JUDGMENT Rajesh Balia, J. - The petitioner is a manufacturer of "sada pan masala", mixed with tobacco in the brand name of Geetanjali, Zafri 2100 Gutkha, etc. The petitioner as a manufacturer is subject to excise duty and is also liable to sales tax under the State sales tax or Central sales tax, as the case may be, in respect of the transactions of sale entered by it. Vide impugned notification dated January 3, 2001 "zarda mixed pan masala including gutkha and churi" was added to the list of commodities on which the levy of tax under the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 was extended. The petitioner is aggrieved with the levy of tax under the Act of 1999 on its product when its brand is carried into local area of State of Rajasthan for use, consumption or sale within such local area. He has challenged the constitutional validity of the Act of 1999 and the aforesaid notification issued thereunder. Amongst other grounds, the petitioner has challenged the levy being ultra vires article 301 under Chapter XIII of the Constitution of India. It is submitted by learned counsel for the petitioner that the impugned tax on the entry of goods into local area has direct impact on movement of trade from any place to a local area within the State of Rajasthan as it is a levy on entry of its product or movement of its product from any place outside the local area to within the local area where it is to be used, sold or consumed. That being so, it is hit by article 301 of the Constitution. In view of the fact that before enacting the impugned Act the Bill has not been laid before the President for his assent as envisaged under proviso to article 304(b) of the Constitution. Hence, it is not saved from restriction imposed under article 301. He has pressed into service the principle enunciated in; (1) Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 . (2) Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 . (3) Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC) (1st Jindal case). (4) Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC) (2nd Jindal case). Ltd. v. State of Assam AIR 1961 SC 232 . (2) Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 . (3) Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC) (1st Jindal case). (4) Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC) (2nd Jindal case). On the other hand, respondents have contended that : (i) the tax in question is not suffered by the trade because the same is transmitted to the end - consumer and it being an indirect tax, it does not impede the activity of goods and is not hit by article 301 of the Constitution and consequently it is inapt to refer to the procedure provided under article 304 of the Constitution for the purpose of saving it from the restriction imposed under article 301 of the Constitution to be a reasonable restriction. (ii) The contention was also that the entry tax is not merely on the entry of goods within the local area but it requires something more than that, i.e., to say entry of goods into local area must be for its use, consumption or sale therein. (iii) It was also argued that octroi being a compensatory tax, it does not fall within the province of article 301 of the Constitution at all, which also obviate necessity to follow procedure for making a law by State Legislature to overcome the prohibition imposed under article 301 of the Constitution. In this regard, the specific case of the respondents is that prior to introducing entry tax under the Act of 1999, the octroi duty on entry of goods within local limits of municipality or panchayat for use, sale or consumption at such rates as may be notified by the State Government in each local area under municipality or panchayat, as the case may be, was being levied and collected by the concerned local self-Government institution. The amount realised by way of octroi was not only the major source of revenue for such authority but it was basically a lifeline for such authorities. However, levy and collection of octroi as such was creating hindrance to smooth flow of traffic on account of check-posts at various points within the local area and led to harassment to the transporters and traders. However, levy and collection of octroi as such was creating hindrance to smooth flow of traffic on account of check-posts at various points within the local area and led to harassment to the transporters and traders. Therefore, octroi was abolished vide notification dated July 31, 1998 and the Act of 1999 was introduced to recoup the loss of revenue of State on account of levy of octroi and to compensate the local authorities on regular basis by way of grants. Object of providing such financial assistance to all the local bodies was to enable them to undertake various welfare activities, whereby, trades and businesses are directly and immediately benefited. This petition was first listed for hearing on February 27, 2002 and the matter was dismissed by referring to an earlier decision of this court in Godfrey Philips India Ltd. v. State of Rajasthan [2001] 121 STC 54; [2000] 7 STT 50, which has upheld the validity of the Act of 1999. However, both the decisions of this court in Godfrey Philips India's case [2001] 121 STC 54; [2000] 7 STT 50 as well as in this case, which was dismissed by following the Godfrey India's case [2001] 121 STC 54 (Raj); [2000] 7 STT 50 were challenged before the Supreme Court by way of appeal. Backdrop in which case was remitted back to High Court : It may be noticed here that in the meantime another matter has reached before the apex court arising from the Punjab and Haryana High Court relating to "Haryana Local Area Development Tax Act, 2000" : challenge has been laid to the validity of the said Haryana Act on two grounds : firstly, that the Act is violative of article 301 of the Constitution and is not saved by article 304 of Constitution and the Act, in fact, seeks to levy sales tax on inter-State sales, which is outside the competence of State Legislature. The Haryana Act had provided for levy and collection of tax on the entry of goods into local area of the State of Haryana for consumption or use therein and matters incidental thereto and connected therewith. The Haryana Act had provided for levy and collection of tax on the entry of goods into local area of the State of Haryana for consumption or use therein and matters incidental thereto and connected therewith. The Haryana Act has sought to impose tax on all goods brought into the local area and the phrase "local area" has been defined in section 2(14) of that Act to mean "an area within the limits of a Municipal Corporation established under the Haryana Municipal Corporation Act, 1994, or a municipality established under the Haryana Municipal Act, 1973, or a Town Board or a Cantonment Board established under the Cantonment Act, 1924, or a zilla 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". Both the provisions under the Haryana Act are in pari materia with the provisions of the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999. "Local area" has been defined under section 2 in the Rajasthan Act of 1999 as under : "(j) Local area means the area within the limits of, - (i) a panchayat established under the Rajasthan Panchayati Raj Act, 1994 (Act No. 13 of 1994), or (ii) a municipality established under the Rajasthan Municipalities Act, 1959 (Act No. 38 of 1959), or (iii) a notified area committee or a cantonment board constituted or established under any law for the time being in force;" Charging section 3 of the Act reads as under : "Levy of tax. - (1) There shall be levied, collected and paid to the State Government a tax on entry of any goods brought into a local area, for consumption, use or sale therein, with effect from such date and at such rates, not exceeding ten per cent of the value of the goods, as may be specified by the State Government, by notification in the Official Gazette, and different dates and different rates may be specified in respect of different goods or different class of goods or different local areas. (2) The entry tax shall be levied on taxable purchase value of the goods, so however that in case where it is not possible to determine the taxable purchase value of goods, the entry tax shall be levied on taxable market value of goods. (2) The entry tax shall be levied on taxable purchase value of the goods, so however that in case where it is not possible to determine the taxable purchase value of goods, the entry tax shall be levied on taxable market value of goods. (3) The tax levied under sub-section (1), shall be paid by every registered dealer or a dealer liable to get himself registered under this Act who brings or causes to be brought into a local area, the goods whether on his own account or on account of his principal or any other person or who takes delivery or is entitled to take delivery of such goods on its entry into a local area." In its order dated September 26, 2004 in the first Jindal case [Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC)], the Supreme Court referred to the principle enunciated in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 that all taxing laws are not excluded from the operation of article 301. The tax laws can and do amount to restrictions on the freedoms guaranteed to trade under Part XIII of the Constitution. Statutes of State Legislature, restrictive of trade can avoid invalidation if they comply with article 304(a) and (b). It was further held that only such taxes as directly and immediately restrict trade would fall within the purview of article 301. However, the prohibition of restrictions on free trade is not an absolute one and that, any restriction in the form of taxes imposed on the carriage of goods or passengers on their movement by the State Legislature can only be done after satisfying the requirements of article 304(b). In Atiabari Tea Co.'s case AIR 1961 SC 232 considering the fact that the Assam Taxation (on Goods Carried by Roads and Inland Waterways) Act, 1954, which imposed the impugned tax had put a direct restriction on the freedom of trade and since the State Legislature had not complied with the provisions of article 304(b), it was declared void. The Haryana Act was also enacted without adhering to the provisions of article 304(b). The Haryana Act was also enacted without adhering to the provisions of article 304(b). The court further noticed that in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 the exception to article 301 and its operation in relation to compensatory taxes was a judicially crafted concept by the apex court while examining the validity of the Rajasthan Motor Vehicles Taxation Act, 1951. The challenge to the Rajasthan Motor Vehicles Taxation Act, 1951 was rejected on the ground that the tax on motor vehicles was a compensatory tax which, instead of hindering trade, commerce and intercourse, facilitates them by providing and maintaining the roads. In Automobile Transport's case AIR 1962 SC 1406 , the court has observed that : "... If a statute fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be considered unimpaired. ..." The court further noticed in Automobile Transport's case AIR 1962 SC 1406 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. ..." Thus, in order to consider whether any tax is compensatory, the principle of quid pro quo on the touchstone of proportionality was held to be the working test. That is to say where in order to raise funds to provide facilities to the trade and commerce any tax is imposed and if the trade people who are having the use of certain facilities for better conduct of their business are paying in fairly equal ratio with the expenses incurred for providing such facilities, the tax is by way of reimbursing the expenses incurred by the State for providing facilities to the trade and in such event it cannot be considered a law impeding the free movement of trade, commerce or intercourse to fall within article 301 of the Constitution. The working test was approved and applied by the Supreme Court in large number of cases referred to in first Jindal's case [2004] 134 STC 303 (SC). The working test was approved and applied by the Supreme Court in large number of cases referred to in first Jindal's case [2004] 134 STC 303 (SC). However, the court noticed the discordant note struck on the true scope of aforesaid working test devised in Automobile Transport's case AIR 1962 SC 1406 justifying the compensatory tax to fall beyond the scope of article 301 of the Constitution in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 in which the court had opined that 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 principle stated in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 was reiterated by the Bench of two judges in State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136. Noticing two different and divergent stream of thoughts that what should be the test for determining whether the particular tax is compensatory or not, in the first Jindal's case [2004] 134 STC 303 (SC) the court finally referred the matter to be decided by a Constitution Bench of the apex court. Following order was made in the first Jindal's case [2004] 134 STC 303 (SC) : "Since the concept of compensatory tax has been judicially evolved as an exception to the provisions of article 301 and as the parameters of this judicial concept are blurred particularly by reason of the decisions in Bhagatram's case [1995] 96 STC 654 (SC) and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136, we are of the view that the interpretation of article 301 vis-a-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench under article 145(3)." The reference came to be decided by the Constitution Bench of the Supreme Court vide Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544. The five-judge Bench of the Supreme Court did not approve the test laid in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. The five-judge Bench of the Supreme Court did not approve the test laid in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136 and overruled the same. It approved the doctrine of "direct and immediate effect" of the impugned law on trade and commerce under article 301 as propounded in Atiabari Tea's case AIR 1961 SC 232 and working test devised in Automobile Transport's case AIR 1962 SC 1406 for deciding whether a tax is compensatory or not for attracting article 301 was approved and was held to continue to apply while considering the question whether any taxing law falls within the domain of article 301 of the Constitution or not ? Since the larger Bench of the Supreme Court was only to decide the reference in relation to the matter noticed above, the appeals in which this question was raised were again placed before the regular Bench of the honourable Supreme Court. On return of answer to reference, the Supreme Court passed its orders on pending appeals, special leave petitions and other applications after culling out the principle stated by Larger Bench and remitted the cases back for deciding the same to the respective High Courts with the following directions : "Since relevant data do not appear to have been placed before the High Courts, we permit the parties to place them in the concerned writ petitions within two months. The concerned High Courts shall deal with the basic issue as to whether the impugned levy was compensatory in nature. The High Courts are requested to decide the aforesaid issue within five months from the date of receipt of our order. The judgment in the respective cases shall be placed on record by the concerned parties within a month from the date of the decision in each case pursuant to our direction." Thereafter, another order was made by the Supreme Court on January 23, 2007, which is as under : "So far as the High Courts of Allahabad, Patna, Guwahati and Kerala are concerned, the impugned provisions have been held to be ultra vires by the Allahabad, Guwahati and Kerala High Courts and there has been partial striking down by the Patna High Court. Notwithstanding the pendency of these matters before this court, it shall be open for any concerned State/aggrieved party to question the correctness of the order passed by the High Court in an appropriate proceeding"; and extended the period for deciding the writ petition. This is how the matter is before us now. The principles emerging from Jindal's case [2006] 145 STC 544 (SC) : The honourable apex court culled out following principles from Constitutional Bench decision in Jindal's case [2006] 145 STC 544 (SC) in the light of which the issue whether impugned tax is compensatory tax is to be decided : "42. To sum up, the basis of every levy is the controlling factor. In the case of 'a tax', the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of a 'fee', the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of 'burden' to the concept of measurable/quantifiable benefit and then it becomes 'a compensatory tax' and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then article 301 is violated. Burden on the State : 43. Applying the above tests/parameters, whenever a law is impugned as violative of article 301 of the Constitution, the court has to see whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. The Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. If the provisions are ambiguous or even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/facility provider to show by placing the material before the court, that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to its payer(s). As soon as it is shown that the Act invades freedom of trade it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of article 304(b) (the decision in the case of Khyerbari Tea Co. Ltd. v. State of Assam reported in AIR 1964 SC 925 ). Scope of articles 301, 302 and 304 vis-a-vis compensatory tax : 44. As stated above, taxing laws are not excluded from the operation of article 301, which means that tax laws can and do amount to restrictions on the freedom guaranteed to trade under Part XIII of the Constitution. This principle is well-settled in the case of Atiabari Tea Co. AIR 1961 SC 232 . It is equally important to note that in Atiabari Tea Co. AIR 1961 SC 232 , the Supreme Court propounded the doctrine of 'direct and immediate effect'. Therefore, whenever a law is challenged on the ground of violation of article 301, the court has not only to examine the pith and substance of the levy but in addition thereto, the court has to see the effect and the operation of the impugned law on inter-State trade and commerce as well as intra-State trade and commerce. 45. When any legislation, whether it would be a taxation law or a non-taxation law, is challenged before the court as violating article 301, the first question to be asked is : what is the scope of the operation of the law ? Whether it has chosen an activity like movement of trade, commerce and intercourse throughout India, as the criterion of its operation ? If so, the next question is : what is the effect of operation of the law on the freedom guaranteed under article 301 ? Whether it has chosen an activity like movement of trade, commerce and intercourse throughout India, as the criterion of its operation ? If so, the next question is : what is the effect of operation of the law on the freedom guaranteed under article 301 ? If the effect is to facilitate free-flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature. Clause (b) of article 304 confers a power upon the State Legislature similar to that conferred upon Parliament by article 302 subject to the following differences : (a) While the power of Parliament under article 302 is subject to the prohibition of preference and discrimination decreed by article 303(1) unless Parliament makes the declaration under article 303(2), the State power contained in article 304(b) is made expressly free from the prohibition contained in article 303(1) because the opening words of article 304 contains a non obstante clause both to article 301 and article 303. (b) While the Parliament's power to impose restrictions under article 302 is not subject to the requirement of reasonableness, the power of the State to impose restrictions under article 304 is subject to the condition that they are reasonable. (c) An additional requisite for the exercise of the power under article 304(b) by the State Legislature is that previous Presidential sanction is required for such legislation." Entry tax : Legislative field and legislations : The legislative field to levy "tax on entry of goods into a local area for consumption, use or sale therein" is the exclusive preserve of State Legislature under entry 52 of State List in the Seventh Schedule appended to the Constitution. It reads "Taxes on entry of goods into a local area for consumption, use or sale therein". This term is popularly known as "octroi". Octroi has always been considered as a source of revenue in general for meeting the expenses of any institution of self-governance of any local area. It is imposed on entry of goods within the limits of a given local area for use, sale or consumption and not for mere further transmission to other places. Octroi has always been considered as a source of revenue in general for meeting the expenses of any institution of self-governance of any local area. It is imposed on entry of goods within the limits of a given local area for use, sale or consumption and not for mere further transmission to other places. The activity chosen for levy of tax is movement of goods from outside local limits of given local area to within limits of local area. Thus, the octroi directly concerns the free movement of goods and falls within specie of taxes which, if otherwise not shown to be saved from the field of article 301, is impermissible. The levy being subject of State Legislature can fall outside the indication under article 301 on two grounds. Firstly, if it is compensatory tax in the sense that it is levied to provide certain facilities to the trade to impose regulatory provisions for its better development and growth and the tax collected through such levy is in approximate proportion to cost incurred in providing such services or in implementing regulatory measures, benefit from which is a quantifiable measure, it can be termed as a compensatory tax for facilitating the trade, commerce or intercourse and not for its impediment. In such event it falls outside the purview of article 301. Secondly, if the tax cannot be considered compensatory or regulatory in nature but is part of general revenue amounting to restriction on such freedom, it is saved under article 304 of the Constitution. The first question to be examined by us is the nature of tax imposable under the Act of 1999, which is a legislation enacted by State Legislature of Rajasthan in terms of entry 52 of State List of the Seventh Schedule. There is an intrinsic evidence in the scheme of the Constitution suggesting that levy of tax under entry 52 of the State List in the Seventh Schedule has been for the purpose of funding local self-Government by authorising levy of tax to be part of general revenue of the institution of local self-governance, by whatever name called, of any local area. The fact that the activity on which tax under entry 52 is to be levied is confined to entry of goods into a local area and such entry of goods being for the purpose of use, consumption or sale in the said local area is the first indication that this tax is levied for the purpose of authority administering or governing the local area. The entry itself suggests that levy can only be on class of goods moving from outside the local limits of a territory defined as local area to within such local area and the persons on whom the incidence is to fall will be those, who bring in or receive such goods within that local area. Hence, the levy under entry 52 of List II is designed for generating revenue for the purpose of particular local area, by imposing tax on movement of goods within local area from outside for consumption, use or sale therein. Almost all the statutes in existence before the commencement of the Constitution or which came into existence after the commencement of the Constitution constituting municipalities or other institutions of self-governance like cantonments, notified area or panchayats had provided for levy and collection of octroi, that is to say, tax on entry of goods into a local area for use, sale or consumption therein. For example, in C.P. and Berar Municipalities Act, 1922 the levy of tax on entry of goods within municipal limit for sale, consumption or use has been provided under section 66 as under : "An octroi on animals or goods brought within the municipality for sale, consumption or use within those limits." Jaipur Municipalities Act, 1943 had the like provision, Bombay Municipal Boroughs Act, 1925 had the like provisions. All these Acts were made before commencement of Constitution and even before the Government of India Act, 1935 was enacted, or by erstwhile Indian States where Government of India Act was not in force. When Government of India Act, 1935, a precursor of Indian independence and Constitution, was enacted in 1935, the legislative fields were divided into three categories under Schedule Seven appended thereto. Like legislation scheme under the Constitution, the legislative fields were reserved for Federal Legislature, provincial Legislature and for both commonly called as Federal List, Provincial List and Concurrent List. When Government of India Act, 1935, a precursor of Indian independence and Constitution, was enacted in 1935, the legislative fields were divided into three categories under Schedule Seven appended thereto. Like legislation scheme under the Constitution, the legislative fields were reserved for Federal Legislature, provincial Legislature and for both commonly called as Federal List, Provincial List and Concurrent List. Entry 49 of List II of Provincial List reads as under : "Cesses on the entry of goods into a local area for consumption, use or sale therein." Said entry 49 of Provincial List under the Act of 1935 corresponds to entry 52 of State List in the Seventh Schedule of the Constitution. Post Constitution, when laws were enacted for constituting institution of local self-governance, like provisions were made in such enactments authorising such authorities to levy and collect taxes on entry of goods in such local areas for which such authorities were constituted. Provision for levy of octroi as compulsory tax to be levied by the municipalities had been incorporated in Rajasthan Town Municipalities Act and Rajasthan Municipalities Act, 1959, Rajasthan Panchayat Act, 1954 and thereafter in its new incarnation in Rajasthan Panchayati Raj Act, 1994. Regarding this proposition, it would be apposite to notice some relevant provisions made under the Constitution for Panchayats and Municipalities under Part IX and IXA. The special provisions have been made for constitution and governance of the panchayat and municipalities as bodies of local self-governance as a part of the smallest unit of sovereign power of the free people of India as institutions of self-governance. Part IX deals with Panchayats and Part IXA deals with municipalities. Under article 243G of Part IX, it is envisaged that subject to the provisions of this Constitution the Legislature of a State may, by law, endow the panchayats with such powers and authority and may be necessary to enable them to function as institution of self-Government. The panchayats can be entrusted with such powers as may be provided by law constituting such panchayats as have been detailed in Schedule XI. Like provision has been made under article 243W read with Schedule XII in respect of municipalities under Part IXA. For the purpose of discharging their functions as bodies of self-governance, provisions have also been made for funds for panchayat under article 243H and for municipalities under article 243X, respectively. Like provision has been made under article 243W read with Schedule XII in respect of municipalities under Part IXA. For the purpose of discharging their functions as bodies of self-governance, provisions have also been made for funds for panchayat under article 243H and for municipalities under article 243X, respectively. Relevant provisions of the same read as under : "Article 243H. Powers to impose taxes by, and funds of, the panchayats. - The Legislature of a State may, by law, - (a) authorise a panchayat to levy, collect and appropriate such taxes, duties, tolls and fees in accordance with such procedure and subject to such limits; (b) assign to a panchayat such taxes, duties, tolls and fees levied and collected by the State Government for such purposes and subject to such conditions and limits; (c) ... (d) ..." "Article 243X. Power to impose taxes by, and funds, of, the municipalities. - The Legislature of a State may, by law - (a) authorise a municipality to levy, collect and appropriate such taxes, duties, tolls and fees in accordance with such procedure and subject to such limits; (b) assign to a municipality such taxes, duties, tolls and fees levied and collected by the State Government for such purposes and subject to such conditions and limits; (c) ... (d) ..." From the aforesaid, it is apparent that the State Legislature may either authorise the panchayat or municipality, as the case may, itself to levy, collect and appropriate such taxes for its purposes, or the State Government by itself may levy and collect such taxes, duties, tolls and fees as referred to in respective clause (1) of each articles for the purpose of panchayat or municipalities, as the case may be, and assign the same to them for the purpose for which levy has been made and collected. It is significant to notice that tax authorised under entry 52 of List II of the Seventh Schedule is limited to specified activity on entry of goods into the local area, i.e., for use, consumption or sale therein, which is clearly indicative of the fact that wherever the movement of goods from outside the limit of local area terminates within the local area for the purpose of utilisation of such goods within that local area by way of use, consumption or sale therein, there is direct nexus with the activity of movement of goods and levy of tax on the entry of goods which moves into the local limits of the defined local area. Apparently, this nexus is related to levy of tax for providing fund for the institution of self-governance to discharge functions which have been assigned to the municipalities or panchayats or any other authority designed as an institution of self-governance. That object is clear from these provisions of the Constitution that the levy and collection of tax on the activity of entry of goods within the local area for use, consumption or sale therein is either to be levied and collected by the authority of local area concerned or to be levied and collected by the State Government itself and assign the same to the institution of self-governance of such local area. We are, therefore, of the opinion that authorisation of levy under entry 52 whether to be levied and collected by local authority or by the State Government, it remains for the purpose of local area. If that is not the essential condition, there would remain hardly any distinction about the terminal tax authorised to be levied under entry 58 of Federal List of Government of India Act, 1935 or entry 89 of Union List under the Seventh Schedule of the Constitution and the taxes to be levied under entry 49 of List II of the Government of India Act, 1935 or entry 52 of List II of the Seventh Schedule of the Constitution, and that is the reason behind the ratio that octroi or the tax on the entry of goods into local area for consumption, use or sale therein is neither regulatory nor compensatory but is a part of fund of local authority to be utilised by the authority governing the local area for its expenditure in general, in order to discharge its functions. As we have seen, either law can authorise the institution of local self-governance within the local area itself to impose and collect such tax or the State Government may itself levy and collect such taxes and assign the same to the local area for the general purpose of the authority, for which such tax is collected. At present, we are not concerned with the modalities of the tax levied and collected by the State Government, and assigning it to the local area, which may not have direct bearing on the question of its status vis-a-vis article 301, but one thing appears to be clear that whether the tax of the nature envisaged under entry 52 is levied and collected by the institution of local self-Government under the law framed by the State Government and appropriated by the institution of self-governance or is levied and collected by the State Government and assigned to the concerned institution of self-governance of the concerned local area it would not alter the nature of such tax nor the status of the tax vis-a-vis article 301. Some decisions : There is a high authority pronouncing that effect of levy of tax on entry of goods into local area for its use, consumption or sale therein, the duty known as octroi has a pernicious evil influence on the free movement of trade, commerce or intercourse and falls within the ambit of article 301. Punjab Flour and General Mills Co. Ltd., Lahore v. Chief Officer, Corporation of the City of Lahore and the Province of the Punjab AIR 1947 FC 14 : A contention was raised in Punjab Flour and General Mills Co. Ltd., Lahore v. Chief Officer, Corporation of the City of Lahore and the Province of the Punjab AIR 1947 FC 14, that imposition of octroi (without refunds) on import of wheat among other grains within municipal limits as notified by municipality of Lahore vide Punjab Government Gazette dated February 6, 1940 was beyond jurisdiction of provincial legislation or municipality in exercise of its power to impose local taxes, as it falls within entry 58 of Federal List under the Government of India Act, 1935, which reads "terminal taxes on goods carried by railway or air; taxes on railway fares and freights". Significantly, the court pointed out the terminal taxes under entry 58 on carriage of goods through air and railway were related to service to be rendered by some rail or air transport organisation, but the same was not found to be so in the case of cesses on entry of goods into local areas for consumption, use or sale therein, but was considered to be part of power of local authority to raise revenue for its purpose. The court rejected the contention by drawing distinction between terminal taxes imposable by the Federal Government under entry No. 58 of List I of the Seventh Schedule (corresponding to entry 89 of List I of the Seventh Schedule to the Constitution) and the taxes imposable by provincial Government referred to as "cesses on entry of goods into local area in entry 49, List II of the Act, 1935", (which corresponds to entry 52 under the Constitution in List II of the Seventh Schedule). Adverting to levy under entry 49 of the Act of 1935, the court said : "... In our judgment no conclusions can possibly be based on the forms of taxes or the nomenclature applied to the taxes imposed prior to April 1, 1937. The Government of India Act made a great alteration in the powers of Provinces and local authorities to impose local taxation, and our enquiry must be limited to an examination of the taxes imposed in 1938 and 1940 to ascertain whether or not the taxes claimed on the grain imported by the appellant did or did not come within the powers of the Province and the municipality as conferred by the Government of India Act, 1935. ... There appears to us a definite distinction between the type of taxes referred to as terminal taxes in entry No. 58 of List I of Schedule 7 and the type of taxes referred to as cesses on the entry of goods into a local area in entry No. 49 of List II. The former taxes must be (a) terminal (b) confined to goods and passengers carried by railway or air. They must be chargeable at a rail or air terminus and be referable to services (whether of carriage or otherwise) rendered or to be rendered by some rail or air transport organisation. The former taxes must be (a) terminal (b) confined to goods and passengers carried by railway or air. They must be chargeable at a rail or air terminus and be referable to services (whether of carriage or otherwise) rendered or to be rendered by some rail or air transport organisation. The essential features of the cesses referred to in entry No. 49 of List II are, on the other hand, simply (a) the entry of goods into a definite local area and (b) the requirement that the goods should enter for the purpose of consumption, use or sale therein. It is to be noted that there is no limitation on the manner by which the goods to be subjected to such cesses may enter. ..." The taxes leviable under entry 49 of List II, now under entry 52 of the Seventh Schedule of the Constitution, is subject of local taxation for the purpose of local governance. Before noticing decisions of the Supreme Court, we may refer to two vintage Bench decisions of the Rajasthan High Court on the issue. Gauri Shanker v. Municipal Board, Jhunjhunu AIR 1958 Raj 192 : Levy of tax on entry of goods within local area for use, sale or consumption under section 59 of the Rajasthan Town Municipalities Act, 1951, had been subject-matter of challenge before this court in Gauri Shanker v. Municipal Board, Jhunjhunu AIR 1958 Raj 192 , inter alia, on the ground that it being a duty on movement of goods within municipal limits results in impediment on free movement of trade and impinges upon article 301 of the Constitution. Since the Bill presented to the Legislative Assembly was not preceded with the approval of the President, the Act was ultra vires article 301 of the Constitution. The Division Bench found that before the Act has come into force, it has received the assent of the President as a whole and, therefore, it was saved from being invalid in view of article 255. The court has referred to Surajmal's case AIR 1954 Raj 260 and said as under : "... the freedom granted under article 301 is not absolute, but is subject to the other provisions of Part XIII of the Constitution. The argument, therefore, on behalf of the applicant that octroi duties can, in no circumstances, be imposed, is also incorrect. The court has referred to Surajmal's case AIR 1954 Raj 260 and said as under : "... the freedom granted under article 301 is not absolute, but is subject to the other provisions of Part XIII of the Constitution. The argument, therefore, on behalf of the applicant that octroi duties can, in no circumstances, be imposed, is also incorrect. Article 304 envisages imposition of such reasonable restrictions on the freedom of trade, commerce or intercourse with or within the State as may be required in the public interest. Item 52 of List II of the Seventh Schedule gives power to the State to impose taxes on the entry of goods into a local area for consumption, use or sale therein. The Constitution, therefore, envisages imposition of octroi duty on entry of goods in municipal area in the public interest, and octroi duty can be imposed under article 304 if the State passes law as provided in that article." Surajmal Baj v. State of Rajasthan AIR 1954 Raj 260 : The matter had earlier been considered in another Bench decision in Surajmal Baj v. State of Rajasthan AIR 1954 Raj 260 and a like argument, as in the case of Rajasthan Town Municipalities Act, was raised in connection with levy of octroi duty on entry of goods within Jaipur Municipal limits for use, sale or consumption therein in 1953 by the Jaipur Municipality under the Jaipur Municipalities Act, 1943. The court held on principle that imposition of octroi would amount to restriction on the freedom of trade granted under article 301. Freedom implies that there should be no restrictions on trade and commerce. Levying of octroi duty on entry of goods inside municipal limits would certainly restrict freedom of trade, inasmuch as there will be impediment to the movement of goods into municipal limits unless the duty was paid. Though, the Jaipur Municipality Act, 1943 was found to be valid because it was a pre-existing law in terms of article 305, and the procedural requirements for making such law by the then legislative authority was not applicable. Though, the Jaipur Municipality Act, 1943 was found to be valid because it was a pre-existing law in terms of article 305, and the procedural requirements for making such law by the then legislative authority was not applicable. From the two-Bench decisions of this court, it is apparent that levy of taxes in terms of entry 52 of the State List of the Seventh Schedule of the Constitution or for that matter entry 49 of List II of the Seventh Schedule of the Government of India Act, 1935 is a restriction on movement of goods which directly impedes the freedom of trade, commerce or intercourse throughout the territory of India and falls within the mischief of article 301 of the Constitution. It was also found that levy of octroi can be saved from being violative of article 301 if it can be found to be reasonable restriction on such freedom. But, the law by the State Legislature must be framed in accordance with the provisions of article 304. Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906 : In this connection, we may notice Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906 . In this case, the court had occasion to examine the nature of octroi in connection with issue raised about the validity of charging octroi from the appellant before the Supreme Court, namely, Burmah-Shell Company on its product brought inside the limits of Belgaum Municipality for sale. The company used to bring its product which were manufactured in its refineries, which were situated outside the limits of Belgaum municipality, to within the municipal limits of Belgaum either for use or consumption by itself or for sale generally to its dealers or licensees, who in turn used to sell it to others. The company also directly used to sell its products to the Government, both civil and military, and to local bodies, and big private concerns. Borough municipality was governed by the Bombay Municipal Boroughs Act, 1925, which was an enactment brought into force even before the commencement of Government of India Act, 1935, replacing the Borough Act of 1911. The company also directly used to sell its products to the Government, both civil and military, and to local bodies, and big private concerns. Borough municipality was governed by the Bombay Municipal Boroughs Act, 1925, which was an enactment brought into force even before the commencement of Government of India Act, 1935, replacing the Borough Act of 1911. Under the Bombay Municipal Boroughs Act, 1925, before its amendment from May 5, 1954, under section 73(1)(iv), it was provided that subject to any general or special orders, which the State Government may, in this behalf and to the provisions of sections 75 and 76, a municipality may impose for the purposes of this Act any of the following taxes, namely : "(iv) an octroi on animals or goods or both, brought within the octroi limits for consumption or use therein." With effect from May 5, 1954, the words "or sale" were also inserted. The company was paying octroi on its products brought within the municipal limits of Belgaum even for the purpose of sale within the municipal limits of Belgaum even prior to this amendment. After the amendment, it has paid octroi in respect of its products brought within the municipal limits for sale also but raised a dispute that tax could not be collected prior to May 5, 1954 on goods brought inside the octroi limits for sale but not consumed therein on the ground that tax on entry of goods brought within for sale was first introduced only with effect from May 5, 1954. In considering this question, the court referred to the history of levy of octroi and also the legislative history of levy of octroi through statutory provisions and its object in distribution of legislative power under the Government of India Act as well as Constitution of India. It pointed out that word "octroi" comes from the word "octroyer", which means "to grant" and in its original use meant "an import" or "a toll" or "a town duty" on goods brought into a town. At first octrois were collected at ports but being highly productive, towns began to collect them by creating octroi limits. They came to be known as "town duties". These were collected not only on "imports" but also on "exports". At first octrois were collected at ports but being highly productive, towns began to collect them by creating octroi limits. They came to be known as "town duties". These were collected not only on "imports" but also on "exports". The court referred to Beuhler's : Public Finance (3rd Edition) and Grice's National and Local Finance to point out that these duties were known as "ingate tolls" because they were collected at toll gates or barriers. Normally, they were levied on goods meant for consumption but in Seligman's Encyclopaedia of Social Sciences "octrois" are described without any reference to consumption or use as under : "As compared with the facilities of the National Government the possibilities of raising revenue by local bodies are quite limited. All forms of indirect taxation are practically closed to local authorities. They are unable to levy customs duties, although they may collect the so-called octrois, that is, duties levied on goods entering town." In the aforesaid light, the court found that until the Government of India Act, 1935 came into force terminal tax, which was also a tax on entry of goods but without reference to its use, consumption or sale in the local area was a specie of octroi. Referring to report of Indian Statutory Commission, the court said : "... on the recommendation of a Committee appointed in 1908, terminal tax took the place of octroi in a large number of municipalities; at first in the United Provinces and then in others. At first the Government of India were not in favour of such a change. Octrois were levied on goods brought into a local area for consumption, use or sale and were indirect taxes but terminal taxes were regarded as direct. On July 6, 1917, the Government of India by a Resolution reversed their former policy and agreed that the conversion was not a change from indirect to direct taxation. Terminal taxes were of the nature of octrois, but were not quite the same. The main differences were : that there was no system of refunds under the Terminal Tax Rules (Terminal Taxes as Findlay Shirras tells us were sometimes known as 'octrois without refunds') and for octroi to be levied the goods must be brought in for sale, use or consumption." Similar view was expressed in Taxation Enquiry Commission, in which it was said : ".... the most important difference lies in the requirement peculiar to octroi that, for this tax to become leviable, the goods must not only enter the area, but must be for the purpose of 'consumption, use or sale therein'. Usually, this requirement is sought to be satisfied by (a) the ab initio exemption of the goods which merely pass through the area, whether the exit is immediate or after an interval, or (b) by the subsequent refund of the tax collected on such goods. Exemptions and refunds, therefore, are the distinguishing features of the octroi system." The court further observed that : "Octrois and terminal taxes were different taxes though they resembled in one respect, namely, that they were leviable in respect of goods brought into a local area. While terminal taxes were leviable on goods 'imported or exported' from the municipal limits denoting thereby that they were connected with the traffic of goods, octrois according to the legislative practice then obtaining were, leviable in respect of goods brought into a municipal area for consumption or use or sale. ..." However, with the advent of Government of India Act, 1935, the terminal tax became a Federal subject vide entry No. 58 of List I within the legislative field of Federal Government, which reads as under : "Terminal taxes goods or passengers carried by railway or air." Corresponding entry in Constitution is to be found at entry 89 in List I of the Seventh Schedule. Whereas, the tax on entry of goods within the local area for use, consumption or sale therein was reserved for provincial Legislature under entry 49, List II of the Seventh Schedule appended to Government of India Act, 1935, which read : "Cesses on the entry of goods into a local area for consumption, use or sale." The another important factor which was noticed by the court was that octroi to be collected by the authority governing the local area to appropriate the same for its own purpose and terminal tax collected were to be distributed amongst the provinces. In other words, revenue by tax collection as octroi on entry of goods into a local area for use, consumption or sale therein remains the part of the fund of institution governing the local area, the terminal tax which was levied and collected under the Central enactment became a revenue of the State. In other words, revenue by tax collection as octroi on entry of goods into a local area for use, consumption or sale therein remains the part of the fund of institution governing the local area, the terminal tax which was levied and collected under the Central enactment became a revenue of the State. Summary of principles culled out in first Jindal's case [2004] 134 STC 303 (SC) : In the first Jindal's case [2004] 134 STC 303 (SC), while making an order referring the question to a larger Bench as a result of cleavage of opinion in the scope of doctrine of quid pro quo, principle of near quality and validity of widened opinion expressed in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136, the court culled out the principle and conclusion derived from precedents holding the other view in Atiabari's case AIR 1961 SC 232 , Automobile Transport's case AIR 1962 SC 1406 , and other cases in Shaik Madar Saheb v. State of Andhra Pradesh [1972] 4 SCC 635, Bolani Ores Ltd. v. State of Orissa [1974] 2 SCC 777, G. K. Krishnan v. State of Tamil Nadu [1975] 1 SCC 375, International Tourist Corporation v. State of Haryana [1981] 2 SCC 318, Malwa Bus Service (Pvt.) Ltd. v. State of Punjab [1983] 3 SCC 237, Mrs. Meennakshi Alias Rama Bai v. State of Karnataka AIR 1983 SC 1283 ; [1984] Supp. SCC 326, B. A. Jayaram v. Union of India [1984] 1 SCC 168, State of Maharashtra v. Madhukar Balkrishna Badiya [1988] 4 SCC 290. The relevant conclusions for the present purposes are : "The following propositions are deducible from these cases : (1) The essence of article 301 is a right of free movement of trade without any obstructions by way of barriers - inter-State or intra-State or impediments operating as such barriers. Taxes which have a direct impact on the flow of trade and commerce constitute a violation of article 301 unless the legislation is brought within the scope of article 304(b). Taxes which have a direct impact on the flow of trade and commerce constitute a violation of article 301 unless the legislation is brought within the scope of article 304(b). (2) The tax levied upon the entry of goods into a local area for the purpose of use, consumption or sale therein has a direct effect on the movement of goods and therefore it can be saved only if the levy is in the nature of compensatory tax for the use of trading facilities or it comes under the protective umbrella of article 304. (3) So long as a tax remains compensatory or regulatory, it cannot operate as a hindrance to trade. Regulatory measures or compensatory taxes imposed to provide facilities and services to traders do not affect the freedom contemplated by article 301 and such measures/taxes need not comply with the requirement of article 304. (4) Tax imposed for augmenting general Revenues of the State such as sales tax, is not compensatory. However, motor vehicles tax is a typical instance of compensatory tax because, in substance, it is a tax imposed for the use of roads in the State and the tax enables the State to provide and maintain roads. (5) It is of the essence of compensatory tax that the service rendered or facility provided should be more or less commensurate with the tax levied. (6) A tax does not cease to be compensatory in nature merely because the precise or specific amount collected is not actually used in providing the facilities. However, the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy is necessary to uphold a regulatory and compensatory tax. (7) The expenditure for providing the facilities may be met from other sources. (8) The actual use of the facility by the tradesmen who are subject to the tax is immaterial." It needs hardly to be reminded that the view opposite to above in relation to paras 5 and 6, as propounded in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136 had been specifically overruled. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136 had been specifically overruled. In other words, principle of having some tenuous or indirect nexus between the levy and benefit derived by trade and commerce indirectly as a member of general category, had been overruled. The existence of specific identifiable object behind the levy and a nexus between subject and object is absolute necessity to uphold a tax to be regulatory and compensatory, provided of course, it satisfied the test that quantifiable measure of service rendered or facility provided should be more or less commensurate with the tax collected. The tax levied for augmenting general revenue is not compensatory, though due to activity of State or its agencies in discharge of its general obligation as Welfare State. Some benefits of its spending reaches trade and commerce also as incidental outcome. With aforesaid premise, the court opined with reference to section 22 of the Haryana Act that it envisaged giving of tax to local bodies for utilisation for the development of local area by itself did not indicate that tax was levied for providing facilities to trade and commerce specifically. The aforesaid decision fortifies us in our conclusion that tax on entry of goods within the local area for use, consumption or sale therein is primarily a revenue of general nature collected for the general purpose of the institution of self-governance administering the local area under it, in the absence of any indication that it has been levied with specific object of providing identifiable facilities to the trade and commerce. Whether the tax is authorised to be levied and collected by such institution or is levied and collected by the State Government itself and disbursed amongst the various local areas from where the tax is collected does not appear to have any pretence of collection of tax for implementing any provisions for providing identifiable facilities for trade or commerce or for imposing regulatory quantifiable measures for providing facilities for development and growth of trade, commerce or intercourse, so as to be called as regulatory or compensatory tax by holding an inquiry into the proportionality of expenses incurred as basic foundation of levy of tax for the purpose of providing quantifiable regulatory measures or identifiable facilities for betterment of trade, commerce or intercourse, is not shown to exist. Mrs. Mrs. Meennakshi Alias Rama Bai v. State of Karnataka AIR 1983 SC 1283 ; [1984] Supp. SCC 326 - Entry tax has pernicious effect on free movement of trade : With this background, it is apposite to notice that while considering the levy of enhanced tax on passenger transport vehicle levied by State of Karnataka under entry No. 56 of the Seventh Schedule of the State List to compensate the loss of revenue on account of abolition of octroi, the principle was stated by the Supreme Court in Mrs. Meennakshi Alias Rama Bai v. State of Karnataka AIR 1983 SC 1283 ; [1984] Supp. SCC 326 : "... Every local body from municipal corporation to gram panchayat in every State enjoys the power to levy octroi. A goods vehicle or a passenger vehicle will have to pass through different areas under the jurisdiction of various local authorities. If at every octroi station, the goods vehicles or the passenger vehicle is stopped and enquiry made or octroi either collected or deposit insisted upon with a right to claim refund, one has to experience through this agonising journey to appreciate what a pernicious influence octroi had on transport of goods and passengers. ... One can take judicial notice of a universal demand for abolition of octroi as an evil. ..." From the above it is more than clear that the tax on entry of goods within local area for consumption, use or sale therein has the direct effect on impairing the freedom of trade, commerce and intercourse affecting it adversely and is held to be falling within mischief of article 301 and can be saved only if law fulfils the requirement of article 304(b) of the Constitution. The levy of entry tax under the impugned Act has been enacted under the legislative power of the same entry with only difference that instead of empowering each local authority to levy and collect the tax on such goods on their entry into the local area for its general fund, the power to levy and collect the same tax has been vested in State Government to be assigned to municipalities and panchayats in its obligation under articles 243H and 243X, respectively but without specifying the purpose for which the funds are assigned. They remain collection by way of augmenting general revenue to be utilised by State for its obligation as governing body or by institution of local self-Government for discharging their functions in general, but the nature of levy remains the same, namely, the levy of tax on entry (moving of) of goods within each local area within the State for consumption, use or sale therein. Under the statute in question, the State has been divided into various local areas, namely, Panchayats, municipalities and cantonments and the like and on entry of goods in each local area for the purpose of consumption, use or sale therein levy is attracted. Therefore, on every entry of goods into the local area, an inquiry has to be made by stopping the goods regarding the purpose for which goods are entering into the local area and if its entry into the local area is for the aforesaid purposes, the octroi is also be paid. The fact that levy and collecting agent has become the State and not the Municipal Corporation does not affect the basic nature of the levy being on movement of goods within local area. We have, therefore, no hesitation in coming to the conclusion that the impugned tax has a direct effect of impeding free movement of trade, commerce and intercourse within the territory of India. However, before proceeding further, we may further notice that Mrs. Meennakshi's case AIR 1983 SC 1283 ; [1984] Supp. SCC 326 related to levy of enhanced tax on passenger transport vehicle after abolition of octroi for compensating the loss of revenue through different type of tax. Levy of different type of tax to recoup the loss of revenue due to abolition of octroi, and assignment of funds to institutions of local governance for discharging the function as local authority was held to be compensatory in nature because the basic evil of tax on entry of goods in local area for consumption, use or sale therein under entry 52 of the State List, which was found impeding free movement of trade, commerce or intercourse throughout the territory of India had been abolished and the new tax was not of the same nature under same authority. But in the present case instead of abolishing the levy of octroi only the agency of levying the tax and collecting the same has been substituted, i.e., instead of institution of local self-Government, municipality or panchayats, etc., the State Government itself has become the charging and collecting agent for the purpose of assigning funds amongst the various local authorities from the respective area of which the taxes under the Act has been levied and collected. Whether the distribution amongst the various local authorities of tax collected under entry 52 of the Constitution by the State is required to be in proportion to recovery made from concerned local area may raise another question, to which we shall advert to a little later. For the present, suffice it to say that tax on entry of goods within the local area for use, sale or consumption therein authorised to be imposed in terms of entry 52 of List II of the Seventh Schedule has a pernicious effect on freedom of trade, commerce and intercourse throughout the territory of India and is a universally acknowledged evil calling for its abolition and that being so, the impugned levy falls within the purview of article 301 of the Constitution of India, whether ordained to be levied and collected by local authority in-charge/local area or by the State Government for their purpose. Kunwar Ram Nath v. Municipal Board, Pilibhit [1983] 3 SCC 357 - No element of quid pro quo : The levy of tax on entry of goods into local area has no element of quid pro quo qua the person who pays the octroi to the municipality or for that matter to any other institution of local self-governance. Considering the levy of octroi under the U.P. Municipalities Act about the liability to pay octroi in respect of sugarcane brought within the municipal limits of Pilibhit through railway siding and claim of exemption thereto, the following observations were made in Kunwar Ram Nath v. Municipal Board, Pilibhit [1983] 3 SCC 357 : "It is also significant that the word 'octroi' in section 128(1)(viii) of the Act is found in the group of taxes referred to in section 128. All sums received by a municipal Board on account of the various levies made under section 128 have to be credited to the municipal fund under section 114 of the Act which can be utilised for the purposes of the municipal Board as stated in section 120 of the Act. The sum received as octroi is also dealt with like any other tax. There is no element of quid pro quo between the person who pays the octroi and the municipal Board. Hence octroi being a tax it was competent to the provincial Government to make an order under section 157(3) of the Act exempting rail-borne sugarcane from payment of octroi." Consequently, the matter was found to be covered by an existing exemption notification, which was further held to be not affected by an commencement of Constitution. The fact remains that nature of tax on entry of goods within the local area for consumption, use or sale was found to be having no element of quid pro quo having any nexus with any identifiable services rendered by the municipal council, but was considered to be part of the general revenue generated as municipal fund for its own purpose with no corresponding duty to be provided to the tax-payer. Before proceeding to examine the principles laid down by the Supreme Court while laying down the test to find out whether the impugned law falls within the ambit of restriction on the limits of the law-making authority, particularly vis-a-vis the taxing statute, it has to be kept in view that the scheme of levy in each case is the determinate factor, to find an answer and in determining the true nature of the levy in question and nature of levy/levies under statutes falling in different legislative fields which have come under judicial scrutiny may not afford in every case a comparable parallel, but do provide light. Atiabari's case AIR 1961 SC 232 : In Atiabari Tea Co.'s case AIR 1961 SC 232 , the court was considering the imposition of tax by the Assam Legislature under the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954. The Act was passed in order to provide for levy of tax on certain goods carried by roads or Inland Waterways in the State of Assam and it has received the assent of the Governor on April 9, 1954. The Act was passed in order to provide for levy of tax on certain goods carried by roads or Inland Waterways in the State of Assam and it has received the assent of the Governor on April 9, 1954. It had not been reserved for assent of President before moving the Bill in legislative assembly nor has the Act received the assent of the President thereafter. Under the Act, the authority required the tax-payer to comply with several requirements imposed by the Act and tax demand was in respect of tea carried by them through roads and waterways within Assam State. The principal ground on which constitutional validity of the aforesaid levy was questioned was that the Act had violated the provisions of article 301 of the Constitution and since it was not enacted as per procedure laid in the provisions of article 304(b), it was ultra vires. In defence, the State had contended that the levy of tax was within the legislative competence of Assam Legislature under entry 56 of List II of the Seventh Schedule and since the levy has been made by the competent Legislature suggesting that levy and collection was authorised by law in terms of article 265, Part XIII had no application. This spacious proposition was not accepted by the majority view of the Constitution Bench. The court held that restriction under article 301 was not confined only to laws made in relation to regulating the trade and commerce but tax laws as well may fall within the ambit of article 301 of the Constitution, the gateway to Part XIII of the Constitution. The court held : "The provision contained in article 301 guaranteeing the freedom of trade, commerce and intercourse is not a declaration of a mere platitude, or the expression of a pious hope of a declaratory character; it is not also a mere statement of a directive principle of State policy; it embodies and enshrines a principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country." The court stated : "Though the power of levying tax is essential for the very existence of the Government, its exercise must inevitably be controlled by the Constitutional provisions made in that behalf. It cannot be said that the power of taxation per se is outside the purview of any Constitutional limitations. The power of Parliament and the Legislatures of the States to make laws including laws imposing taxes is subject to the provisions of the Constitution and that must bring in the application of the provisions of Part XIII. Therefore, the argument based on the theory that tax laws are governed by the provisions of Part XII alone cannot be accepted." It was further said that : "Article 301, read in its proper context and subject to the limitations prescribed by the other relevant articles in Part XIII, must be regarded as imposing a Constitutional limitation on the legislative power of Parliament and the Legislatures of the States. Wherever, it is held that article 301 applies the legislative competence of the Legislature in question will have to be judged in the light of the relevant articles of Part XIII. Article 301 applies not only to inter-State trade, commerce and intercourse but also to intra-State trade, commerce and intercourse." The court while accepting that the freedom of trade guaranteed under article 301 is freedom from all restrictions except those which are provided by the other articles in Part XIII had added that : "... restrictions, freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would tall within the purview of article 301 ... in determining the limits of the width and amplitude of the freedom guaranteed by article 301 a rational and workable test to apply would be : Does the impugned restriction operate directly or immediately on trade or its movement ? ..." Applying the aforesaid test, the court found that since the tax under the Act of 1954 is collected on goods solely on the ground that they are carried by road or by inland waterways within the area of State resulting in putting a direct restriction on the freedom of trade. ..." Applying the aforesaid test, the court found that since the tax under the Act of 1954 is collected on goods solely on the ground that they are carried by road or by inland waterways within the area of State resulting in putting a direct restriction on the freedom of trade. Having come to this conclusion, the court further found that in doing so the State Legislature has not complied with the provisions of article 304(b), namely, that the Bill for enacting a law for levy and collection of tax in question had not been presented to the President for its approval before it was introduced in the House and Act has not been validated by the assent of the President under article 255(c). The Act was held to be void for want of compliance with article 304(b) in framing the law. From the aforesaid decision, the principles which can be culled out are that (i) the law which imposes a tax directly on the activity involving movement of goods, whether inter-State or intra-State, falls within the ambit of article 301 of the Constitution, as it results in directly impairing the free movement of goods and consequently impedes freedom of trade; (ii) that if such tax to be imposed is within the legislative field of the State Legislature, before enacting a law, article 304(b) requires that the Bill must be presented to the President for its approval before it is introduced in the Legislative Assembly. Failure to do so in compliance of article 304(b) renders the enactment void and inoperative and (iii) if the Legislature passed an enactment with the approval of the President or the Act receives the assent of the President after it is made law by the assent of the Governor then the further question to be inquired is whether restriction imposed, which falls within the ambit of article 301 of the Constitution, is reasonable or not ? The other condition, which is also necessary in case a tax imposed is on import of goods from outside the State to within the State that it must be a non-discriminatory tax in the sense that like goods manufactured in the State must also suffer the same tax in terms of clause (a) of article 304. The other condition, which is also necessary in case a tax imposed is on import of goods from outside the State to within the State that it must be a non-discriminatory tax in the sense that like goods manufactured in the State must also suffer the same tax in terms of clause (a) of article 304. This part of the above consideration is not germane for the present purposes inasmuch as the levy in question is not the levy on import of goods from outside the State within the State but is on the movement of goods into the local area. Whether through intra-State movement of goods or through inter-State movement of goods is immaterial, but levy is directly on the movement of the goods within the local limits of the local area for the purpose of goods staying in the local area either for consumption or sale or use. Therefore, the activity which is chosen for the levy of tax in the present case is directly the movement of goods and has direct nexus with the restrictions imposed by way of imposing tax. The working test that levy of tax must have a direct and immediate nexus on the impediment on free movement of the goods, is satisfied in the case of levy of tax by the State Legislature pursuant to entry 52 of List II of the Seventh Schedule of the Constitution. In applying the test of direct nexus with the imposition of tax and consequent restrictions on the movement of goods and passengers, the Court has not made distinction whether the levy is compensatory in nature or is by way of general imposition of general levy. Automobile Transport's case AIR 1962 SC 1406 : When the matter came up before the Supreme Court, considering the challenge to the constitutional validity of the Rajasthan Motor Vehicles Taxation Act, 1951 in Automobile Transport's case AIR 1962 SC 1406 , while reiterating the principles laid in earlier decision in Atiabari Tea Co.'s case AIR 1961 SC 232 that all tax laws are not immune from the provisions of article 301, the apex court disapproved the proposition noted by learned Chief Justice in his minority opinion in Atiabari's case AIR 1961 SC 232 . Simultaneously, it also disapproved the concurring opinion of the honourable Justice Shah in Atiabari's case AIR 1961 SC 232 that all taxes impair freedom of trade and commerce. The two opinions were founded on two different principles. Minority opinion was based on general presumption that all taxes by the sovereign are in public interest and authorised by respective legislative fields distributed amongst different legislative authorities under the Constitution. The other view enunciated by the honourable Justice Shah was founded on the premise that all taxes burden the trade and commerce and restriction on free movement of trade and commerce. Both these extreme propositions were not approved by majority judgment in Automobile Transport's case AIR 1962 SC 1406 . It was held that only such taxing statutes which has the effect of directly and immediately impeding the free movement of goods affecting the freedom of trade, commerce or intercourse is governed by article 301. It drew the distinction between the compensatory tax and regulatory tax on one hand and the taxes for general revenue of the State, on the other. The court enunciated that where the revenue is collected for the purpose of providing a service to facilitate freedom of trade, commerce or intercourse and the collection is in proportion to the cost incurred in providing such facilities, it in fact aids in smooth and free movement of trade, commerce or intercourse instead of impeding the same. Such taxation is outside the purview of article 301. For the purpose of determining whether the tax is compensatory in nature in the sense stated above, the object of levy of tax has to provide facilities and to regulate trade and commerce and levy with that object must also satisfy that tax is collected for such object and the amount that is spent by the State for providing such facilities for the development of trade, commerce or intercourse must have proportionality on the principle of quid pro quo. Otherwise, it would be hit by article 301 of the Constitution. In case by providing facilities for betterment of trade, commerce or intercourse cost is recovered, it is no impediment so as to invite attention of article 301 or Part XIII at all. Otherwise, it would be hit by article 301 of the Constitution. In case by providing facilities for betterment of trade, commerce or intercourse cost is recovered, it is no impediment so as to invite attention of article 301 or Part XIII at all. But, if the levy is by way of imposition for raising general revenue and has a direct impact on the free movement of trade, commerce or intercourse, it falls within the ambit of article 301 and can be saved only if it is made in accordance with the provisions of article 304(b), where the enactment is made by the State Legislature. Referring to the Traffic Regulation Rules and the necessity of providing traffic sign at frequent distances under Motor Vehicles Act, the Court observed in Automobile Transport's case AIR 1962 SC 1406 : "... it would be absurd, for example to suggest that freedom of trade is impaired or hindered by laws which require a motor vehicle to keep to the left of the road and not drive in a manner dangerous to the public. If the word 'free' in article 301 means 'freedom to do whatever one wants to do' then chaos may be the result; ..." The court observed that : "... 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 ..." The court further said : "... Such compensatory taxes are no hindrance to anybody's 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 anybody's 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 'restriction' (articles 302 and 304) clearly appears : that which in reality facilitates 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 here that the contrast, between 'freedom' (article 301) and 'restriction' (articles 302 and 304) clearly appears : that which in reality facilitates 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." With this premise, the court laid down the workable test to find out as to what shall be the nature of regulatory or compensatory tax to be imposed for recovering the cost for implementing the regulations for smooth running of the trade, commerce or intercourse. The court said : "... It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. ..." With this conclusion, the court said : "... The taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in a good state of repairs. ..." Thus, working test of proportionality of tax collected with the money spent in providing facilities for betterment of trade which could be availed by the traders was accepted as a touchstone on the anvil of which the tax could be considered compensatory falling outside the purview of article 301 or regulatory, burdening the trade falling within the ambit of article 301 of the Constitution requiring an inquiry into the reasonableness of restriction in terms of article 304 to be saved from being ultra vires. The question that comes to forefront is what tax can be called as compensatory or regulatory in nature so as to fall outside the purview of article 301 of the Constitution. The test was evolved by the Supreme Court in Automobile Transport's case AIR 1962 SC 1406 while enunciating the principle that there may be certain taxes which are imposed with the object of providing facilities or services to trade and commerce so that trade and commerce can run smoothly and the tax is imposed on those who avail or can avail such benefits and facilities. Where the tax is collected from the class of persons for whose benefit the facilities are to be provided or regulation is to be implemented must have a direct nexus to the nature of tax which can be considered to bring in existence the element of tax being compensatory in nature or otherwise. It would be profitable to notice the principle explained in concurring judgment of the honourable Justice K. Subba Rao with the majority view. The court said : "... If a law directly and immediately imposes a tax for general revenue purposes on the movement of trade, it would be violating the freedom. On the other hand, if the impact is indirect and remote, it would be unobjectionable. ..." With the aforesaid premise, the court referred to general principle of taxation that it is presumed to be in public interest which was the reason that had prevailed with minority opinion in Atiabari's case AIR 1961 SC 232 , and said : "... It is said that law of taxation is always in public interest. Ordinarily it may be so but it cannot be posited that there cannot be any exceptions to it. A taxing law may be in public interest in the sense that the income realised may be used for public good, but there may be occasions when the rate or the mode of taxation may be so abhorrent to the principles of natural justice or even to well-settled principles of taxation that it may cause irremediable harm to the public rather than promote public good, that the court may have to hold that it is not in public interest. Nor can I agree with the contention that it is impossible for a court to hold in any case that a rate of taxation is reasonable or not. Nor can I agree with the contention that it is impossible for a court to hold in any case that a rate of taxation is reasonable or not. As a proposition it is unsound. ..." This issue about compensatory tax comes into play when the tax imposed not for the purpose of general revenue but for identifiable purpose of providing certain facilities or benefits to trade or commerce or as regulatory measures for smooth running of the trade or commerce. It is in the latter class of the cases, where the levy is with a purpose that question of compensatory nature of tax arises in the sense that whether there is a proportionality between tax collected and the amount spent for the purpose for which the tax is levied vis-a-vis providing facilities to trade and commerce. If the income and outgoing are approximately in proportion to each other the working test of quid pro quo is satisfied. If that ratio is not maintained, the tax cannot be considered to be compensatory for benefit of trade and commerce. Obviously, this proposition as working test is applied in cases where taxes are directly imposed for the purpose of providing specific or general services directed to the trade or commerce. But in case such tax is imposed for augmenting general revenue, which may be called generally in public interest, as noticed above, cannot be termed compensatory tax. It will here be apposite to refer to the following principle stated in the majority judgment delivered by Justice S. K. Das : "... It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities ... so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may be and it will not make any difference that the money collected from the tax is not put into a separate fund." The court explained : "... so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may be and it will not make any difference that the money collected from the tax is not put into a separate fund." The court explained : "... If a statute fixes a charge for a convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be considered unimpaired. In such a case the imposition assumes the character of remuneration or consideration charged in respect of an advantage sought and received." The basic feature of compensatory tax was to find whether the imposition is for the purpose of providing identifiable facilities, convenience of service to the trade and is imposed upon them for whose benefit such facilities, convenience or services are provided and the money so collected from such imposition is spent in equivalence to providing such facilities to trade, commerce or intercourse, it becomes compensatory irrespective of the fact that collection becomes part of the fund or goes in the coffer of State generally. Benefit to other incidentally will not alter the character also. So also vice versa if the tax is imposed for general revenue of the State, the incidental benefit reaching to trade and commerce on account of general activities of the State or its agencies, such incidental benefits will not make it compensatory tax. So also, even if tax is imposed ostensibly for such purposes but spending on providing such facilities is not on principle of equality, it will fail the test of compensatory tax. These are the principles which were approved by the Supreme Court's Constitutional Bench in Jindal's case [2006] 145 STC 544 (SC) referred to above to which we shall presently advert to. Two Australian decisions under section 92 of the Constitution of Australia : But before that it would be relevant to notice that type of taxes to which the court referred to while enunciating the principle. The court has referred with approval the observations made by Chief Justice in Armstrong v. State of Victoria [1957] 99 CLR 28 and in Common Wealth Freighters Proprietary Limited v. Sneddon [1959] 102 CLR 280. The court has referred with approval the observations made by Chief Justice in Armstrong v. State of Victoria [1957] 99 CLR 28 and in Common Wealth Freighters Proprietary Limited v. Sneddon [1959] 102 CLR 280. The two cases directly considered the imposition of tax on trade vis-a-vis hindrance on the freedom of trade, commerce and intercourse, under laws framed under Constitution of State of Victoria and New South Wales, respectively. In Armstrong's case [1957] 99 CLR 28, the High Court of Australia was concerned with the provisions imposing a charge at the rate prescribed in the Schedule on owners of certain vehicles having more than a specified load capacity to pay towards compensation for wear and tear caused to public highways in Victoria. Section 92 of the Constitution of Australia is couched in somewhat same terms as article 301 of Indian Constitution. The contention has been raised that levy at the aforesaid rate impaired the freedom of trade, commerce and intercourse violating section 92 of the Constitution of Victoria, hence law imposing aforesaid rate under the Commercial Goods Vehicles Act, 1955 was beyond the legislative competence of the Parliament. In other words, the tax was imposed directly towards wear and tear to compensate the State for wear and tear of roads constructed and maintained by it and rate was levied on those people, who were to avail such facilities. The High Court found that provisions of the Act required the owner of every commercial goods vehicle of load capacity exceeding four tons and not engaged in conveying certain specified classes of goods to pay as a contribution towards compensation for wear and tear caused to public highways in Victoria a charge calculated at the rate prescribed in the Act. Thus, the tax was in respect of particular service provided to the tax-payer by way of compensating State in providing such facilities. Similarly, in the second decision in Common Wealth Freighters Proprietory Limited v. Sneddon [1959] 102 CLR 280 the relevant statute in question was the Road Maintenance (Contribution) Act, 1958, which imposed upon the owners of commercial goods vehicles a road charge at a rate per mile of public street travelled in New South Wales towards compensation for wear and tear to public streets caused by such travel. This again was challenged as impeding freedom of trade, commerce and intercourse by levy of such tax on commercial goods vehicles. This again was challenged as impeding freedom of trade, commerce and intercourse by levy of such tax on commercial goods vehicles. The principle enunciated by the High Court in its earlier decision in Armstrong's case [1957] 99 CLR 28 was reiterated. This again was a case of imposition of tax on facilities provided for better movement of trade and commerce and levy for maintenance of such facilities for better movement of trade and commerce. It is in that context the court enunciated the principle that where tax is levied for providing certain benefits to trade and commerce and recovering the amount, in proportion to the money spent, from those who availed such facilities, amenities or benefits then only the tax can be said to be compensatory or regulatory in nature falling outside the purview of article 301 of the Constitution, because levy was found to be not for impeding but for facilitating the free movement of trade, commerce and intercourse throughout the territory. The court also found that tax levied for generating revenue for general purpose, but burden of which does not fall on all but only on a class of persons and the tax had direct nexus with activity of movement of goods affecting trade and commerce falls within the province of compensatory tax falling outside the purview of article 301 merely on the general principle that a tax is levied for the benefit of public good or in public interest. If that were so, all taxes would fall beyond the ambit of article 301. Such taxes imposed to augment general revenue of the State, which does not have direct nexus with free movement of trade and commerce, but burden all in equal measure are beyond the pale of article 301. However, the court has simultaneously rejected as a general proposition that taxing statute within legislative field of a legislating authority in terms of division of legislative fields in the Seventh Schedule by competent Legislature are outside the purview of article 301. It is only where the levy is directly on activity affecting movement of trade and commerce that it can be considered as burden or restriction on freedom of trade, commerce or intercourse. It is only where the levy is directly on activity affecting movement of trade and commerce that it can be considered as burden or restriction on freedom of trade, commerce or intercourse. But the same is for the purpose of providing facilities for the smooth movement of trade and commerce or for the development of trade and commerce and only when the tax is by way of reimbursement of expenses incurred for providing such facilities that the tax can be said to be compensatory in nature, will still be away from the province of article 301. To bring a tax within such class further test to be applied is the proportionality of collection and spending of revenue on quid pro quo basis. These principles enunciated in Automobile Transport's case AIR 1962 SC 1406 and also emerging from other judgments were succinctly culled out in first Jindal's case [2004] 134 STC 303 (SC). The discordant note struck in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136, as noticed by court in first Jindal's case [2004] 134 STC 303 (SC), was disapproved and overruled by the Constitutional Bench in Jindal's case [2006] 145 STC 544 (SC). The above analysis finds support from the view expressed in Jindal's case [2006] 145 STC 544 (SC), wherein the five-judge Bench on reference had opined after comparing provisions of article 301 of Indian Constitution and article 92 of Australian Constitution : "Article 301 is inspired by section 92 of the Australian Constitution when it refers to freedom of trade and commerce. However, article 301 is subject to limitations and conditions in articles 302, 303 and 304 which are borrowed from the commerce clause under article 1 of the US Constitution. Therefore, Part XIII is an amalgam of the United States and Australian Constitutions which brings out the difference between regulatory and taxing powers. This is how the concept of payment for revenue and concept of payment for regulation arose. This is how the regulatory power stood excluded from the taxing power and on that reasoning in Automobile Transport's case AIR 1962 SC 1406 , this court took the view that compensatory taxes constitute an exception to article 301. This is how the concept of payment for revenue and concept of payment for regulation arose. This is how the regulatory power stood excluded from the taxing power and on that reasoning in Automobile Transport's case AIR 1962 SC 1406 , this court took the view that compensatory taxes constitute an exception to article 301. ..." Thus finding the legal basis of judicially evolved concept of difference between tax for raising general revenue as a burden and a compensatory or regulatory tax for the purpose for facilitating or providing better facilities for trade and commerce, the court considered the aspect of basic principle about distribution of burden of taxation amongst the taxpayers on first principles. With the evolution of above principle, the court concluded : "In the context of article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net-revenue to the Government but that circumstance is not an essential ingredient of compensatory tax." Thus, it must now be taken to be firmly settled that in order to qualify for the classification under category of compensatory or regulatory tax it must be levied as a recompense or reimbursement of special identifiable benefit provided or making specific regulatory provision benefit from which can be gauged in quantifiable measure for some special advantage to trade, commerce and intercourse and not merely an incidental advantage flowing to trade and commerce as a result of general activity of governance by a welfare government without reference to extension of some special advantage or benefit extended to trade, commerce or intercourse for reimbursing itself of the cost defrayed. The impugned Act : Therefore, the first question to be addressed in this regard is whether the tax sought to be imposed is for the purpose of providing certain facilities or benefits to the trade or commerce or for regulating the trade or commerce for the development of any trade or commerce within the local area or is for augmenting general revenue of the State or funds of the authority governing or administering the concerned local area to meet its general expenses without reference to any identifiable flow of benefits or facilities to trade, commerce or intercourse. Since the tax imposed in Automobile Transport's case AIR 1962 SC 1406 directly related to the better movement of trade, commerce through construction and maintenance of roads and the amount levied was found to be satisfying the test of proportionality on quid pro quo scale, it was held to be intra vires. As we have noticed, the levy in question in Automobile Transport's case AIR 1962 SC 1406 , was also in the nature of levy which was subject-matter of two Australian decisions, referred to above, which have also been referred to in the majority judgment in Automobile Transport's case AIR 1962 SC 1406 . Can it be said on a circumspect view of the provisions of the Act of 1999 that levy in question is for providing facilities to trade or commerce and not for the purpose of generating general revenue for the purpose of State or Municipality, as the case may be ? Object and Reasons : The Statement of Objects and Reasons to Bill passed as Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 reads as under : "In order to augment the revenues of the State and to enable it to meet the increased requirements of development in rural and urban areas, additional resources are required to be generated. (2) The States of Madhya Pradesh and Karnataka have enforced entry tax with the help of the sales tax department during last twenty years or so. (3) Entry 52 in the State List of the Seventh Schedule of the Constitution of India empowers the State Government to legislate on the matters relating to entry of goods in local areas. 'Local areas' means municipal, panchayat, cantonment or notified areas. (4) The various provisions of the Act will be enforced by the Commercial Taxes Department of Rajasthan. Provisions have also been incorporated for appeal to the Rajasthan Tax Board and the Rajasthan High Court. (5) It is also sought to enable the State Government to make rules to carry out provisions of this proposed Act. The Schedules indicating rate of tax and list of exempted goods will be notified. However, a provision has been incorporated vide clause (3) of the Bill that the rate of entry tax shall not exceed ten per cent of the value of goods. (6) All the dealers with a turnover in taxable goods exceeding Rs. The Schedules indicating rate of tax and list of exempted goods will be notified. However, a provision has been incorporated vide clause (3) of the Bill that the rate of entry tax shall not exceed ten per cent of the value of goods. (6) All the dealers with a turnover in taxable goods exceeding Rs. One lac shall be required to be registered as dealer. They shall be required to file returns indicating details of the taxable goods brought in or caused to be brought in a particular local area. The assessing authorities as notified by the State Government will assess the dealers and the latter will be required to deposit entry tax on a regular basis. Provisions are also being incorporated for summary assessment and payment of tax in advance. The State Government will have powers to exempt or reduce tax along with interest in cases where it seems appropriate. It will be mandatory on the part of the dealers to maintain accounts and issue sale bill, memo or invoices. The officers of the Commercial Taxes Department will have powers to enter the premises and inspect and seize the documents, if required, in connection with the provisions of the Act. (7) This Bill seeks to achieve the aforesaid objectives. Hence, the Bill." If the aforesaid were to provide a clue, it militates against the tax being levied for extending any identifiable measure for trade and commerce in a quantifiable measure, but betrays a tax to augment general revenue to befall on dealers only and not on all as a class of persons, who bring goods in local areas for consumption, use or sale therein. The preamble : The preamble of the Act states that it is to provide for the levy and collection of tax on entry of goods into local areas of the State for consumption, use or sale therein and matter incidental thereto. This also does not provide a clue to consider its object to be to provide facilities to trade and commerce. Scheme of the Act : We may now consider the general scheme of the Act in totality. This also does not provide a clue to consider its object to be to provide facilities to trade and commerce. Scheme of the Act : We may now consider the general scheme of the Act in totality. Section 3, which is the charging section, says that there shall be levied, collected and paid to the State Government a tax on entry of any goods brought into a local area, for consumption, use or sale therein, with effect from such date and at such rates, not exceeding twenty per cent of the value of the goods, as may be specified by the State Government, by notification in the Official Gazette, and different dates and different rates may be specified in respect of different goods or different class of goods or different local areas. It is to be levied on taxable purchase value of the goods, so however that in cases where it is not possible to determine the taxable purchase value of goods, the entry tax shall be levied on taxable market value of goods. Sub-section (3) of section 3 provides that tax levied under sub-section (1) shall be paid by every registered dealer or a dealer liable to get himself registered under this Act who brings or causes to be brought into a local area, the goods whether on his own account or on account of his principal or any other person or who takes delivery or is entitled to take delivery of such goods on its entry into a local area. Section 4 places the incidence of tax on every registered dealer, whose annual turnover of import of goods exceeds rupees one lac in a given financial year and such dealer shall be liable to get himself registered as a dealer in the manner as may be prescribed, and be liable to pay tax on the taxable purchase value of the goods. Under section 11 every dealer, who buys or receives goods liable to tax under this Act and who is doing business in a local area and who brings or causes to be brought such goods liable to tax into a local area or takes delivery or is entitled to take delivery of such goods, the aggregate value of which is not less than one lac rupees in a year, is required to get himself registered under the Act on payment of such fee and within such period as may be prescribed and such registration shall remain in force until the same is cancelled. Apart from a dealer regularly doing business within the local area, every dealer undertaking execution of works contract involving the use or consumption of goods entering into a local area; or every dealer not ordinarily resident of a local area; or every manager or agent of a dealer not ordinarily resident of a local area; other than a dealer dealing exclusively in the goods as may be specified; or every lessor or lessee, who brings or causes to be brought goods into a local area is required to get himself registered irrespective of the value of his annual turnover of goods brought into a local area. On the perusal of the aforesaid, it is apparent that notwithstanding what is said in section 3, levy is on the entry of goods in each local area for use, consumption or sale therein, and section 4 provides that incidence of tax falls only on such dealer whose turnover of goods received within local area exceeds rupees one lac, section 11 obliterates this distinction of registration without reference to the turnover of the dealer within a local area in respect of entry of goods to which he may become liable to pay tax. In other words, notwithstanding that the liability to pay tax is on the activity of bringing the goods in a given local area for the purpose of use, consumption or sale therein, the incidence of tax is not confined to the local area but has been made on the State basis irrespective of the fact that the person may be a petty dealer within the local area, entry into which only makes the event liable to tax. Section 12 requires filing of return by every registered dealer to the assessing authority at such intervals within such period and in such manner containing such particulars as may be prescribed. Under section 16 every registered dealer is required to send to the assessing authority every month a statement containing such particulars as may be prescribed and is required to pay in advance the full amount of tax payable by him on the basis of the goods brought by him during the preceding month into the local area and the amount so payable shall be deemed to be an amount due from him under the Act. While the provision has been made for recovering the shortfall of the amount of tax so paid in advance on final assessment, no provision has been made for refund or advance received in excess of liability. This provision makes monthly return of particulars and advance payment of tax on the basis of previous month's liability obligatory. In this connection, it is relevant to notice relevant rules also. Under rule 8, the dealer is required to submit the statement under sub-section (1) of section 16 in form ETLA-3. Form ETLA-3 makes not reference to the tax that has become payable for last one year on the turnover of different types of goods for which different rates have been prescribed, nor it requires furnishing of details of taxes paid during the previous month so as to satisfy the requirement of section 16 that tax on taxing events which have occurred during the last month that becomes advance liability for the current month. Thus tax is always payable in advance before happening of taxable events. While rule 10 speaks of one annual return, rule 11 requires a dealer to submit consolidated returns of all business in different local areas. He is not only required to submit return of aggregate turnover of the business from the principal place of business, but he is also required to submit annual return of the total turnover of the business to various assessing authorities of the areas in which his business is situated. He is not only required to submit return of aggregate turnover of the business from the principal place of business, but he is also required to submit annual return of the total turnover of the business to various assessing authorities of the areas in which his business is situated. The fact that Commissioner has been given the discretion to give exemption from the operation of this provision for filing return of each branch separately does not detract from the fact that, but for exemption from Commissioner in his discretion, a dealer is not only required to furnish multiple returns in respect of entry of goods in different local areas on the basis of happening of taxing events but is required to file a consolidated return at principal place of business, even if no taxable event takes place thereon and he may not be liable to pay tax in respect of any transaction happening at the principal place of business. Multiple returns is the rule. These provisions taken together make it abundantly clear that notwithstanding above provision made for annual return, in fact the trader or man of commerce is required to file multiple returns before each assessing authority having jurisdiction of different local areas in respect of turnover in separate local areas but the provision relating to determination of turnover for the payment of tax and the requirement of registration of a dealer irrespective of the total turnover beyond which tax liability arises in respect of taxable event happening in each local area lends it a colour of tax for augmenting general revenue of the State and not really on entry of goods into a local area as an alternative for compensating the municipalities for the loss of revenue. Nor there is any intrinsic or external evidence to suggest that impugned legislation has been made for conferring specific identifiable benefit or for extending facilities to trade and commerce carried on by dealer and the burden is to recompense the State of that amount spent in providing such facilities and benefits. This position will be further clear from the fact that section 42 of the Act envisages that there shall be paid to each local authority every year such sums of money, as may be determined by the State Government, from time to time, out of the tax collected under the Act. This position will be further clear from the fact that section 42 of the Act envisages that there shall be paid to each local authority every year such sums of money, as may be determined by the State Government, from time to time, out of the tax collected under the Act. Thus, section 42 does not envisage distribution of the whole revenue raised from entry of goods in different local areas on equivalence basis for compensating the local area of the loss of revenue on abolition of octroi, but by only assigning such sums as may be determined by the State Government. It even does not envisage that entire amount collected under the Act through different local areas will be distributed amongst the authorities of self-governance or local administration but the matter has been kept at the absolute discretion of State Government as to how much out of the total revenue collected under the impugned Act is to be allocated for disbursement and how much is to be retained by the State for itself. This gives a contra-indication to the emphatic statement made on behalf of the respondents that levy is for compensating the local authorities of the loss caused on account of abolition of octroi for the purpose of raising an argument in respect of it being a compensatory tax. From the reading of the Act and the Rules together along with Preamble and Statement of Objects and Reasons for introducing the Bill, we find nothing supportive of the contention that the tax is levied and collected for reimbursing the State Government for specific identifiable benefits conferred on trade and commerce for the smooth running of business or for implementing regulatory measures in quantifiable measure for development and growth of trade and commerce as a primary concern. In this connection it will not be out of place to mention here that it has been argued that octroi has been abolished and replaced by entry tax making procedure of levy and collection of tax less cumbersome, which otherwise was found to be so on account of various check-posts through which the goods were entering into the local area and the vehicles to be kept stationary. However, this contention is also not well founded in view of the clear provision made under section 31 of the Act, which reads as under : "With a view to prevent or check evasion of tax under this Act, check-posts or barriers or both, as the case may be, established or erected under the provisions of the Rajasthan Sales Tax Act, 1994 shall be recognised for the purpose of this Act." Thus, section 78 of the Rajasthan Sales Tax Act, 1994 has been incorporated by reference, which, inter alia, provides for establishing as many check-posts as the State Government desires and authorising the officers in the Commercial Taxes Department to keep the goods vehicles stationary until required by them for the purpose of checking the documents and verification of the goods carried through such transport. Section 78 of the Act of 1994 authorises the State Government for setting up of a check post at such place and for such period as may be specified in the notification. Under sub-section (3) where the goods are in movement within the State of Rajasthan, an officer empowered by the State Government in this behalf may stop the vehicle or the carrier or the person carrying such goods for inspection at any place within his jurisdiction. He may also direct the driver or person-in-charge of the vehicle or of the goods not to part with the goods in any manner including by re-transporting or re-booking till verification is done or an inquiry is made, which shall not take more than seven days. In other words, incidental provisions have been made thereunder, details of which may not be relevant for the present purposes. But the fact remains that provisions of the Act and Rules read together leave no room of doubt that the provisions of the Act result in direct and immediate impediment of the movement of goods into the local area as defined in the Act for subjecting it to levy of tax and making provision for stoppage of such goods while in movement at every check-post until the goods reach its destination and is subject to use, consumption or sale within the local area after entering the same. Apart from that, the annual returns and monthly statement of the turnover are required to be filed in respect of the goods moving in any local area and the liability chosen to be fastened on the persons are the dealers primarily, though they have been made entitled to collect it from other persons. The "dealer" has been defined under section 2(e) to mean : "any person who, in the course of business, whether on his own account or on account of a principal or any other person, brings or causes to be brought into a local area any goods or takes delivery or is entitled to take delivery of goods on its entry into a local area and includes an occasional dealer." "Occasional dealer" has been defined under section 2(k) to mean any person who, in the course of occasional transactions of business nature falls in the category of "dealer" as aforesaid, in the matter of taking delivery of the goods on its entry into local area. "Local area" under section 2(j) means the area within the limits of a Panchayat established under the Rajasthan Panchayati Raj Act, 1994 or a Municipality established under the Rajasthan Municipalities Act, 1959 or a notified area committee or a cantonment board constituted or established under any law for the time being in force. Thus, every area delimited by notification under the administration of panchayat, municipality, notified area committee or cantonment board has been defined as an independent local area and entry of goods therein for use, consumption or sale therein has been subjected to tax in the hands of dealer, who becomes entitled to take delivery of such goods on entry of such goods in the concerned local area in the course of his business. Apparently, levy is on the movement of goods into a local area. The charge becomes eminent on entry when a "dealer", as defined under the Act, becomes entitled to take delivery of the goods within the local area and unless the goods are re-transported within six months of the receipt, the liability is otherwise has been fixed for that time. Apparently, levy is on the movement of goods into a local area. The charge becomes eminent on entry when a "dealer", as defined under the Act, becomes entitled to take delivery of the goods within the local area and unless the goods are re-transported within six months of the receipt, the liability is otherwise has been fixed for that time. Conclusions on facial analysis of the Act : The cumulative effect of the aforesaid provisions leave no room of doubt that the tax in question is directly on the activity of movement of goods from outside any local area to within its local limit for use, consumption or sale therein and has an effect of directly and immediately impeding the free movement of goods. There being no element of collection of tax with any purpose of providing specific identifiable benefit to trade and commerce within the local area as distinct from general benefit, which anyone else otherwise may also derive as a citizen of that area from various governmental activities, the tax cannot fall within the category of compensatory tax, the test of some tenuous or the indirect and incidental benefit flowing to trade and commerce being rejected in Jindal's case [2006] 145 STC 544 (SC). Compensating the municipality on account of loss of its revenue due to abolition of octroi and taking upon itself the levy and collection of tax on entry of goods as authorised under entry 52 of State List of the Seventh Schedule does not alter the character of the levy nor it does make it compensatory in the sense it has been explained in Jindal's case [2006] 145 STC 544 (SC) as it is not for the purpose of conferring specific or special identifiable benefit to trade and commerce. To compensate the municipality or a panchayat or a cantonment board or a notified area committee of its general revenue required for funding its governance expenses is not a special benefit to or an act of regulating the trade or commerce directly so as to fall within the precincts of quid pro quo essential to consider it a compensatory tax as enunciated by the Supreme Court in Automobile Transport's case AIR 1962 SC 1406 and explained in Jindal's case [2006] 145 STC 544 (SC) discussed above. Godfrey Philips India Ltd.'s case [2001] 121 STC 54 (Raj) : The learned counsel for the respondents have urged that Division Bench of this court in Godfrey Philips India's case [2001] 121 STC 54 (Raj); [2000] 7 STT 50, in which it has been held that the provisions of the impugned Act are not violative of article 301 and do not apply for holding it to be regulatory and compensatory tax, and the judgment still holds the field. We are unable to accept this contention, firstly on appeal against the aforesaid judgment, the matter has been remanded to this court for re-determining the issue whether the tax in question is regulatory or compensatory. Therefore, the judgment cannot now be held as a binding precedent any more. Moreover, the decision of this court in Godfrey India's case [2001] 121 STC 54; [2000] 7 STT 50 for the purpose of holding the impugned enactment to be compensatory and regulatory in nature is founded on the widened principle enunciated by the Supreme Court in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 and Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136, which have been overruled by the Supreme Court in Jindal's case [2006] 145 STC 544 (SC). In view of the aforesaid, the very foundation of the decision having been upset by the Supreme Court, the said decision as such cannot be considered to be binding precedent for holding the impugned enactment as a taxing statute levying compensatory tax. The Division Bench has specifically applied the test for holding the impugned tax to be compensatory tax, that there being some connection between the tax and facilities provided without there being direct and immediate nexus is not violative of article 301 of the Constitution. This is contrary to later Constitutional Bench decision in Jindal's case [2006] 145 STC 544 (SC). Therefore, in terms of the latest pronouncement of the Supreme Court in light of which this issue has to be decided by this court, the decision rendered by this court in Godfrey Philips India's case [2001] 121 STC 54; [2000] 7 STT 50 cannot be considered as precedent, and pressed into service. Therefore, in terms of the latest pronouncement of the Supreme Court in light of which this issue has to be decided by this court, the decision rendered by this court in Godfrey Philips India's case [2001] 121 STC 54; [2000] 7 STT 50 cannot be considered as precedent, and pressed into service. We have otherwise noticed two decisions of the Rajasthan High Court holding that imposition of entry tax under entry 52 of the State List under the Rajasthan Town Municipalities Act to be within the domain of article 301, but the same was saved in one case because relevant law was pre-existing law (Jaipur Municipalities Act, 1943) and its operation was saved under article 305 and the other on the ground that the Rajasthan Town and Municipalities Act as a whole has received the assent of President. Hence, the Act was saved for compliance of article 304(b) read with article 255 of the Constitution. The two decisions were not brought to the notice of the court in Godfrey Philips India's case [2001] 121 STC 54 (Raj); [2000] 7 STT 50. Likewise, decision of the apex court in Mrs. Meennakshi v. State of Karnataka AIR 1983 SC 1283 ; [1984] Supp. SCC 326 and Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906 were not brought to the notice of the court in the aforesaid Rajasthan case AIR 1958 SC 192 which had directly considered the nature of imposition authorised in terms of entry 52 of List II of the Seventh Schedule. In both cases, the court noticed pernicious effect of such levy on freedom of trade and commerce. Hansa Corporation's case [1980] 4 SCC 697 : Another case which has been relied on by learned counsel for the Revenue is State of Karnataka v. Hansa Corporation [1980] 4 SCC 697 to buttress the argument that levy of tax on entry of goods was held to be compensatory tax and not hit by article 301 of the Constitution of India. However in first Jindal's case [2004] 134 STC 303 (SC), the Court had considered the aforesaid decision in Hansa Corporation's case [1980] 4 SCC 697 and ruled that although the challenge was to the levy of entry tax in the case of Hansa Corporation [1980] 4 SCC 697, the issue whether the tax was compensatory in nature was expressly left open. It was observed in Hansa Corporation's case [1980] 4 SCC 697 that : "The State did not attempt in the High Court to sustain the validity of the impugned tax law on the submission that it was compensatory in character. No attempt was made to establish that the dealers in Scheduled goods in a local area would be availing of municipal services and municipal services can be efficiently rendered if the municipality, charged with a duty to render services, has enough and adequate funds and that the impugned tax was a measure for compensating the municipalities for the loss of revenue or for augmenting its finances. As such a stand was not taken, it is not necessary for us to examine whether the tax is compensatory in character." The apex court found that there is nothing in Hansa Corporation's case [1980] 4 SCC 697 which seems to support the proposition enunciated in Bhagatram Rajeev Kumar's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 or for that matter Bihar Chamber of Commerce's case [1996] 103 STC 1 (SC); [1996] 9 SCC 136. Therefore, both these decisions relied on by the learned counsel do not assist us in reaching the conclusion, one way or the other. Significantly, the court also noticed that entry tax imposed by Karnataka Legislature was found to be valid only because it has fulfilled the procedural requirement as required in terms of article 304(b), which in the present case is admittedly not fulfilled. The stand taken by the State and material placed on record and consideration thereof : We have seen that from the provisions of the impugned Act read comprehensively along with its Preamble and Objects and Reasons there is no indication facially that the levy is imposed to extend any quantifiable benefit. It remains to be seen whether in its absence State has discharged its burden as a service/benefit provider to show through material placed before us that payment of tax is a reimbursement/recompense for the quantifiable/measurable benefit provided to or to be provided to its payers. This takes us to consider whether State has discharged its burden to show that money collected from entry tax in question has actually been spent on providing such benefits or services to the trade or commerce within the local areas from which tax is collected or within the State itself. This takes us to consider whether State has discharged its burden to show that money collected from entry tax in question has actually been spent on providing such benefits or services to the trade or commerce within the local areas from which tax is collected or within the State itself. The test for considering whether any imposition is compensatory in nature is firstly whether it can be facially inferred from the statute itself that imposition is to reimburse or recompense the State for providing specified or identifiable benefits/facilities/services to trade or commerce in a quantifiable measure. If facially it is not discernible from the statute, still the State can prove by providing relevant data that money collected through the imposition has been actually spent on providing specific facilities to trade and commerce or for imposing regulatory measures for the smooth running of trade, commerce and intercourse within the local area or within the State in quantifiable measure commensurating with collection of revenue under the impugned levy. For deciding the basic issue as to whether the impugned levy is compensatory in nature in the light of principle enunciated by the Supreme Court in Jindal's case [2006] 145 STC 544 (SC), as required by the directions of the Supreme Court after the matter came before the Division Bench for deciding the matter before it in light of the Constitutional Bench decision, the State Government has taken the stand in its written submission along with additional affidavit that : "5. That in the State of Rajasthan levy of octroi has already been abolished which occasioned financial crunch, and compelled the State Legislature, to pass Act No. 13 of 1999, to compensate the loss suffered by State Government, authorising it under section 3 of the said Act, to collect tax on entry of any goods brought into a local area, for consumption, use or sale therein." Thus, the compensatory nature of tax as per the respondent - State is founded not for the purpose of providing any specific facility by the State or through its agency to trade, commerce or intercourse and to reimburse itself of the expenses incurred in that behalf but to fund the municipalities or the other local authorities on account of abolition of octroi to be levied and collected by such authorities in terms of various enactments to which we have alluded to above but has decided itself to levy and collect the octroi in the condensed name of tax on entry of goods into local area for use, sale or consumption therein. Apparently, this cannot be considered, on its face value, an insignia of compensatory tax for the purpose of taking it out of the ambit of article 301 of the Constitution, by furnishing the details of the revenue collected by local authorities until July 31, 1992 by levying tax in terms of entry 52 and subsequent collection of revenue under the Act of 1999 enacted in the same field. These figures do not really pertain to spending of money for providing facilities but relate to assigning funds to the local authorities in terms of obligation placed on to the State Government under article 243H and 243X, respectively, for functioning of the local authorities. This is apart from the fact that there appears to be some apparent dichotomy between the revenue collected from the entry tax in the State under the Act of 1999 and its disbursement between the municipalities and panchayats. For example, according to the figures stated in the additional affidavit for the year 2004-05, in all, 144.01 crores were collected by way of entry tax in the State, whereas, in 2004-05, Rs. 451.63 crores have been disbursed out of the aforesaid fund to the municipal councils and Rs. 2.95 crores have been provided to Panchayats. For example, according to the figures stated in the additional affidavit for the year 2004-05, in all, 144.01 crores were collected by way of entry tax in the State, whereas, in 2004-05, Rs. 451.63 crores have been disbursed out of the aforesaid fund to the municipal councils and Rs. 2.95 crores have been provided to Panchayats. There does not appear to be any connection between the collection and disbursement to warrant any inference that the tax has been levied for the purpose of compensating the local authorities for loss of their revenue. Likewise, in 2005-06 total revenue collected by way of entry tax was Rs. 236.71 crores and the disbursement to the municipalities itself has been stated to be Rs. 494.07 crores and to the panchayat samities Rs. 2.76 crores. This only shows that assignment of funds to the municipal councils or the panchayat samities, which are defined as local areas, is random disbursement by the State Government out of its own funds, and the disbursement has no connection with the purpose of levy and collection made from the entry tax. Apart from the aforesaid, the respondents have also contended that tax has been spent on providing facilities to trade and commerce. However, the details furnished regarding the amount show expenditure by local authority on cleanliness and sanitation of local area, fire brigade, street lights and maintenance works of general development (construction and maintenance). The relevant figures given by the respondents are as under : MATTER IN OTHER LANGUAGE. Similarly, distribution of expenses on aforesaid four items in different local areas have also been detailed. However, without going into the details of the amount spent, it is enough to notice that the amount spent on maintaining the street lights, cleanliness and sanitation within local area and works of general development (construction and maintenance), which is otherwise done by the P.W.D. of the State Department or town planning and urban improvement authorities like JDA or UIT set up under Urban Improvement Act or by Municipalities, is an essential discharge of function by the State Government and can hardly be said to be a tax levied for the purpose of providing any specific facility provided to trade and commerce or imposing regulatory measures for the smooth running of trade, commerce or intercourse within the local area or within the State of Rajasthan. So also, the amount spent for upkeeping and maintaining fire brigade is the function of the local authority and is a part of general administrative function of the local area directly for being prepared to meet the challenges of unforeseen accidents due to fire and not for the purpose of providing such facilities primarily to trade and commerce. But is part of ordinary obligation of local administration. Incidental benefit flowing to trade and industry cannot be considered the object and purpose of tax to provide identifiable specific benefit to trade and commerce in lieu of collection made from it. It is not a direct and specific facility so as to fulfil the test, which has been extracted in the order remanding the matter to the High Court for deciding the issue as under : "To sum up, the basis of every levy is the controlling factor. In the case of 'a tax', the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of 'a fee', the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of 'burden' to the concept of measurable/quantifiable benefit and then it becomes 'a compensatory tax' and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more close to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then article 301 is violated." Apparently, none of the activities on which amount is shown to have been spent is in the nature of regulation or is part of regulatory measure and is also not a special benefit to the trade, commerce or intercourse, which can be scaled on the principle of equivalence. The collection is a part of general revenue of the State and whatever money is assigned to the local authority is also for discharge of general functions to be discharged by municipalities or panchayats or other institution in-charge of "local areas" as defined under the Act, and it is part of the general obligation of the authority administering the local area to maintain adequate health and sanitation condition in the local area, to provide for street lights, to maintain fire-fighting equipment in readiness to meet any exigency and to provide for construction and maintenance of public construction works within the local area, which may include street roads, drainage, underground sewerage lines, etc. To illustrate, section 98 of the Rajasthan Municipalities Act, 1959 refers to primary and secondary functions of Municipality, defined as one of the local areas under the Act. All functions attributed to Municipality are of general character for every citizen by way of keeping the city clean and free from nuisance. It delineates its primary functions as under : "Section 98. Duties of the Board. All functions attributed to Municipality are of general character for every citizen by way of keeping the city clean and free from nuisance. It delineates its primary functions as under : "Section 98. Duties of the Board. - It shall be the duty of every Board to make reasonable provision for the following matters within the municipality under its authority, namely : (a) lighting public streets, places and buildings; (b) watering public streets and places; (c) cleaning public streets, places and sewers, and all spaces, not being private property, which are open to the enjoyment of the public, whether such spaces are vested in the Board or not, removing noxious vegetation and abating all public nuisances; (d) removing filth, rubbish, night-soil, odour, or any other noxious or offensive matter from privies, latrines, urinals, cesspools or other common receptacles for such matters in or pertaining to a building or buildings; (e) extinguishing fires and protecting life and property when fire occurs; (f) regulating offensive or dangerous trades or practices; (g) removing obstructions and projections in public streets or places and in spaces, not being private property which are open to the enjoyment of the public, whether such spaces are vested in the Board or belong to the State Government; (h) securing or removing dangerous buildings or places and reclaiming unhealthy localities; (i) acquiring, maintaining, changing and regulating places for the disposal of the deal and of the carcasses of dead animals; (j) constructing, altering and maintaining public streets, culverts, municipal boundary marks, markets, slaughterhouses, drains, sewers, drainage-works, sewerage-works, baths, washing places, drinking fountains, tanks, wells, dams and the like; (k) constructing public latrines, privies and urinals; (l) obtaining supply or an additional supply of water, proper and sufficient for preventing danger to the health of inhabitants from the insufficiency or unwholesomeness of the existing supply; (m) naming streets and numbering houses; (n) registering births and deaths; (o) public vaccination; (p) suitable accommodation for any calves, cows or buffaloes required within the municipality for the supply of animal lymph; (q) arranging for the destruction or the detention and preservations of such dogs within the municipality as may be dealt with under section 208 of this Act; (r) printing such annual reports on the municipal administration of the municipality as the State Government by general or special orders, requires the Board to print; (s) paying the salary and contingent expenditure on account of such police guards as may be required by the Board for the purposes of this Act or for the protection of any municipal property and providing such accommodation as may be required by the State Government under the law in force relating to police; (ss) raising volunteer force with such functions and duties in relation to the protection of persons, the security of property and the public safety as may be prescribed; (t) making arrangements for preparation of compost manure from night soil and rubbish; (u) establishing and maintaining cattle ponds; and (v) promoting population control, family welfare and small family norm." A bare perusal of the provisions shows that no part of the functions to be discharged by the municipality is to provide facilities or benefit to trade or commerce and that is not the object for which the levy is collected. Even clause (f) is in furtherance of Municipality's function generally mentioned in clause (c) in removing noxious vegetation and abating all public nuisances. Regulation of offensive and dangerous trade is also in furtherance of the same object, viz., to provide safety for citizens from public nuisance. Moreover, nothing has been stated or suggested that levy of tax in question is only or mainly with reference to above object and that money collected through the impugned levy is spent in providing regulatory services to that effect only or mainly. Nothing has been stated in the additional affidavit or written submissions or in statistics furnished by respondents to link the imposition and collection of tax under the Act of 1999 with anyone or more objects specified in Schedule XII of the Constitution nor there is a whisper in the entire submissions about spending any sum for providing specified benefit or facility to trade or commerce in any quantifiable measure with reference to any area of responsibilities that may have been or may be assigned to Municipality under Schedule XII of the Constitution. Similarly, apart from giving the details of expenses incurred on aforesaid four heads of activities for which collection from entry tax are alleged to have been spent, no such details about the expenses incurred in respect of various functions discharged by the panchayat also have been furnished which could be related to providing of facilities and benefits to the trade and commerce or imposing regulatory measures for its benefit in an identifiable or quantifiable measure. Like Municipality Act, under section 50 of the Panchayati Raj Act, 1994, the functions of panchayat are those which may be specified by the Government from time to time out of the functions and powers specified in the First Schedule. Nothing has been placed on record that out of various functions enlisted in the First Schedule to the Act of 1994 or for that matter in Schedule XI of the Constitution any of specific functions for providing facilities or benefits to trade or commerce by the Panchayat have been entrusted to or assigned to the Panchayat and the revenue has been spent for providing such benefits. Nothing had been shown to have been spent by the local authorities to whom fund is alleged to have been granted on any specified benefit or facilities that have been extended to trade or commerce in any quantifiable measure. Nothing had been shown to have been spent by the local authorities to whom fund is alleged to have been granted on any specified benefit or facilities that have been extended to trade or commerce in any quantifiable measure. Nor it has even been alleged that any sum was spent in relation to discharge of any of those functions in any quantifiable measure. Therefore, no material is placed to establish the commensuration of the expenses with the benefits provided. Therefore, the basic test for invoking the principle of compensatory tax being out of the province of article 301 is lacking in the present case. No nexus has been pointed out either in the additional written submissions submitted on behalf of the State of Rajasthan or the additional affidavit submitted in Godfrey Philips India Ltd.'s case [2001] 121 STC 54 (Raj); [2000] 7 STT 50, which has also been made part of submissions before us in this case, nor anything contrary has been shown in the summary of arguments submitted by the learned counsel after the conclusion of the arguments. Since the basic condition of levy of tax for the purpose of reimbursing the State Government for providing specific identifiable benefit to the trade, commerce or intercourse upon whom the tax is to be levied is lacking. The levy is also not for implementing regulations or imposing regulations for the general development of trade, commerce or intercourse, so as to further invoke and probe into the question of equivalence of money spent and collection of tax. From the material submitted by the respondents, there is no connection with the collection of tax under the impugned Act and the assignment of the funds to the various local authorities and even to sustain the contention that the tax in the field governed by entry 52 of the State List was levied for compensating the different local areas for loss of their revenue on account of abolition of octroi. In fact imposition of tax under the Act of 1999 belies the statement that octroi has been abolished. In fact imposition of tax under the Act of 1999 belies the statement that octroi has been abolished. The impact of the notification dated July 31, 1998 was not to abrogate the provisions of the Municipalities Act or the Panchayat Act, to which we have made reference earlier, and which authorises levy and collection of octroi by such local authorities but only the notification prescribing rates at which the municipal corporations or the municipal board could levy and collect the taxes has been withdrawn. In other words, under the provisions of the Rajasthan Municipalities Act, 1959 and corresponding provision under the Rajasthan Panchayati Raj Act, 1994 it was for the State to prescribe the rate at which octroi could be levied and collected by such authorities. The effect of subsequent enactment of Act of 1999 is only that while withdrawing the notification prescribing rate of collection of octroi under the Municipalities Act or the Panchayati Raj Act, as the case may be, State Government itself has entered the field enabling it to levy and collect the octroi by itself and confer upon itself the discretion to allocate such sums as it may deem fit to the respective local authorities out of the collection made by it under the Act of 1999. But nonetheless the provisions under the Municipalities Act or the Panchayati Raj Act envisaging levy and collection of octroi or tax on entry of goods into local area at the rate prescribed by the State Government continues to be on the statute book which can at any time be revived. Therefore, in true sense it is a misnomer to call that the enactment of the Act of 1999 is to compensate the State Government for its loss of revenue which was collected by municipalities or panchayats or to compensate the municipalities or panchayats out of the funds collected under the Act by the State. Even while continuing with the provisions on the statute book to levy and collect tax by the local authorities itself is a moot point whether the State Government could enact the Act of 1999 to augment its general revenue. Even while continuing with the provisions on the statute book to levy and collect tax by the local authorities itself is a moot point whether the State Government could enact the Act of 1999 to augment its general revenue. Independent of this grey area, whether the levy and collection of tax on entry of goods into local area is a levy by the local authority or the State, it remains a tax which results in putting restriction on trade or commerce by placing burden on activity of movement of goods within the local area for use, sale or consumption and directly impedes free movement of goods from outside the local limits to within the local limits for use, sale or consumption therein. Such tax being not compensatory can only be saved if the law is made in accordance with the provisions of article 304(b) and if the Act has been properly enacted, it satisfies the test of its reasonableness. The tax being not on the import of the goods out of the State, clause (a) of article 304 has no operation in the present case. Admittedly, law has not been enacted after complying with the directive of article 304(b). Therefore, it is in breach of article 301 and not saved. We find from the judgment of the Supreme Court that other High Courts, namely : (i) Allahabad High Court in Indian Oil Corporation Limited v. State of Uttar Pradesh [2007] 10 VST 282 (All), (ii) Patna High Court in Harinagar Sugar Mills Limited v. State of Bihar [2007] 10 VST 140 (Patna), (iii) Guwahati High Court in ITC Limited v. State of Assam [2007] 9 VST 250 (Gauhati) and (iv) Kerala High Court in India Gateway Terminal (Pvt.) Ltd. v. Intelligence Officer (Thressiamma L. Chirayil v. State of Kerala [2007] 7 VST 293 (Ker)) and Jharkhand High Court in Tata Iron & Steel Company Ltd. v. State of Jharkhand [W.P. (T) No. 5354 of 2004 ([2007] 6 VST 587)] have also taken same view on examining the tax on entry of goods into local area for consumption, use or sale therein to be levied and collected on account of abolition of octroi by the respective local authorities in terms of legislative enactments made by the respective States. Since the Supreme Court has directed to reach independent conclusions irrespective of those judgments, we are refraining ourselves from entering into and referring to the details of those judgments. Conclusions : Thus, viewed from any angle, we have no hesitation in coming to the conclusion that the Rajasthan tax on entry of goods into local area for use, sale or consumption therein has not been imposed for providing specific benefit/facility to trade or commerce in quantifiable measure. There is no facial indication in the Act that tax is imposed for any such specified purpose. Nor the material placed by State proves that payment of entry tax is a reimbursement or recompense for quantifiable/measurable benefits provided or to be provided to the payers, i.e., trade and commerce for which the tax is imposed. Therefore, the impugned tax under the Act of 1999 is not compensatory in nature and is not taken out of the purview of article 301 of the Constitution. It being a tax on activity of movement of goods, it results in directly impeding the free movement of trade, commerce and intercourse in terms of article 301 of the Constitution. The Act of 1999 having been enacted by the State Legislature and admittedly not enacted after following the procedure laid down under article 304(b), it does not satisfy the test of legislative competence in terms of restrictions imposed in Chapter XIII and must be held to be hit by article 301 and ultra vires, as it was so held in the case of Atiabari Tea Co.'s case AIR 1961 SC 232 . In view of the aforesaid, the irresistible conclusion is that under any law framed under entry 52 of List II of the Seventh Schedule of the Constitution a tax being directly on the movement of goods from outside the local area to within the local area limits has a pernicious effect on the freedom of trade, commerce or intercourse and ordinarily falls within the domain of article 301 of the Constitution of India unless it is a compensatory tax in the sense that it is levied for the purpose of providing specific identifiable benefit/facility/service to trade and commerce, and the revenue collected therefrom is commensurate with the cost of providing such benefit/facility/service to trade and commerce in quantifiable measure. In such event, it falls outside the scope of article 301. In such event, it falls outside the scope of article 301. Otherwise, it being within the exclusive domain of State Legislature can be saved only if State legislation is enacted under article 304 of the Constitution. Since, it is not a tax on import of goods from outside the State, the question of considering levy of tax, which does not discriminate between the goods imported from outside the State and locally produced goods within State, does not aptly apply to the tax in question and, therefore, it cannot be invoked for the purpose of saving on its own force from the purview of article 301 of the Constitution. As a matter of fact clause (a) of article 304 cannot be read in isolation but is a part of scheme envisaged under article 303 which places restriction on legislative power of both, Parliament and State Legislature, to enact laws authorising the giving of any preference to one State over another or making or authorising making of any discrimination between one State over another by virtue of any entry relating to trade or commerce in any of the List in the Seventh Schedule. Having imposed such absolute restriction on legislative powers of Parliament and State Legislatures, the clause (a) of article 304, saves such taxes on import of goods to one State from another where tax imposed on imported goods is similarly imposed on such goods manufactured in State so as no preference comes into existence due to tax on such imported goods. The imposition of tax other than on import of goods within State does not come within the umbrella of article 304(a) of the Constitution. This takes us to clause (b) of article 304, which saves any such law made by State Legislative including taxation law which results in reasonable restriction on trade, commerce or intercourse throughout the territory of India. However, before embarking upon this inquiry into reasonableness of law, a Bill before its introduction into State Legislative Assembly has to receive sanction of the President. Admittedly, no such approval has been sought in terms of proviso to article 304 of the Constitution. The legislation made by the State Government having the effect of impeding the free movement of trade, commerce and intercourse by dint of above levy cannot be saved from being ultra vires of article 301 of the Constitution. Admittedly, no such approval has been sought in terms of proviso to article 304 of the Constitution. The legislation made by the State Government having the effect of impeding the free movement of trade, commerce and intercourse by dint of above levy cannot be saved from being ultra vires of article 301 of the Constitution. This principle was well enunciated by the Supreme Court in Atiabari Tea Co.'s case AIR 1961 SC 232 , wherein, the court considered the imposition of tax under the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954, and finding that the impact of the tax is such which results in directly and immediately restricting the free movement of trade or commerce so as to fall within the purview of article 301 of the Constitution held that law imposing such tax must comply with provisions of article 304(b). Since the tax has been imposed by the Assam Legislative Assembly without receiving the approval of the President, the Act was held to be invalid. The court said : "The purpose and object of the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act, 1954, which was passed by the Assam Legislature under entry 56 in List 2, is to collect taxes on goods solely on the ground that they are carried by road or by inland waterways within the area of the State. That being so, the Act has put a direct restriction on the freedom of trade, and since in doing so it has not complied with the provisions of article 304(b), nor has it been validated by the assent of the President under article 255(c), it must be declared to be void." The same is the position here. As we have noticed above, the tax on entry of goods within the local area for consumption, use or sale therein is a tax on movement of goods directly from outside to within the local limits and it has a pernicious influence on the free movement of trade, commerce or intercourse and the tax being not regulatory or compensatory in nature, results in restriction on free movement of trade, commerce or intercourse. Consequently, the restriction imposed by the taxing statute can be considered reasonable restriction on such freedom in terms of article 304(b). Consequently, the restriction imposed by the taxing statute can be considered reasonable restriction on such freedom in terms of article 304(b). However, for examining the reasonableness of restriction imposed on freedom of trade, commerce or intercourse throughout the India by State legislation, the Bill must have received the assent of the President before it is introduced for being enacted. That procedure having not been followed, apparently it was incompetent for the State Legislature to impose such tax, which has resulted aforesaid in view of article 301 read with article 304 of the Constitution. We have noticed above such limitations on legislative competence flows not from want of a legislative field reserved for State Legislature under the Seventh Schedule, but because of provisions contained in Part XIII of the Constitution. We are, therefore, of the opinion that the tax on entry of goods into local area having the effect of directly impeding the free movement of trade and commerce within the State is not compensatory in nature and falls within the ambit of article 301 of the Constitution of India. Until it is enacted in terms of the provisions of article 304(b), it cannot be said to fall within the legislative domain of the State Legislature. The restriction under article 301 of the Constitution has been found to be a constitutional restriction on the right of legislative competence to enact laws in derogation thereof and saving from that clause has been provided under articles 302 to article 305. When admittedly in the present case requirement of article 304(b) before enacting a law falling within the domain of article 301 has not been followed, the impugned Act must be held to be ultra vires to Chapter XIII of the Constitution in consonance with Atiabari's case AIR 1961 SC 232 . Accordingly, this petition is allowed. The Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 is held to be ultra vires article 301. The demand raised against petitioner shall not be enforceable in case not already paid by the petitioner. However, if any amount is collected by the petitioner from its customer as entry tax, the same shall be allowed to be retained by it on proof that the burden thereof has not been passed on to buyers, consumers or users. The demand raised against petitioner shall not be enforceable in case not already paid by the petitioner. However, if any amount is collected by the petitioner from its customer as entry tax, the same shall be allowed to be retained by it on proof that the burden thereof has not been passed on to buyers, consumers or users. If the burden has been so passed on to such other persons, the same shall be paid by the petitioner to the State Treasury within a month failing which such amount shall be recoverable from him. Likewise, any amount already paid by the petitioner as entry tax shall be refunded to him on proof of the fact that burden thereof has not been passed on to the users, consumers or buyers of such goods, as the case may be, as aforesaid. The petitioner may lay his claim for refund with required proof before the concerned assessing authority under the Commercial Taxes Department. No order as to costs.