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2008 DIGILAW 594 (JHR)

Steel Limited v. State of Jharkhand

2008-06-13

D.K.SINHA, M.Y.EQBAL

body2008
JUDGMENT: M. Y. Eqbal, ACJ.- ln all these Writ petitions, the petitioners have challenged the vires of Section 11 of the Jharkhand Valued Added Tax Act, 2005 as ultra vires and violative of Article 301 read with Article 304(a) of the Constitution of India since the provision is not saved by Article 304(b) of the Constitution of India and further for a direction restraining the respondents from enforcement of the provisions of Section 11 of the Jharkhand Valued Added Tax Act, 2005 whereby entry tax is liable to be collected on entry of goods mentioned in Schedule-Ill of the said Act. The petitioners further sought a declaration that the entry tax is not compensatory in nature falling under Article 304 of the Constitution of India. As such, the said provision is violative of Article 301 of the Constitution of India. 2. The respondents-State filed counter affidavit taking various defences available in law in support of their case that provisions of the Act is compensatory in nature and, therefore, not violative of the provisions of Article 301 and Article 304(b) of the Constitution of India. A supplementary counter affidavit was filed by the respondents on 17.3.2008. During the pendency of the writ applications, the respondents filed aforementioned supplementary counter affidavit stating inter alia that respondent NO.3-Additional Commissioner of Commercial Taxes, Jharkhand vide letter dated 8.3.2007 wrote to the Ministry of Home Affairs, Government of India requesting for grant of post facto assent/approval of the President of India. In response thereof. the Home Ministry, Government of India, vide letter dated 11.8.2007 informed the department that the Value Added Tax Act, 2005 is valid and no post facto assent is to be required. 3. Bihar Tax on Entry of Goods into Local Areas for Consumption, Use and Sale Therein Ordinance, 1993 was promulgated in February, 1993 by the Government of Bihar. By a subsequent notification dated 25th February, 1993 "entry tax" was introduced in the State of Bihar. After the lapse of the said Ordinance, another ordinance, namely, "Bihar Tax on Entry of Goods into Local Areas for Consumption, Use and Sale Therein Ordinance. 1993 was issued which was made an Act, namely. Bihar Tax on Entry of Goods into Local Areas for Consumption, Use and Sale Therein Act, 1993 The constitutional validity of the said Act was challenged in Patna High Court. 1993 was issued which was made an Act, namely. Bihar Tax on Entry of Goods into Local Areas for Consumption, Use and Sale Therein Act, 1993 The constitutional validity of the said Act was challenged in Patna High Court. The Division Bench of Patna High Court in the matter of State of Bihar VS. Bihar Chamber of Commerce [ (1996)9 SCC 136 ] [: 1996(1) PLJR (SC)105] held that the charging provision contained in Section 3 of the Act was ultra vires to the Constitution of India. The State of Bihar then preferred an appeal before the Supreme Court. The said appeal was allowed and the constitutional validity of Sections 3 and 6 of the Act was upheld following the earlier decision of the Supreme Court in the case of Bhagatram Rajeev Kumar vs. CST [1995 Suppl. (1) SCC 673]. 4. After the creation of the State of Jharkhand, a fresh Ordinance was issued in 2001, namely, Jharkhand Tax on Entry of Goods into Local Areas for Consumption. Use and Sale Thereof (Amendment) Ordinance 2001. In 2005 the State of Jharkhand came with a new legislation. namely, Jharkhand Value Added Tax Act. 2005. By the said Act, the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use and Sale Therein Act, 1993 as adopted in the State of Jharkhand was repealed. By the said Act. 2005 (VAT Act), the provision of imposition of entry tax on entry of goods into a local area in the State of Jharkhand has been introduced. 5. Before discussing the issue involved in these writ applications, I would first like to refer relevant provisions of Jharkhand Value Added Tax Act, 2005 (in short 'VAT Act') and subsequent amendments made in the said Act by Jharkhand Value Added Tax (Amendment) Act, 2007 (in short 'Amendment Act, 2007'). 6. In the VAT Act, 2005. preamble of the Act reads as under:-. "An Act to provide for and consolidate the law relating to levy of Value Added Tax on sales or purchases of goods and on Entry of Goods into a local Area in the State of Jharkhand." The said Act was published in Jharkhand Gazette (Extraordinary) dated 15.2.2006. 6. In the VAT Act, 2005. preamble of the Act reads as under:-. "An Act to provide for and consolidate the law relating to levy of Value Added Tax on sales or purchases of goods and on Entry of Goods into a local Area in the State of Jharkhand." The said Act was published in Jharkhand Gazette (Extraordinary) dated 15.2.2006. In the original Act of 2005 the word 'Entry of goods' as defined in Section 2(xix) reads as under:- Entry of goods''-''entry of goods" with all its grammatical variations and cognate expressions means entry of goods mentioned in Schedule-III into a local Area from any place outside the. State 7. Section 2(xxvi) defines the word "Importer". "Importer" means a dealer who brings any goods into the State or to whom any goods are dispatched from any place outside the State. 8. Section 2(xxix) defines "Input Tax" as under:- "Input Tax" means the tax paid or payable under this Act, by a registered dealer to another registered dealer on the purchase of goods, in the course of business for resale or for use in manufacturing or processing of taxable goods for sale, or for directly use in mining, or use as containers or packing materials for taxable goods or for the execution of works contract: Provided that input tax shall also include tax paid on the entry of goods into the local area as specified in Schedule-III: Provided further that input tax shall also include tax paid on the capital goods for Registered Start-up-business and shall qualify for Input Tax Credit as prescribed." 9. Section 11 of 2005 Act is a charging section which reads as under:- "11. Charge of Tax on Entry of Goods.-(1) Notwithstanding anything contained in Sections 9, 12, 13 and 14 of this Act or any notification issued there-under, there shall be levied and collected a tax on import price(s), on entry of such goods mentioned in Schedule-III of this Act, into the State or into a local area for consumption. Charge of Tax on Entry of Goods.-(1) Notwithstanding anything contained in Sections 9, 12, 13 and 14 of this Act or any notification issued there-under, there shall be levied and collected a tax on import price(s), on entry of such goods mentioned in Schedule-III of this Act, into the State or into a local area for consumption. use or sale therein, subject to such condition as may be prescribed: Provided that the tax levied on import price(s) of such goods mentioned in Schedule-III, shall be levied at the rate of 4 per centum: Provided further that where a dealer has paid tax on entry of such goods, and on which he is not liable to pay Tax u/s 17 of the Act, but is liable to pay tax by virtue of sale of such goods, under sub-section (2) of Section 9, his liability to pay tax on such goods. as specified in Part-E of Schedule-II under Section 13, shall stand reduced to the extent of tax paid on the entry of such goods subject to such condition as may be prescribed. (2) The tax leviable under this Section shall be paid by every dealer or registered dealer or any other person who in course of his business or otherwise brings or causes to be brought into the local area, such goods mentioned in Schedule-III whether on his own account or on account of his principal or takes delivery or is entitled to take delivery of such goods on such entry: Provided no tax shall be leviable in respect of entry of such goods effected by a person other than the dealer if the value of such goods does not exceed Rs. 10,0001- (ten thousand) in a year. (3) The liability to pay tax under this Section, on goods mentioned in Schedule-III shall be only at the point of first entry into the State or into a local area and any subsequent sale or sales into the State or into any local area or areas of the said goods, shall not be subject to tax under this Section, provided the subsequent selling dealer or registered dealer produces before the prescribed authority, original copy of bill, invoice, cash memo or challan issued to him by the dealer from whom he purchased or received the said goods and files a true declaration in the Form and manner prescribed." 10. In 2007 the respondents-State amended various provisions of VAT Act, 2005 by enacting Jharkhand Value Added Tax (Amendment) Act, 2007 (Jharkhand Act 3 of 2008). Section 1 of the Amendment Act, 2007 made the amended provisions effective from 1.4.2006. In Section 3 one more definition of "Fund" has been inserted by Clause (xxi A) which reads as under:- "Section 2(xxi A) "Fund" means, the "Jharkhand Trade Development Fund", as created by the State Government through a Notification published in the Official Gazette: for the purpose of development of trade, commerce and industry of the State, for such period(s) as may be specified in this behalf." 11. Sections 8 and 9 of the VAT Act, 2005 have also been amended. Section 11 which is relevant to the present case, has also been amended. The amendment brought in Section 11 is quoted herein-below:- "11. Change of Tax on Entry of Goods.-(1) Not withstanding anything contained in Sections 9, 12. 13 and 14 of this Act or any notification issued there-under, there shall be levied and collected a tax on import price(s), on entry of such goods mentioned in schedule-III of this Act, into the State or into a local area for consumption, use or sale therein, subject to such condition as may be prescribed: Provided that the tax levied on Import price(s) of such goods mentioned in Schedule-III, shall be levied at the rate of 4 per centum: Provided further that where a dealer has paid tax on entry of such goods, and on which he is not liable to pay Tax u/s 17 of the Act, but is liable to pay tax by virtue of sale of such good~, under sub-section (2) of Section 9, his liability to pay tax on such goods, as specified in Part-E of Schedule-II under Section 13, shall stand reduced to the extent of tax paid on the entry of such goods subject to such condition as may be prescribed. (2) The tax leviable under this Section shall be paid by every dealer or registered dealer or any other person who in course of his business or otherwise brings or causes to be brought into the local area, such goods mentioned in Schedule-III whether on his own account or on account of is principal or takes delivery or his entitled to take delivery of such goods on such entry: Provided no tax shall be leviable in respect of entry of such goods effected by a person other than the dealer if the value of such goods does not exceed Rs.10,0001- (ten thousand) in a year. (3) The liability to pay "lax under this Section, on goods mentioned in Schedule-III shall be only at the point of first entry into the State or into a local area and any subsequent sale or sales into the State or into any local area or areas of the said goods, shall not be subject to tax under this Section, provided the subsequent selling dealer or registered dealer produces before the prescribed authority. original copy of bill, invoice, cash memo or challan issued to him by the dealer from whom he purchased or received the said goods and files a true declaration in the Form and manner prescribed." 12. Various other Sections of the VAT Act, 2005 have been amended. However, it is worth to mention here that no amendment has been made in Sections 12,15 to 21. 13. As noticed above, during pendency of the writ petitions, relevant provisions of VAT Act, 2005 have been amended by Jharkhand Value Added Tax (Amendment) Act, 2007. Immediately thereafter, in order to give effect to the amended provisions, a notification was issued by the Finance Department vide S.O. No. 48 dated 29.3.2008 describing the procedure for levy and collection of tax on impor1 price on entry of goods into the State or into a local area for consumption, use or sale therein. Immediately thereafter, in order to give effect to the amended provisions, a notification was issued by the Finance Department vide S.O. No. 48 dated 29.3.2008 describing the procedure for levy and collection of tax on impor1 price on entry of goods into the State or into a local area for consumption, use or sale therein. The notification dated 29th March, 200B reads as under:- "Finance Department Notification The 29th March, 2008 S.O. 4B, dated the 29th March, 200B/930/FD-ln exercise of the powers conferred by the clause (xxi A) of Section 2 read with Section-11 of the Jharkhand Value Added Tax Act, 2005 (Jharkhand Act 05, 2006) as amended by Act 03, 200B) which prescribes for levy and collection of tax on Import Price(s) on entry of goods mentioned in Schedule-III of the Act, into the State of into a local area for consumption, use or sale therein, subject to conditions as may be prescribed and also other conditions laid down under subsections (2) and (3) of Section 11 and all other enabling powers in this behalf, the Governor of Jharkhand is pleased to create a Fund to be known as The Jharkhand Trade Development Fund (hereinafter called the 'Fund'). 2. The proceeds of the entry tax levied and collected under Section 11 of the Jharkhand Value Added Tax Act, 2005 (Jharkhand Act 05 of 2006) shall be appropriated into the 'Fund'. 3. The Proceeds of the "Fund" shall be exclusively utilized for facilitating trade, commerce and industry throughout the State of Jharkhand which shall include the following:- (a) construction, development and maintenance of roads and bridges for linking the market and industrial areas to their hinterlands; (b) providing finance, aids, grants and subsidies for development of infrastructure to facilitate free movement of goods; (c) creating infrastructure for supply of electrical energy and water supply to augment trade and commerce in the State; (d) creation, development and maintenance of other infrastructure for the furtherance of trade, commerce and industry in general. 4. There shall be constituted a High level Committee under the Chairmanship of the Chief Secretary for specifying the manner in which the proceeds of the "Fund" shall be utilized. The Committee shall be consisting of (a). 4. There shall be constituted a High level Committee under the Chairmanship of the Chief Secretary for specifying the manner in which the proceeds of the "Fund" shall be utilized. The Committee shall be consisting of (a). Chairman, a Member Secretary and the following ex offficio members:-Chief Secretary, Jharkhand (b) Finance Secretary, Jharkhand (c) Secretary-cum-Commissioner, Commercial Taxes, Department, Government of Jharkhand (d) Secretary, Road Construction Department.Government of Jharkhand (e) Secretary, Agriculture and Sugarcane Department, Government of Jharkhand (I) Secretary, Industries Department. Government of Jharkhand (g) Secretary, Energy Department, Government of Jharkhand (h) Secretary, Drinking Water and Sanitation Department, Government of Jharkhand ex officio Chairman Member Secretary Coordinator ex officio member ex officio member ex officio member ex officio member ex officio member 5. The Headquarter of the said Committee shall be at Ranchi. 6. High Level Committee shall identify and sanction schemes to be completed from the proceeds of the Fund keeping in view necessary facilities and infrastructure to be created for the benefit of entry tax payers as far as possible commensurate with their respective contribution by such class of tax payers. 7. The Member Secretary of the Committee shall convene the meeting, at least once a year to allocate the proceeds of the amount so collected, to the different respective departments In order to achieve the objective of this "fund". 8. High Level Committee shall monitor the utilization of Fund for the purposes specified in the Clause (3) from time to time with a view to ensure full and proper utilization thereof. 9. The entry tax deposited under Jharkhand Value Added Tax Act, 2005, under minor Head-106 of the major Head-0042 shall be deemed to have been appropriated into the Fund. 10. Any amount credited to the Fund and unutilized during any financial year shall be utilized for the same purpose in the subsequent financial year. in accordance with the direction of the High Level Committee. 11. This notification shall remain valid for ten years, provided the State Government may extend its validity for such period as it may deem necessary In this regard. This notification shall be deemed to have come into effect from 1st April, 2006. By the order of the Governor of Jharkhand, Niranjan Kumar, Additional Finance Commissioner, Jharkhand, Ranchi." 14. After Amendment Act and the Notification were brought on record, the petitioners filed application for amendment of different paragraphs of the writ applications. This notification shall be deemed to have come into effect from 1st April, 2006. By the order of the Governor of Jharkhand, Niranjan Kumar, Additional Finance Commissioner, Jharkhand, Ranchi." 14. After Amendment Act and the Notification were brought on record, the petitioners filed application for amendment of different paragraphs of the writ applications. The said amendments sought for by the writ petitioners are as under:--- "(I)' That in paragraph-1 of the writ petition, the following prayer may be added:- (F) For issuance of an appropriate writ for a declaration that Jharkhand Value Added Tax, 2005 as amended by the Jharkhand Value Added Tax (Amendment) Act, 2008 is violative of Article 301 of the Constitution of India as the said Act is not compensatory in character and also is not saved by Article 304 of the Constitution as the said legislation is discriminatory in character and also has not received the sanction of the President of India before the Jharkhand Value Added Tax, 2005 or the Jharkhand Value Added Tax (Amendment) Act, 2008 has been introduced or moved before the State Legislature. (G) For issuance of an appropriate writ for a further declaration that the Jharkhand Value Added Tax (Amendment) Act, 2008 cannot be given retrospective effect from 1st April. 2006. (H) For issuance of an appropriate writ for a further declaration that the Jharkhand Value Added Tax (Amendment) Act, 2008 cannot be implemented or enforced in the absence of any notification issued under sub-section (7) of Section 11 of the Jharkhand Value Added Tax (Amendment) Act, 2008. (II) That after paragraph-70. the follow-ving paragraphs may be added:-- "71" That the State of Jharkhand has enacted the Jharkhand Value Added Tax (Amendment) Act, 2007 (Jharkhand Act 03-08), which is an Act to amend the Jharkhand Value Added Tax, 2005, (Jharkhand Act 05-06). By the said Amendment Act, the various provisions of the Jharkhand Value Added Tax has been amended w.e.f. 1.4.2006. The Hon 'ble Governor has given his assent on 5th March. 2008 and the same has been published in the Official Gazette on 12th March, 2008. By the said Amendment Act, the various provisions of the Jharkhand Value Added Tax has been amended w.e.f. 1.4.2006. The Hon 'ble Governor has given his assent on 5th March. 2008 and the same has been published in the Official Gazette on 12th March, 2008. "72" That the Amendment Act is a colourable piece of legislation intended to give a veneer of regularization and legalization of the Jharkhand VAT Act which facially discloses that the said Act is not compensatory as it does not disclose under the provisions of the said Act as to how and in what manner the proceeds of entry tax are to be utilized for the purpose of the benefit and interest of trade people of the local area in which such entry tax is sought to be levied. In view of the judgment of the Supreme Court in the case of Jindal Stainless Ltd. reported in (2006)7 SCC 241 . the burden therefore lies upon the State to place materials before the Court as to how the proceeds of entry tax are sought to be utilized for the benefit and interest of the trade people of the local. "73" That the State has failed to discharge that burden under the Jharkhand VAT Act, 2005. Faced with the said situation when the matter came up before this Hon 'ble Court, the Counsel for the petitioner had made submissions on the basis of the Constitution Bench judgment in Jindal Stainless Ltd. The State had made the submission that a bill has been introduced and therefore they took time for the adjournment of the case. Even on the last day when the matter was heard, the State could not produce any material to show that the bill has already been made into an Act. After the case was adjourned by the Hon 'ble Bench the present Supplementary Counter Affidavit has been filed disclosing that the said bill has been made into an Act and the Amendment Act has been now enacted with the assent of the Governor of the State. "74" That it is submitted that under the Amendment Act a trade development fund has been introduced and the definition of said trade development fund has been made in Section 2(xxi) of the said Act. "74" That it is submitted that under the Amendment Act a trade development fund has been introduced and the definition of said trade development fund has been made in Section 2(xxi) of the said Act. Section 11 of the Jharkhand VAT Act has been further amended by the Amendment Act of 2008 by introducing sub-sections (4), (5), (6) and (7) in Section 11 of the original Act. It appears from the aforesaid sub-sections which have been newly introduced by the Amendment Act of 2008 that the trade development fund as defined in Section 2(xxi) and notified by the State Government in the Official Gazette in this behalf is to be utilized for the various purposes set out in sub-section (6) of Section 11 of the Amendment Act. "75" That it is submitted that the trade development fund has not yet been notified in the Official Gazette and in the absence of any such notification, the trade development fund does not exist in the eye of law. In any event such trade development fund is to be utilized for the various purposes as mentioned in sub-section (6) of Section 11 of the Amendment Act. The purpose for which the said trade development fund which is proposed to be constituted are to be utilized for the following purposes:- (a) construction, development and maintenance of roads and bridges for linking the market and industrial areas to their hinterlands. (b) providing finance. aids, grants and subsidies to financial. industrial and commercial units, (c) creating infrastructure for supply of electrical energy and water supply to industries, marketing and other commercial complexes, (d) creation, development and maintenance of other infrastructure for the furtherance of trade, commerce and industry in general." "76" That it submitted that none of the purposes which have been so enumerated does in any way indicate that the proceeds of entry tax which are required to be appropriated to the trade development fund are earmarked for the benefit and interest of the trading people of the local area in which such entry tax is sought to be levied and collected. Under Clause (a) of subsection (6) of Section 11 maintenance of roads and bridges is not compensatory in nature so as to constitute special advantage to trade, commerce and Intercourse. Under Clause (a) of subsection (6) of Section 11 maintenance of roads and bridges is not compensatory in nature so as to constitute special advantage to trade, commerce and Intercourse. Even otherwise welfare State is bestowed with the respondents of providing good roads and bridges for the tax paying citizens and hence to contend that the impugned levy is being raised for that purpose viz. for providing roads and bridges and for maintaining such roads and bridges for the benefit and interest of the trading people of the local area is not justified. "77" That in fact maintenance and construction of roads and bridges are met from the general revenue of the State. Whether the goods are transported into the State or abroad the State has a duty to provide facilities like roads, bridges etc. which is not only enjoyed by persons who bring the notified goods for levy of entry tax but also others. Roads and bridges are not special benefits to the trade people of the local area. No exclusive or special advantage is provided to the trade people. "78" That similarly clause (b) of sub-section (6) of Section 11 provides for finance, aids, grants and subsidies to financial, industrial and commercial units. It is submitted that financial aid is granted by the financial institutions which operate and function under a special Act VIZ. the State Financial Corporation Act. It is not even indicate how financial aids, grants, subsidies will be allowed by the trade development fund when such granting of financial aids are the responsibility and duty of the State Financial Corporation enacted for such specific purpose. "79" That similarly clause (c) of sub-section (6) of Section 11 provides for creating infrastructure for supply of electrical energy and water supply to industries, marketing and other commercial complexes. The aforesaid, purpose forms the common burden and responsibility of the welfare State and no special benefit or advantage is provided to the trade people of the local area in which such entry tax is levied and collected. "80" That it is submitted that supply of electrical energy cannot be held to be compensatory for meeting the outlay incurred for special advantage to trade, commerce and intercourse. The facilities are incidental and do not provide for any special benefit or advantage to the trade people of the local area in which such entry tax IS levied and collected. "80" That it is submitted that supply of electrical energy cannot be held to be compensatory for meeting the outlay incurred for special advantage to trade, commerce and intercourse. The facilities are incidental and do not provide for any special benefit or advantage to the trade people of the local area in which such entry tax IS levied and collected. Water and electricity are not connected with the facilities for the purpose of trade. The said facilities are for the general development of the State though termed as facilitating trade and commerce. There is no separate earmarking of the facilities planned for the traders or facilities generally for water supply and electricity. "81" That similarly clause (d) of sub-section (6) of Section 11 provides for creation, development and maintenance of other infrastructure for the furtherance of trade, commerce and Industry in general. The said clause is significantly vague and indefinite In its scope and operation and does not even Indicate that expenditure created for such alleged purposes viz. other infrastructure is specifically earmarked for the benefit and interest of the trade . people of the local area in which such entry tax is levied and collected. "82" That it is further submitted that said trade development fund has not yet been constituted by any notification. Similarly no notification has been issued in terms of sub-section (7) of Section 11 regarding the manner of deposit of tax under appropriate heads of account and the manner in which the proceeds of the fund shall be utilized exclusively for the development of trade, commerce and industries of the State of Jharkhand. In the absence of any such notification in terms of sub-section (7) of Section 11 of the Amendment Act, the trade development fund is only a hypothetical and notional until the proper notification is issued in terms of sub-section (7) of Section 11 of the Amendment Act. The said provision therefore is only dormant until it is brought to light by appropriate notification. Therefore the trade development fund is not workable till such time as the notification in terms of the statute is not made. The petitioner reserves its right for making further submission regarding the propriety, legality and validity as and when such notification is issued. The said provision therefore is only dormant until it is brought to light by appropriate notification. Therefore the trade development fund is not workable till such time as the notification in terms of the statute is not made. The petitioner reserves its right for making further submission regarding the propriety, legality and validity as and when such notification is issued. "83" That the petitioner further states that according to the scheme of the Jharkhand VAT Act particularly Section 17 and the proviso to Section 18(6) of the. original Act the input tax includes according to Section 2(xxix) tax payable on the entry of goods into the local area. Such entry tax is to be treated as input tax credit by the dealer and shall be adjustable against the output tax payable by the dealer which is nothing but a tax on the sale of the finished products viz. output tax. Therefore the input tax which is paid by a dealer on the entry of goods into the local area is adjusted against the output tax which is levied on the sale of the finished products and if the entry tax is so adjusted against the sales tax on the output it cannot be predicated even that any part of the entry tax is earmarked for any specific purpose and such entry tax is to be utilized for the benefit and interest of the trade people of the local area. Moreover, tax on the output viz. finished products is a tax on the sale of such goods. The proceeds of sales tax form a part of the consolidated fund of the State and therefore entry tax in so far as it is adjusted against the sales tax payable on the output viz. output tax, the entry tax also forms part of the consolidated fund of the State and it is not legally possible or even arguable that any part of the entry tax levied and collected is specially earmarked for the utilization of the same for the benefit and interest of the trade people of the local area. output tax, the entry tax also forms part of the consolidated fund of the State and it is not legally possible or even arguable that any part of the entry tax levied and collected is specially earmarked for the utilization of the same for the benefit and interest of the trade people of the local area. "84" That even the constitution of the trade development fund does not in any way affect the above legal position and therefore the trade development fund cannot be created by appreciating the entry tax levied and collected as such entry tax levied and collected is adjusted only against the output tax which is nothing but a tax on the sale of output. The sales tax forming part of the consolidated fund of the State but entry tax in so far as it is adjusted against the sales tax viz. output tax forms part also of the consolidated fund of the State and there cannot be any consolidated earmarking of the proceeds of the entry tax even by the constitution of a trade development fund. "85" That is further submitted that the creation of a trade development' fund miserably fails the test laid down by the Supreme Court in the case of Jindal Stainless Ltd. reported in (2006)7 SCC 241 and it is undoubtedly therefore is not compensatory in character and it is an admitted position that no sanction of the President of India has been obtained either at the time when the original Act was introduced or at the time when the Amendment Act was introduced and therefore the Impugned Act along-with its amendment being not compensatory in character is not saved by Article 304(b) of the Constitution as not sanction of the President of India has been obtained before the bill was introduced or the amendment introduced in the State Legislature. "86" That moreover, entry tax is levied only on the goods which are Imported from outside the State and does not apply to the goods which are moved from one local area into another. The Act therefore is discriminatory in character and violates Article 304(a) of the Constitution. Therefore the Act cannot be saved by the provisions of Article 304 of the Constitution and the Act remains a legislation which violates Article 301 as being not compensatory in nature. The Act therefore is discriminatory in character and violates Article 304(a) of the Constitution. Therefore the Act cannot be saved by the provisions of Article 304 of the Constitution and the Act remains a legislation which violates Article 301 as being not compensatory in nature. "87" That it is further submitted that the amendment introduced by the Amendment Act of 2008 is a mere colourable piece of legislation intended. to avoid and get over the constitutional requirements laid down by the Constitution Bench in the case of Jindal Stainless Ltd. reported in (2006)7 SCC 241 . The Constitution Bench has categorically stated that if the Act does not facially or patently indicate that the proceeds of the entry tax are specially earmarked for the benefit and interest of the trade people, the burden lies upon the State to satisfy the Court with the materials as to how the utilization of the entry tax is made for the benefit and interest of the trade people of the local area. "88" That the State has miserably failed to produce any materials or evidences before the Court as to how such utilization of the entry tax will be made for the special benefit and interest of the trading people of the local area. As no material or evidence has been produced, it has held by the earlier judgment in the case of Tata Steel Ltd. vs. State of Jharkhand reported in 6 VST 587, the State in order to avoid that factual position has merely amended the Act without producing or giving any material as to how such utilization has been made for the benefit and interest of the trading people. Therefore the Amendment Act is a colourable piece of legislation and is liable to be struck down. "89" That it is further stated that the Amendment Act having been made in 2008 has been made retrospective effect from 1st April, 2006 although the sanction of the Governor has been obtained on 5th March, 2008. It is submitted that whether the utilization of the fund is to be made if at all by the constitution of the trade development fund cannot be made retrospective as it is absurd to suggest that by retrospective amendment the utilization of the entry tax can be made for a specific purpose for the benefit and interest of the trade people of the local area. Such retrospective operation of the Amendment Act is also a colourable piece of legislation giving a veneer of the regularization and legalization of the infirmity in the statute." 15. In all these writ petitions, the vires of Section 11 of the VAT Act, 2005 and the amendment brought in 2007 have been challenged mainly on the ground that it does not fulfill the requirement of Articles 301 and 304 of the Constitution of India. There is no need to go in detail the constitutional provision contained in the Constitution of India. Suffice it to say that Articles 301 provides that subject to other provisions of Part-XIII, trade, commerce and intercourse throughout India shall be free. Article 301 contemplates freedom on such laws which restrict or affect activities of trade and commerce amongst the States. However, Articles 304(a) and 304(b) carve out an exception to Article 301. Article 304(a) empowers the State Legislature to impose tax on goods imported from outside the States provided that like goods manufactured within the State are subjected to the same tax. Article 304(b) vests the State Legislature with the authority or competence to impose restrictions on the freedom of trade, commerce or intercourse provided that such restrictions are imposed by the Legislature in public interest with the previous sanction of the President. 16. The vires of Section 11 and subsequent amendment made in the VAT Act has also been challenged in these writ petitions on the ground that imposition of entry tax is not compensatory in nature and, therefore, restrictions imposed on the movement of goods and imposition of entry tax without the sanction of the President is unconstitutional. 17. The Constitution Bench of the Supreme Court in the case of Jindal Stainless Ltd. vs. State of Haryana [ (2006)7 SCC 241 ], has considered the correctness of earlier judgment rendered by the Supreme Court in Bhagatram Rajeev kumar vs. CST (supra) and also subsequent decision in the case of State of Bihar vs. Bihar Chamber of Commerce [ (1996)9 SCC 136 ] [: 1996(1) PLJR (SC)105]. On this subject, the Supreme Court in the case of Atiabari Tea Co. Ltd. VS. State of Assam [ AIR 1961 SC 232 ] held that taxation laws are not excluded from operation of Article 301 which means that tax laws can and do amount to restrictions on the freedoms guaranteed to trade under Part-XIII of the Constitution. On this subject, the Supreme Court in the case of Atiabari Tea Co. Ltd. VS. State of Assam [ AIR 1961 SC 232 ] held that taxation laws are not excluded from operation of Article 301 which means that tax laws can and do amount to restrictions on the freedoms guaranteed to trade under Part-XIII of the Constitution. However, the provision of restrictions on free trade is not an absolute one. Statutory restrictions of trade can be invalid if not complied under Article 304(a) or (b) of the Constitution. In other words, the restriction imposed by the State Legislature can be only after satisfying the requirements of Article 304(b) of the Constitution. Article 304(b) requires not only that the law should in the public interest but should also be reasonable and should receive the previous assent of the President of India. 18. Another decision in the case of Automobile Transport (Rajasthan) Ltd. vs. State of Rajasthan [ AIR 1962 SC 1406 ], the Rajasthan Motor Vehicles Taxation Act, 1951 was challenged. In the said decision, the Supreme Court held that only such taxes as directly and immediately restrict trade would fall within the purview of Article 301 and that any restriction in the form of taxes imposed by the State Legislature on the carriage of goods or their movements can only be done after satisfying the requirements of Article 304(b) of the Constitution. 19. In Bhagatram's case (supra), the Supreme Court took the view that concept of compensatory nature of tax can be 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 challenged as invalid. The aforesaid decision of the Supreme Court in Bhagatram's case was subsequently followed by the Supreme Court in the case of Bihar Chamber of Commerce (supra) and it was held that if some connection between the tax and the trading facilities extended to dealers directly or indirectly is sufficient to characterize, it is compensatory tax. 20. As notice above, the correctness of the aforementioned two decisions rendered in Bhagatram's case, and Bihar Chamber of Commerce's case was doubted and hence, the matter was referred to Constitution Bench in Jindal Stainless Ltd's case (supra). 20. As notice above, the correctness of the aforementioned two decisions rendered in Bhagatram's case, and Bihar Chamber of Commerce's case was doubted and hence, the matter was referred to Constitution Bench in Jindal Stainless Ltd's case (supra). The Constitution Bench have considered all the earlier decisions in detail and laid down the law as to when imposition of tax can be held to be compensatory in nature. At this juncture, it would be very useful to refer some of the paragraphs of the judgment rendered in Jindal Stainless Ltd's case, which reads as under:- 41. On the other hand, a fee is based on the "principle of equivalence". This principle is the converse of the "principle of ability" to pay. In the case of a fee or compensatory tax, the "principle of equivalence" applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the Government action and even if such benefit results from the Government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable. 42. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services, which costs in the become the basis of reimbursement recompense for the provider of the services/facilities. Compensatory tax is based on the principle of "pay for the value". It is a sub-class of "a fee". From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progressive or proportional to income, property, expenditure or any other test of ability or capacity (principle of ability). Taxes may be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to benefits. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progressive or proportional to income, property, expenditure or any other test of ability or capacity (principle of ability). Taxes may be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to benefits. They are based on the principle of equivalence. However, a compensatory tax is levied on an individual as a member of a class, whereas a fee is levied on an individual as such. If one keeps in mind the "principle of ability" vis-a-vis the "principle of equivalence", then the difference between a tax on one hand and a fee or a compensatory tax on the other hand can be easily spelt out. Ability or capacity to pay is measurable by property or rental value. Local rates are often charged according to the ability to pay. Reimbursement or recompense are the closest equivalence to the cost incurred by the provider of the services/facilities. The theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individual(s), a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it. The basic difference between a tax on one hand and a feel compensatory tax on the other hand is that the former is based on the concept of burden whereas compensatory tax/fee is based on the concept of recompense/reimbursement. For a tax to be compensatory, there must be some link between the quantum of tax and the facility/services. Every benefit is measured in terms of cost which has to be reimbursed by compensatory tax or in the form of compensatory tax. In other words, compensatory tax is a recompense/reimbursement. 43. 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. 44. Since compensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters. 45. To sum up, the basis of every levy is the controlling factor. It may incidentally bring in net revenue to the Government but that circumstance is not an essential ingredient of compensatory tax. 44. Since compensatory tax is a judicially evolved concept, understanding of the concept, as discussed above, indicates its parameters. 45. To sum up, the basis of every levy is the controlling factor. In the case of "a tax", the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of "a fee", the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of "burden" to the concept of measurable/quantifiable benefit and then it becomes "a compensatory tax" and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more. closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the 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 46. 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. 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). 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) [see para 35 (of AIR) of the decision in Khyerbari Tea Co. Ltd. vs. State of Assam]." 21. In the concluding part of the judgment. the Supreme Court further held:- "50. As stated above, in the post 1995 era, the said working test pro- pounded in Automobile Transport6 stood disrupted when in Bhagatram case, a Bench of three Judges enunciated the test of "some connection" saying that even if there is some link between the tax and the facilities extended to the trade directly or indirectly, the levy cannot be impugned as invalid. In our view. this test of "some connection" enunciated in Bhagatram case is not only contrary to the working test propounded in Automobile Transport case6 but it obliterates the very basis of compensatory tax. We may reiterate that when a tax is imposed in the regulation or as a part of regulatory measure the controlling factor of the levy shifts from burden to reimbursement/recompense. The working test propounded by a Bench of seven Judges in Automobile Transport6. and the test of "some connection" enunciated by a Bench of three Judges In Bhagatram case cannot stand together. Therefore, in our view, the test of "some connection" as propounded in Bhagatram case is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeev kumar vs. CST and State of Bihar vs. Bihar Chamber of Commerce stand overruled. 51. Before concluding, we may point out that parties before us have taken more or less extreme positions and, therefore, we have not examined the arguments in seriatim 52. In our opinion. 51. Before concluding, we may point out that parties before us have taken more or less extreme positions and, therefore, we have not examined the arguments in seriatim 52. In our opinion. the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram case followed by the judgment in Bihar Chamber of Commerce2 was well founded. 53. We reiterate that the doctrine of "direct and immediate effect" of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. vs. State of Assam and the working test enunciated in Automobile Transport (Rajasthan) Ltd. vs. State of Rajasthan for deciding whether a tax is compensatory or not vide para 19 of the Report (AIR), will continue to apply and the test of "some connection" indicated in para 8 (of SCC) of the judgment in Bhagatram Rajeev kumar vs. CST and followed in State of Bihar vs. Bihar Chamber of . Commerce is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject-matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment." 22. After the aforesaid judgment rendered by Constitution Bench of the Supreme Court. all those appeals and connected matters pending before the Supreme Court were placed before the Division Bench of the Supreme Court in Jindal Stainless Steels case (supra). The Supreme Court took the view that since relevant data do not appear to have been placed before the High Court, the parties are permitted to place them in the writ petition and the High Court shall deal with the basic issue as to whether the impugned levy of entry tax was compensatory in nature. This is how different High Courts have heard the writ petitions wherein the provisions of entry tax imposed by the concerned State Legislature were considered. Therefore, it would be useful to discuss the view taken by the different High Courts on the question as to whether the provision of entry tax is compensatory in nature. 23. In Madras High Court, the constitutional validity of Tamil Nadu Tax on Entry of Goods in Local Areas Act. 2001 and various notifications issued by the State Government in exercise of powers conferred by Section 15 of the Act was challenged. 23. In Madras High Court, the constitutional validity of Tamil Nadu Tax on Entry of Goods in Local Areas Act. 2001 and various notifications issued by the State Government in exercise of powers conferred by Section 15 of the Act was challenged. The Act was enacted to provide for the levy of tax on entry of goods into local areas for consumption, use or sale therein. Section 3 empowers the State Government to levy and collect tax on entry of scheduled goods into any local areas for consumption, use or sale. The main ground of tax was that the tax was to be levied under the Act was neither regulatory in nature nor does it satisfy the test laid down for a compensatory tax . Further. no Presidential assent was obtained under Article 304(b) of the Constitution. In those writ petitions, the State of Tamil Nadu by counter affidavit brought certain figures of expenditure incurred in the matter of laying roads; construction of bridges which was said to be quantifiable data to satisfy the parameters laid clown in Jindal s case. It was further stated by the State that the quantifiable data on the basis of which the compensatory tax was sought to be levied has been facially and patently indicated in the manner which was necessary to augment the revenue of the State to compensate the expenditure to provide trading facilities including laying and maintenance of roads and provision of markets and welfare measures and further that for the said purposes, it was considered necessary to levy and collect tax on the goods entering into the local areas of the State for consumption, use or sale therein. In the case of ITC Ltd. vs. State of Tamil Nadu (Mad.) [(2007)7 VST 367 (Madras)], the Madras High Court rejecting the contention of the State of Tamil Nadu held as under:- "25. We are afraid the materials produced by the State are hardly relevant to establish that the levy is compensatory. In the first place, the above data is rather ambiguous, as it does not provide details or even. examples of the specific areas where the alleged roads have been laid and does not even name the few bridges that have been constructed with the amount collected as entry tax. In the first place, the above data is rather ambiguous, as it does not provide details or even. examples of the specific areas where the alleged roads have been laid and does not even name the few bridges that have been constructed with the amount collected as entry tax. In Jindal's case, the Court has categorically ruled that for a law to be compensatory, there has to be a rational nexus between the levy and the services provided. The decision proceeds to make a clear-cut distinction between the general taxing power of the State and the levy of compensatory tax. The essence of compensatory tax is that the services rendered or facilities provided should be more or less commensurate with the tax levied. Services provided will have a direct co-relation with the trade. The main basis of compensatory tax is the quantifiable and measurable benefit represented by the cost incurred in procuring the facilities/services. The cost in turn, becomes the basis of reimbursement/recompense for provider of services/facilities. As held in Jindal's case, the compensatory tax is a charge for offering trade facilities and they are based on the principles of equivalence. Applying the above test, it cannot be said that maintaining of roads, providing bridges etc., is compensatory in nature so as to constitute special advantage to trade, commerce and intercourse. Even otherwise, a welfare State is bestowed with the responsibilities of providing good roads and bridges for the benefit of the tax paying citizens and hence to contend that the impugned levy is being raised only for the said purpose is not justified. Maintenance of roads, bridges etc., are generally met from the general funds or revenue. Whether goods are transported into the State or outside State or abroad, the State has got a duty to provide facilities like roads, bridges, etc., which are being enjoyed not only by the persons who bring the goods notified for levy of entry tax, but also by others." 27. If an entry tax levied under' Entry 52 is at all to be substantiated as a compensatory tax, then it has to be done with reference to the nature of such tax i.e., a tax payable by a special class of dealers in a local area who import only the specified goods from outside the State and the special benefits/facilities provided to such payers of the tax within the local area concerned. As to what could satisfy such a test in the context of an entry tax could be gathered from Para 28 in Hansa Corporation. ( AIR 1981 SC 463 at para-28 p. 473) which is extracted below: "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. (emphasis supplied)."