Judgment G. S. SINGHVI, J. 1. In these petitions, the petitioners have challenged the constitutionality of the Haryana Local Area Development Tax Ordinance, 2000 (for short, "the Ordinance"), the Haryana Local Area Development Tax Act, 2000 (for short, "the Entry Tax Act") and notifications dated May 5, 2000 issued by the State Government under sections 3 (1) and 11 (1) of the Ordinance on the ground that the State Legislature is not competent to enact such law and also on the ground that the provisions contained in the Ordinance, the Entry Tax Act and the notifications are violative of articles 14, 19 (1) (a) and (g), 286, 301 and 304 of the Constitution of India. 2. Most of the petitioners are incorporated as companies under the Companies Act, 1956. They are engaged in the manufacture of various types of goods in the factories situated in the State of Haryana or have business establishments in Haryana. Only three of the petitioners, namely, Leather Cloth and Plastic Manufacturers Association, New Delhi, New Santra Pipe Fittings Pvt. Ltd. , Hawrah, West Bengal and M/s. MRF Ltd. , Madras, who have filed C. W. P. Nos.9705 of 2000, 13374 of 2000 and 15546 of 2000 respectively, do not have factories or business establishments in the State of Haryana. 3. The petitioners (except those who have filed C. W. P. Nos.9705, 13374 and 15546 of 2000) have averred that for the purpose of manufacturing their products, they have been importing raw materials and other goods and have been paying various taxes including octroi levied under section 69 read with section 70 of the Haryana Municipal Act, 1973 (for short, "the Municipal Act" ). They have alleged that with a view to attract the voters in the forthcoming elections to the Legislative Assembly, the Government of Haryana abolished the octroi in November, 1999 and simultaneously increased the tax on consumption of electricity in the municipal areas under section 70 (1) (viii) of the Municipal Act at the rate of five paise per unit in place of one paise per unit, imposed trade tax on various establishments in municipal areas under section 70 (1) (i) of the municipal Act and tax at the rate of Rs.3 per bottle on the sale of liquor within the municipal areas in order to make good the loss caused to the municipalities due to abolition of octroi. Soon thereafter, the Governor of Haryana, in exercise of the powers vested in him under article 213 of the Constitution of India, promulgated the Ordinance, which was replaced by the Entry Tax Act with a view to tax transactions involving import and export of goods in the course of inter-State trade. They have further averred that even though the State is not competent to impose sales tax on such transactions, it has done so in the garb of imposing entry tax. In order to show that the entry tax is, in reality, a sales tax on the entry of goods into a local area, the petitioners have made the following assertions : 4. (a) If it was a genuine entry tax or octroi tax, all goods entering into a local area from outside the local area would have been taxed. However, goods which are moving from within the State although from outside the local area are not being taxed, thereby showing that it is not a genuine entry tax. 5. (b) Entry tax normally has nothing to do with sales tax. The two are cumulative, separate and distinct. However, the State Government is giving a reduction of tax in cases where sales tax has been paid in the State. Effectively and practically the reduction comes, more or less, to the same figure as the sales tax paid in most of the cases. 6. (c) Traders have been given exemption from the purview of the levy which would not have been the case, had it been a genuine entry tax. 7. (d) Under clause 12 of the Ordinance and section 12 of the Entry Tax Act, the tax authorities designated for administering the impugned tax are the sales tax authorities. 8. (e) The rate of tax has been fixed at 4 per cent which is the same rate as chargeable for most of the transactions under the sales tax regime. If the goods are sold in the course of inter-State trade, the Central sales tax is 4 per cent. If the goods are sold in inter-State, sales tax is still at 4 per cent (the goods being declared goods in terms of the Central Sales Tax Act ). 9. (f) Only those transactions on which sales tax is otherwise not payable are being taxed after taking into account the exemptions and reductions given. 10. If the goods are sold in inter-State, sales tax is still at 4 per cent (the goods being declared goods in terms of the Central Sales Tax Act ). 9. (f) Only those transactions on which sales tax is otherwise not payable are being taxed after taking into account the exemptions and reductions given. 10. (g) The rate of tax is far higher than the rate of octroi tax earlier charged or the rate of octroi/entry tax in other States. In the petitioners case, the liability is nearly 50 times of its liability under the earlier regime of octroi tax under section 69 of the Haryana Municipal Act. Such a high tax cannot be said to be an entry tax. 11. (h) Item 14 of Schedule "a" appended to the Act, which exempts textile, tobacco and sugar on which additional excise duty in lieu of sales tax is leviable also shows that wherever either sales tax was being paid or any other duty in lieu of sales tax was payable, the entry tax is not leviable. 12. (i) Sec.5 (1) (d) of the Act which exempts goods on which sales tax has been paid or has become payable, would also clearly show that the intention of the State is to levy sales tax on all goods on which sales tax has not already been paid or is not payable to the State Government. 13. (j) The real effect of the Ordinance and the provisions of the notifications issued on the same date is that so-called entry tax is levied by way of sales tax in respect of those goods which are not sold within the local area but are consumed or used in manufacture of other goods. The notifications grants set-off/rebate if the goods manufactured therefrom are sold either locally or in the course of inter-State trade and commerce. Even though all the manufacturers fall in the same class, but still a part of those have been exempted from payment of entry tax whereas the other part of the same are subjected to this heavy levy which is, in substance, a levy on the transactions on which the State is not competent to levy tax in view of constitutional restrictions, as already stated above. 14. 14. (k) The units availing exemption from payment of sales tax under sections 13 and 13b of the Haryana General Sales Tax Act, 1973 (for short, "the 1973 Act") and also the units availing deferment of payment of tax under section 25a of the 1973 Act, are also exempted under the impugned Ordinance from liability of entry tax, without there being any link whatsoever between the two enactments. This action of the respondents shows double premium to the units who are already availing tax holiday and levy on others who are not availing of the benefit of exemption. This is nothing else but penalising only those select manufacturers who are already contributing substantially to the State. The impugned levy is palpably irrational, unjust and directly offends article 301 of the Constitution of India. 15. The petitioners have further averred that they had been paying octroi at the rate of 0.08 per cent on the import of goods within the municipal areas, but with the introduction of entry tax at the rate of 4 per cent ad valorem, they will have to pay 50 times of the octroi tax and this would adversely affect their economic operations. According to them, the impugned levy is per se unconstitutional not only on the ground that the State is not competent to legislate on the subject which falls within the exclusive domain of the Parliament, but also on the ground that it violates their fundamental right to equality guaranteed under article 14, the right to freedom of speech and expression guaranteed under article 19 (1) (a) and right to carry on business throughout the territory of India which is guaranteed under article 19 (1) (g) of the Constitution. They have further averred that the impugned levy is violative of the provisions of Part XIII of the Constitution. 16. C. W. P. No.9705 of 2000 has been filed by Leather Cloth and Plastic Manufacturers Association, New Delhi. It has averred that the textile fabrics manufactured by its members are covered by items Nos.14 to 17 of Schedule B under sections 6 and 15 of the 1973 Act and by virtue of the conditions specified in the said Schedule, the textile fabrics do not attract tax under the 1973 Act because additional excise duty is levied under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. It has challenged the impugned legislation by describing it as a colourable exercise of legislative power of the State, inasmuch as, the tax is sought to be levied on the sale and purchase of goods involving import from outside the State and export in the course of inter-State trade and out of India. It has further averred that the impugned legislation is ultra vires to articles 286, 301 and 304 of the Constitution. 17. New Santra Pipe Fittings (Pvt.) Ltd. (C. W. P. No.13374 of 2000) is engaged in the business of manufacturing various types of pipe fittings including G. I. sockets which are sold in different parts of country including the State of Haryana. M/s. M. R. F. Ltd. , Madras (C. W. P. No.15446 of 2000) is engaged in the manufacture of auto tyres and tubes in its factories situated at Goa, Arkonam, Chennai, Medak, Kottayam and Pondicherry. It has been supplying tyres and tubes to the manufacturers of the cars, trucks and tractors, etc. , including M/s. Maruti Udyog, Hero Honda, Escort Tractors, Eicher Tractors. They have averred that by enacting the impugned legislation, the State has tried to tax those transactions in respect of which law-making power vests exclusively with the Parliament. 18. Grounds of challenge : 19. The petitioners have challenged sections 3, 5, 6 and 11 of the Ordinance, the Entry Tax Act and notifications dated May 5, 2000 on the following grounds : 20. (i) The impugned legislation is a colourable piece of legislation because in the garb of imposing entry tax, the State has tried to levy tax, on the sale or purchase of goods where such sale or purchase takes place during the course of import of goods into or export out of the territory of Haryana and only the Parliament can legislate on this subject. 21. (ii) The impugned levy is a tax on the consignment of goods where such consignment takes place in the course of inter-State trade or commerce and the State is not competent to enact law for levy of tax on such transactions. 22. 21. (ii) The impugned levy is a tax on the consignment of goods where such consignment takes place in the course of inter-State trade or commerce and the State is not competent to enact law for levy of tax on such transactions. 22. (iii) Under entry 52 of List II of the Seventh Schedule to the Constitution, a tax can be imposed on entry of goods into local area for consumption, use or sale, but the impugned tax is only on the entry of goods for consumption or use and not for sale in the local area. 23. (iv) The impugned legislation is violative of article 301 of the Constitution, inasmuch as, it imposes unreasonable restriction on the freedom of trade, commerce and intercourse throughout the territory of India. 24. (v) The impugned legislation is violative of article 304 of the Constitution of India, inasmuch as it imposes a tax on goods imported from other States, but no such tax is leviable on similar goods manufactured or produced within the State of Haryana. 25. (vi) The impugned legislation is ultra vires to article 304 (b) of the Constitution because the rate of entry tax is almost 50 times of the octroi tax. 26. (vii) The entry tax is discriminatory and violative of article 14 of the Constitution, inasmuch as, the State has granted exemption in lieu of the sales tax paid within the State of Haryana. 27. (viii) The entry tax is violative of the petitioners fundamental right guaranteed under article 19 (1) (a) and (g) of the Constitution of India. 28. (ix) Sec.11 (1) of the Ordinance and the Entry Tax Act confers unbridled and unguided power upon the State Government to exempt any class of importers from the levy of entry tax and, therefore, it is liable to be struck down being violative of article 14 of the Constitution. 29. (x) Sec.6 of the Entry Tax Act which requires the filing of return and lays down the procedure for assessment is unreasonable and arbitrary. 30. (xi) Exemption notifications issued under section 11 (1) of the Ordinance are liable to be quashed on the ground of discrimination because no discernible criteria has been adopted for exempting those engaged in the manufacture of goods relating to information technology. 31. 30. (xi) Exemption notifications issued under section 11 (1) of the Ordinance are liable to be quashed on the ground of discrimination because no discernible criteria has been adopted for exempting those engaged in the manufacture of goods relating to information technology. 31. In the written statements filed on behalf of the respondents, it has been averred that octroi was abolished because there was feeling that it was obnoxious in character and impeding the development of trade and commerce and there was clamour for its abolition and in order to compensate the municipalities for the loss caused due to abolition of octroi, the State Government decided to generate additional funds by levy of entry tax. They have averred that entry tax is compensatory in nature and the amount collected under the Entry Tax Act will be disbursed among the local bodies to be utilised for development of local areas. They have further averred that all businessmen and traders require infrastructural facilities for smooth carriage of their business and funds collected under the Entry Tax Act are to be used for developing such facilities in the local area of the State and this will facilitate and regulate the business and trade in the State. The respondents have denied the charge that the impugned levy is arbitrary, unreasonable and discriminatory. According to them, no discrimination has been made between the goods brought from outside the State and the goods manufactured or produced inside the State and there is a general levy of local area tax under section 3. The respondents have controverted the grounds of challenge raised by the petitioners and have defended the impugned legislation by asserting that entry tax is only on the entry of goods into a local area from outside the local area for consumption or use and it is not a tax on purchase of goods imported from outside the State or from outside the country or on sale of the goods exported out of the State. According to the respondents, the impugned tax is compensatory in nature and is, therefore, not violative of articles 286, 301 and 304 of the Constitution of India. The respondents have relied on entry 52 of List II of the Seventh Schedule to the Constitution in support of their assertion that the impugned legislation is within the competence of the State. 32. The respondents have relied on entry 52 of List II of the Seventh Schedule to the Constitution in support of their assertion that the impugned legislation is within the competence of the State. 32. During the pendency of the writ petitions, Shri M. R. Kataria, Under Secretary to Government of Haryana, Prohibition, Excise and Taxation Department, filed an affidavit dated March 8, 2001 in C. W. P. No.6630 of 2000 along with the statement showing the details of octroi income, grants given by the State Government to the municipalities and Panchayati Raj Institutions and the amount spent by the municipalities on development works. In his affidavit, Shri Kataria also made reference to letter No.829/st-I dated May 4, 2000 sent by the Prohibition, Excise and Taxation Commissioners, Haryana, to all the Deputy Prohibition, Excise and Taxation Commissioners to give wide publicity to the Ordinance. He also stated that the broad contents of the Ordinance were published in "the Tribune" (English) dated May 6, 2000 and "nav Bharat Times" (Hindi) dated May 13, 2000. 33. From the abovenoted pleadings, the following questions of law arise for consideration by the court : 34. (i) Whether the Ordinance and the Entry Tax Act are liable to be struck down being colourable piece of legislation and/or beyond the legislative competence of the State 35. (ii) Whether the entry tax is violative of articles 14, 19 (1) (a) and (g), 301 and 304 of the Constitution of India 36. (iii) Whether exemption notifications dated May 5, 2000 are ultra vires to article 14 of the Constitution of India 37. Before adverting to the arguments advanced by the learned counsel in the context of the aforementioned questions, we may notice the relevant provisions of the Ordinance (2000) 15 PHT 177 (JS) and the Entry Tax Act. The same read as under : 38. " Preamble and sections 3, 5 and 11 of the Ordinance : 39. To provide for levy and collection of tax on the entry of goods into the local areas of the State of Haryana for consumption or use therein and matters incidental thereto and connected therewith. 40. 3. The same read as under : 38. " Preamble and sections 3, 5 and 11 of the Ordinance : 39. To provide for levy and collection of tax on the entry of goods into the local areas of the State of Haryana for consumption or use therein and matters incidental thereto and connected therewith. 40. 3. Levy of tax.- (1) There shall be levied and collected a tax on entry into a local area, of all goods except those specified in Schedule A, for consumption or use therein, at such rates not exceeding four per cent of the value of the goods, as may, by notification, be specified by the State Government, and different dates and different rates may be specified in respect of different goods or different classes of goods or different local areas. 41. (2) The tax levied under sub-section (1) shall be paid by the importer : 42. Provided that an importer shall not be liable to pay tax so long as the aggregate value of taxable goods he brings into or receives on their entry into any local area does not, in a year, exceed ten lakh rupees or such other sum as the State Government may, by notification, specify : 43. Provided further that an importer who has once become liable to pay tax under this Ordinance shall continue to be so liable until the expiry of three consecutive years during each of which the aggregate value of any taxable goods he brings into or receives on their entry into any local area does not exceed the amount specified in the first proviso to this sub-section. 44. 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. 45. (3) The tax shall be levied, assessed and collected in such manner and in such instalments, if any, as may be prescribed. 46. . . . . . . . . . . . . . . 47. 5. Deductions from gross turnover.- An importer registered under this Ordinance may deduct from his gross turnover for any period, the value of taxable goods purchased during that period from another importer registered under this Ordinance on production of prescribed document. 48. . 46. . . . . . . . . . . . . . . 47. 5. Deductions from gross turnover.- An importer registered under this Ordinance may deduct from his gross turnover for any period, the value of taxable goods purchased during that period from another importer registered under this Ordinance on production of prescribed document. 48. . . . . . . . . . . . . . 49. 11. Power of State Government to exempt or reduce tax.- (1) The State Government may, if in its opinion, it is necessary in public interest so to do, by notification and subject to such restrictions and conditions and for such period as may be specified in the notification, exempt or reduce the tax payable by any class of importers under this Ordinance. 50. Preamble and sections 2 (5), (9), (12), (13), (14), (15), (21), (26), 3, 5, 11 and 22 of the Entry Tax Act : 51. To provide for levy and collection of tax on the entry of goods into the local areas of the State of Haryana for consumption or use therein and matters incidental thereto and connected therewith. 52. 2. In this Act, unless the context otherwise requires - 53. (5) brings goods into a local area means causing the entry of goods into a local area by bringing them inside the local area or causing the goods to be brought inside the local area from any place outside the local area; 54. (9) 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; 55. (12) gross turnover used in relation to an importer with reference to a period of time means the sum or value of goods which the importer brings or receives on the entry of such goods into a local area during the given period; 56. (13) importer means any person who, in the course of business, whether on his own account or on account of a principal or any other person, brings any goods into or receives or is entitled to receive any goods on their entry into a local area and includes a casual importer; 57. (13) importer means any person who, in the course of business, whether on his own account or on account of a principal or any other person, brings any goods into or receives or is entitled to receive any goods on their entry into a local area and includes a casual importer; 57. (14) local area means an area within the limits of a municipal corporation established under the Haryana Municipal Corporation Act, 1994 (Haryana Act 16 of 1994), or a municipality established under the Haryana Municipal Act, 1973 (Haryana Act 24 of 1973), or a Town Board or a Cantonment Board established under the Cantonment Act, 1924 (Central Act 2 of 1924), or a Zila Parishad established under the Haryana Panchayati Raj Act, 1994 (Haryana Act No.11 of 1994), or any other local authority constituted or continued under any law for the time being in force; 58. (15) manufacturer means a person who carries on business of processing or manufacturing of goods, whether wholly or partly; 59. (21) receive any goods means to take delivery or possession of any goods, whether actual or constructive, or cause the goods to be received by any other person; 60. (26) tax means the tax leviable under this Act; 61. . . . . . . . . . . . . . . . 62. 3. (1) There shall be levied and collected a tax on entry into a local area, of all goods except those specified in Schedule A, for consumption or use therein, at such rates not exceeding four per cent of the value of the goods, as may, by notification be specified by the State Government and different dates and different rates may be specified in respect of different goods or different classes of goods or different local areas. 63. (2) The tax levied under sub-section (1) shall be paid by the importer : 64. Provided that an importer shall not be liable to pay tax so long as the aggregate value of taxable goods he brings into or receives on their entry into any local area does not, in a year, exceed ten lakh rupees or such other sum as the State Government may, by notification, specify : 65. Provided that an importer shall not be liable to pay tax so long as the aggregate value of taxable goods he brings into or receives on their entry into any local area does not, in a year, exceed ten lakh rupees or such other sum as the State Government may, by notification, specify : 65. Provided further that an importer who has once become liable to pay tax under this Act shall continue to be so liable until the expiry of three consecutive years during each of which the aggregate value of any taxable goods he brings into or receives on their entry into any local area does not exceed the amount specified in the first proviso to this sub-section. 66. 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. 67. (3) The tax shall be levied, assessed and collected in such manner and in such instalments, if any, as may be prescribed. 68. . . . . . . . . . . . . . 69. 5. (1) In calculating the turnover liable to tax for a period, an importer may deduct from his gross turnover during that period - 70. (a) the value of goods specified in Schedule A; 71. (b) the value of goods which have, without use or consumption, been delivered outside the local area; 72. (c) the value of goods which have been subjected to tax once under this Act, either as such or in some other form; 73. (d) the value of goods on which sales tax has been paid or has become payable to the State; 74. (e) the value of plant, machinery, equipment and tools, brought or received on lease; 75. (f) the value of goods left in the stock, whether as such or in different form, lying with him in the local area, except when the certificate of registration issued under this Act is cancelled : 76. Provided that the value of goods deducted under this clause shall, except when the certificate of registration issued under this Act is cancelled, form part of the turnover for the period immediately succeeding : 77. Provided that the value of goods deducted under this clause shall, except when the certificate of registration issued under this Act is cancelled, form part of the turnover for the period immediately succeeding : 77. Provided further that the value of plant, machinery, equipment and tools, if forming part of the turnover, may form part of the closing stock, if capitalised; and 78. (g) the value of such other goods as may be prescribed. 79. Explanation.- For the purpose of this sub-section, deductions of value of only such goods shall be admissible which forms part of gross turnover of the importer and if value of certain goods have been deducted under one clause then it shall not be deducted under any other clause. 80. (2) The deductions claimed under sub-section (1) of this section shall be subject to production of such proof in such form and in such manner as may be prescribed. The assessing authority may ask for any relevant evidence to satisfy itself about the genuineness and correctness of the proof furnished. 81. 11. (1) The State Government may, if in its opinion it is necessary in public interest so to do, by notification and subject to such restrictions and conditions and for such period as may be specified in the notification, exempt or reduce the tax payable by any class of importers under this Act. 82. (2) Where any restriction or condition specified under a notification issued under sub-section (1) is contravened or is not observed by an importer or where a declaration, if any, specified under the said notification for observance of any condition or restriction imposed therein, is found to be wrong, then such importer shall, in addition to tax calculated at the full rate, notified under sub-section (1) of section 3, on the value of such goods in respect of which such contravention or non-observance has taken place or a wrong declaration has been furnished be liable to pay interest in terms of sub-section (5) of section 6 of this Act : 83. Provided that before taking action under this sub-section, the importer shall be given a reasonable opportunity of being heard. 84. 22. The tax collected under this Act shall be distributed by the State Government amongst the local bodies to be utilised for the development of local areas. " 85. Provided that before taking action under this sub-section, the importer shall be given a reasonable opportunity of being heard. 84. 22. The tax collected under this Act shall be distributed by the State Government amongst the local bodies to be utilised for the development of local areas. " 85. We may also notice the provisions of rule 9 of the Haryana Local Area Development Tax Rules, 2000 (for short, "the 2000 Rules") and extracts of notifications dated May 5, 2000 issued under section 11 (1) of the Entry Tax Act, the same are reproduced below : 86. " Rule 9 of the 2000 Rules : 87. (1) In calculating the turnover liable to tax for a period, an assessee may deduct from his gross turnover during that period - 88. (a) the value of goods received from any place in the same local area; 89. (b) the value of goods which he purchased from any person in any other local area in the State than the local area in which his place of business is situated; 90. (c) the value of goods which has been delivered as such by him to any other person as a result of sale by him; 91. (d) the value of goods which has been delivered as such by him outside the State subject to production of proof of despatch and receipt of goods outside the State; 92. Note.- Production of declarations in form F, prescribed under the provisions of the Central Sales Tax (Registration and Turnover) Rules, 1957, shall be admissible as evidence for the purposes of this clause subject to verification of the correctness, genuineness and validity of the declaration produced; 93. (e) the value of goods specified in Schedule A of the Ordinance; 94. (f) the value of goods returned as such to the consignor within six months of their entry into the local area; and 95. (g) the value of goods left in the stock except when the business is closed or the certificate of registration issued under the Ordinance is cancelled : 96. Provided that the turnover deducted under this clause shall form part of the turnover for the period immediately succeeding : 97. Provided further that the value of plant and machinery, if forming part of the turnover, can form part of the closing stock, if capitalised. 98. Provided that the turnover deducted under this clause shall form part of the turnover for the period immediately succeeding : 97. Provided further that the value of plant and machinery, if forming part of the turnover, can form part of the closing stock, if capitalised. 98. (2) The assessing authority may ask for any relevant evidence to satisfy itself about the genuineness and correctness of the deductions claimed by the assessee. " 99. Notification No. S. O.65/h. Ord.10/2000/s.11/2000 dated the 5th May 2000 : 100. In exercise of the powers conferred by sub-section (1) of section 11 of the Haryana Local Area Development Tax Ordinance, 2000 (Ordinance No.10 of 2000) and all other powers enabling him in this behalf, the Governor of Haryana being of the opinion that it is necessary in public interest, so to do, hereby reduce the tax payable by an importer under the said Ordinance subject to the restrictions and conditions specified below : 101. Restrictions and conditions.- (i) The goods on which tax is payable by an importer under the Ordinance must have been used or consumed by him to produce any other goods (hereinafter called "manufactured goods"); and 102. (ii) on manufactured goods on which sales tax has been paid by the importer or is payable by any other dealer in the State under the Haryana General Sales Tax Act, 1973 (Act 20 of 1973) or the Central Sales Tax Act, 1956 (Central Act 74 of 1956 ). 103. The extent to which tax may be reduced shall be calculated by application of the following formula : 104. Amount of Tb Rate % applicable tax may be = Ta x ------ x under the Ordinance. reduced Tc Where - 105 Ta = Total value of goods used or consumed on which tax is payable under the Ordinance. 106. Tb = Total value of manufactured goods sold on which tax has been paid or is payable by any other dealer in the State under the Haryana General Sales Tax Act, 1973 (Act 20 of 1973) or the Central Sales Tax Act, 1956 (Central Act 74 of 1956 ). 107. Tc = Total value of manufactured goods computed at the average price of manufactured goods; 108. in a given period, i. e. , quarter or month, as the case may be. 109. Notification No. S. O.66/hr. Ord.1012000/s.11/2000 dated 5th May, 2000. 110. 107. Tc = Total value of manufactured goods computed at the average price of manufactured goods; 108. in a given period, i. e. , quarter or month, as the case may be. 109. Notification No. S. O.66/hr. Ord.1012000/s.11/2000 dated 5th May, 2000. 110. In exercise of the powers conferred by sub-section (1) of section 11 of the Haryana Local Area Development Tax Ordinance, 2000 (Ordinance No.10 of 2000), and all other powers enabling him in this behalf, the Governor of Haryana being of the opinion that it is necessary in public interest, so to do, hereby exempts importers of goods of following industries from the tax payable under the said Ordinance with immediate effect : 111. (i) Industries included in the information technology, industry manufacturing the goods given in annexure I; 112. (ii) Industrial units availing of exemption from the payment of tax under sections 13 and 13b of the Haryana General Sales Tax Act, 1973 (Act 20 of 1973) and industrial units availing the facility of deferment of tax under section 25a thereof for the period of such exemption or deferment; and 113. (iii) Export oriented industrial units exporting out of the territory of India 75 per cent or more of their products in terms of value in a given period not exceeding one year. 114. ANNEXURE i Categories of industries included in the scope/definition of information technology industry (A) Computing devices, namely - 115. Desktop Personal computer Servers Work station Nodes Terminals Network P. C. Home P. C. Lap-top computers Note book computers Palms Top Computer/pda (B) Network controller cards/memories, namely : 116. Network interface card (NIC) Adaptor - ethernet/pci/eisa/combo/pcmica SIMMS - memory DIMMS - memory Central Processing Unit (CPU) Controller - SCST/array Processors - Processor/processor power module/upgrade (C) Storage, units, namely - 117. Hard disk drives/hard drives RAID devices and their controllers Floppy disk drives C. D. ROM drives Tape drives - DLT drives/dat Optical disk drives Other digital storage devices (D) Others - 118. Key board Monitor Mouse Multimedia kits (E) Printers and output devices, namely - 119. Dot matrix Laserjet Inkjet Deskjet LED printers Line printers Plotters Pass-book printers (F) Networking products, namely - 120. Hubs Routers Switches Concentrators Trans-receivers (G) Software, namely - 121. Application software Operating system Middleware/firmware (H) Power supplies to computer system, namely - 122. Key board Monitor Mouse Multimedia kits (E) Printers and output devices, namely - 119. Dot matrix Laserjet Inkjet Deskjet LED printers Line printers Plotters Pass-book printers (F) Networking products, namely - 120. Hubs Routers Switches Concentrators Trans-receivers (G) Software, namely - 121. Application software Operating system Middleware/firmware (H) Power supplies to computer system, namely - 122. Switchmode power supplies Uninterrupted power supplies (I) Consumables, namely - C. D. ROM/compact disk Floppy disk Tapes/dat/dlt Ribbons Toners Inkjet cartridges Inks for output devices (J) Telecommunication equipment/cables, namely - Optic fibre cable Modems VSATs Video conferencing equipments. 123. Re : question (i) : 124. Shri Shanti Bhushan, Senior Advocate referred to Statement of Objects and Reasons incorporated in the Bill which, according to the learned counsel, was circulated to the Members of the Legislative Assembly and the averments contained in the written statement to show that the real purpose of the impugned legislation is to impose tax on those manufacturers who are not liable to pay sales tax on the import of raw material from outside the State for use and consumption within the State of Haryana and who transfer the manufactured goods to other States on consignment basis or branch transfers. He pointed out that a substantial portion of the raw material used by the petitioners is imported from outside the country and argued that levy of tax on such goods, is in fact, levy of customs duty for which the Parliament alone is competent to legislate under entry 41 read with entry 83 of List I of the Seventh Schedule of the Constitution. He then argued that the impugned levy is on consignment of goods in the course of inter-State trade and commerce and the State is not competent to legislate on this subject because it is covered by article 286 of the Constitution read with entry 92-B of List I of the Seventh Schedule. He then argued that the impugned levy is on consignment of goods in the course of inter-State trade and commerce and the State is not competent to legislate on this subject because it is covered by article 286 of the Constitution read with entry 92-B of List I of the Seventh Schedule. He further argued that by enacting the impugned legislation, the State has tried to impose tax on the purchase of raw material from other States by a manufacturer in the State of Haryana and the State Legislature does not have the competence to enact such law because this subject falls exclusively within the domain of the Parliament under entry 92-A of List I. Shri Shanti Bhushan also referred to the various incidents of the impugned tax and argued that in reality, it is a sales tax on transactions which are otherwise outside the legislative competence of the State. In support of his arguments, Shri Shanti Bhushan relied on the decisions of the Supreme Court In Re : The Insurance Act of Canada [1932] AC 41, Attorney-General for Alberta V/s. Attorney-General for Canada [1939] AC 117, K. C. Gajapati Narayan Deo V/s. State of Orissa AIR 1953 SC 375 and Federation of Hotel and Restaurant Association of India V/s. Union of India [1989] 74 STC 102 (SC); AIR 1990 SC 1637. Shri Shanti Bhushan further argued that entry 52 of List II of the Seventh Schedule authorises the Legislature of a State to make law relating to tax on entry of goods into a local area for consumption, use or sale therein and it is not open to the State to tax only those goods which enter the local area for use or consumption and not for sale. 125. Shri A. K. Ganguly, Senior Advocate argued that even though the impugned levy is ostensibly on the entry of goods in a local area in the State of Haryana, in substance, it is a tax on manufacturers who import raw material from outside the State of Haryana and it is a device to compel them to pay sales tax on all inter-State branch transfers of finished products from Haryana to other parts of the country and this is beyond the legislative competence of the State. He referred to the provisions of sections 3, 5 and 11 of the Ordinance and the Entry Tax Act, rule 9 of the 2000 Rules, notifications dated May 5, 2000 and the averments contained in the written statement and the note which is said to have been circulated by the Government of Haryana (pages 144-145 of C. W. P. No.8700 of 2000) to show that the impugned legislation is meant to collect tax from those importers who effect branch transfers of products manufactured by them within the State and in respect of which the State is not competent to levy any tax. Shri Ganguly relied on the decisions of the Supreme Court in Buxa Dooars Tea Co. Ltd. V/s. State of West Bengal [1989] 74 STC 447; (1989) 3 SCC 211 and State of Orissa V/s. Mahanadi Coalfields Ltd. (1995) 2 SCC 686. 126. Dr. A. M. Singhvi argued that the tax leviable under the impugned legislation is not a tax on the entry of goods only but is a tax on the manufacturer who uses raw material imported from outside the State of Haryana and sends finished products outside the State by branch transfers. He pointed out that the levy under the impugned legislation is only on the manufacturers because all other possible categories are exempted from paying the tax either by virtue of rebate granted under section 5 or exemption granted under section 11 of the Entry Tax Act. Dr. Singhvi also relied on, entry 92-B of List I and entry 52 of List II of the Constitution and argued that entry tax is, in fact, a tax on consignment of goods and the State is not competent to legislate on this subject. He referred to the preamble of the Entry Tax Act to show that no tax is leviable under the said Act on traders and sellers. He submitted that if a manufacturer purchases raw material from within the State and sells the finished products within the State, then he is exempted from levy of entry tax in terms of rule 9 (1) (b) of the 2000 Rules. Likewise, if a manufacturer purchases raw material from within the State and exports the finished products outside the State for the purpose of sale, no tax is leviable on such transaction. Likewise, if a manufacturer purchases raw material from within the State and exports the finished products outside the State for the purpose of sale, no tax is leviable on such transaction. He further pointed out that if a manufacturer brings raw material into the State from other States and uses the same for manufacturing a finished product which is exported to other States, then such transaction is also exempted in terms of notification dated September 29, 2000 and a manufacturer, who does not sell the final product and simply adds the same to the stocks, is not liable to pay tax by virtue of section 5 (1) (f) of the Entry Tax Act. 127. S/shri B. K. Jhingan, Mohan Jain, Parag Tripathi, Rajesh Bindal, Nikhil Nayyar, Rajiv Bhalla, Sanjiv Goel, S. K. Sarwal, Rakesh Aggarwal, S. K. Sud, Vikas Suri, D. S. Dhankar, Manish Jain, Rajiv Agnihotri and Hemant Kumar adopted the arguments of S/shri Shanti Bhushan, A. K. Ganguly and Dr. A. M. Singhvi. 128. Shri P. P. Rao, Senior Advocate for the State and the learned Advocate-General, Haryana, referred to entry 52 of List II of the Seventh Schedule, sections 2 (5), (9), (12), (13) and (29), 3 and 5 of the Entry Tax Act and argued that the State Legislature is competent to levy such tax because the incidence of tax is on the entry of goods into a local area for consumption or use therein and not a tax on the import of goods from outside India or on manufacture of other products and export thereof either by way of branch transfer or otherwise. Shri Rao further argued that under entry 52, the State is not obliged to enact law for levy of entry tax only on those goods which are brought for use, consumption and sale and it is within the power of the State to make law for levy of such tax on goods brought for all purposes or one or more of them. He then argued that article 286 and entries 41, 83, 92-A and 92-B do not have any bearing on the determination of constitutionality of the impugned legislation because they deal with altogether different subjects. He then argued that article 286 and entries 41, 83, 92-A and 92-B do not have any bearing on the determination of constitutionality of the impugned legislation because they deal with altogether different subjects. He also countered the argument of the learned counsel for the petitioners that the impugned entry tax is, in reality, a tax on sale of goods effected by branch transfer or export out of the State of Haryana. With regard to the averments contained in the written statement, Shri Rao argued that the same cannot be relied upon for determining the constitutionality of the impugned legislation. 129. The learned Advocate-General, Haryana, pointed out that the document described as Statement of Objects and Reasons was never circulated by the Government, but it is merely a draft prepared by the department and, therefore, the same cannot be made basis for deciding the constitutionality of the impugned legislation. 130. At this stage, we may mention that even though in their pleadings, the parties have referred to the provisions of the Ordinance and in the earlier part of this order, we have also referred to those provisions, the challenge to the constitutionality of the Ordinance has become academic because the same stands repealed by section 29 (1) read with section 1 (3) of the Entry Tax Act. Therefore, in the later part of the order, we shall, while dealing with the constitutionality of the impugned legislation, make reference only to the Entry Tax Act and will advert to the Ordinance only when it is considered imperative to do so. 131. The doctrine of colourable legislation and competence of the Legislature to pass a particular law are the two facets of the same ground of challenge. The scheme of our Constitution envisages distribution of legislative powers between the Parliament and the Legislatures of the States. The Parliament can enact laws on the subjects enumerated in List I. The Legislatures of the States can enact laws on the subject enumerated in List II and both the Legislatures can enact laws on the subjects enumerated in List III subject to the constitutional limitations contained in Part IX. When a particular piece of legislation is challenged on the ground that the Legislature did not have the competence to enact the same, the court can make an enquiry whether the Legislature has, in the particular case, transgressed the limits of its constitutional powers. When a particular piece of legislation is challenged on the ground that the Legislature did not have the competence to enact the same, the court can make an enquiry whether the Legislature has, in the particular case, transgressed the limits of its constitutional powers. Such transgression may be patent or direct. It may also be disguised, covert or indirect and if the court comes to the conclusion that even though the particular legislation appears to have been enacted by the Legislature within the sphere allocated to it but has, in fact, transgressed the limits of its constitutional powers, the legislation is called colourable legislation. 132 In K. C. Gajapati Narayan Deo V/s. State of Orissa AIR 1953 SC 375, a Constitution Bench of the Supreme Court considered the constitutional validity of the Orissa Estates Abolition Act, 1952. One of the grounds on which the impugned legislation was challenged was that the State Legislature did not have the competence to do so and that it was a colourable piece of legislation. While dealing with the doctrine of colourable legislation, their Lordships of the Supreme Court referred to the judgments in Attorney-General for Ontario V/s. Reciprocal Insurers [1924] AC 328, Attorney-General for Alberta V/s. Attorney-General for Canada [1939] AC 117 and In re : The Insurance Act of Canada [1932] AC 41 and observed as under : 133. " It may be made clear at the outset that the doctrine of colourable legislation does not involve any question of bona fides or mala fides on the part of the Legislature. The whole doctrine resolves itself into the question of competency of a particular Legislature to enact a particular law. If the Legislature is competent to pass a particular law, the motives which impelled it to act are really irrelevant. On the other hand, if the Legislature lacks competency, the question of motive does not arise at all. Whether a statute is constitutional or not is thus always a question of power - vide Cooleys Constitutional Limitations, Vol.1, P.379. A distinction, however, exists between a Legislature which is legally omnipotent like the British Parliament and the laws promulgated by which could not be challenged on the ground of incompetency, and a Legislature which enjoys only a limited or a qualified jurisdiction. 134. A distinction, however, exists between a Legislature which is legally omnipotent like the British Parliament and the laws promulgated by which could not be challenged on the ground of incompetency, and a Legislature which enjoys only a limited or a qualified jurisdiction. 134. If the Constitution of a State distributes the legislative powers amongst different bodies, which have to act within their respective spheres marked out by specific legislative entries, or if there are limitations on the legislative authority in the shape of fundamental rights, questions do arise as to whether the Legislature in a particular case has or has not, in respect to the subject-matter of the statute or in the method of enacting it, transgressed the limits of its constitutional powers. Such transgression may be patent, manifest or direct, but it may also be disguised, covert and indirect and it is to this latter class of cases that the expression colourable legislation has been applied in certain judicial pronouncements. The idea conveyed by the expression is that although apparently a Legislature in passing a statute purported to act within the limits of its powers, yet in substance and in reality it transgressed these powers, the transgression being veiled by what appears, on proper examination, to be a mere pretence or disguise. As was said by Duff, J. in Attorney-General for Ontario V/s. Reciprocal Insurers [1924] AC 328 at p.337 (B) : 135. where the law-making authority is of a limited or qualified character it may be necessary to examine with some strictness the substance of the legislation for the purpose of determining what is that the Legislature is really doing. 136. In other words, it is the substance of the Act that is material and not merely the form or outward appearance, and if the subject-matter in substance is something which is beyond the powers of that Legislature to legislate upon, the form in which the law is clothed would not save it from condemnation. The Legislature cannot violate the constitutional prohibitions by employing an indirect method. The Legislature cannot violate the constitutional prohibitions by employing an indirect method. In cases like these, the enquiry must always be as to the true nature and character of the challenged legislation and it is the result of such investigation and not the form alone that will determine as to whether or not it relates to a subject which is within the power of the legislative authority - vide 1924 AC 328 at p.337 (B) (Attorney-General for Ontario V/s. Reciprocal Insurers ). For the purpose of this investigation the court could certainly examine the effect of the legislation and take into consideration its object, purpose or design - vide Attorney-General for Alberta V/s. Attorney-General for Canada [1939] AC 117 at page 130 (C ). But these are only relevant for the purpose of ascertaining the true character and substance of the enactment and the class of subjects of legislation to which it really belongs and not for finding out the motives which induced the Legislature to exercise its powers. 137. It is said by Lefroy in his well-known work on Canadian Constitution that even if the Legislature avow on the face of an Act that it intends thereby to legislate in reference to a subject over which it has no jurisdiction, yet if the enacting clauses of the Act bring the legislation within its powers, the Act cannot be considered ultra vires - See Lefroy on Canadian Constitution, page 75 : 138. . . . . . . . . . . . . 139. On the other hand, In re : Insurance Act of Canada [1932] AC 41 (F), the Privy Council had to deal with the constitutionality of sections 11 and 12 of the Insurance Act of Canada passed by the Dominion Parliament under which, it was declared to be unlawful for any Canadian company or an alien, whether a natural person or a foreign company to carry on insurance business except under a licence from the Minister, granted pursuant to the provisions of the Act. The question was whether a foreign or British insurer licensed under the Quebec Insurance Act was entitled to carry on business within that Province without taking out a licence under the Dominion Act It was held that sections 11 and 12 of the Canadian Insurance Act, which required the foreign insurers to be licensed, were ultra vires, since in the guise of quite or legislation as to aliens and immigration - matters admittedly within the Dominion authority - the Dominion Legislature was seeking to inter meddle with the conduct of insurance business which was a subject exclusively within the provincial authority. The whole law on this point was thus summed up by Lord Maugham in Attorney-General for Alberta V/s. Attorney-General for Canada [1939] AC 117 at page 130 (C) : 140. it is not competent either for the Dominion or a Province under the guise, or the pretence, or in the form of an exercise of its own powers to carry out an object which is beyond its powers and a trespass on the exclusive power of the other. " 141. In Federation of Hotel and Restaurant Association of India V/s. Union of India [1989] 74 STC 102 (SC); AIR 1990 SC 1637, another Constitution Bench stated the doctrine of colourable legislation in the following words : 142. " The constitutionality of the law becomes essentially a question of power which, in a federal constitution, unlike a legally omnipotent Legislature like the British Parliament, turns upon the construction of the entries in the legislative Lists. If a legislature with limited or qualified jurisdiction transgresses its powers, such transgression may be open, direct and overt, or disguised, indirect and covert. The latter kind of trespass is figuratively referred to as colourable legislation, connoting that although apparently the Legislature purports to act within the limits of its own powers yet, in substance and in reality, it encroaches upon a field prohibited to it, requiring an examination, with some strictness, the substance of the legislation for the purpose of determining what is that the Legislature was really doing. Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each Legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result the two provisions must be read together, and the language of one interpreted, and, where necessary modified by that of the other. 143. The law with respect to a subject might incidentally affect another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. 144. It is trite that the true nature and character of the legislation must be determined with reference to a question of the power of the Legislature. The consequences and effects of the legislation are not the same thing as the legislative subject-matter. It is the true nature and character of the legislation and not its ultimate economic results that matters. " 145. We may now advert to the substantive part of the arguments of the learned counsel that the impugned legislation is beyond the legislative competence of the State. Article 286 (1) declares that the law made by the State shall not impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place outside the State or in the course of the import of goods into, or export of the goods out of the territory of India. Article 286 (2) empowers the Parliament to enact law to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1 ). Article 286 (2) empowers the Parliament to enact law to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1 ). Article 286 (3) lays down that any law of a State in so far as it authorises imposition of tax on sale or purchase of goods declared by the Parliament by law to be of special importance in inter-State trade or commerce or a tax on the sale or purchase of goods being a tax referred to in article 366 (29a), (b), (c) and (d) shall be subject to such restrictions and conditions as the Parliament may by law specify. 146. Entries 41, 83, 92-A and 92-B of List I and entry 52 of List II of the Seventh Schedule to which reference has been made by the learned counsel for the parties, are as under : 147. Entries 41, 83, 92-A and 92-B of List I : 148. 41. Trade and commerce with foreign countries; import and export across customs frontiers; definition of customs frontiers. 149. Import : Import does not include sale or possession of the imported goods. 150. 83. Duties of customs including export duties. 151. Customs : A duty of customs being a tax on the act of importation or exportation, cannot be regarded as a tax on property. 152. 92-A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. 153. 92-B. Taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce. 154. Entry 52, List II of the Constitution : 155. 52. Taxes on the entry of goods into a local area for consumption, use or sale therein. " 156. A bare reading of entry 41 of List I shows that it deals with trade and commerce with foreign countries : import and export across customs frontiers and has nothing to do with levy of tax on the entry of goods into the State. Therefore, it has no bearing on the determination of issue raised in these petitions. Entry 83 of List I refers to the duties of customs including export duties. Therefore, it has no bearing on the determination of issue raised in these petitions. Entry 83 of List I refers to the duties of customs including export duties. The taxable event in the case of customs duty takes place when the goods are imported within the custom barriers. In the case of export duty, the taxable event takes place when the goods are exported outside the custom barriers. Entry 92a of List I provides for levy of tax on the sale or purchase of goods other than newspaper where such sale or purchase takes place in the course of inter-State trade or commerce and entry 92-B relates to tax on consignment of goods where such consignment takes place in the course of inter-State trade or commerce. Entry 52 of List II empowers the Legislatures of the States to enact law for levy of tax on the entry of goods into a local area for consumption, use or sale therein. In our opinion, neither of the above-mentioned entries of List I can be relied upon for declaring the impugned legislation as beyond the legislative competence of the State because it directly falls within the ambit of entry 52 of List II. The impugned legislation does not provide for levy of customs duty on import of goods from out of the country or excise duty on the export of goods outside the country. It also does not provide for levy of tax on sale or purchase of goods in the course of inter-State trade. Under section 3 of the Entry Tax Act, the incidence of tax is on the entry of goods into a local area for consumption or use therein and not on the goods manufactured by the petitioners which may be exported out of Haryana by way of branch transfer or in the course of inter-State trade. In other words, the impugned legislation is concerned with the levy of tax on the entry of goods into a local area and it has no concern with the end-product which may be yielded after use or consumption of such goods. The tax in question has nothing to do with the transfer of product after its manufacturing by the petitioners either by way of consignment or as a branch transfer. 157. The tax in question has nothing to do with the transfer of product after its manufacturing by the petitioners either by way of consignment or as a branch transfer. 157. Equally meritless is the argument of the counsel for the petitioners that the entry tax is in substance a tax on sale of goods effected by branch/consignment transfers or in the course of inter-State trade and commerce. Learned counsel laid considerable emphasis on the fact that except the manufacturers all others have been exempted from payment of entry tax and this should be treated as conclusive of the real nature of the tax sought to be imposed by the impugned legislation. On a casual reading of the provisions of the Ordinance and the Entry Tax Act, one may get an impression that only certain manufacturers are being subjected to entry tax, but a careful examination of the entire scheme of the Entry Tax Act leads to an irresistible inference that it is not a tax on manufacturers who export goods out of Haryana by branch/consignment transfers or in the course of inter-State trade. 158. The preamble of the Entry Tax Act shows that it was enacted to provide for levy and collection of tax on the import of goods into local areas of the State of Haryana for consumption or use therein and matters incidental thereto and connected therewith. As per section 2 (5) term, "brings goods into a local area" means causing the entry of goods into a local area by bringing them into a local area or causing the goods to be brought inside the local area from any place outside the local area. The "entry of goods into a local area" has been defined under section 2 (9) to mean taking or bring goods into a local area from any place outside the State or from any place inside any other local area in the State. "gross turnover" has been defined under section 2 (12 ). As per this definition, gross turnover used in relation to an importer with reference to a period of time means the sum of value of the goods which the importer brings or receives on the entry of such goods into a local area during the given period. The "importer" has been defined under section 2 (13 ). As per this definition, gross turnover used in relation to an importer with reference to a period of time means the sum of value of the goods which the importer brings or receives on the entry of such goods into a local area during the given period. The "importer" has been defined under section 2 (13 ). According to this definition, importer means any person who, in the course of business, whether on his own account or on account of a principal or any other person, brings any goods into or receives or is entitled to receive any goods on their entry into a local area and includes a casual importer. As per section 2 (14), local area means an area within the limits of a corporation established under the Haryana Municipal Corporation Act, 1994 or a municipality established under the Municipal Act or a Town Board or a Cantonment Board under the Cantonment Act, 1924 or a Zila Parishad established under the Haryana Panchayati Raj Act, 1994 or any other local authority constituted or continued under any law for the time being in force. As per section 2 (29), value of goods means the purchase value of such goods, i. e. , to say the purchase price at which an importer has purchased the goods inclusive of charges borne by him as cost of transportation, packing, forwarding, handling charges, commission, insurance, taxes, duties and the like or if such goods have not been purchased by him, the prevailing market price of such goods in the local area. Sec.3 (1) declares that there shall be levied and collected a tax on entry into a local area of all goods except those specified in Schedule "a", for consumption or use therein, at such rates not exceeding 4 per cent of the value of the goods. Sec.3 (2) lays down that the tax levied under sub-section (1) shall be paid by the importer. First proviso to section 3 (2) lays down that an importer shall not be liable to pay tax so long as the aggregate value of the taxable goods he brings into or receives on their entry into any local area does not exceed Rs.10 lacs in a year or such other sum as the State Government may, by notification, specify. First proviso to section 3 (2) lays down that an importer shall not be liable to pay tax so long as the aggregate value of the taxable goods he brings into or receives on their entry into any local area does not exceed Rs.10 lacs in a year or such other sum as the State Government may, by notification, specify. Second proviso lays down that an importer who has once become liable to pay tax shall continue to be so liable until the expiry of three consecutive years during each of which the aggregate value of any taxable goods he brings into or receives on their entry into any local area does not exceed the amount specified in the first proviso. From these provisions, it is clear that the incidence of this tax is on the entry of goods into a local area. Such entry into a local area may be from any place outside the State or from any place inside the State. The incidence of tax falls uniformly if the entry of goods in a local area is for consumption or use therein. No distinction for the purpose of incidence of tax has been made under the charging section 3 for the goods which enter into a local area from outside the State or from any place inside the State. 159. Sec.5 (1) provides for various deductions from gross turnover. Clause (a) of sub-section (1) of section 5 provides for deduction of the value of the goods specified in Schedule "a". Clause (b) provides for a deduction from gross turnover of the value of the goods which have, without use or consumption been delivered outside the local area. Thus, the goods which have not been used or consumed are outside the purview of charging section wherein the incidence of tax has been confined on the entry of such goods which have been used or consumed in the local area. Clause (c) provides for deduction of the value of goods which have been subjected to tax under the Entry Tax Act. Clause (d) excludes the element of sales tax which has been paid or has become payable to the State on the value of goods. Clause (e) provides for deduction of the plant, machinery, equipments and tools brought or received on lease. Clause (d) excludes the element of sales tax which has been paid or has become payable to the State on the value of goods. Clause (e) provides for deduction of the plant, machinery, equipments and tools brought or received on lease. Clause (f) provides for deduction from the gross turnover the value of the goods left in the stock. Clause (g) provides for deduction of the value of such other goods as may be prescribed. Sub-section (2) of section 5 lays down that the deductions claimed under sub-section (1) shall be subject to production of appropriate proof as in such form and in such manner as may be prescribed. The sum total of the deductions contemplated by various clauses of section 5 (1) is that there will be no double taxation; the element of sales tax would be excluded and there will be no tax on the goods which are delivered outside the local area without use or consumption. Likewise, the value of plant, machinery, equipments and tools brought or received on lease and the value of the goods left in the stock will be deducted from the turnover liable to tax. Sec.11 (1) empowers the State to exempt or reduce the tax payable by any class of importers if, in its opinion, it is necessary so to do. However, there is nothing in the scheme of sections 3, 5 and 11 from which it can be inferred that charging section, i. e. , section 3 which provides for levy of tax on entry of goods into a local area is controlled by sections 5 and 11. The incidence of tax is on the entry of goods into an area for particular purpose and not a tax on the goods. Therefore, the deduction, reduction or exemption contemplated by other provisions cannot determine the true nature of the levy. As far as the deductions contemplated by section 5 (1) are concerned, they are uniformly applicable to all importers including those who may use the goods for manufacture of other products which are ultimately sold out of Haryana in the course of inter-State trade or by branch transfer. Likewise, the benefit of exemption or reduction in tax contemplated in the notification issued by the Government under section 11 (1) is available to all those who belong to the particular class of importers. 160. Likewise, the benefit of exemption or reduction in tax contemplated in the notification issued by the Government under section 11 (1) is available to all those who belong to the particular class of importers. 160. In our opinion, the mere fact that a large number of importers are not liable to pay entry tax because the aggregate value of the taxable goods brought by them into or received on their entry into local area does not exceed Rs.10 lacs in a year or they are entitled to the benefit of deduction specified in section 5 (1) or exemption/reduction in terms of notification issued under section 11 of the Act and the fact that the petitioners, who are importing bulk goods are liable to pay tax under the Entry Tax Act, cannot lead to an inference that the entry tax is, in reality and substance, a tax on sale and purchase of goods in the course of inter-State trade or branch/consignment transfers or export out of India and, therefore, the impugned legislation is beyond the legislative competence of the State or is a colourable piece of legislation. 161. We are further of the view that the averments made in the written statement and the Statement of Objects and Reasons contained in the Bill which is said to have been prepared by the department cannot be made basis for declaring the impugned legislation as a colourable piece of legislation or beyond the legislative competence of the State. What has been incorporated in the written statement does not necessarily reflect the true intention of the Legislature which the court has to find out by reading the statute as a whole and on a conjoint reading of the preamble and various provisions of the Entry Tax Act, we are convinced and as will be seen hereinafter, that the impugned levy is only on the entry of goods into a local area in the State and not a tax on manufacturers who import raw material in the State of Haryana and sell the finished products by branch transfer or on consignment basis or by way of export. In this context, we may refer to the following observations made by the Supreme Court in Sanjeev Coke Manufacturing Co. In this context, we may refer to the following observations made by the Supreme Court in Sanjeev Coke Manufacturing Co. V/s. Bharat Coking Coal Ltd. AIR 1983 SC 239 : 162 " Once a statute leaves Parliament House, the courts is the only authentic voice which may echo (interpret) the Parliament. This the court will do with reference to the language of the statute and other permissible aids. The executive Government may place before the court their understanding of what Parliament has said or intended to say or what they think was Parliaments object and all the facts and circumstances which in their view led to the legislation. When they do so, they do not speak for Parliament. No Act of Parliament may be struck down because of the understanding or misunderstanding of Parliamentary intention by the executive Government or because their (the Governments) spokesmen do not bring out relevant circumstances but indulge in empty and self-defeating affidavits. They do not and they cannot bind Parliament. Validity of legislation is not to be judged merely by affidavits filed on behalf of the State, but by all the relevant circumstances which the court may ultimately find and more especially by what may be gathered from what the Legislature has itself said. " 163 The argument of Shri Shanti Bhushan that the Entry Tax Act should be declared unconstitutional because entry 52 of List II empowers the State Legislature to enact law for levy of tax on entry of goods for use, consumption or sale and not merely on use or consumption therein deserves to be rejected because it is well-settled that the Legislature has wide discretion in selecting the transactions, goods and persons who may be subjected to tax and it is always not necessary to tax everything. The use of the word "or" in entry 52 gives choice to the Legislature to levy entry tax only on goods which enter a local area for consumption alone or for consumption or use therein or for consumption, use or sale therein and, therefore, the Entry Tax Act cannot be dubbed as unconstitutional merely because it leaves out sale from its purview. In this connection, we may refer to the decision of the Supreme Court in Sri Krishna Das V/s. Town Area Committee, Chirgaon [1990] 77 STC 395. In this connection, we may refer to the decision of the Supreme Court in Sri Krishna Das V/s. Town Area Committee, Chirgaon [1990] 77 STC 395. In that case, the appellant had challenged the validity of the bye-laws promulgated under the United Provinces Town Areas Act, 1914. One of the grounds of challenge was that the tax is discriminatory, inasmuch as, exemption was granted to some of the products and to those who entered the Town Area Committee by rail or motor transport. While rejecting the said grounds, the Supreme Court laid down the following principles : 164 " It is for the Legislature or the taxing authority to determine the question of need, the policy and to select the goods or services for taxation. Courts cannot review the wisdom or advisability or expediency of a tax as the court has no concern with the policy of legislation, so long as they are not inconsistent with the provisions of the Constitution. It is only where there is abuse of its powers and transgression of the legislative function in levying a tax, it may be corrected by the judiciary and not otherwise. Taxes may be and often are oppressive, unjust and even unnecessary but this can constitute no reason for judicial interference. When taxes are levied on certain articles or services and not on others, it cannot be said to be discriminatory. " 165 Before parting with this question, we may refer to the two judgments relied upon by Shri Ganguly. 166 In Buxa Dooars Tea Company Ltd. V/s. State of West Bengal [1989] 74 STC 447; (1989) 3 SCC 211, a two-Judge Bench of the Supreme Court had considered the constitutionality of the West Bengal Rural Employment and Production Act, 1976 in the context of challenge that it was ultra vires to articles 301 and 304 of the Constitution and was beyond the legislative competence of the State. On the second aspect their Lordships of the Supreme Court held as under : 167 " For determining the true nature of the legislation, whether it is a legislation in respect of tea estates, and therefore of land, or in respect of despatches of tea, all the relevant provisions of the legislation have to be taken into account and the essential substance of its has to be ascertained. 168 The subject of the levy, the nature of which defines the quality of the levy, must not be confused with the measure of liability, that is to say, the quantum of the tax. The standards laid down for measuring the liability under the levy must bear a relationship to the nature of the levy. The nexus between the subject of the levy and the measure of the levy extends into different directions. Variations considered appropriate for the purpose of determining the measure must correspond to variations in the subject of the levy. If the measure of the levy is to vary with the despatches of different classes of tea there must be something in the class of tea concerned which points to a reason located in the particular tea estate or classes of; tea estates which are made the subject of the levy. So also if the measure varies with the centre of sale of tea, the variation must relate to a reason to be found in the nature of the tea estate or classes of tea estates. In other words, there must be a reason why one class of tea is treated differently from another class of tea when deciding upon the rate to be applied to different classes of tea and that reason must be found in the nature of the tea estate concerned. Ultimately the benefit of exemption or reduced levy must be related to the need for exempting the tea estate from that levy or relieving it from part of the normal levy. 169 In the present case the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and throughout the nexus is confined to despatches of tea rather than related to the tea estate. There is also no relationship or nexus between the tea estate and the varied treatment of accorded in respect of despatches of different kinds of tea. Thus, having regard to all the relevant provisions of the statute, including section 4 (2) (aa) and section 4 (4), in substance the impugned levy is a levy in respect of despatches of tea and not in respect of tea estates. 170 The Bill or the amendments to the West Bengal Act in 1981 and 1982 had not been introduced or moved in the Legislature of the State with the previous sanction of the President. 170 The Bill or the amendments to the West Bengal Act in 1981 and 1982 had not been introduced or moved in the Legislature of the State with the previous sanction of the President. Therefore, the legislation does not fall within the saving provisions of article 304 (b) and is hit by article 301. Thus, the impugned provisions brought into the West Bengal Act by the amendments in 1981 and 1982 so far as they purport to relate to tea estates are unconstitutional and void and cannot be given effect to. 171 A legislation in respect of tea estates would be referable to entry 49 in List II of the Seventh Schedule. But the impugned legislation, which in substance one in respect of despatches of tea, will not fall under that entry. No other entry in List II or III of the Seventh Schedule had been shown which would be pertinent to the impugned legislation. Under section 25 of the Act a cess on tea produced in India has also been imposed. Therefore, the impugned legislation is also void for want of legislative competence as it pertains to a covered field. " 172 In State of Orissa V/s. Mahanadi Coalfields Ltd. (1995) 2 SCC 686, a three-Judge Bench of the Supreme Court declared Orissa Rural Employment, Education and Production Act, 1992 as ultra vires to the legislative power of the State by making the following observations : 173 " The combined effect of section 3 (1) of Orissa Act 36 of 1992 and the Orissa Cess Act of 1962, as amended by Act 10 of 1994, is that only mineral-bearing land and coal-bearing land will be subject to the levy of tax under Orissa Rural Employment, Education and Production Act, 1992 (Orissa Act 36 of 1992 ). Lands other than mineral-bearing lands and coal-bearing lands will fall outside the purview of the impugned Act since they are dealt with under the Orissa Cess Act, 1962. minerals, which are benefits arising out of land, will be roped in within the purview of the levy under section 3 (1) read with section 2 (c) of Orissa Act 36 of 1992. Thus levy of tax under Orissa Act 36 of 1992 is in substance on minerals and mineral right, which has nothing to do with surface characteristic of the land. The levy is not on land. 174 . . . . . . Thus levy of tax under Orissa Act 36 of 1992 is in substance on minerals and mineral right, which has nothing to do with surface characteristic of the land. The levy is not on land. 174 . . . . . . . . . 175 If the impugned Orissa Act 36 of 1992 falls either under List II, entry 50 or List II, entry 23, it is subject to the law made by Parliament relating to the regulation of mines and mineral development (List I, entry 54 ). Since exhaustive provisions as also the Parliamentary declaration, contemplated by List I, entry 54, have been made in the Mines and Minerals (Regulation and Development) Act, 1957, regarding all kinds of taxation on minerals and mineral rights - tax, royalty, fee, dead rent, etc. The State Legislature is denuded or deprived of the power to enact any law or to impose any tax or other levy with reference to List II, entry 23 or List II, entry 50. The levy of tax on mineral-bearing lands and coal-bearing lands under section 3 read with section 2 (a) (1) and section 2 (d) of the Act is therefore, beyond the competence of the State Legislature and is ultra vires. " 176 The propositions laid down in the aforementioned decisions are unexceptionable, but in view of the conclusion we have reached about the true nature of the impugned levy, we have no hesitation to hold that the impugned legislation cannot be declared unconstitutional on the ground of lack of legislative competence. 177 Re : Question No. (ii) : 178 The second question can also be divided into the following two parts : 179 (i) Whether the Entry Tax Act is unconstitutional being violative of articles 301 and 304 of the Constitution 180 (ii) Whether the impugned legislation is violative of articles 14 and 19 (1) (a) and (g) of the Constitution 181 Shri Shanti Bhushan argued that the levy of entry tax under section 3 of the Entry Tax Act constitutes a restriction on the free-flow of trade and commerce and intercourse throughout the territory of India and is thus, violative of article 301 of the Constitution. He submitted that levy of 4 per cent entry tax as compared to the octroi leviable at the rate of 0.08 per cent is a clear deterrent to the free-flow of trade and commerce throughout the territory of India. He then argued that the impugned tax discriminates against the goods imported from outside the State because no such tax is imposed on the similar goods manufactured within the State of Haryana and, therefore, the same is violative of article 304 (a) of the Constitution. In support of this argument, Shri Shanti Bhushan relied on the decisions of the Supreme Court in Firm A. T. B. Mehtab Majid and Co. V/s. State of Madras [1963] 14 STC 355, Andhra Steel Corporation V/s. Commissioner of Commercial Taxes [1990] 78 STC 243; (1990) Supp SCC 617, Shree Mahavir Oil Mills V/s. State of Jammu and Kashmir [1997] 104 STC 148, Anand Commercial Agencies V/s. Commercial Tax Officer VI, Hyderabad [1997] 107 STC 586 and State of U. P. V/s. Laxmi Paper Mart [1997] 105 STC 1; (1997) 2 SCC 697. Shri Shanti Bhushan then referred to rule 9 (1) (b) of the 2000 Rules and section 5 (1) (d) of the Entry Tax Act and argued that the same are per se discriminatory because they exempt the goods on which sales tax has been paid or has become payable to the State, whereas similar goods imported from outside the State are subjected to tax at the rate of 4 per cent. He also referred to the plea of the respondents that the impugned tax is compensatory in nature and argued that even if the tax is held to be compensatory, it is liable to be struck down being violative of articles 301 and 304 (a) of the Constitution. 182 Shri A. K. Ganguly laid emphasis on the opening words of article 245 of the Constitution and argued that the legislative power of the State to make laws under article 246 read with various entries of List II of the Seventh Schedule is subject to other provisions including Part XIII of the Constitution and, therefore, the constitutionality of the Entry Tax Act is liable to be tested on the touch-stone of articles 301 and 304 (a) of the Constitution. Shri Ganguly pointed out that Part-XIII was engrafted in the Constitution with the object of securing economic unity of the country as a whole and, therefore, the States power to impose tax and duties on goods would be subject to the limitations enshrined in that Part. He relied on the decisions of the Supreme Court in Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809 and Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491 and argued that the impugned levy should be declared unconstitutional because it directly and immediately restricts and impedes the free flow of movement of goods which are in the nature of raw material and which petitioner-Sony India Ltd. (C. W. P. No.8700 of 2000) is compelled to import from outside the State of Haryana and also from outside India to enable it to manufacture colour TV sets and other audio visual products, like video cameras, computer monitors, etc. Shri Ganguly also referred to the plea of the respondents that the tax in question is compensatory in nature and argued that the bald assertion made in the written statement and section 22 of the Entry Tax Act cannot be taken as decisive of the compensatory nature of the tax. Learned counsel submitted that a tax can be treated as compensatory only if it is used for providing trading facilities to those who bear the burden of tax, but in the present case, no such facilities are provided. He further submitted that development of a local area is the general responsibility of the concerned local bodies and the State Government for which the latter can raise general revenue by exercising its taxing power under the Constitution subject to the condition that such tax must meet the test of article 301, i. e. , it must not impede the free-flow of trade and commerce within the meaning of Part XIII of the Constitution. According to the learned counsel, the entry tax can be treated as a compensatory tax only if it is relatable in some measure to the trading facilities provided to those who bear the burden of tax and submitted that in the cases in hand, there is a total absence of such nexus. 183 Dr. According to the learned counsel, the entry tax can be treated as a compensatory tax only if it is relatable in some measure to the trading facilities provided to those who bear the burden of tax and submitted that in the cases in hand, there is a total absence of such nexus. 183 Dr. A. M. Singhvi reiterated the argument that the impugned tax discriminates between the imported goods and the local goods and, therefore, it is violative of article 304 (a) of the Constitution. He pointed out that the raw materials imported into the State of Haryana from other States are subject to entry tax making the final products sold outside the State of Haryana more expensive as compared to the final products manufactured from the raw material purchased locally and sold outside the State of Haryana. He submitted that this gives preference to the Haryana goods made from the raw material purchased from within the State as against the goods made from the raw material imported from outside the State of Haryana. Similarly, the impugned Act gives preference to the goods which have been totally exempted from sales tax under the 1973 Act as against the goods which are imported from outside the State subject to payment of entry tax. Another example cited by Dr. Singhvi relates to final goods brought into the State of Haryana after paying entry tax and use within the State as compared to the same goods purchased locally. Dr. Singhvi relied on the decisions in Indian Cement V/s. State of Andhra Pradesh [1988] 69 STC 305; AIR 1988 SC 567 (SC), Devans Modern Breweries Ltd. V/s. State of Punjab [1997] 107 STC 536 (P&h) and Weston Electroniks V/s. State of Gujarat [1988] 70 STC 52; AIR 1988 SC 2038. He further argued that the impugned tax cannot be treated as compensatory because, - 184 (a) no special/extra facilities are provided to persons liable to pay entry tax; and 185 (b) all except those manufacturers, who import raw material and convert it into final products and then export the same out of Haryana by way of branch transfer or on consignment basis, have been exempted from levy of entry tax and all persons having turnover of less than Rs.10 lacs have been exempted from levy of such tax. 186 Dr. 186 Dr. Singhvi also laid emphasis on the absence of material in the counter-affidavit to support the compensatory nature of the tax and submitted that the court should not accept the bald assertion made in the written statement. In this respect, he cited the decisions of the Supreme Court in G. K. Krishnan V/s. State of Tamil Nadu AIR 1975 SC 583 and State of Assam V/s. Labanya Probha Devi AIR 1967 SC 1575 (SC ). 187 On the other hand, Shri P. P. Rao and the learned Advocate-General, Haryana, laid emphasis on the fact that the entry tax is compensatory in nature. They heavily relied on the provisions contained in Parts IX and IX-A of the Constitution and section 22 of the Entry Tax Act and submitted that the entire amount of entry tax would be distributed among the local bodies to be utilised for development of local areas. Shri Rao relied on the decisions of the Supreme Court in Video Electronics Put. Ltd. V/s. State of Punjab [1990] 77 STC 82 and argued that the impugned levy would not affect the free-flow of movement of goods from one part of the country to the other within the meaning of article 301 of the Constitution. He then submitted that it is within the legislative competence of the State to impose tax on all goods and thereafter, grant deduction/rebate/exemption in some cases and this cannot be treated as discriminatory. Shri Rao also relied on the judgment of the Constitution Bench in Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491 and argued that the regulatory and compensatory taxes do not come within the purview of article 301 and the same need not to comply with the requirement of article 304 (b) of the Constitution. He also referred to the judgments in Bhagatram Rajeev Kumar V/s. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654, State of Bihar V/s. Bihar Chambers of Commerce [1996] 103 STC 1 (SC), Suresh Chand Sri Gopal V/s. Union of India [1989] 72 STC 241 (AP), Sanjay Trading Co. V/s. Commissioner of Sales Tax [1994] 93 STC 589 (MP) and Godfrey Philips India Ltd. V/s. State of Rajasthan [2001] 121 STC 54 (Raj) and argued that the compensatory tax cannot be struck down on the ground of violation of articles 301 and 304 of the Constitution. V/s. Commissioner of Sales Tax [1994] 93 STC 589 (MP) and Godfrey Philips India Ltd. V/s. State of Rajasthan [2001] 121 STC 54 (Raj) and argued that the compensatory tax cannot be struck down on the ground of violation of articles 301 and 304 of the Constitution. In the end, Shri Rao argued that compensatory tax need not to satisfy the strict rule of quid pro quo and it is sufficient that there is some relation between the facilities provided and the tax imposed. 188 We have given serious thought to the respective arguments. Article 245 (1) declares that subject to the provisions of the Constitution, the Parliament may make laws for the whole or any part of the territory of India and the Legislature of a State may make laws for the whole or any part of the State. Article 246 deals with subject-matter of laws made by the Parliament and the Legislatures of the States. Clause (1) of article 246 declares that notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I of the Seventh Schedule. Clause (2) lays down that notwithstanding anything in clause (3), Parliament, and, subject to clause (1) the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III of the Seventh Schedule. Clause (3) declares that subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule. It is, thus, evident that the Legislature of a State has the exclusive power to make laws for the whole or any part of the territory of that State in respect of the matters enumerated in List II of the Seventh Schedule, but this power is subject to the other provisions of the Constitution. This means that the power of the Legislature to make laws is also subject to the provisions of Part XIII of the Constitution. Article 301, which is first in the family of articles dealing with trade, commerce and intercourse within the territory of India, lays down that subject to other provisions of this Part (Part XIII), trade, commerce and intercourse throughout the territory of India shall be free. Article 301, which is first in the family of articles dealing with trade, commerce and intercourse within the territory of India, lays down that subject to other provisions of this Part (Part XIII), trade, commerce and intercourse throughout the territory of India shall be free. Article 302 declares that the 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 India as may be required in public interest. Article 303 (1) contains a non obstante clause. It lays down that 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 the another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. Clause (2) of article 303 further lays down that nothing in clause (1) would prevent the Parliament from making any law giving or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. Article 304 also contains a non obstante clause. It lays down that notwithstanding anything in article 301 or article 303, the Legislature of a State may by law - (a) impose on 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; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest. 189 In Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809, a Constitution Bench of the Supreme Court considered the validity of the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act, 1954. 189 In Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809, a Constitution Bench of the Supreme Court considered the validity of the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act, 1954. Their Lordships of the Supreme Court referred to the provisions of the Government of India Act, 1935, and the Constitution and by a majority judgment struck down the impugned legislation on the ground that it violated article 301 of the Constitution. In all, three views were expressed by the Judges constituting the Bench. Chief Justice - B. P. Sinha expressed the view that taxation simpliciter was not within the terms of article 301, a tax on movement of goods or passengers and it did not necessarily connote impediment or restraint in the matter of trade and commerce. He drew a distinction between taxation as such for the purpose of revenue on the one hand and taxation for the purpose of making discrimination or giving preference on the other hand and recorded the following conclusion : 190 " 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 imposed by Parliament in public interest (article 302); (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 part of India [article 303 (2)]; (5) reasonable restrictions may be imposed by the Legislature of a State in the public interest [article 304 (b); (6) non-discriminatory taxes may be imposed by the Legislature of a State on goods imported from another State or other States, if similar taxes are imposed on goods produced or manufactured in that State [article 304 (a)]; and lastly (7) restrictions imposed by existing laws have been continued, except in so far as the President may by order otherwise direct (article 305 ). 191 The majority consisting of Gajendragadkar, Wanchoo and Das Gupta, JJ. did not agree with the Chief Justice and held as under : 192 " It is a federal 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 of 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. " 193 The third view was expressed by Shah, J. , who held that the freedom contemplated under article 301 was freedom of trade, commerce and intercourse in all their varied aspects inclusive of all activities which constitute commercial intercourse and not merely restrictions on the movement aspect and observed as under : 194 " The guarantee of freedom of trade and commerce is not addressed merely against prohibitions, complete or partial; it is addressed to tariffs, licensing, marketing regulations, price-control, nationalisation, economic or social planning, discriminatory tariffs, compulsory appropriation of goods, freezing or standstill orders and similar other impediments operating directly and immediately on the freedom of commercial intercourse as well. Every sequence in the series of operations which constitutes trade or commerce is an act of trade or commerce and burdens or impediments imposed on any such step are restrictions on the freedom of trade, commerce and intercourse. What is guaranteed is freedom in its widest amplitude-freedom from prohibition, control, burden or impediment in commercial intercourse. Every sequence in the series of operations which constitutes trade or commerce is an act of trade or commerce and burdens or impediments imposed on any such step are restrictions on the freedom of trade, commerce and intercourse. What is guaranteed is freedom in its widest amplitude-freedom from prohibition, control, burden or impediment in commercial intercourse. " 195 In Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491, a seven-Judge Bench of the Supreme Court considered the constitutional validity of the Rajasthan Motor Vehicles Taxation Act, 1951. Four of the Judges constituting the Bench disapproved the extreme views expressed by B. P. Sinha, C. J. and Shah, J. , in Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809. They also explained the majority view in the following words : 196 " If the word free in article 301 means freedom to do whatever one wants to do then chaos may be the result; for example, one owner of a motor vehicle may wish to drive on the left of the road, while another may wish to drive on the right of the road. If they come from opposite directions, there will be an inevitable clash. Another class of examples relates to making a charge for the use of trading facilities, such as, road, bridges, aerodromes, etc. The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to anybodys freedom so long as they remain reasonable; but they could of course be converted into a hindrance to the freedom of trade. If the authorities concerned really wanted to hamper anybodys trade, they could easily raise the amount of tax or toll to an amount which would be prohibitive or deterrent or create other impediments which instead of facilitating trade and commerce would hamper them. It is here that the contrast between freedom (article 301) and restrictions (articles 302 and 304) clearly appears : that which in reality facilitate trade and commerce is not a restriction and that which in reality hampers or burdens trade and commerce is a restriction. It is here that the contrast between freedom (article 301) and restrictions (articles 302 and 304) clearly appears : that which in reality facilitate trade and commerce is not a restriction and that which in reality hampers or burdens trade and commerce is a restriction. It is the reality or substance of the matter that has to be determined. It is not possible a priori to draw a dividing line between that which would really be a charge for a facility provided and that which would really be a deterrent to a trade but the distinction, if it has to be drawn, is real and clear. For the tax to become a prohibited tax it has to be a direct tax the effect of which is to hinder the movement part of trade. So long as a tax remains compensatory or regulatory it cannot operate as a hindrance. 197 . . . . . . . . . . . . 198 In our view the concept of freedom of trade, commerce and intercourse postulated by article 301 must be understood in the context of an orderly society and as part of a Constitution which envisages a distribution of powers between the States and the Union, and if so understood, the concept must recognise the need and the legitimacy of some degree of regulatory control, whether by the Union or the States; 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. 199 . . . . . . . . . . . . . . 200 We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co. case [1961] 1 SCR 809; AIR 1961 SC 232 is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304 (b) of the Constitution. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304 (b) of the Constitution. " 201 The court also rejected the argument that tax cannot be regarded as compensatory if the amount collected is not actually used for providing any facility and held 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. Their Lordships further observed that it would be impossible to judge the compensatory nature of a tax by a meticulous test. 202 The decisions of the Supreme Court in Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491 came up for consideration before a Constitution Bench in Khyerbari Tea Co. Ltd. V/s. State of Assam AIR 1964 SC 925. Speaking for the Bench, Gajendra Gadkar, J. (as his Lordship then was), referred to the majority and minority views in Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491 and observed as under : 203 " In the Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan case [1963] 1 SCR 491; AIR 1962 SC 1406 the majority view expressed by Das, J. , on behalf of himself and Kapur and Sarkar, JJ. , was that if a tax is compensatory in character, it cannot be said to fall within the mischief of article 301. According to this view, a clarificatory rider was added to the majority view expressed in the case of Atiabari Tea Co. Ltd. [1961] 1 SCR 809; AIR 1961 SC 232 by providing that regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the provisions of article 304 (b ). Ltd. [1961] 1 SCR 809; AIR 1961 SC 232 by providing that regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the provisions of article 304 (b ). 204 Subha Rao, J. , who delivered a separate judgment concurring with the conclusion reached by Das, J. , preferred to emphasise that taxing statutes which would escape the mischief of article 301 could be appropriately described as regulatory. He, therefore, held that the Rajasthan Motor Vehicles Taxation Act (No.11 of 1951) with which the Bench was dealing, was regulatory in character and as such, not unconstitutional. In other words, whereas Das, Kapur and Sarkar, JJ. , upheld the validity of the Act on the ground that it was either compensatory or regulatory, Subba Rao, J. , preferred to base his decision mainly on the ground that it was regulatory. 205 The minority view which has been expressed by Hidayatullah, J. , on behalf of himself and Ayyangar and Mudholkar, JJ. , assumed that though regulatory taxing statutes may be said to fall outside article 301, compensatory taxing statutes cannot make the same claim. According to this view, if a taxing statute was sought to be justified on the ground that the tax imposed by it was compensatory in character, that could be done only by adopting the procedure prescribed by article 304 (b ). It may be noticed that the scope of the regulatory statutes as discussed by Hidayatullah, J. , is much narrower than the scope of the regulatory statutes as considered by Subba Rao, J. 206 In the result, the majority view expressed in the case of the Atiabari Tea Co. Ltd. [1961] 1 SCR 809; AIR 1961 SC 232 was substantially accepted by the majority of the learned Judges constituting the larger Bench which heard Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan case [1963] 1 SCR 491; AIR 1962 SC 1406 but a corollary was added to the said view as we have just indicated. 207 The majority view in Atiabari Tea Co. 207 The majority view in Atiabari Tea Co. Ltd. case [1961] 1 SCR 809; AIR 1961 SC 232 proceeded on the basis that the Australian decisions which dealt with the scope and effect of section 92 of the Australian Constitution would be of no assistance in construing the effect of the provisions in Part XIII of our Constitution, because the legislative, historical and political background, the structure and the effect of the relevant provisions contained in Part XIII were in material particulars different from those of section 92 of the Australian Constitution; section 92 is absolute in terms and on its literal construction, admits of no exceptions. The Australian decisions, therefore, had to introduce distinctions, such as compensatory or regulatory tax laws in order to take laws answering the said description out of the purview of section 92. In our Constitution, however, though article 301 is worded substantially in the same way as section 92, articles 302 and 304 provide for reasonable restrictions being imposed on the freedom of trade subject to the requirements of the said two articles, and so the problem facing judicial decisions in Australia and in this country in regard to the freedom of trade and the restrictions which it may be permissible to impose on it, is not exactly the same. The minority view expressed by Hidayatullah, J. , has pointedly referred to this aspect of the matter. That, in brief, is the position of the two decisions of this Court in Atiabari Tea Co. Ltd. [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 cases respectively. 208 It would immediately be noticed that though the majority view in the Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan case [1963] 1 SCR 491; AIR 1962 SC 1406, substantially agreed with the majority decision in the case of Atiabari Tea Co. Ltd. [1961] 1 SCR 809; AIR 1961 SC 232, there would be a clear difference between the said two views in relation to the scope and effect of the provisions of article 304 (b ). According to the majority view in the case of Atiabari Tea Co. Ltd. [1961] 1 SCR 809; AIR 1961 SC 232, there would be a clear difference between the said two views in relation to the scope and effect of the provisions of article 304 (b ). According to the majority view in the case of Atiabari Tea Co. Ltd. [1961] 1 SCR 809; AIR 1961 SC 232 if an Act is passed under article 304 (b) and its validity is impeached, then the State may seek to justify the Act on the ground that the restrictions imposed by it are reasonable and in the public interest, and in doing so, it may for instance, rely on the fact that the taxes levied by the impugned Act are compensatory in character. On the other hand, according to the majority decision in the Automobile Transport (Rajasthan) Ltd. case [1963] 1 SCR 491; AIR 1962 SC 1406, compensatory taxation would be outside article 301 and cannot, therefore, fall under article 304 (b ). . . . . " 209 In Kalyani Stores V/s. State of Orissa [1966] 1 SCR 865; AIR 1966 SC 1686, a Constitution Bench of the Supreme Court struck down the notification issued by the State Government under the Bihar and Orissa Excise Act, 1915, for levy of countervailing duty on foreign liquor imported into the State by declaring it to be violative of articles 301 and 304 of the Constitution. The facts of that case were that the appellant, who was dealing in liquor at Rourkela in Orissa challenged the imposition of a duty of excise on foreign liquor imported into the State levied at first at Rs.40 per L. P. Gallon and from April 1, 1961 at Rs.70 under section 27 of the Bihar and Orissa Excise Act, 1915. The argument of the appellant was that the duty amounted to unreasonable restriction on the freedom of trade and commerce because foreign liquor is not manufactured in the State and as such, no duty of excise could be levied on the locally manufactured foreign liquor. By a majority of 4 : 1, their Lordships of the Supreme Court upheld the challenge and observed as under : 210 " The notification levying duty at the enhanced rate is purely a fiscal measure and cannot be said to be a reasonable restriction on the freedom of trade in the public interest. By a majority of 4 : 1, their Lordships of the Supreme Court upheld the challenge and observed as under : 210 " The notification levying duty at the enhanced rate is purely a fiscal measure and cannot be said to be a reasonable restriction on the freedom of trade in the public interest. Article 301 has declared freedom of trade, commerce and intercourse throughout the territory of India, and restriction on that freedom may only be justified if it falls within article 304. Reasonableness of the restriction would have to be adjudged in the light of the purpose for which the restriction is imposed, that is, as may be required in the public interest. Without entering upon an exhaustive categorization of what may be deemed required in the public interest, it may be said that restrictions which may validly be imposed under article 304 (b) are those which seek to protect public health, safety, morals and property within the territory. Exercise of the power under article 304 (a) can only be effective if the tax or duty imposed on goods imported from other States and the Tax or duty imposed on similar goods manufactured or produced in that State are such that there is no discrimination against imported goods. As no foreign liquor is produced or manufactured in the State of Orissa the power to legislate given by article 304 is not available and the restriction which is declared on the freedom of trade, commerce or intercourse by article 304 of the Constitution remains unfettered. " 211 The same issue was again considered by the Supreme Court in State of Kerala V/s. A. B. Abdul Kadir AIR 1970 SC 1912. The facts of that case were that the respondents who were dealers in tobacco and tobacco preparation challenged the levy of fee. The High Court dismissed the writ petition but, on appeal, the Supreme Court held that the rules framed for levy of fee were invalid. Thereafter, the Government of Kerala promulgated the Kerala Luxury Tax on Tobacco (Validation) Ordinance No.1 of 1963 which was later replaced by Act No.9 of 1964. The amended Act was challenged on the ground that it was violative of articles 301 and 304 of the Constitution. Thereafter, the Government of Kerala promulgated the Kerala Luxury Tax on Tobacco (Validation) Ordinance No.1 of 1963 which was later replaced by Act No.9 of 1964. The amended Act was challenged on the ground that it was violative of articles 301 and 304 of the Constitution. The High Court applied the ratio of Kalyani Stores V/s. State of Orissa [1966] 1 SCR 865; AIR 1966 SC 1686 and held that the impugned legislation was ultra vires to article 304 (a) of the Constitution. The Supreme Court reversed the judgment of the High Court and explained the judgment of Kalyani Stores V/s. State of Orissa [1966] 1 SCR 865; AIR 1966 SC 1686 in the following words : 212 " The decision was based on the assumption that the notification dated March 31, 1961 enhancing duty on foreign liquor infringed the guarantee under article 301 and may be saved if it fell within the exceptions contained in article 304 of the Constitution. The court did not intend to lay down the proposition that the imposition of a duty or tax in every case would be tantamount per se to an infringement of article 301. As we have already pointed out it is well-established by numerous authorities of this Court that only such restrictions or impediments which directly or immediately impede the free-flow of trade, commerce and intercourse fall within the prohibition imposed by article 301. A tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so. Every case must be judged on its own facts and in its own setting of time and circumstance. In the present case, the High Court has not gone into the question whether the provisions of Act 9 of 1964 and the notification dated January 25, 1951 issued under the Cochin Tobacco Act constitute such restrictions or impediments as directly and immediately hamper free-flow of trade, commerce and intercourse and, therefore, fall within the prohibition imposed under article 301 of the Constitution. Unless the High Court first comes to the finding on the available material whether or not there is infringement of the guarantee under article 301 of the Constitution, the further question as to whether the statute is saved under article 304 (b) does not arise and the principle laid down by this Court in Kalyani Stores case [1966] 1 SCR 865; AIR 1966 SC 1686 cannot be invoked. " 213 In G. K. Krishnan V/s. State of Tamil Nadu AIR 1975 SC 583, the Supreme Court considered the challenge to the Madras Motor Vehicles Taxation Act, 1931 on the ground of violation of articles 14, 19 (1) (g), 301 and 304 of the Constitution. Their Lordships referred to the majority judgment in Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232, which had propounded the direct and immediate restriction test for judging the constitutionality of the taxing statutes in the context of article 301 and proceeded to observe as under : 214 " The direct and immediate restriction test had great adverse effect upon the financial autonomy of States. For instance, a law passed by a State Legislature under entry 56 in List II, namely taxes on goods and passengers carried by road or on inland waterways would be a restriction which is immediate and direct on the movement part of trade and commerce and would be bad. This means that entry 56 in List II is rendered otiose. 215 In view of the grave impact of this judgment, when appeals from Rajasthan High Court came up for consideration in Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 (hereinafter referred to as the automobile case), a larger Bench was constituted and that Bench considered the question once again. The appellants in that case impugned the Rajasthan Motor Vehicles Taxation Act, 1951, inter alia, as violating article 301. The High Court dismissed the petitions and this Court, by a majority of 4 to 3 held that the Act was valid and dismissed the appeals. The case practically overruled the decision in Atiabari Tea Co. The appellants in that case impugned the Rajasthan Motor Vehicles Taxation Act, 1951, inter alia, as violating article 301. The High Court dismissed the petitions and this Court, by a majority of 4 to 3 held that the Act was valid and dismissed the appeals. The case practically overruled the decision in Atiabari Tea Co. Ltd. case [1961] 1 SCR 809; AIR 1961 SC 232, in so far as it held that if a State Legislature wanted to impose tax to raise moneys necessary in order to maintain roads, that could only be done after obtaining the sanction of the President as provided in article 304 (b ). In Khyerbari Tea Co. Ltd. V/s. State of Assam [1964] 5 SCR 975; AIR 1964 SC 925 it was said that the decision in Atiabari case [1961] 1 SCR 809; AIR 1961 SC 232 was affirmed in Automobile case [1963] 1 SCR 491; AIR 1962 SC 1406 with a clarification that regulatory measures or measures imposing compensatory tax do not come within the purview of restrictions contemplated in article 301 and that such measures need not comply with the requirement of the provisions of article 304 (b ). In whatever way one may choose to put it, the effect of the majority decision in the Automobile case [1963] 1 SCR 491; AIR 1962 SC 1406 is that a compensatory tax is not a restriction upon the movement part of trade and commerce. 216 . . . . . . . . . . . . . . . 217 Regulations like rules of traffic facilitate freedom of trade and commerce whereas restrictions impede that freedom. The collections of toll or tax for the use of roads, bridges, or aerodromes, etc. , do not operate as barriers or hindrance to trade. For a tax to become a prohibited tax, it has to be a direct tax, the effect of which is to hinder the movement part of the trade. If the tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or commerce. 218 . . . . . . . . . . . . . . If the tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or commerce. 218 . . . . . . . . . . . . . . 219 Strictly speaking, a compensatory tax is based on the nature and the extent of the use made of the roads, as, for example, a mileage or ton-mileage charge or the like, and if the proceeds are devoted to the repair, upkeep, maintenance and depreciation of relevant roads and the collection of the exaction involves no substantial interference with the movement. . . . . . . . . . . . . . What is essential for the purpose of securing freedom of movement by road is that no pecuniary burden should be placed upon it which goes beyond a proper recompense to the State for the actual use made of the physical facilities provided in the shape of a road. " 220 We may now refer to some judgments of the Supreme Court and the High Courts in which the constitutionality of the entry tax was challenged on the ground of violation of articles 301 and 304. In State of Karnataka V/s. Hansa Corporation AIR 1981 SC 463, the Supreme Court examined the constitutionality of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1979. Sec.3 of that Act empowered the State Government to levy and collect tax on entry of scheduled goods into a local area for consumption, use or sale therein at a rate not exceeding 2 per cent ad valorem. Vide notification dated May 31, 1979, the State Government specified the local areas and the rates at which the tax was to be paid on the entry of scheduled goods. The High Court of Karnataka struck down the impugned legislation and the notification on the ground that section 3 did not empower the State Government to apply the provisions of the Act to certain local areas only and to exclude other local areas and that non-exemption of petty dealers amounted to unreasonable restriction on them. On appeal by the State, the Supreme Court reversed the judgment of the High Court. While repelling the challenge based on the ground of violation of articles 301 and 304, their Lordships referred to the decisions of Atiabari Tea Co. On appeal by the State, the Supreme Court reversed the judgment of the High Court. While repelling the challenge based on the ground of violation of articles 301 and 304, their Lordships referred to the decisions of Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232, Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 and Khyerbari Tea Co. Ltd. V/s. State of Assam [1964] 5 SCR 975; AIR 1964 SC 925 and held as under : 221 " On a conspectus of these decisions it appears well-settled that if a tax is compensatory in character it would be immune from the challenge under article 301. If on the other hand, the tax is not shown to be compensatory in character it would be necessary for the party seeking to sustain the validity of the tax law to show that the requirements of article 304 have been satisfied. 222 . . . . . . . . . . . . . . 223 Article 304 lifts the embargo placed on the legislative power of State to enact law which may infringe the freedom of inter-State trade and commerce if its requirements are fulfilled. Article 304 (a) imposes a restriction on the power of Legislature of a State to levy tax which may be discriminatory in character by according discriminatory treatment to goods manufactured in the State and identical goods imported from outside the State. The effect of article 304 (a) is to treat imported goods on the same basis as goods manufactured or produced in a State. This article further enables the State to levy tax on such imported goods in the same manner and to the same extent as may be levied on the goods manufactured or produced inside the State. If a State tax law accords identical treatment in the matter of levy and collection of tax on the goods manufactured within the State and identical goods imported from outside the State, article 304 (a) would be complied with. There is an underlying assumption in article 304 (a) that such a tax when levied within the constraints of article 304 (a) would not be violative of article 301 and State Legislature has the power to levy such tax. There is an underlying assumption in article 304 (a) that such a tax when levied within the constraints of article 304 (a) would not be violative of article 301 and State Legislature has the power to levy such tax. 224 Tax under the impugned legislation would be levied on scheduled goods either manufactured or produced within Karnataka State or imported from outside on their entry in a local area. Thus, this tax is non-discriminatory in that it does not discriminate between scheduled goods manufactured or produced within Karnataka State or those imported from outside. And the microscopic discrimination relied upon by the respondents that there is differential treatment accorded to goods produced within a local area and those imported from outside the local area is hardly relevant for the purpose of article 304 (a ). The High Court was accordingly right in concluding that the impugned tax satisfies the requirements of article 304 (a ). 225 . . . . . . . . . . . . . . 226 The next question is whether this levy is in public interest. As has been pointed out earlier, the levy was to compensate the loss suffered by abolition of octroi. These very people were paying octroi without a demur. After removing the obnoxious features of octroi a very modest impact levied on entry of goods in a local area and that too not for further augmenting finances of the municipalities but for compensating the loss suffered by the abolition of octroi is certainly a levy in public interest. As has been repeatedly observed by this Court, the taxes generally are imposed for raising public revenue for better governance of the country and for carrying out welfare activities of our welfare State envisaged in the Constitution and, therefore, even if a tax to some extent imposes an economic impediment to the activity taxed, that by itself is not sufficient either to stigmatise the levy as unreasonable or not in public interest. " 227 The argument that the impugned legislation was bad due to non-compliance of article 304 (b) was rejected by the Supreme Court in the following words : 228 " The last limb of the argument is whether the proviso to article 304 (b) is satisfied or not. " 227 The argument that the impugned legislation was bad due to non-compliance of article 304 (b) was rejected by the Supreme Court in the following words : 228 " The last limb of the argument is whether the proviso to article 304 (b) is satisfied or not. The proviso imposes an obligation to obtain the Presidential sanction before introducing the Bill or amendment for the purpose of clause (b) of article 304 in the Legislature of a State. It cannot be gainsaid that Presidential sanction was not obtained before introducing the Bill which was ultimately enacted into the impugned Act but after the Bill was enacted into an Act the same was submitted to the President for his assent and it is common ground that the President has accorded his assent. If prior Presidential sanction is a sine qua non, the requirement of the proviso is not satisfied but in this context it would be advantageous to refer to article 255 which provides that no Act of Parliament or of the Legislature of a State and no provision in any such Act shall be invalid by reason only that some recommendation or previous sanction required by the Constitution was not given if assent to that Act was given by the President. Now, in this case, it is common ground that the President did accord his sanction to the impugned Act. Therefore the requirement of the proviso is satisfied. " 229 The apex Court also rejected the plea that the Act amounted to unreasonable restriction on the fundamental rights of the petty dealers to carry on their trade and observed as under : 230 " Looking at the matter from a slightly different angle it must be confessed that if the contention of the respondents were to be upheld it would provide a fruitful source for evasion of tax. If petty dealers are to be excluded some criterion will have to be provided relatable to his turnover in scheduled goods for classifying who are petty dealers. That turnover will have to be kept reasonably high to make it rational but in that event the big registered dealer can always conveniently defeat the tax by bringing into the local area scheduled goods in the name of such petty dealer. That turnover will have to be kept reasonably high to make it rational but in that event the big registered dealer can always conveniently defeat the tax by bringing into the local area scheduled goods in the name of such petty dealer. It would be an incentive to a big registered dealer to set up a number of petty dealers and import scheduled goods into local area in the name of those petty dealers. To avoid any such contingency, if the tax is levied on the entry of scheduled goods in the local area at the hands of a dealer irrespective of his turnover a potential source of evasion can be checkmated. Viewed from either angle, non-exemption of petty dealers from the operation of the Act does not lead to the conclusion that the impugned legislation constitutes unreasonable restrictions on the fundamental right of the petty dealers to carry on their trade or business. The High Court was, therefore, in our opinion, in error in striking down the impugned legislation on the ground that the Act imposes unreasonable restrictions on the fundamental right of the petty dealers to carry on their trade. " 231 In Suresh Chand Sri Gopal V/s. Union of India [1989] 72 STC 241, the Supreme Court considered the constitutional validity of the Andhra Pradesh Entry of Goods into Local Area Tax Act, 1987 which is in pari materia to the Entry Tax Act, and rejected the challenge based on the ground that it was beyond the legislative competence of the State and there was no provision to hand over the tax to the local authorities. Some of the observations made on this aspect of the matter are extracted below : 232 " If the State Legislature makes a law levying a tax on entry of goods into a local area for consumption, use or sale therein, it cannot be said to be beyond its competence, or beyond its legislative power. It is very much within its legislative competence. Either for the sake of uniformity, or in the interest of administrative convenience a particular State Legislature may think it appropriate to levy the tax by itself, while another Legislature may choose to follow the other course, viz. , to empower the local authorities themselves to levy and collect this tax. It is very much within its legislative competence. Either for the sake of uniformity, or in the interest of administrative convenience a particular State Legislature may think it appropriate to levy the tax by itself, while another Legislature may choose to follow the other course, viz. , to empower the local authorities themselves to levy and collect this tax. It is true that the tax being on the entry of goods into a local area for consumption, use or sale in such local area has always been understood and meant for the benefit of such local authority. " 233 It was argued that the impugned legislation was bad because it did not contain any indication about the utilisation of the tax upon the local bodies. The Supreme Court negatived this ground of challenge and observed as under : 234 " How the tax collected will be utilised or apportioned is not a matter affecting the levy, nor is it a matter affecting the legislative power of the body enacting that law. As observed by the Supreme Court in Jaora Sugar Mills V/s. State of M. P. AIR 1966 SC 416, it is difficult to understand how the Act can be said to be invalid because the cesses recovered under it are not dealt with in the manner provided by the Constitution. The validity of the Act must be judged in the light of the legislative competence of the Legislature which passes the Act and may have to be examined in certain cases by reference to the question as to whether fundamental rights of citizens have been improperly contravened, or other considerations which may be relevant in that behalf. Normally, it would be inappropriate and indeed illegitimate to hold an enquiry into the manner in which the funds raised by an Act would be dealt with when the court is considering the question about the validity of the Act itself. . . . . . . . In this case also the argument was that the Act impugned there was passed by the Parliament not for raising funds for the Union of India but for validating the illegal recovery of cesses made by the State Governments, and which funds had already gone into the Consolidated Funds of the respective States. Reliance was placed upon article 266 of the Constitution in that behalf. The aforesaid observations were made negativing the said contention. Reliance was placed upon article 266 of the Constitution in that behalf. The aforesaid observations were made negativing the said contention. The court further observed : 235 . . . . if the taxes or cesses recovered under an Act are not dealt with in the manner prescribed by the Constitution, what remedy a citizen may have and how it can be enforced, are questions on which we express no opinion in this appeal. " 236 Their Lordships also rejected the challenge that the impugned levy should be treated as sales tax because the machinery created under the Sales Tax Act is employed for the purpose of implementing the provisions of the Act by observing as under : 237 " We find no substance in the argument that the impugned Act levies sales tax on sales tax. Sales tax and entry tax are provided by different entries in List II, i. e. , entry 54 and entry 52, respectively. Just because the machinery created under the Sales Tax Act is employed for the purpose of implementing the provisions of this Act, it cannot be said to be a sales tax in substance, nor can it be called a sales tax on sales tax. " 238 The challenge based on articles 301 and 304 of the Constitution was rejected by the Supreme Court with the following observations : 239 " We are equally unable to see any substance in the argument based on articles 301 and 304. No material has been placed before us to show that the impugned tax has the effect of impeding the free-flow of trade, commerce or intercourse, either within the State or with the State. 240 Even if it is assumed that the said tax does amount to a restriction, it cannot be said to be unreasonable, since the rate of tax is only 1 per cent on textiles, 2 per cent on sugar, and 4 per cent on tobacco. Reasonable restrictions on the freedom of trade, commerce, or intercourse can be placed by the State Legislature, provided the Bill is moved in the Legislature of the State with the previous sanction of the President. In this case, it is true before moving the Bill in the Legislature, previous sanction of the President was not obtained but, after the Act was passed by the Legislature, it was reserved for, and obtained the assent of the President. In this case, it is true before moving the Bill in the Legislature, previous sanction of the President was not obtained but, after the Act was passed by the Legislature, it was reserved for, and obtained the assent of the President. As held by the Supreme Court in Atiabari Tea Co. Ltd. V/s. State of Assam AIR 1961 SC 232 and Automobile Transport V/s. State of Rajasthan AIR 1962 SC 1406 such an assent cures the defect, if any, in not obtaining the previous sanction of the President before introducing the Bill. " 241 In Bhagatram Rajeev Kumar V/s. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654 (SC), a three-Judge Bench of the Supreme Court considered the validity of M. P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, and rejected the challenge based on the ground that those who were not liable to pay sales tax were exempted and that it was violative of article 301 of the Constitution. The relevant observations made on these issues are extracted below : 242 " Liability to pay sales tax on the goods specified in Schedule II is thus not an essential ingredient of levy. The expression liable to tax has been used to identify the person who shall pay the entry tax. To put it conversely if any goods mentioned in Schedule II are brought from outside the State by a person who is not liable to tax under the Sales Tax Act then entry tax shall not be realised from such person. The intention is to levy tax only when the goods are brought inside the State by a dealer carrying on business whose turnover is not less than Rs.1,000 annually and not by any other person. In other words, the tax is leviable on all goods specified in Schedule II brought for consumption, use or sale; but it shall be realised only from those persons who are dealers registered under the Sales Tax Act and are liable to pay tax. The expression liability to tax is determinative of the person from whom the tax shall be realised and not of the goods which could be subjected to levy. The construction suggested by the learned counsel for the appellant militates against the clear language of the section as the levy being on goods specified in Schedule II. The expression liability to tax is determinative of the person from whom the tax shall be realised and not of the goods which could be subjected to levy. The construction suggested by the learned counsel for the appellant militates against the clear language of the section as the levy being on goods specified in Schedule II. If the submission is accepted then it would result in non-levy on those items on which additional excise duty is leviable. 243 . . . . . . . . . . . . . . 244 Even the submission on article 301 of the Constitution is not well-founded. The article came up for interpretation by this Court in Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406. A combined reading of the two decisions indicates that so long as a tax is regulatory and compensatory it is not within the mischief of article 301. In the counter-affidavit filed on behalf of the State which was not disputed, the nature of levy has been demonstrated to be compensatory. The appellants did not dispute the figure furnished by the State. It is settled by now that if the tax is compensatory then it is immune from challenge under article 301 (see Khyerbari Tea Co. Ltd. V/s. State of Assam [1964] 5 SCR 975; AIR 1964 SC 925 and State of Karnataka V/s. Hansa Corporation [1981] 1 SCR 823; AIR 1981 SC 463. The submission of Shri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide municipal services more efficiently, which would help or ease free-flow of trade and commerce because of which the impost has to be regarded as compensatory in nature, in view of what has been stated in the aforesaid decisions, more particularly in Hansa Corporations case [1981] 1 SCR 823; AIR 1981 SC 463. " 245 In Sanjay Trading Co. V/s. Commissioner of Sales Tax [1994] 93 STC 589, a division Bench of the Madhya Pradesh High Court considered the constitutionality of the Madhya Pradesh Entry Tax Act, 1976. It was argued on behalf of the petitioners that the impugned enactment is ultra vires articles 19 (1) (g), 286 (3) and 304 (a) of the Constitution. The petitioner relied on entries 92a and 92b of List II. While rejecting the argument that the State Legislature was not competent to enact such law and only the Parliament was competent to do so, the division Bench of the High Court observed as under : 246 " Item 54 of List II of the Seventh Schedule to the Constitution relates to tax on sale or purchase of goods subject to the provisions of entry 92-A of List I. Item 52 of List II relates to tax on entry of goods into local area for consumption, use or sale therein. Item 92a of List I relates to the sale of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. Item 92-B of List I relates to tax on consignment of goods. Tax on sale or purchase, tax on entry of goods into local area for consumption, use or sale therein and tax on consignment of goods are different in nature and character and are imposed by local authorities under separate laws. Octroi is in the nature of a multi-point imposition. Tax on sale or purchase, tax on entry of goods into local area for consumption, use or sale therein and tax on consignment of goods are different in nature and character and are imposed by local authorities under separate laws. Octroi is in the nature of a multi-point imposition. Various State Legislatures, with the intention of reducing harassment of dealers, abolished octroi which is a multi-point imposition and at the same time, legislated on single point entry tax for the purpose of compensating the local authorities who suffered loss of revenue on account of abolition of octroi. 247 Single point entry tax is a substitute for multi-point octroi and falls within the ambit of entry 52 of List II. It is a tax on entry and does not restrict freedom of trade or commerce, as is made clear in Transport Corporation of India V/s. Chairman, Municipal Council, Municipal Corporation, Indore AIR 1963 MP 253 and City Municipality V/s. Mahado Seetha Ram AIR 1967 AP 363. It is true that State Legislature is competent to levy entry tax only in respect of goods brought into a local area for the purposes of consumption, use or sale. Even where words of wide and general import are used, it has to be presumed that the Legislature was using the words in regard to activity in respect of its competence to legislate and to no other. (Jothi Timber Mart V/s. Corporation of Calicut AIR 1970 SC 264 ). 248 We have adverted to the scheme of the provisions of the Entry Tax Act. The Act is intended to levy entry tax on entry of specified goods into local area for consumption, use or sale. It is not possible to accept that in pith and substance, the Act levies entry tax on entry of all goods, irrespective of the purpose of entry. That the purpose of the entry is fundamental to the levy is made clear by the presumption laid down in section 6 as if goods are consumed, used or sold in local area by the dealer or other person, it shall be presumed, until the contrary is proved by him, that such goods are entered into local area for consumption, use or sale therein. Where the dealer purchases specified goods in a local area from a person or dealer who is not a registered dealer, it shall be presumed, until the contrary is proved by him, that the entry of goods had been effected by him into the local area. Sec.11 deals with burden of proof of certain aspects and makes the matter clearer. The burden of proving that a dealer or a notified person has not effected entry of specified goods in the local area for consumption, use or sale therein, lies on him. The Rules framed under the Act provide among other things, for furnishing of returns, payment of tax or penalty imposed on him, order of assessment and form thereof, authority and manner for assessment of tax and appeal or revision against the order of assessment. These provisions completely negative the contention of the petitioners that in pith and substance, entry tax contemplated under the Act is a tax on entry, irrespective of the purpose of entry and amounts to purchase tax. Therefore, article 286 (3) of the Constitution and section 15 of the Central Sales Tax Act, 1956 , are not attracted to this legislation. The point is answered against the petitioners. 249 For the same reasons as aforesaid, it has to be held that levy of entry tax does not amount to levy of consignment tax and the contention that it offends article 92a of List I of the Constitution is not tenable. " 250 The challenge based on violation of article 304 (a) of the Constitution was rejected by the High Court in the following words : 251 " This is a provision enabling the State Legislatures to introduce certain restrictions on trade, commerce and intercourse amongst States. There may be State tax imposed on goods imported from other States or Union territories to which similar goods manufactured in that State are subject so as not to discriminate between the goods so imported and goods manufactured. What is contemplated is a tax imposed on goods imported from outside the State. Entry tax is not a tax on goods, but a tax on entry of goods into a local area for particular purposes. Entry tax would be levied on specified goods either manufactured or produced within the State or imported from outside on their entry into a local area. Entry tax is not a tax on goods, but a tax on entry of goods into a local area for particular purposes. Entry tax would be levied on specified goods either manufactured or produced within the State or imported from outside on their entry into a local area. The tax does not discriminate between the specified goods manufactured or produced within the State or those imported from outside. The differential treatment accorded to goods produced within the area and those imported from outside the area is microscopic and irrelevant for the purpose of article 304 (a ). (State of Karnataka V/s. Hansa Corporation AIR 1981 SC 463 ). Therefore, article 304 (a) of the Constitution is not attracted. " 252 The argument that the tax was not compensatory in character was also rejected by the High Court in the following words : 253 " In the present case, the State has taken the stand that the levy of entry tax is compensatory in character, i. e. , to compensate the municipalities for loss of income by way of octroi which has been abolished in the State. This contention is met by learned counsel for the petitioners by pointing out that the legislative provisions indicative of the compensatory nature of the levy, have been deleted and, therefore, it is no longer open to the State to contend that the levy is compensatory in character. 254 Sec.17 of the Act, as it originally stood, required that the tax collected shall be credited to the consolidated fund of the State and that net tax collection be placed to the credit of M. P. Octroi Compensation Fund under section 7-B of the Sales Tax Act. By Act No.24 of 1978, this provision was omitted with effect from April 1, 1978. Sec.7-B was introduced in the Sales Tax Act with effect from October 1, 1978, specifically providing for grant-in-aid for loss of octroi to the municipality. This provision was deleted in 1990. This is the foundation for the contention that the entry tax is not compensatory in character. 255 The Statement of Objects and Reasons of the Act states that it is enacted to levy a tax on entry of goods in lieu of octroi tax collected by the municipalities and municipal corporations and to make transportation of goods trouble-free by abolishing octroi check-posts. 255 The Statement of Objects and Reasons of the Act states that it is enacted to levy a tax on entry of goods in lieu of octroi tax collected by the municipalities and municipal corporations and to make transportation of goods trouble-free by abolishing octroi check-posts. A copy of the Statement of Objects and Reasons is found in annexure A. R-1 appended to the additional submissions made on behalf of the respondents in M. P. No.2289 of 1989. It indicates that the statute had the view of raising financial resources to compensate local bodies consequent upon abolition of octroi with a view to simplifying the taxation structure. Annexure A. R-3 gives summary in respect of levy and details of allotment made to local bodies. The document shows that during the period 1976-77 till 1988-89, provision was made in the budget to compensate the municipalities and the amount budgeted was made over. It also shows that with effect from the year 1983-84, there has been a regular annual increase of 10 per cent in total compensation amount. Considering the Statement of Objects and Reasons and the particulars given in annexure A. R-3, the statutory changes referred to above have no significance. Entry tax remains compensatory in nature and, therefore, it is immune from challenge. " 256 In State of Bihar V/s. Bihar Chamber of Commerce [1996] 103 STC 1, the Supreme Court examined the challenge to the constitutional validity of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 which provided for levy of tax on entry of scheduled goods into a local area for consumption, use or sale therein at a rate not exceeding 5 per cent. The expression "local areas" was defined in section 2 (f) of the Act to mean the areas within the limits of a (i) Municipal corporation, (ii) Municipality, (iii) Notified area committee, (iv) Cantonment board, (v) Town board, (vi) Mines board, (vii) Municipal board, (viii) Gram panchayat, and (ix) any other local authority irrespective of the nomenclature. Sec.3 of the Act provided for levy of tax on the entry of scheduled goods into a local area for consumption, use or sale therein. Sub-section (3) of section 3 empowered the State Government to specify different rates of taxes for different goods. Sec.3 of the Act provided for levy of tax on the entry of scheduled goods into a local area for consumption, use or sale therein. Sub-section (3) of section 3 empowered the State Government to specify different rates of taxes for different goods. The Patna High Court allowed the bunch of petitions and struck down the impugned Act being violative of articles 14 and 301 of the Constitution. Their Lordships of the Supreme Court formulated the following questions for consideration : 257 " (1) Whether the impugned tax has been established to be compensatory in nature or whether it can be called a regulatory measure 258 (2) In case the impugned tax is not established to be compensatory - or as a measure of regulation - whether it is saved by virtue of the provision contained in article 304 (b) read with article 255 of the Constitution In other words (a) whether the Act has - received the assent of the President as alleged by the State, (b) whether the levy of the said tax constitutes a reasonable restriction and (c) whether the said levy is conceived in public interest 259 (3) Whether the Bihar Legislature is deprived of its legislative competence to enact the impugned Act on account of the enactment of ADE Act and/or because the State of Bihar is getting a portion of the taxes levied and collected under the ADE Act 260 (4) Whether the impugned enactment is outside the purview of entry 52 in List II of the Seventh Schedule to the Constitution and, therefore, beyond the legislative competence of the Bihar Legislature for the reason that it does not provide for the revenues raised thereunder to be passed on to the local authorities for being used for the purposes of the respective local areas 261 (5) Whether the proviso to section 3 (1) and section 6 are void for the reasons assigned by the High Court 262 On the first question, the court referred to the judgment of the seven-Judge Bench in Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 and accepted the argument of the Additional Solicitor-General that the tax was compensatory in nature and observed as under : 263 " Where the local areas contemplated by the Act cover the entire State, the distinction between the State and the local areas practically disappears. (The situation would, no doubt, be different if the local areas are confined to a few cities or towns in the State and the levy is upon the entry of goods into those local areas alone. This is an important distinction which should be kept in mind while appreciating this aspect and also while examining the decisions of this Court rendered in fifties and sixties ). The facilities provided in the State are the facilities provided in the local areas as well. Interests of the State and the interests of the local authorities are, in essence, no different. It is not and it cannot be stipulated that for the purpose of establishing the compensatory character of the tax, it is necessary to establish that every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities. It is enough if some connection is established between the tax and the trading facilities provided. The connection can be a direct one or an indirect one, as held by this Court in Bhagatram Rajeev Kumar V/s. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654. the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers, directly or indirectly, the levy cannot be impugned as invalid. Though not stated in the counter-affidavit, we can take notice of the fact that the State does provide several facilities to the trade including laying and maintenance of roads, water-ways and markets, etc. As a matter of fact, since the levy is by the State, we must also look to the facilities provided by the State for ascertaining whether the State has established the compensatory character of the tax. On this basis, it must be held that the State has established that the impugned tax is compensatory in nature. " 264 On the first part of the second question, the court accepted the assertion made in the counter-affidavit that the Bill had been introduced after the assent of the President had been received. On this basis, it must be held that the State has established that the impugned tax is compensatory in nature. " 264 On the first part of the second question, the court accepted the assertion made in the counter-affidavit that the Bill had been introduced after the assent of the President had been received. On the second part, the court referred to the judgments of the Supreme Court in State of Karnataka V/s. Hansa Corporation AIR 1981 SC 463 and Bhagatram Rajeev Kumar V/s. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654 (SC), Shaktikumar M. Sancheti V/s. State of Maharashtra [1995] 96 STC 659 (SC) and Khyerbari Tea Co. Ltd. V/s. State of Assam [1964] 5 SCR 975; AIR 1964 SC 925 and held that the impugned levy was in public interest. On the third question, the court held that the impugned legislation was not in conflict with the Additional Duties of Excise (Goods of Special Importance) Act, 1957. While dealing with the fourth question, the court noticed some of the judgments relied upon by the counsel for the appellants and observed as under : 265 " The tax, by whatever name called, is levied upon the entry of goods into a local area for consumption, use or sale therein. The decisions relied upon by Sri Ganesh too use the same words. Entry 52 empowers the State Legislature to levy this tax. The local authorities cannot themselves levy this tax. The power is that of the State Legislature and of none else. So long as the tax is levied upon the entry of goods into a local area for the purpose of consumption, use or sale therein, the requirement of entry 52 is satisfied. The character of the tax so levied is that of entry tax - by whatever name it is called. The decisions relied upon by Sri Ganesh do not say that the State must levy the tax and make over the collection part of it to local authorities nor do they say that after collecting it, the State must make over the proceeds to the local authorities. The highest that Sri Ganesh can legitimately put his submission is that the tax is meant for and must be utilised for the purpose of the local areas. It cannot further be stipulated that this utilisation should be through or by the concerned local authorities. The highest that Sri Ganesh can legitimately put his submission is that the tax is meant for and must be utilised for the purpose of the local areas. It cannot further be stipulated that this utilisation should be through or by the concerned local authorities. In our opinion, the relevant requirement is satisfied in this case. As stated hereinbefore, the entire State of Bihar is divided into local areas. From the point of view of the entry tax, one may say that the State is a compendium of local areas. Spending for the purposes of the State is thus spending for the purposes of local areas. Situation may perhaps be different where the local areas are confined to a few cities or towns in the State. But where the local areas span the entire State, it cannot be argued that money spent for welfare schemes for improvement of roads, rivers and other means of transport and communication is not spent on or for the purposes of local areas. The purposes and needs of local areas are no different from the purposes and needs of the State - not at any rate to any appreciable degree. In this context, it is relevant to notice that the Maharashtra Entry Tax Act, considered by this Court in Shaktikumar case [1995] 96 STC 659 was also meant for augmenting the general revenues of State, to wit, to make up the loss of revenue the State was suffering on account of reduction of sales tax on motor vehicles in the adjoining States. The following observations in the said decision tend to support our reasoning, though, it is true, this particular question was not raised therein : 266 a very perusal of these objects and reasons would indicate that this legislation was brought in order to compensate loss of revenue by consumers who avoid payment of the sales tax or purchase tax on the vehicle payable in the State by purchasing it in another State where the rate was lesser than the State of Maharashtra and then to bring the vehicle inside the State. The Legislature, therefore, clearly intended to avoid any loss of legitimate sales tax revenue by the State. The Legislature, therefore, clearly intended to avoid any loss of legitimate sales tax revenue by the State. But the levy cannot be held to be bad because the Legislature intended to avoid any loss of sales tax in the State so long it is not found to be invalid either because of any constitutional or statutory violation. It is not the intention or propriety of a legislation but it is legality or illegality which renders it valid or invalid. " 267 In Godfrey Philips India Ltd. V/s. State of Rajasthan [2001] 121 STC 54, a division Bench of the Rajasthan High Court rejected the challenge to the constitutionality of the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999. The said Act was enacted for the levy and collection of tax on entry of goods into local areas in the State of Rajasthan for consumption, use or sale therein and matters incidental thereto. The division Bench of the Rajasthan High Court referred to the various decisions of the Supreme Court and the High Courts and held that the Act was not violative of articles 301 and 304 (b) of the Constitution by recording the following observations : 268 " Indisputably, octroi is abolished in State of Rajasthan. Due to abolition of octroi, the local bodies, i. e. , Panchayats, established under the Rajasthan Panchayati Raj Act, 1994, municipalities, established under the Rajasthan Municipalities Act, 1959 and notified area committees and cantonment boards suffered a financial dent, on account of abolition of octroi cannot be ruled out. In our considered opinion, after abolition of obnoxious features of octroi, a very modest impost is levied in the State of Rajasthan by enacting Act No.13 of 1999. The State Legislature, in exercise of its legislative power, under clause (3) of article 246 of the Constitution, which provides that subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereunder, with respect to any of the matter enumerated in List II of the Seventh Schedule. In the present case, the State Legislature has exclusive power to legislate upon entry No.52 of List II of the Seventh Schedule which provides making of laws on tax as on entry of goods into a local area, for consumption, use or sale therein. In the present case, the State Legislature has exclusive power to legislate upon entry No.52 of List II of the Seventh Schedule which provides making of laws on tax as on entry of goods into a local area, for consumption, use or sale therein. The State Legislature has enacted Act No.13 of 1999, empowering State Government in charging section 3 of the said Act, to impose a very modest levy of the entry tax on goods brought into local areas, not exceeding ten per cent of the value of goods, for compensating the loss suffered by the abolition of octroi. The State Government by issuing notification on October 15, 1999, annexure 2 to the writ petition, under section 3 of Act No.13 of 1999 has imposed entry tax on tobacco only 1.5 per cent on the value of goods brought into local area is well within outer-limit of ten per cent of the value of goods contemplated under section 3 of the said Act. Entry tax on tobacco at the rate of 1.5 per cent of the value of goods cannot be said to be unreasonable or excessive by any stretch of imagination. In our view, it is certainly a levy in public interest which is held to be fair and reasonable. Any enactment enacted by State Legislature in exercise of its legislative power under clause (3) of article 246 of the Constitution relating to entry No.52 of the State List of the Seventh Schedule neither required Presidential sanction, before introducing the Bill under article 304 (b) nor it required assent of the President. We have no hesitation to hold that Act No.13 of 1999 does not infringe freedom of trade enshrined under article 301 of the Constitution. In our opinion, if the argument of learned counsel for the petitioners is accepted to the effect that Act No.13 of 1999 is violative of articles 301 and 304 (b) of the Constitution, then, it would render otiose clause (3) of article 246 of the Constitution and entry 52 in State List of the Seventh Schedule to the Constitution which is not acceptable to us being contrary to federal structure of our Constitution. " 269 The following principles can be deduced from the above noted decisions : 270 (i) The freedom of trade, commerce and intercourse guaranteed under article 301 is not absolute. " 269 The following principles can be deduced from the above noted decisions : 270 (i) The freedom of trade, commerce and intercourse guaranteed under article 301 is not absolute. A tax can be treated as restriction on this freedom if it hinders the movement part of trade, but so long as the tax remains compensatory or regulatory, it cannot operate as hindrance. 271 (ii) Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304 (b) of the Constitution. 272 (iii) A tax will be regarded as compensatory tax if it is levied on those using trading facilities which include roads, bridges, markets and such tax would retain its character as compensatory tax if some link is established between the tax and the facilities extended directly or indirectly to those who are required to pay the tax. 273 (iv) If the amount collected by the levy of entry tax is meant to compensate the local bodies for the loss caused by abolition of octroi and/or augmentation of finances to enable them to provide municipal services more efficiently which would help the free-flow of trade or commerce, the impost will be regarded as compensatory in nature. 274 (v) While examining the validity of entry tax, it would be inappropriate to the court to hold an enquiry into the manner in which the funds raised by levy of entry tax would be dealt with and it is sufficient that a provision is made for disbursing the amount to the local bodies for use in the local areas. 275 (vi) The entry tax is not a tax on goods, but a tax on entry of goods into a local area for particular purposes and even if such tax, to some extent, imposes an economic impediment on the activity taxed, that by itself is not sufficient either to stigmatise the levy as unreasonable or contrary to public interest. 276 (vii) The entry tax levied on scheduled goods either manufactured or produced within the State or imported from outside on their entry into a local area cannot be treated as discriminatory even if there is microscopic difference in the treatment accorded to the goods produced within the area and those imported from outside the area. 276 (vii) The entry tax levied on scheduled goods either manufactured or produced within the State or imported from outside on their entry into a local area cannot be treated as discriminatory even if there is microscopic difference in the treatment accorded to the goods produced within the area and those imported from outside the area. 277 (viii) Where the local areas contemplated by the taxing statute cover the entire State, the distinction between the State and the local areas practically disappears and facilities provided in the State are to be regarded as the facilities provided in the local areas as well. In such a situation, it is not necessary that every rupee collected on account of entry tax should be shown to be spent on providing the trading facilities and it is enough if some connection is established between the tax and the trading facilities provided. The connection can be a direct one or indirect one. 278 We shall now consider whether the tax levied under the Entry Tax Act is compensatory in character and is, therefore, immune from the attack of being violative of articles 301 and 304 of the Constitution. 279 For the purpose of deciding the aforementioned question, we deem it appropriate to refer to 73rd and 74th Constitution Amendment Acts vide which Part IX and Part IXA were added to the Constitution for the purpose of conferring autonomy to the local bodies at the grass root level, i. e. , panchayats in the rural areas and municipalities in the urban areas by declaring them as institutions of self-Government and simultaneously conferring upon them powers, authority and duties including the authority to levy, collect and appropriate taxes, tolls, etc. Article 243 (d) defines the panchayat as an institution of self-Government constituted under article 243b for rural areas. Likewise, article 243-P (e) defines the municipality as an institution of self-Government constituted under article 243q. Article 243 (d) defines the panchayat as an institution of self-Government constituted under article 243b for rural areas. Likewise, article 243-P (e) defines the municipality as an institution of self-Government constituted under article 243q. Article 243-G declares that subject to the provisions of the Constitution, the Legislature of a State may, by law, endow the panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-Government and such law may contain provisions for the devolution of powers and responsibilities upon the panchayats at appropriate level, subject to the conditions as may be specified therein, with respect to - (i) the preparation of plans for economic development and social justice; and (ii) the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule. Identical provision is contained in article 243-W in respect of municipalities with the only difference that the said article refers to matters listed in Twelfth Schedule. Under article 243-H, the Legislature of a State is empowered to enact law and authorise a panchayat to levy, collect and appropriate such taxes, duties, tolls and fees and assign to a panchayat such taxes, duties, tolls, fees, levied and collected by the State Government for such purposes and subject to such conditions and limits as may be specified in the law. Similarly, under article 243-X, the Legislature of a State can enact law and authorise a municipality to levy, collect and appropriate such taxes, duties, tolls, fees and assign to a municipality such taxes, duties, tolls, fees levied and collected by the State Government for such purposes and subject to such conditions and limits as may be specified in the law. Similarly, under article 243-X, the Legislature of a State can enact law and authorise a municipality to levy, collect and appropriate such taxes, duties, tolls, fees and assign to a municipality such taxes, duties, tolls, fees levied and collected by the State Government for such purposes and subject to such conditions and limits as may be specified in the law. Article 243-I makes it mandatory for the Governor of a State to constitute a Finance Commission to review the financial position of the panchayats and to make recommendations to the Governor as to - (a) the principles which should govern (i) the distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them under Part IX and the allocation between the panchayats at all levels of their respective shares of such proceeds; (ii) the determination of taxes, duties, tolls and fees which may be assigned to or appropriated by the panchayats. Article 243-W provides that the Finance Commission constituted under article 243-1 [part (IX)] shall also review the financial position of the municipalities and make recommendations to the Governor as to - (a) the principles which should govern - (i) the distribution between the State and the municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under Part IXA and the allocation between the municipalities at all levels of their respective shares of such proceeds; (ii) the determination of taxes, duties, tolls and fees which may be assigned to or appropriated by the municipalities. Eleventh and Twelfth Schedules of the Constitution enumerate matters with reference to which functions can be entrusted to the panchayats and the municipalities. These are as under : 280 Eleventh Schedule : 281 1. Agriculture including agricultural extension. 282 2. Land improvement, implementation of land reforms, land consolidation and soil conservation. 283 3. Minor irrigation, water management and watershed development. 284 4. Animal husbandry, dairying and poultry. 285 5. Fisheries. 286 6. Social forestry and farm forestry. 287 7. Minor forest produce. 288 8. Small-scale industries, including food processing industries. 289 9. Khadi, village and cottage industries. 290 10. Rural housing. 291 11. Drinking water. 292 12. Fuel and fodder. 293 13. Roads, culverts, bridges, ferries, waterways and other means of communication. 294 14. 285 5. Fisheries. 286 6. Social forestry and farm forestry. 287 7. Minor forest produce. 288 8. Small-scale industries, including food processing industries. 289 9. Khadi, village and cottage industries. 290 10. Rural housing. 291 11. Drinking water. 292 12. Fuel and fodder. 293 13. Roads, culverts, bridges, ferries, waterways and other means of communication. 294 14. Rural electrification, including distribution of electricity. 295 15. Non-conventional energy sources. 296 16. Poverty alleviation programme. 297 17. Education, including primary and secondary schools. 298 18. Technical training and vocational education. 299 19. Adult and non-formal education. 300 20. Libraries. 301 21. Cultural activities. 302 22. Markets and fairs. 303 23. Health and sanitation, including hospitals, primary health centres and dispensaries. 304 24. Family welfare. 305 25. Women and child development. 306 26. Social welfare, including welfare of the handicapped and mentally retarded. 307 27. Welfare of the weaker sections, and in particular, of the Scheduled Castes and Scheduled Tribes. 308 28. Public distribution system. 309 29. Maintenance of community assets. 310 Twelfth Schedule : 311 1. Urban planning including town planning. 312 2. Regulation of land-use and construction of buildings. 313 3. Planning for economic and social development. 314 4. Roads and bridges. 315 5. Water supply for domestic, industrial and commercial purposes. 316 6. Public health, sanitation conservancy and solid waste management. 317 7. Fire services. " 318 Soon after insertion of Parts IX and IX-A in the Constitution, the Legislature of the State of Haryana amended the Municipal Act and also enacted the Haryana Panchayati Raj Act, 1994 (for short, "the Panchayati Raj Act") repealing Punjab Gram Panchayat Act, 1952 and Punjab Panchayat Samiti Act, 1961, as applicable to the State of Haryana. This was done solely with the object of bringing the State legislations in tune with the new constitutional provisions. Sections 21, 75 and 137 of the Panchayati Raj Act, which enumerate functions and duties of the Gram Panchayats, Panchayat Samitis and Zila Parishads respectively, are exhaustive reflection of various items specified in the Eleventh Schedule of the Constitution. The provisions contained in chapters V, XI and XVII relate to finances and taxation of the three bodies. Likewise, sections 66-A and 68-A, which were added in chapter VI of the Municipal Act, are virtual reproduction of portion of articles 243-W and 243-Y of the Constitution. The provisions contained in chapters V, XI and XVII relate to finances and taxation of the three bodies. Likewise, sections 66-A and 68-A, which were added in chapter VI of the Municipal Act, are virtual reproduction of portion of articles 243-W and 243-Y of the Constitution. The Panchayati Raj Act and the Municipal Act impose various duties on the Gram Panchayats, Panchayat Samitis and Zila Parishads in the rural areas and municipalities in the urban areas. They also contain provision for constitution of funds and utilisation thereof for various development schemes including maintenance of roads, streets, bridges, ferries, waterways, maintenance of hospitals, markets, sanitation, water supply schemes, etc. Sec.56 of the Municipal Act provides for constitution of municipal fund for each municipality which shall consist of all sums received by, or on behalf of, the committee under the said Act or otherwise. Sec.57 (1) provides for application of fund for payment of various dues. Sec.56 of the Municipal Act provides for constitution of municipal fund for each municipality which shall consist of all sums received by, or on behalf of, the committee under the said Act or otherwise. Sec.57 (1) provides for application of fund for payment of various dues. Sub-section (2) thereof lays down that subject to the charges specified in sub-section (1) and, to such rules as the State Government may make with respect to the priority to be given to the several duties of the committee, the municipal fund shall be applicable to the payment in whole or in part, of the charges and expenses incidental to the following matters : 319 " (a) the construction, maintenance, improvement, cleansing and repair of all public streets, bridges, town-walls, town-gates, embankments, drains, privies, latrines, urinals, tanks and water-courses and the preparation of compost manure; 320 (b) the watering and lighting of such streets or any of them; 321 (c) the construction, establishment and maintenance of schools, hospitals and dispensaries and other institutions for the promotion of education or for the benefit of the public health, and of rest-houses, sarais, poor houses, markets, stalls, encamping grounds, pounds, and other works of public utility, and the control and administration of public institutions of any of these descriptions; 322 (d) grants-in-aid to schools, hospitals, dispensaries, poor-houses, leper-asylums and other educational or charitable institutions; 323 (e) the training of teachers and the establishment of scholarships; 324 (f) the giving of relief and the establishment and maintenance of relief works in time of famine or scarcity; 325 (g) the supply, storage and preservation from pollution of water for the use of men or animals; 326 (h) the planting and preservation of trees, and the establishment and maintenance of public parks and gardens; 327 (i) the taking of a census, the registration of births, marriages and deaths, public vaccination and any sanitary measure; 328 (j) the holding of fairs and industrial exhibitions; 329 (k) the preparation and maintenance of a record of rights in immovable property; 330 (l) all acts and things which are likely to promote the safety, health, welfare or convenience of the inhabitants or expenditure whereon may be declared by the committee, with the sanction of the State Government to be an appropriate charge on the municipal fund. " 331 Some of the services envisaged under the Eleventh and Twelfth Schedules and the relevant provisions of the Municipal Act and the Panchayati Raj Act may appear to be meant for general public but those concerning the roads, bridges, streets, markets, water supply, sanitation are certainly meant to facilitate the free-flow of trade and the petitioners, who bring the goods from outside the State into a local area or from one local area to another local area, avail these services. For providing these services, the local bodies are required to incur expenditure, a majority source of which was octroi and other similar levies. The State Government was bound to provide for alternative source for augmenting the revenue of the local bodies for utilisation for development of the local areas and providing services including the trading facilities. This is precisely what has been done by levy of entry tax. Sec.22 of the Entry Tax Act makes it obligatory for the State Government to distribute the tax among the local bodies for utilisation for the development of the local areas. Therefore, the impugned tax cannot but be termed as a compensatory tax and it does not come within the purview of the restriction contemplated by article 301 of the Constitution. As a logical corollary to this conclusion, it must be held that the Entry Tax Act cannot be declared unconstitutional on account of non-compliance of article 304 (b ). 332 The argument of the learned counsel for the petitioners that the impugned levy is discriminatory and violative of articles 14 and 304 (a) of the Constitution is based on a misconceived assumption that the tax is limited to manufacturers. At the cost of repetition, it would be appropriate to mention that levy of tax under section 3 (1) of the Entry Tax Act is on entry of goods into a local area for consumption or use therein. Thus, the taxable event is on the entry of goods into a local area for consumption or use therein and not manufacture of a product. The manufacturer who brings raw material into the local area for consumption and produce goods, which are either sold in the State or transferred outside the State subsequently, are liable to pay the tax. Even non-manufacturer who brings any goods into a local area for use therein, is liable to pay tax. The manufacturer who brings raw material into the local area for consumption and produce goods, which are either sold in the State or transferred outside the State subsequently, are liable to pay the tax. Even non-manufacturer who brings any goods into a local area for use therein, is liable to pay tax. Those bringing goods into a local area from one local area or outside the State are liable to pay tax in similar measure at the same rate. Therefore, section 3 of the Entry Tax Act cannot be regarded as discriminatory and violative of articles 14 and 304 (a) of the Constitution. 333 The deductions envisaged by section 5 (1) or exemptions granted by the Government by issuing notification under section 11 of the Entry Tax Act are also uniformly applicable to all those who are liable to pay tax, i. e. , those bringing the goods from outside the State into a local area or from one local area to another local area. Therefore, on this count also, the entry tax cannot be regarded as discriminatory and violative of article 304 (a) of the Constitution. 334 Before parting with this aspect of the case, we may refer to the judgments relied upon by the learned counsel for the petitioners. In Firm A. T. B. Mehtab Majid and Co. V/s. State of Madras [1963] 14 STC 355, a Constitution Bench of the Supreme Court considered the validity of rule 16 (2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. The petitioner, who was a dealer in hides and skins, challenged the impugned rule on the ground that it had the effect of imposing higher rate of tax on tanned hides or skins imported from outside the State and sold within the State as compared to the tax imposed on hides or skins tanned and sold within the State. It was further submitted that hides or skins imported from outside the State after purchase in their raw condition and then tanned inside the State are also subjected to higher tax than hides or skins purchased in the raw condition within the State and tanned within the State. According to the petitioner, the levy of higher rate of tax on imported hides and skins was violative of article 304 (a) of the Constitution. According to the petitioner, the levy of higher rate of tax on imported hides and skins was violative of article 304 (a) of the Constitution. Their Lordships of the Supreme Court referred to the views expressed by Subba Rao, J. in Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491, and held the impugned levy to be discriminatory by making the following observations : 335 " It is therefore now well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures. Sales tax, of the kind under consideration here, cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities, sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free-flow of trade and it will then offend against article 301 and will be valid only if it comes within the terms of article 304 (a ). 336 Article 304 (a) enables the Legislature of a State to make laws affecting trade, commerce and intercourse. It enables the imposition of taxes on goods from other States if similar goods in the State are subjected to similar taxes, so as not to discriminate between the goods manufactured or produced in that State and the goods which are imported from other States. This means that if the effect of the sales tax on tanned hides or skins imported from outside is that the latter becomes subject to a higher tax by the application of the proviso to sub-rule (2) of rule 16 of the Rules, then the tax is discriminatory and unconstitutional and must be struck down. " 337 In Andhra Steel Corporation V/s. Commissioner of Commercial Taxes in Karnataka [1990] 78 STC 243; (1990) Supp SCC 617, the Supreme Court applied the ratio of Firm A. T. B. Mehtab Majid and Co. " 337 In Andhra Steel Corporation V/s. Commissioner of Commercial Taxes in Karnataka [1990] 78 STC 243; (1990) Supp SCC 617, the Supreme Court applied the ratio of Firm A. T. B. Mehtab Majid and Co. V/s. State of Madras [1963] 14 STC 355 (SC) and held that section 5 (4) of the Karnataka Sales Tax Act, under which exemption was granted from payment of sales tax to finished goods manufactured out of locally purchased raw material while taxing sale of finished goods manufactured out of imported raw material was discriminatory and violative of article 304 (a) of the Constitution. 338 In Shree Mahavir Oil Mills V/s. State of Jammu and Kashmir [1997] 104 STC 148 (SC), the exemption granted to local manufacturers/producers of edible oil from payment of sales tax under the Jammu and Kashmir General Sales Tax Act was declared violative of articles 301 and 304 (a) of the Constitution on the ground that it was discriminatory qua those who were importing edible oil from outside the State. The two-judge Bench of the Supreme Court referred to Atiabari Tea Co. Ltd. V/s. State of Assam [1961] 1 SCR 809, Automobile Transport (Rajasthan) Ltd. V/s. State of Rajasthan [1963] 1 SCR 491 and Firm A. T. B. Mehtab Majid and Co. V/s. State of Madras [1963] 14 STC 355 (SC) and some other decisions and held as under : 339 " In our opinion, it is this : the States are certainly free to exercise the power to levy taxes on goods imported from other States/union territories but this freedom, or power, shall not be so exercised as to bring about a discrimination between the imported goods and the similar goods manufactured or produced in that State. The clause deals only with discrimination by means of taxation; it prohibits it. The prohibition cannot be extended beyond the power of taxation. It means in the immediate context that States are free to encourage and promote the establishment and growth of industries within their States by all such means as they think proper but they cannot, in that process, subject the goods imported from other States to a discriminatory rate of taxation, i. e. , a higher rate of sales tax vis-a-vis similar goods manufactured/produced within that State and sold within that State. Prohibition is against discriminatory taxation by the states. It matters not how this discrimination is brought about. Prohibition is against discriminatory taxation by the states. It matters not how this discrimination is brought about. A limited exception has no doubt been carved out in Video Electronics [1990] 77 STC 82 (SC); (1990) 3 SCC 87, but, as indicated hereinbefore, that exception cannot be enlarged lest it eat up the main provision. So far as the present case is concerned, it does not fall within the limited exception aforesaid; it falls within the ratio of Firm A. T. B. Mehtab Majid [1963] 14 STC 355 (SC); [1963] Suppl 2 SCR 435 and the other cases following it. It must be held that by exempting unconditionally the edible oil produced within the State of Jammu and Kashmir altogether from sales tax, even if it is for a period of ten years, while subjecting the edible oil produced in other States to sales tax at eight per cent, the State of Jammu and Kashmir has brought about discrimination by taxation prohibited by article 304 (a) of the Constitution. " 340 In Anand Commercial Agencies V/s. Commercial Tax Officer, Hyderabad [1997] 107 STC 586 (SC), the levy of higher rate of tax on groundnut oil brought from other States as compared to the groundnut oil extracted from groundnut already taxed in the State was declared discriminatory and violative of articles 301 and 304 of the Constitution. 341 In State of U. P. V/s. Laxmi Paper Mart [1997] 105 STC 1 (SC), the exemption granted by the State of U. P. to the exercise books of paper purchased within Uttar Pradesh while subjecting other exercise books to tax under the Uttar Pradesh Sales Tax Act was declared violative of article 304 (a) by applying the ratio of Firm A. T. B. Mehtab Majid and Co. V/s. State of Madras [1963] 14 STC 355 (SC) and Shree Mahavir Oil Mills V/s. State of Jammu and Kashmir [1997] 104 STC 148 (SC ). 342 In Weston Electroniks V/s. State of Gujarat [1988] 70 STC 52 (SC); AIR 1988 SC 2038, the levy of different rates of sales tax between electronic goods imported into the State of Gujarat and goods manufactured within that State was declared violative of articles 301 and 304 (a) of the Constitution. 343 In our opinion, the ratio of the above noted cases does not have any bearing on the issue before us. 343 In our opinion, the ratio of the above noted cases does not have any bearing on the issue before us. In those cases, the Supreme Court had considered the constitutionality of the provisions under which lower rates of sales tax had been imposed on the goods manufactured from the raw material procured from within the State as compared to the tax levied on the goods imported from other states or the levy of different sales tax on the imported goods vis-a-vis locally manufactured goods. The court held that the levy was discriminatory and violative of articles 301 and/or 304 (a) of the Constitution. A careful reading of the ratio of Firm A. T. B. Mehtab Majid and Co. V/s. State of Madras [1963] 14 STC 355 (SC) which appears to be the basis of all subsequent decisions, shows that their Lordships were clearly of the view that the sales tax in question was not compensatory tax or a regulatory measure. This is clearly borne out from the portion, which we have above while dealing with that judgment. Thus, the aforesaid judgments cannot be relied upon for striking down the entry tax. 344 Re : Question No. (iii) 345 Shri A. K. Ganguly argued that section 11 suffers from the vice of excessive delegation because there are no guidelines for the exercise of power of exemption. In the alternative, he argued that notification dated May 5, 2000 suffers from the vice of under-classification/under-inclusion and is, therefore, discriminatory. He pointed out that the goods imported by Information Technology Industry for manufacture of computer monitors are exempted from entry tax, but similar goods imported by his client for manufacture of colour televisions, etc. , have not been exempted. He submitted that with the advent of new technology, the internet televisions will soon be integrated with computers and ceased to be a medium of viewing and, therefore, the grant of exemption only to the Information Technology Industry should be declared discriminatory and a direction be issued to the respondents to exempt similar goods imported by the petitioner. In support of this submission, Shri Ganguly relied on the judgment of the Supreme Court in State of Tamil Nadu V/s. K. Sabanayagam (1998) 1 SCC 318. In support of this submission, Shri Ganguly relied on the judgment of the Supreme Court in State of Tamil Nadu V/s. K. Sabanayagam (1998) 1 SCC 318. 346 On the other hand, Shri P. P. Rao argued that section 11 does not suffer from excessive delegation because the power under that section has to be exercised in public interest. With regard to notification dated May 5, 2000, Shri Rao pointed out that exemption given by the Government is to the goods being used by Information Technology Industry and not to the particular importer and the classification is justified because it is intended to provide which needed impetus to the growth of information technology in the State. 347 We have given serious thought to the respective arguments. In our opinion, section 11 (1) does not suffer from the vice of excessive delegation because the power vested in the State Government to grant exemption or reduce the tax payable by any class of importers can be exercised only on formation of opinion that it is necessary to do so in public interest. In other words, before granting exemption or reducing the tax payable by any class of importers, the State Government has to apply its mind to the requirement of that particular class as also the public interest. This necessarily means that the State Government cannot grant exemption arbitrarily to any particular importer or class of importers in respect of the particular items or goods. Therefore, the power conferred upon the State Government under section 11 of the Entry Tax Act to grant exemption or reduce the tax payable by any class of importers cannot be termed as excessive delegation, more-so because it is settled law that Legislature can leave it to the executive to determine details relating to the working of taxation laws, such as selection of persons on whom the tax is to be levied, the rates at which the tax is to be charged in respect of different classes of goods, etc. 348 We may now advert to some of the decisions of the Supreme Court in which validity of delegated legislation has been considered. 348 We may now advert to some of the decisions of the Supreme Court in which validity of delegated legislation has been considered. In Vasanlal Maganbhai Sanjanwala V/s. State of Bombay AIR 1961 SC 4, a Constitution Bench of the Supreme Court considered the challenge to the vires of section 6 (2) of the Bombay Tenancy and Agricultural Lands Act, 1948 on the ground that the power conferred upon the provincial Government to issue notification in the official gazette to fix a lower rate of the maximum rent payable by the tenants on land situated in any particular area or to fix such rate on any other suitable basis, as it thinks fit, suffered from the vice of excessive delegation because it did not contain any guidance for exercising that power. Their Lordships referred to preamble of the Act and other relevant provisions and held that the impugned legislation did not suffer from the vice of excessive delegation. While dealing with the issue of delegated legislation, majority of the Constitution Bench observed as under : 349 " It is now well-established that the power of delegation is a constituent element of the legislative power as a whole, and in modern times when the Legislatures enact laws to meet the challenge of the complex socio-economic problems, they often find it convenient and necessary to delegate subsidiary or ancillary powers to delegates of their choice for carrying out the policy laid down by their Acts. 350 The extent to which such delegation is permissible is also now well-settled. The Legislature cannot delegate its essential legislative function in any case. It must lay down the legislative policy and principle, and must afford guidance for carrying out the said policy before it delegates its subsidiary powers in that behalf. " 351 In Devi Das Gopal Krishnan V/s. State of Punjab [1967] 20 STC 430 (SC); AIR 1967 SC 1895, another Constitution Bench of the Supreme Court, while dealing with challenge to sections 4 and 5 of the Punjab General Sales Tax Act, 1948, enunciated the following principle : 352 " The Constitution confers a power and imposes a duty on the Legislature to make laws. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct. Obviously it cannot abdicate its functions in favour of another. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct. Obviously it cannot abdicate its functions in favour of another. But in view of the multifarious activities of a welfare State, it cannot presumably work out all the details to suit the varying aspects of a complex situation. It must necessarily delegate the working out of details to the executive or any other agency. But there is a danger inherent in such a process of delegation. An overburdened Legislature or one controlled by a powerful executive may unduly over-step the limits of delegation. It may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the executive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self-effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a court to hold on a fair, generous and liberal construction of an impugned statute whether the Legislature exceeded such limits. But the said liberal construction should not be carried by the courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the court to strike down without any hesitation any arbitrary power conferred on the executive by the Legislature. " 353 In Municipal Corporation of Delhi V/s. Birla Cotton, Spinning and Weaving Mills AIR 1968 SC 1232, the Supreme Court considered the validity of section 150 of the Delhi Municipal Corporation Act, 1957 under which the Corporation was vested with the power to levy optional tax. " 353 In Municipal Corporation of Delhi V/s. Birla Cotton, Spinning and Weaving Mills AIR 1968 SC 1232, the Supreme Court considered the validity of section 150 of the Delhi Municipal Corporation Act, 1957 under which the Corporation was vested with the power to levy optional tax. By a majority judgment, the Supreme Court upheld the impugned provision and observed as under : 354 " Power conferred by section 150 of the Delhi Municipal Corporation Act on the corporation to levy any of the optional taxes by prescribing the maximum rates of tax to be levied; to fix class or classes of persons or the description or descriptions of articles and properties to be taxed and to lay down the system of assessment and exemptions, if any, to be granted, is not unguided and cannot be said to amount to excessive delegation. 355 . . . . . . . . . . . . The principle is well-established that the Legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the Act. Where the legislative policy is enunciated with sufficient clearness br a standard is laid down, the courts should not interfere. What guidance should be given and to what extent and whether guidance has been given in a particular case at all depends on a consideration of the provisions of the particular Act with which the court has to deal including its preamble. Further the nature of the body to which delegation is made is also a factor to be taken into consideration in determining whether there is sufficient guidance in the matter of delegation. What form the guidance should take is again a matter which cannot be stated in general terms. It will depend upon the circumstance of each statute under consideration. In some cases guidance in broad general terms may be enough. In other cases more detailed guidance may be necessary. In the field of taxation the guidance may take the form of providing maximum rates of tax up to which a local body may be given the discretion to make its choice, or it may take the form of providing for consultation with the people of the local area and then fixing also rates after such consultation. In the field of taxation the guidance may take the form of providing maximum rates of tax up to which a local body may be given the discretion to make its choice, or it may take the form of providing for consultation with the people of the local area and then fixing also rates after such consultation. It may also take the form of subjecting the rate to be fixed by the local body to the approval of Government which acts as a watch-dog on the actions of the local body in this matter on behalf of the Legislature. There may be other ways in which guidance may be provided. But the purpose of guidance, whatsoever may be the manner thereof, is to see that the local body fixes a reasonable rate of taxation for the local area concerned. So long as the Legislature has made provision to achieve that reasonable rates of taxation are fixed by local bodies, whatever may be the method employed for this purpose provided it is effective it may be said that there is guidance for the purpose of fixation of rates of taxation. " 356 In Pandit Banarsi Dass Bhanot V/s. State of Madhya Pradesh [1958] 9 STC 388 (SC); AIR 1958 SC 909, the challenge to section 6 (2), Central Provinces and Berar Sales Tax Act, 1947 on the ground that the power vested in the State Government to issue notification to amend the Schedules appended to the Act suffered from the vice of excessive delegation was rejected with the following observations : 357 ". . . . . . . . . . . . . it is not unconstitutional for the Legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like. 358 . . . . . . . . . . . . . . 359 . . . . . . . . . . . . . . the power conferred on the State Government by section 6 (2) to amend the Schedule relating to exemption is in consonance with the accepted legislative practice relating to the topic and is not unconstitutional. " 360 . . . . . . . . . 359 . . . . . . . . . . . . . . the power conferred on the State Government by section 6 (2) to amend the Schedule relating to exemption is in consonance with the accepted legislative practice relating to the topic and is not unconstitutional. " 360 . . . . . . . . . 361 In Hira Lal Rattan Lal V/s. State of U. P. [1973] 31 STC 178 (SC); AIR 1973 SC 1034, the validity of section 3-D of the U. P. Sales Tax Act, 1948 was challenged on the ground of excessive delegation. While repelling the challenge, the Supreme Court observed as under : 362 " The only remaining contention is that the delegation made to the executive under section 3-D is an excessive delegation. It is true that the Legislature cannot delegate its legislative functions to any other body. But subject to that qualification, it is permissible for the Legislature to delegate the power to select the persons on whom the tax is to be levied or the goods or the transactions on which the tax is to be levied. In the Act, under section 3 the Legislature has sought to impose multi-point tax on all sales and purchases. After having done that it has given power to the executive, a high authority and which is presumed to command the majority support in the Legislature, to select for special treatment dealings in certain class of goods. In the very nature of things, it is impossible for the Legislature to enumerate goods, dealings in which sales tax or purchase tax should be imposed. It is also impossible for the Legislature to select the goods which should be subjected to a single point sales or purchase tax. Before making such selections several aspects such as the impact of the levy on the society, economic consequences and the administrative convenience will have to be considered. These factors may change from time to time. Hence in the very nature of things, these details have got to be left to the executive. " 363 In Lohia Machines Ltd. V/s. Union of India [1985] 152 ITR 308 (SC); (1985) 2 SCC 197, the Supreme Court considered the challenge to the vires of rule 19-A of the Income-tax Rules, 1962, on the ground that it suffered from the vice of excessive delegation. " 363 In Lohia Machines Ltd. V/s. Union of India [1985] 152 ITR 308 (SC); (1985) 2 SCC 197, the Supreme Court considered the challenge to the vires of rule 19-A of the Income-tax Rules, 1962, on the ground that it suffered from the vice of excessive delegation. Their Lordships referred to the earlier judgments in Pandit Banarsi Dass Bhanot V/s. State of M. P. [1958] 9 STC 388 (SC); AIR 1958 SC 909 and Hira Lal Rattan Lal V/s. State of U. P. [1973] 31 STC 178 (SC); AIR 1973 SC 1034 and upheld the provisions by making the following observations : 364 " The principles laid down in these observations from the decided cases clearly govern the present case and conclusively repel the contention of Mr. Palkhivala that if sub-section (1) of section 80-J were construed in the manner suggested by the learned Attorney-General on behalf of the Revenue, it would be rendered void on the ground of excessive delegation of legislative power. The Legislature having laid down the legislative policy of giving relief to an assessee who is starting a new industrial undertaking or the business of a hotel, had necessarily to leave it to the Central Board of Revenue to determine what should be the amount of capital employed that should be required to be taken into account for the purpose of determining the quantum of the relief allowable under the section. What should be the quantum of the relief allowable to the assessee would necessarily depend upon diverse factors such as the impact of the relief on the industry as a whole, the response of the industry to the grant of the relief, the adequacy or inadequacy of the relief granted in promoting the growth of new industrial undertakings, the state of the economy prevailing at the time, whether it is buoyant or depressed and administrative convenience. These are factors which may change from time to time and hence in the very nature of things the working out of the mode of computation of the capital employed for the purpose of determining the quantum of the relief must necessarily be left to the Central Board of revenue which would be best in a position to consider what should be the quantum of the relief necessary to be given by way of tax incentive in order to promote setting up of new industrial undertakings and hotels and for that purpose, what amount of the capital employed should form the basis for computation of such relief. " 365 By applying the ratio of the aforementioned decisions, we hold that section 11 (1) of the Entry Tax Act does not suffer from the vice of excessive delegation because while the levy of entry tax is meant to create fund for providing overall development of the local areas which include increase in the facilities to the trading community/industries, the power of exemption is meant to be exercised by none else than the State Government in public interest. 366 The decision of the Supreme Court in State of Tamil Nadu V/s. K. Sabanayagam (1998) 1 SCC 318 is clearly distinguishable. The issue considered in that case was whether the Payment of Bonus Act, 1965 is applicable to the employees of the Housing Board during the relevant accounting year 1978-79 onwards. The Tamil Nadu Housing Board had claimed exemption under section 32 (v) (c) of the said Act. Their lordships of the Supreme Court rejected the claim of exemption and held that section 36 of the Payment of Bonus Act, 1965 is a piece of conditional legislation and not a delegated legislation. 367 The challenge to notification dated May 5, 2000 vide which the importers of the goods of the industries specified in annexure I have been exempted from payment of tax does not suffer from the vice of arbitrariness because the sole object of the exemption is to give impetus to the industries relating to Information Technology. 368 The argument of Shri Ganguly that the notification seeks to exempt particular importer sounds attractive, but lacks merit and deserves to be rejected. 368 The argument of Shri Ganguly that the notification seeks to exempt particular importer sounds attractive, but lacks merit and deserves to be rejected. The expression "tax payable" used in section 11 (1) is directly referable to the liability to pay tax under section 3 (1) and that liability has to be discharged by the importer in terms of section 3 (2) qua the goods imported into the local area. Therefore, it cannot be said that the exemption is to the importers and not in respect of the goods brought into a local area. That apart, in our considered view, petitioner, M/s. Sony India Ltd. , is free to approach the Government and claim exemption in respect of the particular goods by showing that it has been manufacturing the goods specified in annexure 1 appended to the notification. 369 Before concluding, we may dispose of some ancillary arguments. Learned counsel for the petitioners argued that the entire State cannot be treated as a local area within the meaning of entry 52 of List II of the Seventh Schedule. According to them, the definition of local area contained in section 2 (14) covers the entire boundary of the State of Haryana and, therefore, the impugned legislation cannot be treated to have been enacted with reference to entry 52. In support of this argument, they relied on the judgment of the Supreme Court in Diamond Sugar Mills Ltd. V/s. State of Uttar Pradesh AIR 1961 SC 652. 370 In our opinion, there is no merit in the argument of the learned counsel. In State of Bihar V/s. Bihar Chamber of Commerce [1996] 103 STC 1 (SC), the Supreme Court interpreted the definition of local area in the Bihar Entry Tax Act which is in pari materia to the impugned legislation and held that the entire State can also be treated as local area for the purpose of entry 52 of List II of the Seventh Schedule. The decision of Diamond Sugar Mills Ltd. V/s. State of Uttar Pradesh AIR 1961 SC 652, is clearly distinguishable. In that case, the court was concerned with levy of cess on entry of sugarcane into the factory of the appellant. It was challenged on the ground that the premises of the factory cannot be treated as a local area. The decision of Diamond Sugar Mills Ltd. V/s. State of Uttar Pradesh AIR 1961 SC 652, is clearly distinguishable. In that case, the court was concerned with levy of cess on entry of sugarcane into the factory of the appellant. It was challenged on the ground that the premises of the factory cannot be treated as a local area. By a majority judgment, the Constitution Bench of the Supreme Court held that section 3 of the U. P. Sugarcane Cess Act, 1956, under which cess was levied on entry of sugarcane into the premises of the factory, did not fall within entry 52 of List II of the Seventh Schedule to the Constitution. 371 The argument of the learned counsel that the Entry Tax Act should be declared unconstitutional in view of rule 9 (1) (b) of the 2000 Rules also merits rejection because the said rule was framed to give effect to section 5 of the Ordinance and the same stands replaced by the impugned Act with retrospective effect, i. e. , May 5, 2000 and there is no provision in the Entry Tax Act or the rules framed thereunder which provide for deduction from gross turnover of an importer of the value of taxable goods purchased from another importer registered under the Ordinance. Moreover, once the Ordinance has been replaced by the Act, rule 9 (1) (b) cannot survive and it cannot affect the validity of the Entry Tax Act. In this connection, we may refer to the decision of the Supreme Court in Hotel Balaji V/s. State of Andhra Pradesh [1993] 88 STC 98; AIR 1993 SC 1048. In that case, the Supreme Court examined the challenge to the constitutionality of various sales tax statutes of various States including Gujarat Sales Tax Act, 1970. Sec.15-B of that Act was challenged by relying upon the decision of the Supreme Court in Goodyear India Ltd. V/s. State of Haryana [1990] 76 STC 71; AIR 1990 SC 781. During the pendency of the writ petitions, section 15b of the Gujarat Act was amended with retrospective effect. On behalf of the appellants-assessees, it was argued that new section 15-B was not different from the earlier provision and the only thing done by the amendment was to split the scheme of the earlier provision into two provisions, namely, substituted section 15-B and rule 42-E of the Gujarat Sales Tax Rules. On behalf of the appellants-assessees, it was argued that new section 15-B was not different from the earlier provision and the only thing done by the amendment was to split the scheme of the earlier provision into two provisions, namely, substituted section 15-B and rule 42-E of the Gujarat Sales Tax Rules. While dealing with this ground of challenge, their Lordships observed as under : 372 " Condition No.4, emphasised by the assessees, says that the benefit of set-off/drawback/refund shall be available only if the manufactured goods are sold within the State of Gujarat. According to them it means that, where the manufactured goods are consigned by the manufacturer to his own depots or to his agents depots outside the State of Gujarat, the benefit of drawback, etc. , will not be available, which means that purchase tax shall be levied upon the purchase of raw material. This, say the appellants, is precisely what the old section 15-B provided for. According to them, the present section 15-B read with rule 42-E is nothing but a reincarnation of section 15-B as it stood prior to 1990 Amendment Act and falls squarely within the ratio of Goodyear [1990] 76 STC 71 (SC); (1990) 2 SCC 71. This argument raises in turn the question : how far is it permissible to refer to the Rules made under an Act while judging the legislative competence of a Legislature to enact a particular provision The necessity and significance of the delegated legislation is well-accepted and needs no elaboration at our hands. Even so, it is well to remind ourselves that Rules represent subordinate legislation. They cannot travel beyond the purview of the Act. Where the Act says that Rules on being made shall be deemed as if enacted in this Act, the position may be different. (It is not necessary to express any definite opinion on this aspect for the purpose of this case.) But where the Act does not say so, the Rules do not become part of the Act. Sri Mehta relies upon the following statement of law in Halsburys Laws of England (3rd Edn.), Vol.36 at page 401 : 373 where a statute provides that subordinate legislation made under it is to have effect as if enacted in the statute such legislation may be referred to for the purpose of construing a provision in the statute itself. Sri Mehta relies upon the following statement of law in Halsburys Laws of England (3rd Edn.), Vol.36 at page 401 : 373 where a statute provides that subordinate legislation made under it is to have effect as if enacted in the statute such legislation may be referred to for the purpose of construing a provision in the statute itself. Where a statute does not contain such a provision, and does not confer any power to modify the application of the statute by subordinate legislation, it is clear that subordinate legislation made under the statute cannot alter or vary the meaning of the statute itself where it is unambiguous, and it is doubtful whether such legislation can be referred to for the purpose of construing an expression in the statute, even if the meaning of the expression is ambiguous. 374 He says that this statement of law has been referred to with approval by Hegde, J. In his opinion in J. K. Steel Ltd. V/s. Union of India AIR 1970 SC 1173. Though the opinion of Hegde, J. , is a dissenting one, he submits, the majority has not held to the contrary on this aspect. He also relies upon the English decisions referred to in the opinion of Hegde, J. , and points out that no decision of this Court has expressed any opinion on the subject, a fact noted by Hegde, J. He commends the view taken by Hegde, J. , for our acceptance. Sri Mehta points out further that section 86 which confers the rule-making power upon the Government does not say that the Rules when made shall be treated as if enacted in the Act. Being a rule made by the Government, he says, rule 42-E can be deleted, amended or modified at any time. In such a situation, the legislative competence of a Legislature to enact a particular provision in the Act cannot be made to depend upon the rule or rules, as the case may be, obtaining at a given point of time, he submits. We are inclined to agree with the learned counsel. His submission appears to represent the correct principle in matters where the legislative competence of a Legislature to enact a particular provision arises. If so, the very foundation of the appellants argument collapses. We are inclined to agree with the learned counsel. His submission appears to represent the correct principle in matters where the legislative competence of a Legislature to enact a particular provision arises. If so, the very foundation of the appellants argument collapses. " 375 It is also significant to notice that section 5 of the Entry Tax Act is totally different from section 5 of the Ordinance. It specifies the deductions to be made from the turnover of a registered importer. Some of the deductions contemplated under section 5 are similar to those contained in rule 9 (1) of the 2000 Rules, but clause (b) thereof does not find mention in section 5 of the Entry Tax Act. This also stands clarified by rule 9 of the 2000 Rules. 376 The argument of Shri A. K. Ganguly that the impugned legislation is violative of article 19 (1) (a) merits rejection because the levy of entry tax does not, in any manner, affect the right to freedom of speech and expression guaranteed under article 19 (1) (a) of the Constitution of India. 377 For the reasons mentioned above, the writ petitions are dismissed. 378 Writ petitions dismissed.