declared ultra vires Articles 301 and 304 of the Constitution of India by the judgment of this Court in Bihar Chamber of Commerce vs. State of Bihar, (1995) 97 STC 53. The said judgment of this Court was subsequently reversed by the Supreme Court in State of Bihar vs. Bihar Chamber of Commerce, reported in (1996) 9 SCC 136, wherein it was held, by applying the decision, in Bhagatram vs. CST, reported in 1995 Supp (1) SCC 673, that the levy, under the 1993 Act, was compensatory in nature and, hence, did not violate Article 301 of the Constitution. 6. The said decision of the Supreme Court, in Bihar Chamber of Commerce (supra), was, later on, overruled by the decision of the Constitution Bench of the Supreme Court, in Jindal Stainless Ltd. vs. State of Haryana, reported in (2006) 7 SCC 241. 7. By the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein (Amendment) Act, 2001, the 1993 Act was amended. In terms of the Amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: "Provided also that if the sale of such scheduled goods is exempted from tax under any notification issued under sub-section (3) of Section 7 of the Bihar Finance Act, 1981, reduction of his liability under the Bihar Finance Act, 1981 as provided in this section or any notification thereunder, issued shall not be made." 12. In the same year, i.e., in 2006, pursuant to the decision of the Supreme Court, in Jindal Stainless (supra), Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein (Amendment) Act, 2006, underwent various amendments in the 1993 Act including amendments to the second Proviso to Section 3(2) extending the adjustments of entry tax against also the sales tax liability to the sale of manufactured goods by consuming the imported scheduled goods. 13. The amendments, so made by the 2001 Act, 2003 Act and 2006 Act, were challenged before this Court in Indian Oil Corporation Limited vs. State of Bihar, [2007] 10 VST 140 (Patna), and this Court, upon considering the changes made to the 1993 Act by way of the aforesaid amendments, held that the parent 1993 Act, before its amendment, was not compensatory in character and was, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... local authority; (G) A commission agent, broker, factor, a del-credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of the principal. Explanation I- Every person who acts as an agent on behalf of a dealer residing outside the State of Bihar and buys sells, supplies or distributes goods in the State or acts on behalf of such dealer as - (a) A commission agent, broker, factor, a del-credere agent, an auctioneer or any other mercantile agent, by whatever name called; or (b) An agent for handling goods or documents of title to goods ; or (c) An agent for the collection or the payment of the sale price of goods or as a guarantor for such collection or payment; or (d) A local branch of a firm or company situated outside the State, shall be deemed to be a dealer for the purpose of this Act Explanation II- A Government which whether or not in the course of business, buys, sells, supplies or distributes goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration, shall be deemed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribed authority such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. (8) Every person or dealer, under sub- section (1), shall maintain true and complete accounts, registers and documents, as may be prescribed, in respect of the scheduled goods handled by him and the documents of title relating thereto and shall produce the said accounts, registers and documents before the prescribed authority as and when required by him. (9) Every person or dealer responsible for collecting tax, in accordance with the provisions of this section shall apply for and obtain registration under the Act in the manner prescribed under section 5 of the Act." 16. Apart from the above, the earlier applicability of the 1993 Act only to transactions above ₹ 25,000/- has been changed making the Act applicable to transactions with value above ₹ 1,000/-. To give effect to the amendments made in the 1993 Act, changes were made, in exercise of powers under Section 9(1) of the 1993 Act, to the 1993 Rules by S.O. No. 169, dated 21.07.2015. Again, vide Notifications S.O. No. 16 and 18, dated 20.01.2016, issued, in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s brought in from outside the State of Bihar under the Bihar VAT Act, 2005, no entry tax is payable inasmuch as the payment of entry tax is liable to be set off against the VAT liability on such goods. Further, no entry tax is levied on goods, which are exempted from payment of VAT in terms of the third Proviso to Section 3(2) of the 1993 Act. 22. Coupled with the above, Dr. Saraf submits that the impugned levy of entry tax, in pith and substance, is a tax on goods, which are brought into the State of Bihar on account of inter-State sale transactions on which the State of Bihar cannot levy VAT inasmuch as wherever VAT is leviable, there is set off against the VAT so payable. The State of Bihar, submits Dr. Saraf, realizing the limitation imposed on it by Article 286(1)(a) of Constitution of India, which prohibits the State from taxing inter-State sale transactions has evolved a novel way of contravening Article 286(1)(a) of Constitution by selectively taxing inter-State transactions of sale in the garb of entry tax. 23. It is submitted by the learned Senior Counsel, Dr. Saraf, that in terms of Article 286(1)(a), the State does not have the legislative competence to impose tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) BVAT [5% on A+B+C] (D) BVAT after reduction of ET as per proviso to Section 3 (2) (E=D-C) Cost to the Customer (A+B+C) 10000 200 510 535.50 25.50 10225.50 (i) Bihar Dealer doing resale of Mobile Phone to end customers by bring goods in Bihar though Stock Transfer Price of Mobile (A) CST [2%] (B) ET [5% on A+B] (C) BVAT [5% on A+B+C] (D) BVAT after reduction of ET as per proviso to Section 3 (2) (E=D-C) Cost to the Customer (A+B+C) 10000 NIL 500 525 25 10025 a. Scenario 2- Tax burden on Goods brought in by a Dealer registered under the Bihar VAT Act for the purpose of manufacturing in the State of Bihar: Where goods are brought in for the purpose of manufacturing goods which are to be sold in the State of Bihar, in terms of the second proviso to Section 3 (2), the payment of Entry tax under the Act will stand reduced from the VAT to be paid on the manufactured goods as under:- (ii) Bihar Dealer manufacturing Mobile Phones using raw material brought in from outside Bihar Total Cost of material CST [2%] (B) ET [5% on A+B] (C) Price Mobile Phone manufactur ed in Bihar BVAT [5% on D] (E) BVAT after reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumers and which are transacted using an e-commerce portal. Therefore, the levy of entry tax, on the goods so brought into the State of Bihar by the petitioners, acts as a tax or fiscal barrier on the inter-State movement of such goods and is also discriminatory against such goods. It has been further submitted that on account of levy, introduced by impugned amendment made in the 1993 Act, goods, purchased by an individual consumer, when bought from any seller outside the State of Bihar using an e-commerce portal, will be liable to suffer a higher rate of tax and thereby become costlier for the consumer as compared to the same goods, when purchased from a local dealer in the State of Bihar. 29. With regard to the above, Dr. Saraf submits that the artificial distinction and discrimination against the said goods purchased through an e-commerce portal arises on account of the second Proviso to Section 3(2), which restricts the set off of entry tax paid on such goods only to a dealer, who is liable to pay VAT under the Bihar VAT Act, 2005. In respect of the aforesaid submissions, reliance has been placed on the decisions of this Court in Indian Oil Corporation Limited (supra) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from outside the State for the purpose of personal use or consumption and, as such, the grant of set off, which is in the nature of rebate or exemption, discriminates between the goods, which are imported for the purpose of resale, and the goods, which are imported for the purpose of personal use or consumption inasmuch as the goods, which are imported from outside the State for the purpose of use or consumption, has to bear the burden of the CST as well as entry tax, whereas the goods, which are imported from outside the State for the purpose of resale, do not have to bear the burden of entry tax and, as such, the goods, brought in for personal use or consumption, has to bear higher burden of tax. 34. It is, therefore, submitted by Dr. Saraf that when a dealer, who makes a sale of goods from outside the State to a consumer in the State of Bihar, the total burden of tax on him is much higher than a dealer, who makes a sale, within the State, to a consumer. This clearly violates Article 304 (a) of the Constitution of India; so contends Dr. Saraf. 35. It is also submitted that the impugned levy of entry tax is also discriminatory and unreasonable being violative of Article 14 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the levy of entry tax is violative of Article 304(a) of the Constitution of India. Permitting set off is not a condition precedent for upholding the validity of the levy of entry tax, contends learned Principal Additional Advocate General, because entry tax can be levied even if VAT/sales tax is not payable. The learned Principal Additional Advocate General, therefore, contends that the writ petition has got no merit and the same is liable to be dismissed. 38. Reacting to the submissions made on behalf of the respondents, Dr. Ashok Saraf, learned Senior Counsel, submits that the decision of this Court, in Indian Oil Corporation (supra), has been misconstrued. It is submitted that this Court, in Indian Oil Corporation (supra), although held that after the 2006 amendment, the levy, under the Act, is compensatory, yet the question as to whether the validity of the levy can be upheld, even if such a compensatory Act is distinctly violative of Article 304(a) of the Constitution, has not been decided by this Court in Indian Oil Corporation (supra) as the period involved, in the aforesaid case, was prior to the year 2006. 39. It is also submitted by Dr. saraf that the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record, let us, now, examine the constitutional scheme, with regard to the conduct of trade, commerce and intercourse as contained in Chapter XIII of the Constitution of India. Article 301 to 304 of the Constitution of India, being relevant in this regard, is reproduced as follows: "301. Freedom of trade, commerce and intercourse.- Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. 302. Power of Parliament to impose restrictions on trade, commerce and intercourse.- Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. 303. Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce.- (1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced for consumption by the producers themselves, such as, land- owners and their tenants. Petty artisans, normally, produced very little commodities for sale. With the industrial revolution, expansion of industries took place, which gave rise to larger production of goods and this resulted in to faster movement of goods to distant places. The trade-barriers were, therefore, required to be minimized in order to avoid obstructions to the free movement of goods. 46. Because of the fact that the makers of our Constitution conceived India as a strong economic unit, it was but natural for them to introduce into our Constitution a meaningful scheme for growth of industries so as to strengthen economic base of India as a whole. The makers of our Constitution knew that no meaningful growth of industries is achievable unless obstructions, in the movement of the goods, were, if not completely removed, be, at least, reduced as much as possible. 47. It was in an age of struggle that India's struggle for independence achieved success, for, with the end of the Second World War, countries were struggling to overcome the disastrous consequences, which the war had brought. It was an age, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present writ petitions have to be considered. 49. No wonder, therefore, that the trade, commerce and intercourse were guaranteed to be free throughout the territory of India, which, as Article 1 reflects, consists of various States and Union territories. 50. However, as the conduct of every facet of life needs some regulations and regulatory measures, the freedom of trade, commerce and intercourse, too, could not have been left absolutely free or completely without any regulation. It is in this light that the words "Subject to the other provisions of this part", occurring in Article 301, need to be read. Some of these aspects of our Constitutional scheme succinctly surface from the decision of the Constitution Bench, in Atiabari Tea Company Limited v. State of Assam (AIR 1961 SC 232), wherein the Court, at paragraph 33, observed as follows: "In drafting the relevant Articles of Part XIII there makers of the Constitution were fully conscious that economic unity was absolutely essential for the stability and progress of the federal policy which has been adopted by the Constitution for the governance of the country. Political freedom which had been won, and polit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra), observed as follows: "49. Let us now revert to article 301 and ascertain the width and amplitude of its scope. On a careful examination of the relevant provisions of Part XIII as a whole as well as the principle of economic unity which it is intended to safeguard by making the said provisions, the conclusion appears to us to be inevitable that the content of freedom provided for by article 301 was larger than the freedom contemplated by s. 297 of the Constitution Act of 1935, and whatever else it may or may not include, it certainly includes movement of trade which is of the very essence of all trade and is its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported that, in our opinion, directly affects the freedom of trade as contemplated by article 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII the freedom of trade on which so much emphasis is laid by article 301 would turn to be illusory. When art. 301 provides that trade shall be free throughout the territory of India pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l constitution which we are interpreting, and so the impact of article 301 must be judged accordingly. Besides, it is not irrelevant to remember in this connection that the article we are construing imposes a constitutional limitation on the power of the Parliament and State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus, considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions ; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of article 301. The argument that all taxes should be governed by article 301 whether or not their impact on trade is immediate or mediate direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of article 302 or article 304 of Part XIII. At this stage we think it is necessary to repeat that when it is said that the freedom of the movement of trade cannot be subject to any restrictions in the form of taxes imposed on the carriage of goods or their movement all that is meant is that the said restrictions can be imposed by the State Legislatures only after satisfying the requirements of article 304(b). It is not as if no restrictions at all can be imposed on the free movement of trade." 56. What, thus, surfaces from the above discussion, is that Article 301 guarantees freedom of trade, commerce and intercourse throughout the territory of India. It is, however, not freedom from all laws that Article 301 aims at protecting; rather, it guarantees freedom only from such laws, which restrict or impede the movement or transportation of goods or adversely affect the activities of trade and commerce amongst the States. 57. In effect, Article 301 casts an obligation on the legislative power of the Parliament and the States to ensure that the trade, commerce and intercourse throughout India shall be free. Article 301, therefore, refers to freedom from laws, which go beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminatory restrictions are imposed by the State Legislature if the legislation fulfils three conditions, which Article 304(b)embodies, namely, that such restrictions shall be reasonable, the same shall be in public interest and, above all, no Bill or amendment for the purpose of Clause (b) or for making amendment thereto shall be introduced or moved in the Legislature of any State without previous sanction of the President. To be more precise, one can point out that even restrictions, which may be reasonable and are also in public interest, cannot be imposed on the freedom of trade and commerce unless prior sanction of the President has been obtained by the State before introduction of the Bill or before making the legislation. 60. In short, while Article 301 guarantees freedom of trade and commerce throughout India, this freedom is not absolute, for, in an orderly society, the conduct of trade and commerce cannot be left completely free from regulations. 61. Regulatory measures, therefore, cannot be regarded as impediments in the freedom of trade and commerce. It is for this reason that the Constitution Bench, in Atiabari Tea Co. Ltd. (supra), makes it clear that though tax laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of making discrimination or giving preference, the learned Chief Justice took the view that taxing statutes, enacted for the purpose of general revenue, were outside the purview of Article 301 and it is only those laws of taxation, which were made for the purpose of making discrimination or giving preference, which fall within the ambit of Article 301. The learned Chief Justice concluded these views in the following words: Thus, on a fair construction of the provisions of Part XIII, the following propositions emerge : (1) trade, commerce, and intercourse throughout the territory of India are not absolutely free, but are subject to certain powers of legislation by Parliament or the Legislature of a State; (2) the freedom declared by Article 301 does not mean freedom from taxation simpliciter, but does mean freedom from taxation which has the effect of directly impeding the free flow of trade, commerce and intercourse ; (3) the freedom envisaged in Article 301 is subject to non-discriminatory restrictions (Article 392); (4) even discriminatory or preferential/legislation may be made by Parliament for the purpose of dealing with an emergency like a scarcity of goods in any par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not irrelevant to remember in this connection that the Article we are construing imposes a constitutional limitation on the power of the Parliament and the State Legislatures to levy taxes, and generally ; but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus, considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions ; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301. The argument that all taxes should be governed by Article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld." 66. In short, thus, in Atiabari Tea Company Ltd. (supra), while the narrow view was to the effect that unless a tax law is enacted for the purpose of making discrimination or giving preferential treatment, such a law would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed before us is that it ignores altogether that in the conception of freedom of trade, commerce and intercourse in a community regulated by law freedom must be understood in the context of the working of an orderly society. The widest view proceeds on the footing that Article 301 imposes a general restriction on legislative power and grants a freedom of trade, commerce and intercourse in all its series of operations, from all barriers, from all restrictions, from all regulation, and the only qualification that is to be found in the Article is the opening clause, namely, subject to the other provisions of Part XIII. This in actual practice will mean that if the State Legislature wishes to control or regulate trade, commerce and intercourse in such a way as to facilitate its free movement, it must yet proceed to makes a law under Article 304(b) and no such bill can be introduced or moved in the Legislature of a State without the previous sanction of the President. The practical effect would be to stop or delay effective legislation which may be urgently necessary. Take, for example, a case where in the interests of public health, it is necessary to introduce urgently legislation st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. this is irrespective of the restrictions imposed by the other Articles in Part XIII of the Constitution. We are, therefore, unable to accept the widest view as the correct interpretation of the relevant articles in Part XIII of the Constitution." 68. As regards the narrow view expressed by the learned Chief Justice, in Atiabari Tea Company Ltd. (supra), which was to the effect that taxing laws were governed by the provisions of Part XII and except when a tax law is made under Article 304(a), Article 301 did not come into play or, in other words, none of the provisions of Part XIII, except Article 304(a), extended to taxing laws, it may be pointed out that the majority, in Automobile Transport (Rajasthan) Ltd. (supra), did not accept this view ; rather, accepting the majority views expressed in Atiabari Tea Company Ltd. (supra), the majority, in Automobile Transport (Rajasthan) Ltd. (supra), held thus, "It would appear from what we have stated above that this interpretation consists of two main parts: one part is that taxation simpliciter is not within the terms of Article 301 and the second part is that Article 301 must take colour from the provisions of Article 303 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 301. It would be against the ordinary canons of construction to treat an exception or proviso as having such a repercussion on the interpretation of the main enactment so as to exclude from it by implication what clearly falls within its express terms. 69. Having, thus, agreed with the views expressed by the majority, in Atiabari Tea Company Ltd. (supra), the 7 Judges Bench, in Automobile Transport (Rajasthan) Ltd. (supra), further held that regulatory measures, which do not impede the freedom of trade, commerce and intercourse, and compensatory taxes for use of the trading facilities are not hit by Article 301, for, such regulatory measures or compensatory taxes, instead of hampering trade, commerce and intercourse, facilitate them. In short, in the opinion of the majority, in Automobile Transport (Rajasthan) Ltd. (supra), regulatory measures, which do not impede freedom of trade, commerce and intercourse, are not hit by Article 301 nor can compensatory taxes, which are imposed for providing trading facilities to the traders, as a class, be said to be violative of Article 301. The majority view so expressed, in Automobile Transport (Rajasthan) Ltd. (supra), run as under: "14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le decided the matter: then the mercantile community would be helpless and it would be the easiest thing for the Legislature to defeat the freedom assured by Article 341 by stating in the preamble that it is meant to provide facilities to the tradesmen. Likewise actual user would often be unknown to tradesmen and such user may at some time be compensatory and at others not so. It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of a tax by a meticulous test, and in the nature of things that cannot be done." "20. Nor do we think that it will make any difference that the money collected from the tax is not put into a separate fund so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are born by the State out of whatever source it may be. In the cases under our consideration the tax is based on passenger capacity of commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommerce subject to other provisions of Part XIII and correspondingly it imposes a general limitation on the legislative powers, which limitation is relaxed under the following circumstances: (a) Limitation is relaxed in favour of Parliament under Article 302, in which case Parliament can impose restrictions in public interest. Although the fetter is limited enabling Parliament to impose by law restrictions on the freedom of trade in public interest under Article 302, nonetheless, it is clarified in clause (1) of Article 303 that notwithstanding anything contained in Article 302, Parliament is not authorised even in public interest, in the making of any law, to give preference to one State over another. However, the said clarification is subject to one exception and that too only in favour of Parliament, where discrimination or preference is admissible to Parliament in making of laws in case of scarcity. This is provided in clause (2) of Article 303. (b) As regards the State Legislatures, apart from the limitation imposed by Article 301, clause (1) of Article 303 imposes additional limitation, namely, that it must not give preference or make discrimination between one State or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Article 303, namely, the State must not give preference or make discrimination between one State or another in exercise of its powers relating to trade and commerce under Entry 26 of List II or List III. However, this limitation on, the State Legislatures, is lifted in two cases, namely, it may impose on goods imported from sister State(s) or Union Territories any tax to which similar goods, manufactured in its own State, are subject to, but not so as to discriminate between the imported goods and the goods manufactured in the State. In other words, clause (a) of Article 304 authorises a State Legislature to impose a non- discriminatory tax on goods imported from sister State(s), even though it interferes with the freedom of trade and commerce guaranteed by Article 301. Secondly, the ban, under Article 303(1) would stand lifted even if discriminatory restrictions are imposed by the State Legislature provided that such provisions fulfil the following three conditions, namely, that such restrictions shall be in public interest; such restrictions shall be reasonable; and, lastly, such restrictions shall be subject to the obtaining of prior sanction of the President before introduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislature may, by law, impose on goods imported from other States or Union territories any tax to which similar goods manufactured or produced in the State are, subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced. As such, if the State legislature imposes on goods imported from other States or Union territories, any tax to which similar goods, manufactured or produced in the State, are, subject, so, however, not to discriminate between goods so imported and goods so manufactured or produced within the State, the same will not amount to discrimination as contemplated in Article 303(1) of the Constitution of India. 76. However, if the State imposes any tax on the goods imported from other States or Union Territories to which similar goods manufactured or produced in the State are not subject to, then, the same will not be permissible inasmuch as the same would amount to discrimination and/or giving preference to one State over another, which, now Article 303(1) of the Constitution, totally stands prohibited as far as State legislatures are concerned. Article 304(b) deals with restrictions. 77. Although Article 302 empowers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by imposing a discriminatory tax. If that is made permissible, then, the State can impose taxes on goods imported from other States and Union territories, while not imposing such tax on the goods manufactured and produced within the State on the ground that such tax is for the purpose of providing trading facility and the same is compensatory in nature. If that is permitted, Article 303 (1) and 304(a) of the Constitution shall become nugatory. 81. It needs to be further noted that Article 304 clearly provides that in order to save a law from being not violative of Article 301 or 303 of Constitution of India, both the conditions of Article 304(a) and 304(b) are required to be fulfilled. Whereas condition of Article 304(a) relates to Article 303, the conditions of Article 304(b) relate to Article 301. 82. If a compensatory tax is imposed, which is discriminatory in nature and violative of Article 304(a) of the Constitution, such a compensatory tax will not be sustainable, being violative of Article 303(1) of the Constitution. Consequently, such a discriminatory compensatory tax cannot be saved from being declared ultra vires simply on the ground that the same is compensatory in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State of Bihar for consumption, use or sale therein in exercise of powers traceable to Entry 52 of the State List, the fact remains that the Bihar VAT Act, 2005, was enacted to levy tax on sale and purchase of goods in the State of Bihar, which is a legislation traceable to Entry 54 of the State List, yet the common and broad objectives of both the amendments appear to be to earn revenue for the State, which is apparent from the provisions of Section 7(iii) of the 1993 Act, which makes provision for set off of Entry tax against the VAT payable on the said goods in the State. 86. It is of immense importance to note that the amount of entry tax paid by an importer, while importing goods from the outside the State to the State of Bihar, is liable to be set off against the VAT payable in the State. Viewed from this angle, we find considerable force, in the submission made by Dr. Saraf, learned Senior Counsel for the petitioner, that the levy is a colourable exercise of powers and though entry tax is, now, claimed to be compensatory in nature, the legislative objective and scheme of the enactment is to be realize sales tax/VAT, in advance, inasmuch as the payment of entry tax so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) of the 1993 Act, the imposition of entry tax, by way of the impugned provisions, leads to a higher burden of tax on such goods, which are brought into the State of Bihar by the petitioners for personal use or consumption of individual consumer, which are transacted using e-commerce portal. The goods, purchased by an individual consumer into the State of Bihar using e- commerce portal, will be liable to suffer higher rate of tax and thereby becomes costlier for the consumer as compared to the same goods, when purchased from a local dealer in the State of Bihar. 91. Situated thus, the artificial distinction and discrimination against the said goods, purchased through an e-commerce portal, arises on account of the second Proviso to Section 3(2), which restricts the set off of entry tax paid on such goods only to a dealer, who is liable to pay VAT under the Bihar VAT Act. 92. It is crystal clear that the second Proviso to Section 3(2) is not applicable to a transaction undertaken by e- commerce portal inasmuch as the goods, brought in by the petitioners, are only for personal use or consumption and not for being sold, when the individual consumers are not dealer and do not have li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amending Act 9 of 2003 (with effect from 22.08.2003). But the second Amendment Act (Act 9 of 2003) inserted Section 3A that empowered the State Government to amend or alter the Page 0770 schedule of the Act or to add anything in it by issuing a notification. In exercise of the power under Section 3A of the Act, the State Government issued notification No. SO 34, dated 1.4.2006 by which paddy, rice, wheat, pulses, flour, atta, maida, suji and besan were added at Serial No. 25 of the Schedule. On the same date, the State Government issued another notification bearing No. SO 32 in exercise of the power under Section 3(1) of the Act fixing the rate of entry tax on paddy, rice, wheat etc. at 4% of their value. It is an admitted position that at that time the rate of sales tax on paddy, rice, wheat etc. was 1%. In other words, the rate of entry tax on the goods in question was higher then the rate of sales tax by 3%. 9. Here, it may be recalled that in M/s Indian Oil Corporation Ltd. and M/s Harinagar Sugar Mills Ltd., it was argued that following the amendment in the definition of 'Entry of Goods' with effect from 5.11.2001 (by Amending Act 10 of 2001), the Act had become di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 303 of the Constitution of India. 95. The creation of tax barrier and imposition of higher rate of tax on the goods from other States, as compared to locally sold goods, has been dealt with by the Supreme Court in a catena of decisions. Shree Mahavir Oil Mills vs. State of J&K, (1996) 11 SCC 39, is a case, wherein, on account of a series of notifications, the manufacturers of edible oil, in other States, were liable to pay sales tax at 8% on sale affected by them in the State of J & K, while the local manufacturers were fully exempted, the Supreme Court, while quashing the said exemption on the ground of being violative of the provisions embodied in Article 301 and Article 304(a), held as under: "Article 301 declares that "subject to the other provisions of this part, trade, commerce and intercourse throughout the territory of India shall be free". An exception is, however, provided in favour of Parliament by Article 302 which says that "Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India, as may be required in the public interest". The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced". The wording of this clause is of crucial significance. The first half of the clause would make it appear at first flush that it merely states the obvious: one may indeed say that the power to levy tax on goods imported from other States or Union territories flows from Article 246 read with Lists II and III in the Seventh Schedule and not from this clause. That is of course so, but then there is a meaning and a very significant principle underlying the clauses if one reads it in its entirety. The idea was not really to empower the State legislatures to levy tax on goods imported from other States and Union territories - that they are already empowered by other provisions in the Constitution - but to declare that power shall not be so exercised to discriminate against the imported goods vis-a- vis locally manufactured goods. The clauses though worded in positive language has negative aspect. It is, in truth, a provision prohibiting discri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he power conferred upon the Parliament by Article 302, there are certain distinctions. Firstly, while Article 302, does not use the expression "reasonable" before the word "restrictions," this clause does. Secondly, this power can be exercised by the State Legislature only with the "previous sanction" of the President- which means the Union Ministry, or with the assent of the President, as explained above. It is probably our history which impelled the founding fathers to lay store by the Central Government in the matter of imposing restrictions, or reasonable restrictions, as the case may be on the freedom guaranteed, it is worthy of notice, is "throughout the territory of India" and not merely between the States as such; the emphasis is upon the oneness of the territory of India. Part-XIII starts with this concept of oneness but then it provides exceptions to that rule, as stated above, to meet certain emerging situations. As a matter of fact, it can well be said that clause (a) of Article 304 is not really an exception to Article 301, notwithstanding the non-obstante clause in Article 304 and that it is but a re-statement of a facet of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther rebate is within the realm of tax defined in article 304(a) of the Constitution of India so as to say that it discriminates between the two class of goods: locally manufactured goods and the imported goods when both the class of dealers meet the conditions required to qualify for the grant of rebate i.e. the use of fly-ash, is the overall effect or impact of such rebate on the manufacturer. … 56. The above principle was re-iterated in the case of W.B. Hosiery Association and others v. State of Bihar; (1988) 4 SCC 134 and in the case of H. Anraj v Government of Tamil Nadu; (1986) 1 SCC 414; wherein the effect of an exemption was discussed. The issue before the Court was that the locally manufactured goods within the State were exempted but those manufactured in other States and imported into the State were subjected to a high rate of tax. The hosiery manufacturers and dealers in the State of West Bengal in their prayer in the writ petition asked for a direction asking the respondents to forbear from levying or imposing or collecting any sales tax on the sale of hosiery goods imported into Bihar from other States. The State Government by a notification exempted dealers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect and intention behind such discrimination. The Supreme Court has held, in Jaiprakash Associates (supra), that effect of a tax should not such that two like goods are given discriminatory treatment. The powers given to the State legislature are not unrestricted and are bound to function within limitations stipulated under Article 304(a) of the Constitution of India. 100. When Article 304(a) ensures only equal rate for incoming goods, if such goods are taxed at a higher rate or where they are taxed at any rate, when indigenous goods enjoy concessional rate of tax, Article 304(a) gets attracted. These are simple cases of hostile discrimination. However, one has to determine whether a particular tax is discriminatory or not within the meaning of Article 304(a), the effect of the tax, on the flow of goods from outside the taxing State, has to be taken into consideration and if the overall effect of rebate of tax is such that they fall within the meaning of concessional rates of tax so as to discriminate between imported goods and local goods, the same would amount to discrimination within the meaning of 304(a) of the Constitution. The set off, as given in Section 3(2) of the 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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