GODFREY PHILIPS INDIA LTD. v. STATE OF M. P. (AND OTHER CASES).
2008-05-15
DIPAK MISRA, R.S.JHA
body2008
DigiLaw.ai
ORDER DIPAK MISRA, J. - Regard being had to the similitude and interconnectivity of the controversy that is involved in this batch of writ petitions it is disposed of by a singular order. It is condign to state at the outset that in some of the writ petitions, the constitutional validity of the provisions contained in the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (for brevity, "the 1976 Act") is called in question and prayer has been made to declare the entire enactment ultra vires articles 301 and 304(b) of the Constitution and in some of the writ petitions the assail is to the constitutional validity of the notifications issued under the 1976 Act on the foundation that they invite the frown on article 301 of the Constitution and also fall foul of article 14 of the Constitution. Keeping in view the nature of the challenge and the contours of the attack I will advert to the issue of validity of the Act first and thereafter I shall dwell upon the substantiality and sustainability of the notifications. For the sake of clarity and convenience I shall adumbrate the facts in W.P. No. 11642 of 2007 and wherever it is felt necessitous to delineate any other facets relating to the factual realm, I shall exposit and delve into the same so that a complete picture is frescoed. Before I advert to the pleadings that have been brought on record it is essential to advert to the factual backdrop in the context of the 1976 Act, for it is imperative to do so. The constitutional validity of the 1976 Act was challenged before a Division Bench of this court in Sanjay Trading Co. v. Commissioner of Sales Tax [1994] 93 STC 589 wherein the Division Bench dealt with articles 301 and 304(b) of the Constitution of India and eventually expressed the view as under : "21. In the present case, the State has taken the stand that the levy of entry tax is compensatory in character, i.e., to compensate the municipalities for loss of income by way of octroi which has been abolished in the State.
In the present case, the State has taken the stand that the levy of entry tax is compensatory in character, i.e., to compensate the municipalities for loss of income by way of octroi which has been abolished in the State. This contention is met by learned counsel for the petitioners by pointing out that the legislative provisions indicative of the compensatory nature of the levy, have been deleted and, therefore, it is no longer open to the State to contend that the levy is compensatory in character. 22. Section 17 of the Act, as it originally stood, required that the tax collected shall be credited to the consolidated fund of the State and that net tax collection be placed to the credit of M.P. Octroi Compensation Fund under section 7B of the Sales Tax Act. By Act No. 24 of 1978, this provision was omitted with effect from April 1, 1978. Section 7B was introduced in the Sales Tax Act with effect from October 1, 1978, specifically providing for grant-in-aid for loss of octroi to the municipality. This provision was deleted in 1990. This is the foundation for the contention that the entry tax is not compensatory in character. 23. The Statement of Objects and Reasons of the Act states that it is enacted to levy a tax on entry of goods in lieu of octroi tax collected by the municipalities and municipal corporations and to make transportation of goods trouble-free by abolishing octroi check-posts. A copy of the Statement of Objects and Reasons is found in annexure A. R-1 appended to the additional submissions made on behalf of the respondents in M.P. No. 2289 of 1989. It indicates that the statute had the view of raising financial resources to compensate local bodies consequent upon abolition of octroi with a view to simplifying the taxation structure. Annexure A. R-3 gives summary in respect of levy and details of allotment made to local bodies. The document shows that during the period 1976-77 till 1988-89, provision was made in the budget to compensate the municipalities and the amount budgeted was made over. It also shows that with effect from the year 1983-84, there has been a regular annual increase of 10 per cent in total compensation amount. Considering the Statement of Objects and Reasons and the particulars given in annexure A. R-3, the statutory changes referred to above have no significance.
It also shows that with effect from the year 1983-84, there has been a regular annual increase of 10 per cent in total compensation amount. Considering the Statement of Objects and Reasons and the particulars given in annexure A. R-3, the statutory changes referred to above have no significance. Entry tax remains compensatory in nature and, therefore, it is immune from challenge." The validity of the 1976 Act came for consideration in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, Madhya Pradesh [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 wherein their Lordships in paragraph 8 expressed the opinion as under : "8. Even the submission on article 301 of the Constitution is not well-founded. The article came up for interpretation by this court in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 . A combined reading of the two decisions indicates that so long as a tax is regulatory and compensatory it is not within the mischief of article 301. In the counter-affidavit filed on behalf of the State which was not disputed, the nature of levy has been demonstrated to be compensatory. The appellants did not dispute the figure furnished by the State. It is settled by now that if the tax is compensatory then it is immune from challenge under article 301 (Khyerbari Tea Co. Ltd. v. State of Assam [1964] 5 SCR 975; AIR 1964 SC 925 and State of Karnataka v. Hansa Corporation [1981] 1 SCR 823; AIR 1981 SC 463 ). The submission of Shri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid.
The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide municipal services more efficiently, which would help or ease free-flow of trade and commerce, because of which the impost has to be regarded as compensatory in nature, in view of what has been stated in the aforesaid decisions, more particularly in Hansa Corporation's case [1981] 1 SCR 823; AIR 1981 SC 463 ." At this juncture it is appropriate to state that in another decision in State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 their Lordships while dwelling upon the tax imposed under the Bihar (Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein) Act, 1993 posed a question whether the amount taxed has been established to be compensatory or whether it can be called a regulatory measure. Dealing with the said facet in the backdrop of article 301 and clause (b) of article 304 their Lordships opined that the tax was compensatory in nature. In the aforesaid case their Lordships placed reliance on Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673. At this stage it is apposite to mention that a two-judge Bench (Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC)) while dealing with the constitutional validity of the Haryana Local Area Development Tax Act, 2000 referred to the guarantee given in article 301 of the Constitution, the decisions rendered in Atiabari Tea Co.
At this stage it is apposite to mention that a two-judge Bench (Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC)) while dealing with the constitutional validity of the Haryana Local Area Development Tax Act, 2000 referred to the guarantee given in article 301 of the Constitution, the decisions rendered in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 , Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 , G. K. Krishnan v. State of Tamil Nadu [1975] 1 SCC 375, Shaik Madar Saheb v. State of Andhra Pradesh [1972] 4 SCC 635, International Tourism Corporation v. State of Haryana [1981] 2 SCC 318, Malwa Bus Service (Pvt.) Ltd. v. State of Punjab [1983] 3 SCC 237, B. A. Jayaram v. Union of India [1984] 1 SCC 168 and State of Maharashtra v. Madhukar Balkrishna Badiya [1988] 4 SCC 290 and opined that since the concept of compensatory tax has been judicially evolved as an exception to the provisions of article 301 and as the parameters of the said judicial concept are blurred particularly by the reasons of the decisions in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 the interpretation of article 301 vis-a-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench. When the matter stood thus, challenge to the 1976 Act again came up in Geo Miller & Co. (P) Ltd. v. State of M.P. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 wherein their Lordships posed the question whether the said Act is unconstitutional as it is hit by article 301 of the Constitution for not satisfying the conditions laid down under article 304(b). Relying on the decisions rendered in Atiabari Tea Co. Ltd. AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 it was contended that entry tax impedes the movement of goods from one barrier to the other and hence article 301 of the Constitution of India comes into play.
Relying on the decisions rendered in Atiabari Tea Co. Ltd. AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 it was contended that entry tax impedes the movement of goods from one barrier to the other and hence article 301 of the Constitution of India comes into play. Their Lordships opined that only such impositions which directly or immediately impede the free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301 and not all taxes whether or not their impact on trade is immediate or mediate, direct or remote. To arrive at the said conclusion the apex court placed reliance on the decisions on Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 and State of Kerala v. A. B. Abdul Kadir [1969] 2 SCC 363 and declared the Act to be intra vires. In view of the reference, the matter came up for consideration before the Constitution Bench and by that time Jindal Strips Limited had come to be known as Jindal Stainless Limited. In Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC); [2006] 7 SCC 241 their Lordships noted the referral order, the arguments canvassed at the Bar, the scope of articles 301, 302 and 304 of the Constitution, the generic concept of entry tax, difference between the exercise of taxing and regulatory power, conceptual difference in the terms "tax", "fee" and "compensatory tax", the "working test" propounded in Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 and came to hold that the enunciation of "some connection" theory in Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 is not only contrary to the working test as pronounced in Automobile Transport AIR 1962 SC 1406 but also it obliterates the very basis of compensatory tax. Eventually, it was opined that the test of "some connection" as propounded in Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 is not applicable to the concept of compensatory tax and accordingly to that extent the decisions rendered in Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 were overruled. In conclusion it was reiterated that the doctrine of direct and immediate effect on trade and commerce under article 301 as propounded in Atiabari Tea Co.
In conclusion it was reiterated that the doctrine of direct and immediate effect on trade and commerce under article 301 as propounded in Atiabari Tea Co. AIR 1961 SC 232 and the working test enunciated in Automobile Transport AIR 1962 SC 1406 for deciding the tax as compensatory would continue to apply and the test of "some connection" indicated in the decision in Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and followed in Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 is not good law. I think it is condign to mention here that in the course of our judgment I shall refer to the dictum in detail and cull out the principles to be guided while dealing with the constitutional validity of the Act. After the decision was rendered by the Constitution Bench in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 a two-judge Bench of the apex court in Jindal Stainless Limited [2006] 7 SCC 271 noted the basic issues pertaining to the nature of compensatory tax and referred to the paragraphs 45 to 48 of the judgment and eventually in paragraph 5 expressed the view as under : "5. 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." It is relevant to state here that the constitutional validity of the 1976 Act was not the subject-matter in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. After delivery of the decision by the Constitution Bench the present batch of writ petitions has been filed questioning the constitutional validity of the Act and the notifications issued thereunder. At this stage it is appropriate to refer to the facts which form the basis of assail.
After delivery of the decision by the Constitution Bench the present batch of writ petitions has been filed questioning the constitutional validity of the Act and the notifications issued thereunder. At this stage it is appropriate to refer to the facts which form the basis of assail. Before I advert to the facts which have been exposited in W.P. No. 11642 of 2007 as I have taken the same for the purpose of factual expose, it is obligatory on my part to state that Mr. R. N. Singh, learned Advocate - General, has raised a preliminary objection that the controversy in this batch of writ petitions does not require to be dwelled upon inasmuch as the Constitution Bench has only overruled the principle of "some connection" theory as laid down in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 but the validity of the 1976 Act that was upheld in Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 still holds good and the validity of the enactment cannot again be called in question by placing reliance on the decision rendered in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. Per contra, learned counsel for the petitioners submitted that the Act of 1976 was held to be constitutionally valid on the foundation that the levy was compensatory in nature and the same was based on some-connection theory and once the some-connection theory has been obliterated by operation of law there can be a fresh challenge to test the constitutional pregnability of the said Act on the factual parameters as have been enunciated in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. The seminal question that arises for consideration is whether the petitioners are entitled in law to assail the validity of the 1976 Act in the changed factual scenario. Submission of Mr. R. N. Singh, learned Advocate - General, is that the 1976 Act was given the stamp of approval and held to be intra vires in the case of Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and again in Geo Miller & Co.
Submission of Mr. R. N. Singh, learned Advocate - General, is that the 1976 Act was given the stamp of approval and held to be intra vires in the case of Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and again in Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 and the apex court has held the entry tax to be compensatory in nature and, therefore, the same does not require reconsideration. The learned counsel has also commended to Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 wherein it has been stated that in Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 the challenge was to the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 and in that case although it was demonstrated by the State and not disputed by the assessee that the levy was compensatory, nevertheless the court proceeded to say about the broad co-relation and some-connection theory. It is highlighted by Mr. Singh that once the levy has been accepted to be compensatory it should not be allowed to be re-opened. In essentiality, submission of the learned Advocate - General is that the validity of the Act having been determined twice the same is not available for fresh attack. In this context I may refer with profit to the decision rendered in Mathura Prasad Sarjoo Jaiswal v. Dossibai N. B. Jeejeebhoy AIR 1971 SC 2355 wherein it has been held that the doctrine of res judicata belongs to the domain of procedure. It cannot be exalted to the status of a legislative direction between the parties so as to determine the question relating to the interpretation of the enactment. Further, a decision on an issue of law will operate as res judicata in a subsequent proceeding between the same parties, if the cause of action of the subsequent proceeding be the same as in the previous proceeding but not when the cause of action is different nor when the law has since the earlier decision been altered by a competent authority, nor when the decision relates to the jurisdiction of the court to try the earlier proceeding, nor when the earlier decision declares valid a transaction which is prohibited by law.
In Nand Kishore v. State of Punjab [1995] 6 SCC 614 it has been held that the principles of constructive res judicata would not apply when the law has, since the earlier decision, been altered by a competent authority and in the context, the court is a competent authority to alter the law when it declares it to be unconstitutional. Alteration does not limit alone to change therein but is inclusive of the power of striking down. In this context we may fruitfully refer to the decision rendered in Keshoram and Co. v. Union of India [1989] 3 SCC 151 wherein it has been held that once the validity of a provision or notification is upheld by the court, all grounds presumed to have been considered by the court and fresh litigation challenging the validity of the same provision on some additional ground would be barred by the principles of res judicata. In this context it is fruitful to refer to the Constitution Bench judgment rendered in Atam Prakash v. State of Haryana AIR 1986 SC 859 . In the aforesaid case the apex court under article 32 of the Constitution was dealing with the constitutional validity of section 15 of the Punjab Pre-exemption Act, 1913. The constitutional validity of section 15(1)(a) of the Act was earlier challenged on the ground that it offended the fundamental rights guaranteed by article 19(1)(f) of the Constitution of India and it was held by the Constitution Bench in Ram Sarup v. Munshi AIR 1963 SC 553 that there was no infringement of article 19(1)(f) and the provision was valid. In Atam Prakash AIR 1986 SC 859 the validity of the said provision was impugned primarily on the ground that it offended articles 14 and 15 of the Constitution of India. In that context their Lordships in paragraph 2 expressed the view that the question required to be examined with reference to articles 14, 15 and 19(1)(d) and (g) of the Constitution in the background of the Preamble to the Constitution and article 39(c) of the Directive Principles of State Policy. In that context their Lordships expressed the opinion as under : "...
In that context their Lordships expressed the opinion as under : "... Whether it is the Constitution that is expounded or the constitutional validity of a statute that is considered, a cardinal rule is to look to the Preamble to the Constitution as the guiding light and to the Directive Principles of State Policy as the Book of Interpretation. The Preamble embodies and expresses the hopes and aspirations of the people. The Directive Principles set out proximate goals. When we go about the task of examining statutes against the Constitution, it is through these glasses that we must look, 'distant vision' or 'near vision'. The Constitution being sui generis, where Constitutional issues are under consideration, narrow interpretative rules which may have relevance when legislative enactments are interpreted may be misplaced. Originally the Preamble to the Constitution proclaimed the resolution of the people of India to constitute India into 'a Sovereign Democratic Republic' and set forth 'Justice, Liberty, Equality and Fraternity', the very rights mentioned in the French Declarations of the Rights of Man as our hopes and aspirations. That was in 1950 when we had just emerged from the colonial-feudal rule. Time passed. The people's hopes and aspirations grew. In 1977 the 42nd Amendment proclaimed India as a Socialist Republic. The word 'socialist' was introduced into the Preamble to the Constitution. The implication of the introduction of the word 'socialist', which has now become the centre of the hopes and aspirations of the people - a beacon to guide and inspire all that is enshrined in the articles of the Constitution, is clearly to set up a 'vibrant throbbing socialist welfare society' in the place of a 'Feudal exploited society'. Whatever article of the Constitution it is that we seek to interpret, whatever statute it is whose constitutional validity is sought to be questioned, we must strive to give such an interpretation as will promote the march and progress towards a Socialistic Democratic State. For example, when we consider the question whether a statute offends article 14 of the Constitution we must also consider whether a classification that the Legislature may have made is consistent with the socialist goals set out in the Preamble and the Directive Principles enumerated in Part IV of the Constitution. A classification which is not in tune with the Constitution is per se unreasonable and cannot be permitted.
A classification which is not in tune with the Constitution is per se unreasonable and cannot be permitted. With these general enunciations we may now examine the questions raised in these writ petitions." In this context I may refer with profit to a three-judge Bench decision of the apex court rendered in Indian Handicrafts Emporium v. Union of India [2003] 7 SCC 589 wherein placing reliance on the decisions rendered in the cases of Kapila Hingorani v. State of Bihar [2003] 6 SCC 1 and John Vallamattom v. Union of India [2003] 6 SCC 611 it has been held that there cannot be any doubt whatsoever that the law which was at one point of time constitutional may be rendered unconstitutional because of the passage of time. As is manifest, the 1976 Act was held to be constitutionally valid on different parameters. Presently, the parameters have been changed by the decision rendered by their Lordships in Jindal Stainless Limited [2006] 145 STC 544 (SC); [2006] 7 SCC 241. Keeping in view the decision rendered in Mathura Prasad Sarjoo Jaiswal AIR 1971 SC 2355 , Nand Kishore [1995] 6 SCC 614, Atam Prakash AIR 1986 SC 859 and Indian Handicrafts Emporium [2003] 7 SCC 589, I am of the considered opinion that once the parameters change there can be a fresh challenge and fresh adjudication. In view of the aforesaid I am unable to accept the submission of the learned Advocate - General that the writ petitions are barred by res judicata or constructive res judicata and accordingly it is repelled. At this juncture it is seemly to refer to the factual base which formed the foundation of assail. I would like to state here that the counter-affidavits, rejoinder, additional affidavits, additional return, counter to the same and clarificatory affidavits and affidavits providing data have been filed before this court. They require detailed scrutiny on the touchstone of law laid down in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. First I shall refer to the initial challenge as put forth by the writ petitioners, counter-affidavit and the rejoinder and the additional affidavit, as I am disposed to think that the same would fall in one compartment to understand the essentiality of the attack.
First I shall refer to the initial challenge as put forth by the writ petitioners, counter-affidavit and the rejoinder and the additional affidavit, as I am disposed to think that the same would fall in one compartment to understand the essentiality of the attack. The petitioner is a public limited company incorporated and registered under the provisions of the Companies Act, 1956 having its registered office at Mumbai. It manufactures cigarettes at its factories located outside the State of Madhya Pradesh. It was a dealer under the Madhya Pradesh Vanijyik Kar Adhiniyam, 1994 and is also deemed to be a registered dealer under the M.P. VAT Act, 2002. It is also a dealer for the purpose of the 1976 Act. It has got godowns at Indore and Gwalior. The clearing and forwarding agent at Indore manages the transactions at Indore and Gwalior. The clearing and forwarding agent receives the consignments of cigarettes dispatched from its said factories and stores the same at its godowns and distributes the cigarettes to various dealers in Madhya Pradesh. When the goods enter the State of Madhya Pradesh the company is required to pay the entry tax on the value of goods entered irrespective of the facts whether such goods are sold by the company to its dealers at Indore for their ultimate consumption by the consumer in the local area of Indore or taken out of the local area of Indore for ultimate consumption in the other local areas. It is put forth that so far as goods imported from outside the State of Madhya Pradesh are concerned they receive a different treatment for the purpose of levy of entry tax as against the goods locally manufactured. The goods imported from outside the State of M.P. are liable to entry tax as soon as they are entered into the State of Madhya Pradesh irrespective of the fact whether the goods are used or consumed in the area in which they are first entered. It is put forth that there is a clear discrimination between the goods imported from other States and the goods which are locally manufactured and hence, the levy of entry tax on the goods brought into Madhya Pradesh creates an impediment on the free flow of trade.
It is put forth that there is a clear discrimination between the goods imported from other States and the goods which are locally manufactured and hence, the levy of entry tax on the goods brought into Madhya Pradesh creates an impediment on the free flow of trade. Reference has been made to section 3 of the 1976 Act to indicate that it is the charging section which purports to levy of tax on the entry of goods effected by the dealer in course of his business into a local area for consumption, use or sale in such local areas. Section 4 provides the rate at which entry tax can be levied. The said provision stipulates the quantum of tax to be charged from a dealer relating to the goods specified in Schedule II and Schedule III. Section 4A empowers the State Government to specify the local area or areas and the goods which are used or consumed in such local area or areas for manufacture of other goods or as packing material and may direct by notification that as from the date specified in the notification and in the manner as may be prescribed, the entry tax is payable by the dealer on its taxable quantum relating to such goods. The rate as has been fixed shall be charged not exceeding 10 per cent as specified in the notification. Section 4A confers a power on the State Government to enhance the rate of tax in respect of local area or areas and the goods used or consumed for the manufacture of other goods. Reference has been made to section 9 and other provisions to highlight that the rate of tax which could not have exceeded twice the rate specified in the Schedule now has been enhanced to a rate which is three times the scheduled rate. It is averred in the petition how it had assailed the constitutional validity of the Act in M.P. No. 1720 of 1991 and how this court upheld the validity following the decision rendered in Sanjay Trading Co. [1994] 93 STC 589. At that juncture, as pleaded, the State had provided details regarding allotments made to local bodies and the provisions made in the budget during the period 1976-77 till 1988-89 to compensate the municipalities for the loss of octroi revenue.
[1994] 93 STC 589. At that juncture, as pleaded, the State had provided details regarding allotments made to local bodies and the provisions made in the budget during the period 1976-77 till 1988-89 to compensate the municipalities for the loss of octroi revenue. It has been set forth how eventually the matter was put to rest in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and how their Lordships referring to the counter-affidavit came to the conclusion that the tax is compensatory in nature. It is urged that the law laid down in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 has been overruled in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and their Lordships have laid down parameters for adjudging the issue of compensatory tax and the scope of imposition of compensatory tax on the bedrock of articles 301 and 304 of the Constitution. Be it noted, in the petition various paragraphs from the judgment have been quoted and on that base it is pleaded that the provisions of the 1976 Act fail to satisfy the working test reiterated by the apex court in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and, therefore, it must conform to the requirement and conditions stipulated under article 304(b) of the Constitution. It is averred that the enactment relating to the entry tax fails to satisfy the test of being a compensatory tax as laid down by the apex court in the case of Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and hence, cannot be regarded as immune from challenge under article 301 of the Constitution of India. After referring to the history of assail and the change of law it is contended that as the 1976 Act has gone through an amendment by the M.P. Amendment Act, 2004 and the Amendment Ordinance, 2006 and subsequent amendments have come by which enhancement of rate of tax has taken place on certain commodities specified in entry 10(a) of Schedule II of the Entry Tax Act it certainly constitutes an impediment on the free flow of trade on the goods specified in that entry.
It is urged that a tax which is initially compensatory can be regarded as non-compensatory if the same creates a hindrance in the freedom of trade and an impediment in facilitating the free flow of trade. It is pleaded that it is obligatory on the part of the State to satisfy the test laid down by the apex court in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 failing which the tax levied has to be treated to be ultra vires the articles 301 and 304(b) of the Constitution in the absence of the assent of the President. Emphasis has been laid on the fact that the State of Madhya Pradesh has enhanced the rate of tax twice after the decision rendered in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and hence, even if the tax was compensatory at one point of time it has become non-compensatory and thereby is hit by article 301 of the Constitution. It is highlighted that the rate of tax only in respect of the commodities specified in entry 10(a), i.e., cigarettes, chiroots, cigars, etc., has been enhanced and the said enhancement of the rate of tax, by no stretch of imagination, should be said to be a compensatory levy in the absence of any additional or special facilities to the trade of cigarettes, etc., falling in entry No. 10(a). It is set forth that it is required to be seen whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax can be levied. The stand of the petitioner is that when there is a levy of tax on the entry of goods into the local area it cannot be said that it is not a direct impediment in the free movement of the goods. The scheme of the Act when scrutinised properly leaves no room of doubt that it has the purpose of general augmentation of revenue.
The scheme of the Act when scrutinised properly leaves no room of doubt that it has the purpose of general augmentation of revenue. It is also averred that the impugned levy is on the value of goods which has no nexus with the cost of rendering the services and hence, it offends article 301 and also transforms it to the realm of non-compensatory nature of tax and an edifice has been built to show that the impugned levy fails the working test as evolved by the apex court and, therefore, the entire enactment invites the frown on provision of article 301 of the Constitution. It is contended that onus is cast on the State to satisfy that despite enhancement of levy the entry tax still retains the character of compensatory tax which, at one point of time, was held to be so. The tax cannot be compensatory in nature as it provides for different rates in respect of different commodities irrespective of the fact that all such goods avail some facilities/services upon entry in local area and, therefore, the impugned levy is violative of article 14 of the Constitution. It is set forth that in the absence of previous sanction of the President under article 304(b), the Act is unconstitutional and the levy made therein is in clear violation of article 301. It is contended that the levy of tax on the entry of goods impedes the free movement of goods according to the Constitution of India inasmuch as the levy of tax on the entry of goods in the local area has direct and immediate impact on the movement of goods. In this factual backdrop a prayer has been made to declare the provision contained in the 1976 Act and the Amending Act, 2004 and Ordinance, 2006 as ultra vires and further to command the authorities to refund to the petitioners the tax collected along with 24 per cent or any other rate as may be deemed fit and proper in the facts and circumstances of the case.
A counter-affidavit has been filed by the respondents setting forth, inter alia, that the petitioner carries on the operation of sale of finished goods in the State of Madhya Pradesh and for carrying on such business the existence of basic resources like infrastructure, roads, proper hygiene, lighting, drinking water, health, sanitation and adequate civil administration are necessary because it is not possible to have trade without such facilities. A reference has been made to sections 2(j), 3, 4 and 4A of the 1976 Act and the notification issued to highlight that the said provisions empower the State Government to specify the local area or areas and the goods which are used or consumed in such local area or areas mainly for the manufacture of other goods. The validity of the Entry Tax Act has been upheld in Sanjay Trading Co. [1994] 93 STC 589. The Statement of Objects and Reasons of the Act states that it is enacted to levy tax on the entry of goods in lieu of octroi tax collected by the municipalities and municipal corporation and to make transportation of goods trouble-free by abolishing octroi check-posts. The statute has the purpose of raising financial resources to compensate the local bodies consequent upon abolition of octroi with a view to simplify the taxation structure. A document has been brought on record which gives summary in respect of the levy and details of allotment made to local bodies. The document shows that during the period 1976-77 till 1988-89, provision was made in the budget to compensate the municipalities and the amount budgeted was made over to the said local bodies with effect from 1983-84 and there has been regular annual increase of 10 per cent in total compensation amount. It is contended that if the Statement of Objects and Reasons and the particulars given in annexure R-3 are appropriately understood it would be quite clear that entry tax remains compensatory in its basic nature and, therefore, it is immune from challenge. It is put forth that the traders are provided with facilities for conducting their business operation in a smooth and better manner and the entry tax so imposed does not hinder the free flow of trade. The same is non-discriminatory and it has a direct co-relation with the facilities provided.
It is put forth that the traders are provided with facilities for conducting their business operation in a smooth and better manner and the entry tax so imposed does not hinder the free flow of trade. The same is non-discriminatory and it has a direct co-relation with the facilities provided. The Entry Tax Act has been enacted with the main objective to make the transportation of goods trouble-free and to regularise equal or similar levy of tax in the whole State of M.P. The entry tax is levied to compensate the local bodies for the loss of octroi which in turn is used for the building and maintenance of the infrastructure necessary for the free flow of trade and other business activity. It is contended by the respondents that the compensatory tax falls into two categories, namely, positive ingredients which ought to be there to constitute compensatory tax and negative ingredients, which if present, the tax in question cannot be termed as compensatory tax. If the purpose of levy is to raise resources for the regulatory measures to facilitate trade then in such circumstances the ingredients are of positive character and similarly the quantum of tax levied has a co-relation with the funds required for providing facilities and taking steps for regulatory measures. The provisions of the Act contain all the positive ingredients and, therefore, it is compensatory in nature. The compensatory tax need not satisfy the rule of quid pro quo strictly as in the case of concept of fee. A reference has been made to the decision rendered in Automobile Transport (Rajasthan) AIR 1962 SC 1406 wherein it has been held that only such taxes that directly or immediately restrict the trade would fall within the purview of article 301 and any restriction in the form of taxes imposed on the carriage of goods or their movement by the State Legislature can only be done after satisfying the requirement of article 304(b) of the Constitution. If the statute fixes a charge for convenience or services provided and the imposition is upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce is unimpaired.
If the statute fixes a charge for convenience or services provided and the imposition is upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce is unimpaired. A rejoinder affidavit has been filed highlighting the fact that the levy of entry tax can only assume the nature of compensatory tax as articulated in the Automobile Transport AIR 1962 SC 1406 and Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. The respondent - State has failed to discharge the burden to prove the tax to be compensatory tax within the parameters as laid by the apex court in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. Nothing has been stated in the reply to show that the services have been rendered to the traders and the tax is proportionate to the cost of providing the facilities because there is not a single service that the State has shown to have been provided to the dealers as a separate class who are liable to pay the tax or on whom the tax is imposed. There is no quantifiable or measurable benefit that has been provided to the traders or shown to have been provided. The levy is not a recompense or a reimbursement of the cost of providing the services. Nothing has been mentioned in the affidavit to show that the services have been provided to the dealers who in the absence of such services have to avail less efficient or more expensive services. The tax levied has a direct and immediate impact on the free movement of goods and hence, a restraint on freedom of trade and commerce. The said levy is not reasonable in the public interest. It is put forth that the Act could have been held valid if the State would have been in a position to show that the impugned Act meets the parameters of compensatory tax as laid down in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and the working test in Automobile Transport AIR 1962 SC 1406 . The facilities provided by the respondents are general facilities that the State is duty-bound to provide to all citizens and it has no nexus with the levy of any entry tax. The services are provided to all persons whether such persons pay entry tax or not.
The facilities provided by the respondents are general facilities that the State is duty-bound to provide to all citizens and it has no nexus with the levy of any entry tax. The services are provided to all persons whether such persons pay entry tax or not. It is set forth that unless the said services are provided to the dealers as a distinct class and such services are provided where the dealers are registered, the levy cannot be said to be compensatory in nature. It is further averred in the rejoinder - affidavit that the tax payable under the charging sections 3 and 4 of the Act on ad valorem basis is indicative of fact that the levy is not imposed as a recompense or reimbursement for the services rendered and based on the capacity to pay and hence, the levy is not compensatory tax. No figures have been provided to demonstrate that the impugned levy is the cost of providing service. The stand that the tax is levied in lieu of octroi does not meet the working test as put forth by the apex court in the Automobile Transport AIR 1962 SC 1406 . The levy is exclusively for augmentation of revenue of the State with no legislative intent to provide facilities to the traders. Various assertions have been made categorically putting forth the stance that no facts have been put forth but only bald assertions have been made to show that the tax is compensatory which is unacceptable. It is stated that the respondents have not really discharged the onus and hence, the entry tax impedes the free movement of trade and creates restraint under article 301 of the Constitution and, therefore, the impugned Act is liable to be struck down as unconstitutional. An additional return has been filed on behalf of the respondents pleading, inter alia, that the 1976 Act is meant for levy of tax on the entry of goods into local area for consumption, use or sale therein irrespective of the fact whether such goods have brought into local area from outside the State or within the periphery of the State. It is urged that difference in the rate or rates of tax on goods locally manufactured and those imported would not amount to trade between the two States within the meaning of article 301 of the Constitution of India.
It is urged that difference in the rate or rates of tax on goods locally manufactured and those imported would not amount to trade between the two States within the meaning of article 301 of the Constitution of India. It is urged that the rate of tax being reasonable cannot be treated to be invalid. The entry tax is collected and after deducting two per cent towards collection charges the same is distributed amongst the local bodies for providing facilities/services to the trade and industries. The facilities that are provided by the local bodies are for construction and maintenance of roads for the trade and industries, drinking water, maintenance and supply of electricity, expenses incurred on the maintenance of vehicles carrying drinking water, sanitation, maintenance of vehicles and the expenses incurred on maintenance relating to streets and roads, lighting, maintenance of park and the expenses incurred on services relating thereto, expenses relating to planting of trees as compensation for tree felling for the aforesaid activities and maintenance thereof, maintenance of public building and shops, community halls, sulabh complex, public toilet, etc. It is highlighted that the above facilities are provided by the local bodies from the amount received by them from the amount collected by way of entry tax. The said facilities are made available for facilitation of trade, commerce and industries. Services are utilised by the officers, employees and labourers who serve in industries which are situated in the boundaries of the local bodies. A chart showing budget of the receipts in certain Municipal Corporations and Municipal Councils and utilisation of the same within their respective jurisdictions out of the entry tax collected for providing the above facilities for the years 2005-06 and 2006-07 has been brought on record as annexure AR-1. It is put forth that the petitioner is drawing direct benefit from the aforesaid facilities inasmuch as the commercial establishment run by the petitioner is established in local areas being managed by the local bodies. In the absence of the aforesaid service the local area would become unfit for commercial establishment. There is direct nexus between the service rendered and that availed of by the petitioner and the amount of tax collected against it.
In the absence of the aforesaid service the local area would become unfit for commercial establishment. There is direct nexus between the service rendered and that availed of by the petitioner and the amount of tax collected against it. The persons employed by the petitioner to run its commercial establishment reside inside the local areas and avail facilities in the absence of which it would be the duty of the petitioner to provide such facilities to the workers and hence, there exists direct relationship between the services offered by the local bodies and the benefits drawn by the petitioner. With regard to the stand relating to higher rate of tax it is contended that the same is permissible as per law. A reference has been made to the document that is produced for the years 1976-77 till 1988-89 to show how the provisions were made in the budget to compensate the municipalities which provide the facilities. The facet of entry tax in the State of M.P. has not changed its complexion and the tax collected has an inseparable nexus in relation to the services rendered and the stand that the persons paying tax must have direct benefit is neither correct nor sound. A letter from the Department of Finance has been brought on record to show how the amount has to be spent by the local bodies apart from the chart that has been annexed as a part of the return. An additional rejoinder has been filed by the petitioner indicating that the entire additional return filed by the respondent - State is misconceived and runs counter to the settled legal position. The data provided by the State along with the additional return is based on the "some connection" theory as has been held in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 which has been overruled in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. The State has not filed any data to show that the cost of services/facilities confers any special advantage to the dealers to make it compensatory and further as the tax being levied is ad valorem on the value of the goods imported, it can never be compensatory in nature.
The State has not filed any data to show that the cost of services/facilities confers any special advantage to the dealers to make it compensatory and further as the tax being levied is ad valorem on the value of the goods imported, it can never be compensatory in nature. It is asserted that the affidavit does not show that any services are being rendered to the traders and the tax is proportionate to the cost of providing facilities. It is set forth that in the additional return the State has not stated a single service provided by it in addition to the general service which it is duty-bound to provide as a welfare State and there is no quantifiable and measurable benefit that has been provided to the traders. The concept of "working test" has not been met within the assertions made in the additional return except making repetitions. The Act does not provide any specific facility in any local area and hence, it directly impedes the free flow of trade and commerce. The petitioner has reiterated that the tax is not compensatory in nature as the entry tax does not ex facie indicate that the levy is for the purpose of providing services to the traders who are liable to pay the tax and further the proceeds of the tax are not meant for the same or even otherwise are not used to provide facilities to the traders who are liable to pay the tax. The stand in the additional return is absolutely misconceived as the same is based on the discriminatory facet whereas the basic challenge is that it has direct and immediate impact in causing impediment to the free flow of trade. The enhancement of the rate of tax has been criticised on the ground that uniform rate of tax in respect of entry of goods for consumption, use or sale within all local areas in the State is clearly arbitrary and discriminatory and is hit by article 301 of the Constitution because between discriminative tariffs and trade barriers on one hand and taxation for raising revenue on commercial intercourse, the difference is one of purpose and not of quality.
The data filed by the State is neither correct nor relevant inasmuch as all services are available to citizens in general and not only to the dealers who pay entry tax and, in fact, the State has not disclosed what other taxes, charges, levies and fees are being recovered by it to provide even such general services. The State and the municipalities recover various taxes to fund the cost of providing basic general services and the Centre also provides various grants to the States in this regard and fundamentally they would come under the compartment of civic amenities and cannot be characterised as compensatory levy. It is contended that the State is still harbouring a misconception with regard to the "some connection" theory which has been overruled by the Constitution Bench and the stand put forth in the additional return is based on surmises and not on facts. The onus is cast on the State to prove by quantifiable data that levy is to defray the cost of providing the service but such data has not been filed and hence, the burden remains undischarged. It is put forth that it is incumbent on the State to prove by adducing adequate data that the persons who pay tax are provided special benefits/facilities and paying patently not much more than the cost of services. Making of provision of general services out of entry tax collection shows that entry tax is not a compensatory measure but a levy to raise general revenue. At this juncture, it is apposite to state that an affidavit was filed by the Urban Administration and Development Department indicating the details. The compilation of annexures filed along with the additional return and counter-affidavit were also filed after translation in English, as the said data was in Hindi. At that stage the learned counsel for the petitioners filed a note stating, inter alia, that the figures given by the State Government as regards collection of entry tax to the local bodies are not correct. A stand was put forth that they had obtained the figures under the Right to Information Act and from the officers of the Commercial Tax Department which is different from the figures shown by the respondent - State in various documents filed along with the additional return.
A stand was put forth that they had obtained the figures under the Right to Information Act and from the officers of the Commercial Tax Department which is different from the figures shown by the respondent - State in various documents filed along with the additional return. An affidavit was filed on October 5, 2007 giving the details of the budget of the Urban and Industrial Development Department under the different heads, viz., non-planned, planned and tribal and special plan to show the amount received from the entry tax and from other sources. The details relate to the years 2004-05 and 2006-07. I shall refer to the said chart at the relevant point of time. Regard being had to the cavil this court on October 11, 2007 had passed the following order : "It is noteworthy to mention that an affidavit has been filed indicating the details of Urban Administration and Development Budget. It is contended by Mr. Shukla that the said affidavit has been filed to highlight that the budgetary provision for local bodies is from various sources and not exclusively from entry tax. The learned counsel for the State would further contend that the amount of entry tax which has been collected under the Entry Tax Act has been kept in deposit in the consolidated fund of the State and the same is disbursed to the local bodies as compensation and the local bodies are spending the said amount for facilitation of trade and commerce. The learned counsel has invited our attention to various aspects of the compilation to highlight the factum that there has been some link between the advantages extended for the trade facility to the tax and the tax collected. Mr. H. S. Shrivastava, learned Senior Counsel who appears in W.P. No. 14698 of 2006 and other connected matters along with his written submission has filed a chart which, as Mr. Shrivastava would submit, would indicate the figures given by the State as regards the collections of entry tax and disbursement of the same to the local bodies are neither correct nor sound. It is urged by him that he has obtained these figures under the Right to Information Act from the Officer of the Commercial Tax Department. On a bare perusal of the figures given by the State and figures given by Mr. Shrivastava, we note certain discrepancies.
It is urged by him that he has obtained these figures under the Right to Information Act from the Officer of the Commercial Tax Department. On a bare perusal of the figures given by the State and figures given by Mr. Shrivastava, we note certain discrepancies. At this juncture, we are not inclined to impress upon what would be the effect and impact of such discrepancy. However, it is imperative that the State should clarify by filing an affidavit why such discrepancies have occurred and if not, how it can be explained. Quite apart from the above, we are of the considered opinion that a consolidated affidavit is required to be filed by the State. To elaborate : the compilation that has been filed in support of the figures and the affidavit filed today require to be clarified by filing a consolidated chart highlighting the amount of entry tax collected in the State throughout the year and the amount disbursed to the local bodies situated in the State and the amount used by the local bodies. Once such consolidated chart is filed, needless to emphasise, it will be open to the petitioner to advance their respective contentions on the same. Quite apart from the above, Mr. V. K. Shukla, learned Deputy Advocate - General has undertaken that the affidavit reconciliation shall be made with regard to the figures brought on record by some of the petitioners. Mr. Shrivastava, learned Senior Counsel has put forth that it is not clear whether the entry tax has been spent on other heads or not. That aspect also should be clarified. Ordinarily so saying, we would have fixed another date for hearing but we are inclined to think the State Government has to provide the detail in special particularity by putting forth a caption so that advertence can be made to each facet in the light of the decision rendered in the case of Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC); [2006] 7 SCC 241. We reiterate, the entire onus is on the State to satisfy that the tax is compensatory." In pursuance of the aforesaid order an additional affidavit has been filed.
We reiterate, the entire onus is on the State to satisfy that the tax is compensatory." In pursuance of the aforesaid order an additional affidavit has been filed. It is put forth that the petitioners had stated that they had obtained figures under the Right to Information Act from the office of Commercial Tax Department which are different from the figures stated by the respondent - State in various documents filed along with the additional return. It is put forth that the figures have been obtained from the website and not under the Right to Information Act. It is contended that the entry tax is collected and deposited in treasury and bank under the head 0042 which is allotted by the Finance Department. A clarificatory affidavit dated January 9, 2008 has been filed by the State stating, inter alia, that in the return dated December 2, 2006, additional return dated June 30, 2007 and in the additional return it was stated that the amount which was received by levy of entry tax is utilised by the local bodies for providing facilities and services to the trade and industries on different heads, viz., roads, drinking water, sanitation, fire fighting, electricity, environment and compensatory afforestation. A chart was filed as annexure AR-1 provided by the local self Government showing the budget of the receipts in certain municipal corporations and municipal councils and utilisation of the same within their respective jurisdiction out of the entry tax collected for providing the said facilities for the years 2005-06 to 2006-07. The said chart was given for illustration purpose. The details of the urban local bodies have been filed and, therefore, annexure AR-1 which was filed initially has become inconsequential and the same be ignored. It is put forth in the affidavit that regarding octroi compensation an affidavit was filed earlier stating that the entry tax collected is transferred to the urban local bodies after deducting two per cent collection charges on pro rata basis. The illustrations have been given in this note. The chart shown in paragraph 6 of the note has been made accurate in the affidavit filed on December 27, 2007.
The illustrations have been given in this note. The chart shown in paragraph 6 of the note has been made accurate in the affidavit filed on December 27, 2007. Along with the copy of the affidavit a letter dated June 30, 2007 of the Finance Department has also been filed as annexure AR-2 in which the details of entry tax amount received and the entry tax amount earmarked for urban local bodies after two per cent deduction have been shown. It is also stated that the amount collected in the year 1996-97 has been provided for the revised estimate of the year 1997-98 (wrongly typed as 1977-78) and this fact has been further clarified in the affidavit filed on November 3, 2007. A counter-affidavit was filed on August 4, 2007 annexing document No. 1 giving the details of the amount released to the Urban Administration and Development Department from the budget provision for the last five years for the periods 2001-02 to 2006-07. The said amount has been shown in crores. The chart-document No. 2 has been filed showing the amount released out of budget allocation to different local bodies as illustration of the last six years, i.e., from 2001-02 to 2006-07. As the affidavit dated December 27, 2007 has been filed mentioning about all the urban local bodies of seven divisions of the State of Madhya Pradesh the said document No. 2 has become inconsequential and the same is to be ignored. There are two other documents, namely, document Nos. 3 and 4 which were filed along with the counter-affidavit to show the quantified data regarding facilities/services provided by the Urban Administration and Development Department to the local bodies of Madhya Pradesh for the periods 2002-03 to 2006-07 in respect of trade, commerce and industrial establishment. Certain variations have occurred mainly because the data in respect of all urban local bodies were not incorporated in the said chart but that of the data of 49 urban local bodies. The data of urban local bodies whose figures have already been furnished were not incorporated. In the affidavit dated December 27, 2007 the data regarding facilities/services provided by all the urban local bodies under different heads have been incorporated.
The data of urban local bodies whose figures have already been furnished were not incorporated. In the affidavit dated December 27, 2007 the data regarding facilities/services provided by all the urban local bodies under different heads have been incorporated. In the said affidavit the earlier figures have been clarified and made accurate in respect of all the 338 urban local bodies which include 14 municipal corporations, 87 municipal councils and 237 nagar panchayats. The affidavit also includes the newly established municipal council Kolar in Bhopal Division. The document No. 5 has been substituted by subsequent affidavit dated December 27, 2007 and, therefore, the earlier affidavit has lost its signification. It is contended that the affidavit giving details of the urban administration and development budget was filed on October 5, 2007 showing the figures of budgetary provisions of the urban administration and development. In the affidavit dated December 27, 2007 the amount released against the octroi compensation, amount released to urban local bodies under other heads and the expenses incurred in commercial sector and industrial sectors by urban local bodies have been shown in the chart at page 2. It is stated that due to inadvertence in column No. 10 of the said chart column No. 3 with column No. 8 has been mentioned whereas it is column No. 3 with column No. 6. In the chart reproduced in paragraph 6 at page 3 of the affidavit dated December 27, 2007 in addition to the said amount the taxes levied and collected by the urban local bodies and approximate amount spent out of MPs and MLAs fund have been shown. The figures under this head in respect of Gwalior and Sagar were not available; they have been shown as zero in the table. In the clarificatory affidavit the division-wise and year-wise details regarding grants by the Government other than entry tax amount of octroi compensation released to all the urban local bodies and the taxes levied and collected by all the urban local bodies of the seven divisions of the State of Madhya Pradesh have been shown. In the affidavit the details of expenditure of entry tax on commercial development and industrial development have been given under different heads of construction, tarring of roads and repairing of roads, shops and buildings, water supply, sanitation, fire fighting, environment/parks, street lighting, solid waste management and others.
In the affidavit the details of expenditure of entry tax on commercial development and industrial development have been given under different heads of construction, tarring of roads and repairing of roads, shops and buildings, water supply, sanitation, fire fighting, environment/parks, street lighting, solid waste management and others. On October 8, 2007 an affidavit has been filed consolidating all the details of quantified and measurable data regarding the facilities/services provided by the State. In the said affidavit the details were consolidated and were translated in English. Another affidavit dated November 3, 2007 was filed in view of certain discrepancies noted in the order dated October 11, 2007. In para 6 of the said affidavit it has been clarified that the amount shown from the website was in fact the figures of the collection year and not the figures of the disbursement year. The objections raised have been clarified in paragraphs 6 to 10 of the affidavit dated November 3, 2007. The contents of paragraphs 11 and 12 have been clarified and have been made accurate in the affidavit dated December 27, 2007 and hence, two paras namely 11 and 12 of the affidavit dated November 3, 2007 be ignored. The variations in calculations and data would not change the compensatory nature of the tax as from various data furnished by the State of M.P. it is crystal clear that the nature of entry tax in Madhya Pradesh fulfils all the parameters laid down in Jindal Stainless Steel [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and Automobile Transport (Rajasthan) AIR 1962 SC 1406 . Having exposited the pleadings, now I shall proceed to enumerate the submissions raised by the learned counsel appearing for the petitioners and the learned Advocate - General for the State. Be it noted, some submissions relate to assail of the Act and some to the challenge of the notifications. That apart, some counsel have also argued about the variation in affidavits and how the said affidavits cannot be given credence to. Mr.
Be it noted, some submissions relate to assail of the Act and some to the challenge of the notifications. That apart, some counsel have also argued about the variation in affidavits and how the said affidavits cannot be given credence to. Mr. S. Ganesh, learned Senior Counsel has raised the following contentions : (a) As the 1976 Act does not facially or patently show that the Act is compensatory or regulatory in nature, onus is cast on the State to satisfy the court how the same is compensatory in nature and such burden is required to be discharged on the touchstone of principles laid down in Jindal Stainless Steel Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. (b) The voluminous documents which have been filed before this court by the State that it has transferred large amount to various local authorities and the amount is spent on construction and maintenance of roads, provision of drinking water, sanitation, fire fighting, street and road lighting, environment and parks, compensatory afforestation, maintenance of public buildings and shops and community halls, public toilets, sulabh complex, etc., only pertains to general services which are, in any event, the statutory duty and the responsibility of the local bodies in question and by no stretch of imagination the services can be equated with any specific identified service to the person on whom entry tax is levied and recovered. (c) The analysis of figures would reveal that huge amount is spent on items such as sanitation, drinking water, fire-fighting, maintenance of public buildings and shops and street lighting which have whatsoever nothing to do in rendering of service to industries or business by conferring any kind of special advantage to the traders. (d) General service rendered by local authorities cannot be equated with the services rendered to the assessees who are liable to pay entry tax and hence, the imposition of the said tax is an impediment on the free flow of trade and commerce. (e) Mere discharge of statutory obligatory functions by municipal body would never entail in rendering services to the traders and when an amount is spent on such activities and a tax is imposed it partakes the character of a tax and a tax alone can never be construed as compensatory or assume the character of regulatory measures.
(e) Mere discharge of statutory obligatory functions by municipal body would never entail in rendering services to the traders and when an amount is spent on such activities and a tax is imposed it partakes the character of a tax and a tax alone can never be construed as compensatory or assume the character of regulatory measures. (f) When the entry tax is levied ad valorem it can only be considered as a tax and not as a fee and when compensatory tax is treated as a subclass of fees the basic imposition of tax on ad valorem effaces the character of compensatory tax. (g) The data furnished by the State Government do not show that there is any specific identified service which is rendered either by the State Government or the local authorities to the assessees as a collective body from whom entry tax is collected and hence, the same does not improve the scenario. (h) In the absence of any specific and identified service rendered by the State or the local bodies the stand and stance of the State that the amount collected is allocated to local bodies and spent on various items is only indicative of the fact that it is a stand which can be equated with some indirect benefit given to the assessees as a collective body and hence, the said stance again reiterates a broad correlation theory which has been overruled by the Constitution Bench. (i) The entire amount collected does not meet the working test as laid down in Automobile Transport case AIR 1962 SC 1406 inasmuch as for deciding the tax to be compensatory it is imperative to enquire whether the traders as a class are having the use of certain facilities for the better conduct of trade or business. At this juncture it is apropos to state that Mr. Ganesh has given certain illustrations as to under what circumstances imposition of entry tax can be considered to be compensatory in nature.
At this juncture it is apropos to state that Mr. Ganesh has given certain illustrations as to under what circumstances imposition of entry tax can be considered to be compensatory in nature. I think it appropriate to reproduce the same for better appreciation : "(i) If large quantities of gold or diamonds are imported into a State for the manufacture of diamond jewellery or for polishing/processing and the State Government makes arrangements for providing special security to protect the movement and storage of such gold/diamonds and charges an entry tax in order to cover the cost of such security arrangement and there is a broad correspondence between the total amount of entry tax levied and the total cost of the special security arrangements. (ii) If the State Government identifies a particular commodity or the grant of special facilities in order to enable the development of that particular industry and recovers the cost of such special facilities given to that particular product by imposing an entry tax on the entry of that product into any local area in the State. Example, if the State Government provides facilities throughout the State for milk and dairy products, such as making special arrangements for transport of refrigerated milk and milk products, refrigerated storage of the same and processing of milk into milk products, and recovers the cost of providing these special facilities and benefits by a levy of entry tax on the first entry of milk or milk products into any local area in the State. (iii) Similar examples can be given in respect of special facilities provided for the development of the silk industry or the cotton textile industry, which may include testing and certification facilities, facilities for enabling the procurement of cotton/silk from farmers, rendering services for the improvement of the quality of cotton/silk, and also creating infrastructure for enabling the marketing of cotton/silk and so on. In these circumstances, if the State Government levies an entry tax on cotton/silk for recouping the cost of the grant of such special facilities, there is no doubt that such an entry tax would have to be granted as compensatory, provided of course that the total quantum of the tax or levy corresponds broadly with the total expenditure incurred by the State in granting special facilities.
(iv) If a State Government sets up a power plant to provide supply of electricity exclusively to industrial units in a local area and recovers the costs incurred or to be incurred for setting up and/or operating such power plant by levying entry tax on the raw and other materials being brought into the local for use and consumption of those factories, the said levy of tax would be in the nature of a compensatory tax. (v) If a State Government sets up cold storage units in a remote area to ensure steady supply of raw materials to the industrial units set up therein and charges entry tax on traders/factory owners causing entry of those raw materials situated within a local area for sale, use and consumption thereof, the levy of entry tax towards recovery of cost incurred for setting up and/or operating those cold storage would also be in the nature of a compensatory tax. (vi) If a State Government constructs an aerodrome or other similar facility to provide transport facilities for the raw materials/finished products of the industrial units set up in a backward/remote area of a State, and levies entry tax towards recovery of the costs of construction by levying entry tax on the goods brought for the use and consumption in such factories located within a local area, such a tax would be compensatory in nature. (vii) If oil is being imported into a State through a pipeline, which feeds several refineries, which in turn consume the oil within the State for manufacture of petroleum products, and the State Government makes special security arrangements for protection of a pipeline and incurs huge expenditure for providing the security to the pipeline, the cost of which is recovered by levy of entry tax, on the oil imported into any local area in the State, such a levy would be compensatory tax. This is based on the illustration given by the Constitution Bench in Jindal Stainless Ltd. [2006] 145 STC 544 (SC). (viii) If the State Government provides cold storage facilities for agricultural products throughout the State and also renders facilities in connection with the marketing of these products, and recovers the cost of rendering such facilities by levying an entry tax on such agricultural products on their entry into a local area in the State, such levy would be compensatory." Mr.
(viii) If the State Government provides cold storage facilities for agricultural products throughout the State and also renders facilities in connection with the marketing of these products, and recovers the cost of rendering such facilities by levying an entry tax on such agricultural products on their entry into a local area in the State, such levy would be compensatory." Mr. H. S. Shrivastava, learned Senior Counsel appearing for some of the petitioners, has made following submissions : (i) Section 3(2) and section 4A of the 1976 Act are unconstitutional as they suffer from the vice of excessive, unguided and uncanalised powers. (ii) The data furnished by the State Government do not meet the requisite parameters inasmuch as it has failed to prove/establish that the amount collected as tax and its expenditure on providing additional/specific advantage/facility to trade in particular is not in proportionality and in the absence of such data it is difficult to sustain the argument of the respondent - State that the entry tax is compensatory in nature. (iii) The chart annexed showing the percentage of amount allowed to certain municipalities/corporations really indicates that the levy of entry tax is not on the entry of goods into the local area but is indicative of the gross receipts distributed all over the State, unrelated to the specific quantifiable service to the commercial concern and industries. (iv) The tax imposed is to garner the revenue without any reference to the service provided in respect of the class of dealers dealing in goods as a consequence of which high rate of tax has been levied. (v) The high rate of entry tax has been imposed to compensate the loss of sales tax because of introduction of VAT Act providing for levy of entry tax throughout the country and not as compensatory of octroi or for providing specific service or facility. (vi) The expenses incurred for providing different facilities from the entry tax amount received by the local bodies would show that substantial expenses have been incurred on capital projects which are meant for common usage for all citizens under the statutory provisions providing for basic amenities to the citizens and are unrelated to the commerce and industries.
(vi) The expenses incurred for providing different facilities from the entry tax amount received by the local bodies would show that substantial expenses have been incurred on capital projects which are meant for common usage for all citizens under the statutory provisions providing for basic amenities to the citizens and are unrelated to the commerce and industries. (vii) The facilities and the services provided by the local bodies are meant for being used by the community which of course comprise of trade, commerce and industries and the trade, commerce and industry fall within the community and persons working in these establishments are part and parcel of the community and enjoy the services and facilities and hence, the imposition of such tax cannot be compensatory in nature. The chart showing the data in respect of the facilities/services provided by the Urban Administration Department of local bodies is anomalous and the said chart would show that at various places there is no investment in the industrial areas. A summary of chart has been given by the learned counsel in respect of the Indore Division, Jabalpur Division and Ujjain Division to show how the amount has been spent. (viii) A consolidated information regarding the facility and the services provided from the budget allotment would show that the expenses on industrial establishments have been shown for Indore, Bhopal and Gwalior divisions which have industrial areas at Pithampur, Mandideep and Malanpur but the expenses of industrial areas are far too less than the expenses shown for Jabalpur which has almost no industrial area as compared to other places. (ix) Raising of tax by way of issuing notifications is ex proprietory in nature and by such exorbitant enhancement the tax becomes non-compensatory in nature. (x) The notifications issued increasing the rate of tax is discriminatory as would be evident from the decisions rendered in State of Uttar Pradesh v. Laxmi Paper Mart [1997] 105 STC 1 (SC); [1997] 2 SCC 697, Loharn Steel Industries Ltd. v. State of Andhra Pradesh [1997] 105 STC 30 (SC); [1997] 2 SCC 37, Amit Paper Products v. State of M.P. [1998] 110 STC 125 (MP) and ITC Limited v. State of Tamil Nadu [2007] 7 VST 367 (Mad).
(xi) Conferral of power under sections 9 and 12 of the 1976 Act on the State Government to amend the Schedules by notifications suffers from lack of guidelines and in the absence of guidance, the said provisions, namely, sections 9 and 12 are ultra vires. (xii) By empowering the State Government to amend the Schedules for the purpose of increasing the rate of tax tantamounts to excessive delegation as essential legislative functions have been delegated. Reliance has been placed on the decisions rendered in Corporation of Calcutta v. Liberty Cinema AIR 1965 SC 1107 , Vasantlal Maganbhai Sanjanwala v. State of Bombay AIR 1961 SC 4 and Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi AIR 1968 SC 1232 . The data given by the State Government is totally misconceived and misleading and an adroit effort has been made to show that the levy is compensatory in nature and fundamentally the figures are contradictory and hence, unreliable. Mr. Choudhary, learned counsel appearing in some of the petitions has canvassed as follows : (a) In the absence of any claim put forth by the State that a special advantage is given to the traders as taxpayers, the question of treating the entry tax as compensatory does not arise. (b) The stance of the State that there is annual increase of 10 per cent every year in the allocation of funds to the local bodies and hence, it is compensatory in nature does not withstand scrutiny inasmuch as the same does not meet the concept of "working test" but is actually in the realm of "some connection" theory. (c) The data furnished by the State do not show any nexus between the tax levied and the quantifiable or measurable benefit provided to the taxpayers. (d) Allocation of funds to the local authorities, who are under obligation to provide various civil and other amenities to the society as a whole in the absence of quid pro quo or acceptable proportionality to the facilities provided to the taxpayers does not come under the protective umbrella of article 304(a) of the Constitution of India.
(d) Allocation of funds to the local authorities, who are under obligation to provide various civil and other amenities to the society as a whole in the absence of quid pro quo or acceptable proportionality to the facilities provided to the taxpayers does not come under the protective umbrella of article 304(a) of the Constitution of India. (e) The allocations have been made on the basis of the population of the area and not proportionate to the collection of tax of that area and the local bodies in their budget treat these grants as general revenue grants and, therefore, the whole effect of the statute is for augmentation of revenue and not for providing the facilities as required under law to the traders as a class. (f) It is absolutely incorrect and unsound on the part of the State to advance a contention that once a tax is compensatory it is always compensatory because a tax which at one point of time is compensatory may become non-compensatory in the changed scenario like indiscriminatory enhancement in the rate of tax, cessation of facilities and causation of hindrance in the free flow of trade. In the case at hand, when there is no acceptable data by the State but a confusing data has been produced, the levy has to be declared illegal and invalid being violative of article 301 of the Constitution. Mr. A. M. Mathur, learned senior counsel, has submitted that if the language of article 304(a) is properly appreciated no tax can be imposed to discriminate the goods produced inside the State and those imported from outside the State. It is put forth by him that sections 3(5), 4A, 9 and 12 of the 1976 Act suffer from excessive delegation of legislative power. To bolster his submissions, he has placed reliance on the decisions rendered in Atiabari Tea Co. Ltd. AIR 1961 SC 232 , Mohammad Hussain Gulam Mohammad v. State of Bombay AIR 1962 SC 97 , Devi Das Gopal Krishnan v. State of Punjab [1967] 20 STC 430 (SC); [1967] AIR 1967 SC 1895 , Kunj Behari Lal Butail v. State of H.P. AIR 2000 SC 1069 and Kishan Prakash Sharma v. Union of India [2001] 5 SCC 212. The learned senior counsel has also submitted that there are no guidelines for enhancement of rate and, therefore, it also offends article 14 of the Constitution. Mr.
The learned senior counsel has also submitted that there are no guidelines for enhancement of rate and, therefore, it also offends article 14 of the Constitution. Mr. Kevin Gulati, Mr. Vijay Sharma and Mr. Shekhar Sharma, learned counsel for some of the petitioners have propounded as follows : (i) The levy under the 1976 Act by no stretch of imagination can be regarded as compensatory in nature inasmuch as the State has miserably failed to establish that the tax is being levied in lieu of some special benefit given to the class of traders. A bare look at the provisions of the Act and the notifications made therein would clearly reveal that neither the Act nor the notifications issued thereunder have anything to do with the provision of service but is a pure and simple revenue-raising measure and, in fact, is being used in letter and spirit for recovering the loss of revenue of sales tax and hence, impedes the free flow of trade. (ii) A reading of sections 3(1)(b) and 3A would clearly show that the entry tax has been introduced to plug in the loss which is manifestly clear from the notification dated April 28, 1999 by which the entry tax is enhanced to 10 per cent. (iii) In respect of the goods brought inside the State for being consumed as raw material for the manufacture of other goods, there shall be one per cent entry tax on such goods even though the Schedule II and Schedule III provide for a higher rate of tax as a consequence of which a different rate of tax emerges on the basis of use of goods though it has nothing to do with the special services rendered to the traders. (iv) In case of compensatory tax a different rate of tax cannot be provided but the scheme of the 1976 Act and VAT Act is such that certain articles are picked up for different rate of tax without any justifiable reason. An example has been given that from a dealer in petrol and diesel, entry tax at the rate of 26 per cent is being recovered in contra-distinction to a dealer in yarn from whom one per cent tax is being recovered. In the absence of special benefit conferred, there is no justification to levy such tax and hence, such levy does not come in the compartment of compensatory measure.
In the absence of special benefit conferred, there is no justification to levy such tax and hence, such levy does not come in the compartment of compensatory measure. (v) The notifications which have been issued on June 9, 2003, namely, Notification Nos. 38 and 39 under section 3(2) of the 1976 Act would show that certain rate of tax would be payable by such persons if they effect the entry of goods into the local area and who have not paid tax under the M.P. VAT Act, 2002 and the Notification No. 39 provides the rate of tax which would be levied on the entry of goods prescribed in Notification No. 38. This is an expose of the fact that the entry tax is levied on certain goods to meet the loss of revenue which is not recovered under the VAT Act. (vi) The State Government cannot recover 12.5 per cent by way of sales tax but with colourable purpose amended the Schedule as a consequence of which the rate of liquefied petroleum gas has been enhanced to 9.5 per cent with effect from April 1, 2006 which shows that the purpose is different though there is no conferral of any special advantage. Similar example has been given with regard to diesel. (vii) The notification dated April 1, 2007 under entry 9 by virtue of which levy is made on the petrol and diesel brought from places outside the State of M.P. for consumption or use provides for tax at the rate of 27 per cent. This action has been done only to augment the revenue of the State and partakes the character of tax. Thus, the Act is not compensatory and the notification being discriminatory also invites the wrath of article 14 of the Constitution and frown of article 301 of the Constitution. Mr. Kishore Shrivastava, learned senior counsel, has submitted that the acid test is the restriction on the free flow of trade and if the anatomy of the Act is x-rayed it would be clear as day that it is nothing but restriction. The learned senior counsel further submitted that general benefits provided to all citizens can never constitute identified class. The learned counsel has seriously criticised the way the State has filed the affidavits, additional affidavits and tried to clarify the same.
The learned senior counsel further submitted that general benefits provided to all citizens can never constitute identified class. The learned counsel has seriously criticised the way the State has filed the affidavits, additional affidavits and tried to clarify the same. It is contended by him that certain documents have been sought to be withdrawn in the clarificatory affidavit as a result of which the whole factual scenario has changed. It is urged by him that the affidavits are contradictory in nature and they actually demolish the case put forth by the State. It is further submitted by him that any compensation cannot be compensatory and octroi compensation can never be compensatory as it is fundamentally a revenue measure. To bolster his submissions, he has placed reliance on the decisions rendered in B. Prabhakar Rao v. State of Andhra Pradesh [1985] Supp SCC 432 and M. Veerabhadra Rao v. Tek Chand AIR 1985 SC 28 . Mr. Alok Aradhe, learned senior counsel, adopting the submissions raised by the learned counsel for the petitioners who have challenged the Act and the notification, additionally submitted that the notifications are discriminatory and the enhancement of the rate of tax offends article 304(a) of the Constitution of India. It is further submitted by him that even if at one point of time it was compensatory in nature by virtue of the notification it has earned the status of non-compensatory measure. He has commended us to the decisions rendered in State of Madhya Pradesh v. Bhola [2003] 3 SCC 1, Commissioner of Central Excise, Pondicherry v. Acer India Ltd. [2004] 137 STC 596 (SC); [2004] 3 RC 421; [2004] 8 SCC 173, State of Rajasthan v. Prakash Chand [1998] 1 SCC 1 and State of Tamil Nadu v. P. Krishnamurthy [2006] 4 SCC 517. Mr. Sanghi and Mr. Shekhar Sharma have reiterated the submissions raised by other counsel for the petitioners. They have also raised the issue that there has to be refund in case of success. Mr. R. N. Singh, learned Advocate - General being assisted by Mr.
Mr. Sanghi and Mr. Shekhar Sharma have reiterated the submissions raised by other counsel for the petitioners. They have also raised the issue that there has to be refund in case of success. Mr. R. N. Singh, learned Advocate - General being assisted by Mr. V. K. Shukla, learned Deputy Advocate - General combating the submissions put forth by the learned counsel for the petitioners have raised the following proponents : (a) The entry tax imposed under the 1976 Act is levied when goods are meant for consumption, use or sale in the local area and does not directly or immediately create any restriction on the trade or its movement. It rather facilitates the movement of goods from one State to another. The apex court in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 regarded compensatory tax in the sense of recompense and reimbursement and for a tax to be compensatory, there must be some link between the quantum of tax and the facilities/services and further the benefit is measured in terms of cost which has to be reimbursed by compensatory tax or in the form of compensatory tax. If the aforesaid decision is studied in proper manner it would be clear that the apex court has not laid down a formula in stricto sensu of "total link" between the entry tax collected and the facilities/services provided in measurable terms which can partake the character of recompense. (b) The ratio of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 has to be understood in a wholesome and apposite manner but not to be read by choosing a line from here and there inasmuch as their Lordships have laid emphasis on the restrictions or impediments which directly or immediately impede the free flow of trade, commerce and intercourse which was laid down by Atiabari Tea Co. AIR 1961 SC 232 as such restrictions offend article 301 of the Constitution and the working-test concept that was evolved in Automobile Transport (Rajasthan) AIR 1962 SC 1406 and hence, there is a distinction between the restriction and facilitating of trade and commerce. A restrictive tax or levy creates a direct impediment on the free movement of goods and hampers trade and commerce.
A restrictive tax or levy creates a direct impediment on the free movement of goods and hampers trade and commerce. The tax to be treated as restrictive or prohibitory having direct or immediate impact so as to hinder the movement of trade, has to be simply in the nature of tax but if a tax is imposed as a charge for the facilities provided and is not deterrent to the trade then it remains in the realm of compensatory or regulatory tax. The hindrance as complained by the petitioners is on the foundation of a prior aprioring notion and not real and clear inasmuch as the provisions of the 1976 Act meet the working test inasmuch as they do not create prohibition or deterrence or restrictions but the amount collected as entry tax is spent for facilitating trade. The same is luminescent from the data furnished in the additional return filed on December 27, 2005 and the clarificatory affidavit dated January 9, 2008. (c) The stance that the respondent - State has not discharged the onus in terms of the requirement of Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and has filed affidavits of different nature from time to time is neither acceptable nor sound. In fact, the State has filed data in a substantial measure and wherever there was some kind of minor discrepancy, there is no bar to file a clarificatory affidavit. (d) A levy of entry tax in lieu of octroi and the manner in which the octroi tax is spent by the local bodies meets the conception of quantifiable and measurable benefit and, therefore, it is compensatory in nature. The stand that no special facility is provided to the traders and the facilities provided are enjoyed by the community at large and, therefore, the tax levied can never be compensatory does not really deserve acceptance since the apex court has unequivocally stated that 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.
From the aforesaid proponent it is clear as crystal that the compensatory tax, as has been held by the apex court, has a different connotation and it cannot be totally individualistic advantage oriented as has been understood by the learned counsel for the petitioners. (e) The utilisation of the revenue is very significant while adjudging a levy like entry tax to come to a conclusion whether it is compensatory in nature or it is a regulatory measure and the data provided by the State have to be adjudged on those parameters. (f) The submission that the entry tax is a revenue - raising measure is sans substratum inasmuch as, as per the Jindal's case [2006] 145 STC 544 (SC); [2006] 7 SCC 241, a compensatory tax is a compulsory contribution levied broadly for 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. The data provided by the State Government clearly reveal that the facilities/services which have been provided bear nexus with the special benefits for trade, industries and commerce and they are identifiable. (g) The contention that the benefit should be conferred to identifiable persons who pay the entry tax and they should not be burdened is not correct as the facilities and services are provided to the industries and trade as a conceptual whole and not to any particular industry or particular type of industry. (h) The assertion that section 4A of the Act hinders the free flow of trade is unsustainable and unacceptable inasmuch as the said controversy has been put to rest in Mysore Cement Ltd. v. State of Madhya Pradesh [2006] 143 STC 432 (MP); [2003] 2 STJ 615 (MP) and Associated Cement Companies Ltd. v. State of M.P. [1996] 29 VKN 32 (MP) and the said decisions have not been overturned and they specifically relate to the notifications.
(i) The submission by the petitioner that the key test laid down in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 that the tax should be proportional and industry or individual oriented is sans substance inasmuch as when it is stated that tax should be proportional it relates to the providing of facilities and services in proportion to the amount collected and if the amount collected is exorbitant and the facilities provided is meagre then the concept of working test disappears and the tax collected loses its character from both the realm, namely, compensatory or regulatory. The measurable and quantifiable data which have been highlighted by the learned counsel for the petitioner are founded on an erroneous notion as if it is pro rata concept but actually it is on proportionality qua the facilities provided to the trading and industrial community at large. (j) It is unthinkable that the facilities are to be created alone for the traders which can never be available for the general public. The special facility is not to be construed as an additional or exclusive facility as that is not the spirit of law and has also not been so stated in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. (k) The submission that the chart filed by the State simply indicates the general facilities and not the details of the specific facilities is neither sound nor correct inasmuch as the data furnished clearly indicate the facilities/services provided categorically to the traders and the industrialists. (l) The further submission that the data are similar to the data given in Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 is a misconceived one. The data that have been presently furnished have been categorised in different form and in the light of the decision rendered in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and are quantifiable and measurable in respect of each and every facility provided to the trading and industrial community. (m) The entry tax that is levied is not a part of common burden but it is recovered from the assessees and disbursed to the local bodies and the principle of equivalence is satisfied as the benefit is apparent from the data produced. The equivalence cannot be in arithmetical exactitude but it is to be proportionately equivalent.
(m) The entry tax that is levied is not a part of common burden but it is recovered from the assessees and disbursed to the local bodies and the principle of equivalence is satisfied as the benefit is apparent from the data produced. The equivalence cannot be in arithmetical exactitude but it is to be proportionately equivalent. It is not a case where the benefit is not measurable. The data given by the respondents would clearly show that the levy is on the individual as a member of class as it would be clear from the fact that the positive action is taken to confer a benefit on a particular class of people by which a particular measurable advantage is taken by the persons who are involved in trading. (n) The data furnished by the State in respect of the facilities/services provided to the industrial and business establishments are of specific nature inasmuch as the expenses incurred by the local bodies relate to three sectors, residential, commercial and industrial. The State has produced the data in respect of commercial and industrial sectors in certain urban local bodies, like Gwalior, Bhopal, Ujjain, Sagar, Rewa and Indore divisions. In Indore division the fire-fighting vehicles have been specifically provided between 2001-02 to 2004-05 keeping in view the need. The affidavit dated December 27, 2007 would clearly show that in 23 local bodies JCB machines have been made available for rendering specific facilities/services to the industrial and business establishments. (o) In the case relating to the State of Madhya Pradesh it cannot be said that the amount is spent on the mere discharge of municipal functions which is obligatory to be performed because the purpose of expenditure as well as the amount expended has to be taken note of. (p) The contention to the effect that only a small portion of the amount allotted to the local bodies is spent on extending the direct benefit to the business or industries and all the residents in the locality are entitled to the use of the same is not correct since the State has furnished the data showing the figures spent on the industrial and business class as a whole. The State has given the data with regard to the amount spent area wise for residential, commercial and industrial sectors and hence, it is in the nature of special service provided to the business/commercial sector.
The State has given the data with regard to the amount spent area wise for residential, commercial and industrial sectors and hence, it is in the nature of special service provided to the business/commercial sector. (q) The examples given by one of the learned counsel for the petitioners are not supported by any judicial dictum but are hypothetical situations and even focused by relating them to special types of industries forgetting that every industry has its own requirement and the State Government cannot concentrate on one category of industry but has to view the industrial and commercial sector as a wholesome compartment. Fire-fighting vehicles are necessary for every industry whether it is diamond processing industry or the industry of cotton ginning inasmuch as the facilities of these nature are basically necessary to industries in conceptual essentiality. To appreciate the rivalised submissions raised at the Bar it is required to scan the anatomy of the Act, but prior to that I think it seemly to refer to certain citations in the field so that the principles on which the Act and the data produced by the State are to be tested. The cavil relating to the affidavits and the impact of the notifications shall also be dealt with at the relevant stage. In Atiabari Tea Co. Ltd. AIR 1961 SC 232 the majority in the Constitution Bench opined that freedom of trade guaranteed by article 301 of the Constitution is wider than that contained in section 297 of the Government of India Act, 1935 and it includes freedom from taxing laws. It has been further opined therein that article 301 provides for free flow of the stream of trade, commerce and intercourse throughout the territory of India or at the boundaries of the States or at any other place inside the States themselves and if any Act imposes any direct restriction on the movement of goods it attracts the provisions of article 301 and its validity can be sustained only if it satisfies the requirement of article 302 or article 304. The operation of article 301 cannot be restricted to legislation under the entries dealing with trade and commerce. The main object of article 301 is to allow free flow of the stream of trade, commerce and intercourse throughout the territory of India. I would like to reproduce a passage from the said judgment. "34. ...
The operation of article 301 cannot be restricted to legislation under the entries dealing with trade and commerce. The main object of article 301 is to allow free flow of the stream of trade, commerce and intercourse throughout the territory of India. I would like to reproduce a passage from the said judgment. "34. ... 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. ..." Thereafter, the majority came to hold as follows : "51. ... Thus considered we think it would be reasonable and proper to hold that restrictions, freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of article 301. The argument that all taxes should be governed by article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. We are, therefore, satisfied that 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 ?
We are, therefore, satisfied that 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 ? ..." Thus, in the aforesaid case the Constitution Bench laid emphasis on direct and immediate impact and eventually came to hold that the Assam Taxation (On Goods Carried by Roads or Inland Waterways) Act (13 of 1954) had put direct restriction on the freedom of trade and since in doing so it had not complied with the provisions of article 304(b) it must be declared to be void. In Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 a seven-judge Bench of the apex court dealt with the subtleties that are inherent in articles 301 and 304(b) and regard being had to the view expressed in Atiabari Tea Co. Ltd. AIR 1961 SC 232 the larger Bench while dealing with certain provisions contained in the Rajasthan Motor Vehicles Taxation Act, 1951 which were assailed before their Lordships on the ground that the same were in conflict with the freedom of trade, commerce and intercourse within the territory of India assured by article 301 and other connected articles in Part XIII of the Constitution, after referring to the law laid down in Atiabari Tea Co. Ltd. AIR 1961 SC 232 and various contentions and stances raised on behalf of the parties, expressed the view that they were unable to accept the widest view that tax laws were outside the provisions of Part XIII. After so holding, their Lordships adverted to the arguments canvassed on behalf of the State to put narrow interpretation on the relevant article occurring in Chapter XIII and came to hold that the same could not be accepted. At that juncture the larger Bench thought it apt to advert to the exceptions, namely, regulatory measures which do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities which are not hit by the freedom declared by article 301. Thereafter their Lordships came to hold as under : "17. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable.
Thereafter their Lordships came to hold as under : "17. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co.'s case [1961] 1 SCR 809; AIR 1961 SC 232 is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304(b) of the Constitution." Thereafter their Lordships adverted to the relevant provisions of the Act read with the Schedules and opined that they come within the category of compensatory taxes which cause no hindrance to the freedom of trade, commerce and intercourse, being taxes for the use of trading facilities in the shape of roads, bridges, etc. After analysing the scheme of the Act it was held that the taxes imposed are really taxes on motor vehicles which use the roads in Rajasthan or are kept for use therein. Their Lordships expressed that the High Court, had taken note of the fact that expenditure on new roads and maintenance of old roads was in the neighbourhood of Rs. 60 lakhs. In 1954-55, the estimated income from the tax was Rs. 35 lakhs, while the estimated expenditure was over Rs. 65 lakhs. It is, obvious from these figures that the State is charging from the users of motor vehicles something in the neighbourhood of 50 per cent of the cost it has to incur in maintaining and making roads. Their Lordships expressed the view that regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304(b) of the Constitution. Thereafter their Lordships expressed the view as under : "... it will be noticed that the tax imposed is really a tax for the use of the roads in Rajasthan and it cannot be said that it hinders the free movement of trade, commerce and intercourse.
Thereafter their Lordships expressed the view as under : "... it will be noticed that the tax imposed is really a tax for the use of the roads in Rajasthan and it cannot be said that it hinders the free movement of trade, commerce and intercourse. 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. Whether a tax is compensatory or not cannot be made to depend on the preamble of the statute imposing it. Nor do we think that it would be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used in providing any facilities. It is obvious that if the preamble decided the matter, then the mercantile community would be helpless and it would be the easiest thing for the Legislature to defeat the freedom assured by article 301 by stating in the preamble that it is meant to provide facilities to the tradesmen. Likewise actual user would often be unknown to tradesmen and such user may at some time be compensatory and at others not so. It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of a tax by a meticulous test, and in the nature of things that cannot be done. 20. Nor do we think that it will make any difference that the money collected from the tax is not put into a separate fund so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may be. In the cases under our consideration the tax is based on passenger capacity or commercial buses and loading capacity of goods vehicles; both have some relation to the wear and tear caused to the roads used by the buses.
In the cases under our consideration the tax is based on passenger capacity or commercial buses and loading capacity of goods vehicles; both have some relation to the wear and tear caused to the roads used by the buses. In basing the taxes on passenger capacity or loading capacity, the Legislature has merely evolved a method and measure of compensation demanded by the State, but the taxes are still compensation and charge for regulation." Thereafter their Lordships proceeded to state as under : "21. ..... We must consider the substance of the matter and so considered, there can be no doubt that the taxes imposed are no hindrance to the freedom of trade, commerce and intercourse. 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. In Armstrong v. State of Victoria [1957] 99 CLR 28, Dixion, C.J. said : 'The reason, as I venture to suggest, simply is that, without the bridge, the aerodromes and airways, the wharves and the sheds, the respective inter-State operations could not be carried out and that the charges serve no purpose save to maintain these necessary things at a standard by which they may continue. However it may be stated, the ultimate ground why the exaction of the payments for using the instruments of commerce that have been mentioned is no violation of the freedom of inter-State trade lies in the relation to inter-State trade which their nature and purpose give them. The reason why public authority must maintain them is in order that the commerce may use them, and so for the commerce to bear or contribute to the cost of their upkeep can involve no detraction from the freedom of commercial intercourse between States'." At this juncture I think it apt to refer to the concurring judgment of Subba Rao, J. : "46. The foregoing discussion may be summarised in the following propositions : (1) article 301 declared a right of free movement of trade without any obstructions by way of barriers, inter-State, or intra-State or other impediments operating as such barriers.
The foregoing discussion may be summarised in the following propositions : (1) article 301 declared a right of free movement of trade without any obstructions by way of barriers, inter-State, or intra-State or other impediments operating as such barriers. (2) The said freedom is not impeded, but, on the other hand, promoted, by regulations creating conditions for the free movement of trade, such as, police regulations, provision for services, maintenance of roads, provision for aerodromes, wharfs etc., with or without compensation. (3) Parliament may by law impose restrictions on such freedom in the public interest; and the said law can be made by virtue of any entry with respect whereof Parliament has power to make a law. (4) The State also, in exercise of its legislative power, may impose similar restrictions, subject to the two conditions laid down in article 304(b) and subject to the proviso mentioned therein. (5) Neither Parliament nor the State Legislature can make a law giving preference to one State over another or making discrimination between one State and another, by virtue of any entry in the Lists, infringing the said freedom. (6) This ban is lifted in the case of Parliament for the purpose of dealing with situations arising out of scarcity of goods in any part of the territory of India and also in the case of a State under article 304(b), subject to the conditions mentioned therein. And (7) The State can impose a non-discriminatory tax on goods imported from other States or the Union territory to which similar goods manufactured or produced in that State are subject." In Khyerbari Tea Co. Ltd. v. State of Assam AIR 1964 SC 925 the constitutional validity of the Assam Taxation (On Goods Carried by Road or on Inland Waterways) Act, 1961 was challenged on the ground that it was violative of article 301 and was not saved by article 304. Their Lordships analysed the majority view in Atiabari Tea Co. Ltd. AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 and expressed the view as under : "It would immediately be noticed that though the majority view in the Automobile Transport (Rajasthan) case AIR 1962 SC 1406 , substantially agreed with the majority decision in the case of Atiabari Tea Co.
Ltd. AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 and expressed the view as under : "It would immediately be noticed that though the majority view in the Automobile Transport (Rajasthan) case AIR 1962 SC 1406 , substantially agreed with the majority decision in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 , there would be a clear difference between the said two views in relation to the scope and effect of the provisions of article 304(b). According to the majority view in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 , if an Act is passed under article 304(b) and its validity is impeached, then the State may seek to justify the Act on the ground that the restrictions imposed by it are reasonable and in the public interest, and in doing so, it may for instance, rely on the fact that the taxes levied by the impugned Act are compensatory in character. On the other hand, according to the majority decision in the Automobile Transport (Rajasthan) case [1963] 1 SCR 491; AIR 1962 SC 1406 , compensatory taxation would be outside article 301 and cannot, therefore, fall under article 304(b). ..." In State of Kerala v. A. B. Abdul Khadir AIR 1970 SC 1912 their Lordships have expressed the view as follows : "... As we have already pointed out it is well established by numerous authorities of this court that only such restrictions or impediments which directly or immediately impede the free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301. A tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so. Every case must be judged on its own facts and in its own setting of time and circumstance. In the present case the High Court has not gone into the question whether the provisions of Act 9 of 1964 and the notification dated January 25, 1951 issued under the Cochin Tobacco Act constitute such restrictions or impediments as directly and immediately hamper free flow of trade, commerce and intercourse and, therefore, fall within the prohibition imposed under article 301 of the Constitution.
Unless the High Court first comes to the finding on the available material whether or not there is infringement of the guarantee under article 301 of the Constitution the further question as to whether the statute is saved under article 304(b) does not arise and the principle laid down by this court in Kalyani Stores case [1966] 1 SCR 865; AIR 1966 SC 1686 cannot be invoked." In State of Karnataka v. Hansa Corporation AIR 1981 SC 463 it has been held as follows : "... Even apart from this, a levy which appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting municipal finances which suffered a dent on account of abolition of octroi cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and intercourse. In this connection it would be useful to recall the observations of this court in Khyerbari Tea Co. Ltd. AIR 1964 SC 925 that the power conferred on this court to strike down a taxing statute if it contravenes the provisions of article 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. It is, therefore, idle to contend that the levy imposed an unreasonable restriction on the freedom of trade and commerce." In the aforesaid case it was also held as follows : "To the extent the impugned tax is levied on the entry of goods in a local area its immediate impact would be on movement of goods and the measure would fall within the inhibition of article 301, it is not a single-point tax and, therefore, if some Scheduled goods successively enter different local areas for consumption, use or sale therein, there would be multiple levy. But if the goods are taken for consumption or use, there is no question of taking the Scheduled goods from one local area to another local area.
But if the goods are taken for consumption or use, there is no question of taking the Scheduled goods from one local area to another local area. Further a levy which appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting municipal finances which suffered a dent on account of abolition of octroi cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and intercourse. The levy did not impose an unreasonable restriction on the freedom of trade and commerce. This levy is in public interest. It was to compensate the loss suffered by abolition of octroi. After removing the obnoxious features of octroi a very modest impost is levied on entry of goods in a local area and that too not for further augmenting finances of the municipalities but for compensating the loss suffered by the abolition of octroi. It is certainly a levy in public interest. Presidential sanction was not obtained before introducing the Bill which was ultimately enacted into the impugned Act but after the Bill was enacted into an Act the same was submitted to the President for his assent and the President has accorded his assent. Thus, the requirement of the proviso is satisfied. Therefore, the impugned Act is saved by article 304 and could not be struck down on the ground that it was violative of article 301." In Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] 14 STC 355 (SC); AIR 1963 SC 928 it has been held as under : "10. It is, therefore now well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures. Sales tax, of the kind under consideration here, cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against article 301 and will be valid only if it comes within the terms of article 304(a)." In Mrs.
Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against article 301 and will be valid only if it comes within the terms of article 304(a)." In Mrs. Meenakshi Alias Rama Bai v. State of Karnataka [1984] Supp SCC 326, the apex court expressed the opinion as follows : "... Whether levy of a tax computed according to sitting capacity of a transport vehicle used for carriage of passengers by itself without anything more restricts or thwarts freedom of trade, commerce and intercourse throughout the territory of India guaranteed by article 301 is no more res integra. It was in fact conceded that revenue collected by such tax if employed for purposes which would not only not restrict or impede but facilitate smooth and unhampered trade, commerce and intercourse throughout the territory of India, such tax would not be violative of article 301 of the Constitution. Thus regulatory measures or measures imposing compensatory taxes for the use of trading facility are outside the purview of article 301 of the Constitution. This in fact was not disputed and could not be disputed in view of the decisions of this court in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 , Sainik Motors, Jodhpur v. State of Rajasthan AIR 1961 SC 1480 , Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 and Malwa Bus Service (Pvt.) Ltd. v. State of Punjab [1983] 3 SCC 237. Expanding the concept of what are called compensatory taxes as to be outside the purview of article 301, it can be said that the augmentation of revenue by such taxes which would be available for laying of new roads and maintenance of existing roads in proper shape and form, setting up of terminal facility for passengers, bus stand, other facility which make travel more comfortable and enjoyable, encourage and facilitate travel in its various elements, easy and unimpeded transport of goods by road transport would be comprehended within what are styled as compensatory taxes.
Simultaneously, it is necessary to administer a caution that in order to justify the tax on goods and passenger vehicles as being compensatory, it is not necessary for the authority levying the tax that the entire revenue collected from the levy of tax is spent or is expendable only on construction and maintenance of roads and providing other facilities for making free flow of traffic smooth and enjoyable. If quid pro quo is to be established from the receipt of the tax and the expenses on maintenance and construction of roads, the tax would take the nature of a fee and this was expressly rejected by this court in International Tourist Corporation v. State of Haryana [1981] 2 SCC 318. This court speaking through one of us (Chinnappa Reddy, J.) observed as under : 'But to say that the nature of a tax is of a compensatory and regulatory nature is not to say that the measure of the tax should be proportionate to the expenditure incurred on the regulation provided and the services rendered. If the tax were to be proportionate to the expenditure on regulation and service it would not be a tax but a fee.' At another stage, it was observed as under : 'What is necessary to uphold a regulatory and compensatory tax is the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy. If the object behind the levy is identifiable and if there is sufficient nexus between the subject and the object of the levy, it is not necessary that the money realised by the levy should be put into a separate fund or that the levy should be proportionate to the expenditure'." In the said case it has also been held as under : "7. If tax was enhanced to meet the loss suffered on account of abolition of octroi, one can say without the fear of contradiction that the abolition of octroi facilitates both inter-State and intra-State movements of goods and passengers. 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.
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 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, Karnataka took the lead and abolished octroi. One can take judicial notice of a universal demand for abolition of octroi as an evil. Therefore, if tax was enhanced on passenger vehicles to fill in the dent made in the revenues of the State by the abolition of octroi, it can be said without fear of contradiction that thereby trade, commerce and intercourse received a fillip and free, smooth, unimpeded flow of goods and passenger vehicles was considerably facilitated and the abolition of octroi was welcome in trade and business circles. Therefore, not only the enhanced tax does not lose the character of being compensatory on the ground that it was enhanced to compensate the loss suffered by the State in its revenues on account of abolition of octroi, but as a matter of fact on this very ground, it acquires the character of being compensatory." In this context I may refer with profit to the decision rendered in G. K. Krishnan [1975] 1 SCC 375 wherein in paragraphs 15 to 17 it has been held as under : "15. Regulations like rules of traffic facilitate freedom of trade and commerce whereas restrictions impede that freedom. The collection of toll or tax for the use of roads, bridges, or aerodromes, etc., does not operate as barriers or hindrance to trade. For a tax to become a prohibited tax, it has to, be a direct tax, the effect of which is to hinder the movement part of the trade. If the tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or commerce. 16. The question for consideration then is, whether the tax here, is a compensatory tax. 17.
If the tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or commerce. 16. The question for consideration then is, whether the tax here, is a compensatory tax. 17. Strictly speaking, a compensatory tax is based on the nature and the extent of the use made of the roads, as, for example, a mileage or ton-mileage charge or the like, and if the proceeds are devoted to the repair, upkeep, maintenance and depreciation of relevant roads and the collection of the exaction involves no substantial interference with the movement. The expression 'reasonable compensation' is convenient but vague. The standard of reasonableness can only lie in the severity with which it bears on traffic and such evidence of extravagance in its assessment has come from general considerations. What is essential for the purpose of securing freedom of movement by road is that no pecuniary burden should be placed upon it which goes beyond a proper recompense to the State for the actual use made of the physical facilities provided in the shape of a road. The difficulties are very great in defining this conception. But the conception appears to be based on a real distinction between remuneration for the provision of a specific physical service of which particular use is made and a burden placed upon transportation in aid of the general expenditure of the State. It is clear that the motor vehicles require, for their safe, efficient and economical use, roads of considerable width, hardness and durability; the maintenance of such roads will cost the Government money. But, because the users of vehicles generally, and of public motor vehicles in particular, stand in a special and direct relation to such roads, and may be said to derive a special and direct benefit from them, it seems not unreasonable that they should be called upon to make a special contribution to their maintenance over and above their general contribution as tax-payers of the State. If, however, a charge is imposed, not for the purpose of obtaining a proper contribution to the maintenance and upkeep of the road, but for the purpose of adversely affecting trade or commerce, then it would be a restriction on the freedom of trade, commerce or intercourse." (Freightlines & Constructions Holding Ltd. v. State of New South Wales [1968] AC 625).
Thereafter their Lordships took note of the fact that the Government had taken a stand that it had incurred an expenditure of Rs. 19.51 crores in the year 1970-71 in the maintenance and construction of roads while the receipts out of vehicle tax was only Rs. 16.38 crores. It was also the stand of the Government that the amount of Rs. 19.51 crores did not include the grants made to local bodies like municipalities and panchayats for repair and maintenance of roads within their jurisdiction. Road costs, as put forth by the Government, not only included the cost of construction and maintenance of roads but also the costs relating to the erection and maintenance of traffic control devices, safety measures, improvements to old layouts and the increased establishment of enforcement. Thereafter, their Lordships referred to the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406 and opined that rough approximation rather than mathematical accuracy is all that is required. A reference was made to the judgment of the Supreme Court of U.S.A., wherein a view was taken that the validity of a tax on vehicles must be determined not by way of a formula but rather by their result. Eventually their Lordships held that the notification was compensatory in character and did not restrict the freedom of trade and commerce. It is worthwhile to state that in the aforesaid case the challenge was to the notification enhancing the tax per seat per quarter in motor vehicles and contention was raised that the tax was neither compensatory nor regulatory in character and in fact, restriction on freedom of trade, commerce and intercourse guaranteed by article 301 of the Constitution. In International Tourism Corporation [1981] 2 SCC 318 the apex court was dealing with the levy under the Haryana Passengers and Goods Taxation Act, 1952 and their Lordships expressed the opinion that to say that the nature of a tax is of a compensatory and regulatory nature is not to say that the measure of the tax should be proportionate to the expenditure incurred on the regulation provided and the services rendered. If the tax is proportionate to the expenditure on regulation and service it would not be a tax but a fee. Their Lordships proceeded to state as under : "9.
If the tax is proportionate to the expenditure on regulation and service it would not be a tax but a fee. Their Lordships proceeded to state as under : "9. While in the case of a fee it may be possible to precisely identify and measure the benefits received from the Government and levy the fee according to the benefits received and the expenditure incurred, in the case of a regulatory and compensatory tax it would ordinarily be well nigh impossible to identify and measure, with any exactitude, the benefits received and the expenditure incurred and levy the tax according to the benefits received and the expenditure incurred. What is necessary to uphold a regulatory and compensatory tax is the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy. If the object behind the levy is identifiable and if there is sufficient nexus between the subject and the object of the levy, it is not necessary that the money realised by the levy should be put into a separate fund or that the levy should be proportionate to the expenditure. There can be no bar to an intermingling of the revenue realised from regulatory and compensatory taxes and from other taxes of a general nature nor can there be any objection to more or less expenditure being incurred on the object behind the compensatory and regulatory levy titan the realisation from the levy. ..." After so stating their Lordships proceeded to state as follows : "... That part of the highway which is within a municipal area is excluded from the definition of a national highway and therefore, the responsibility for the development and maintenance of that part of the highway is certainly on the State Government and the Municipal Committee concerned. Since the development and maintenance of that part of the highway which is within a municipal area is equally important for the smooth flow of passengers and goods along the national highway it has to be said that in developing and maintaining the highway which is within a municipal area, the State Government is surely facilitating the flow of passengers and goods along the national highway.
Apart from this, other facilities provided by the State Government along all highways including national highways, such as lighting, traffic control, amenities for passengers, halting places for buses and trucks are available for use by everyone including those travelling along the national highways. It cannot therefore, be said that the State Government confers no benefits and renders no service in connection with traffic moving along national highways and is, therefore, not entitled to levy a compensatory and regulatory tax on passengers and goods carried on national highways. We are satisfied that there is sufficient nexus between the tax and passengers and goods carried on national highways to justify the imposition." In this context I may fruitfully refer to the decision rendered in Sainik Motors, Jodhpur v. State of Rajasthan AIR 1961 SC 1480 wherein the Constitution Bench was addressing itself to the tax levied on passengers and goods or motor vehicles going from any place outside the State to any place within the State or from any place within the State to any place outside the State and tax was leviable on the fare or freight at a rate proportionate to the distance covered in the State when compared with the total distance or journey. Their Lordships upholding the Act observed as under : "We are also of opinion that no inter-State trade, commerce or intercourse is affected. The tax is for purposes of State, and falls upon passengers and goods carried by motor vehicles within the State. No doubt, it falls upon passengers and goods proceeding to or from an extra-State point but it is limited only to the fare and freight proportionate to the route within the State. For this purpose, there is an elaborate scheme in rule 8A to avoid a charge of tax on that portion of the route which lies outside the State. There is thus no tax on fares and freights attributable to routes outside the State except in one instance which is contemplated by the proviso to sub-section (3) of section 3 and to which reference will be made separately. In our opinion, the levy of tax cannot be said to offend articles 301 and 304 of the Constitution." I have referred to the aforesaid decisions only to appreciate what is meant by the working test and certain facilities provided to meet the requirement of the said test.
In our opinion, the levy of tax cannot be said to offend articles 301 and 304 of the Constitution." I have referred to the aforesaid decisions only to appreciate what is meant by the working test and certain facilities provided to meet the requirement of the said test. As is manifest from the said decisions if certain conveniences are available to the freedom of trade and commerce, the same can be considered to be unimpaired. Similarly, Police Regulations, provisions for services, maintenance of roads do facilitate the trade. That apart, if a levy appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting the revenue on account of abolition of octroi it cannot be said to have imposed unreasonable restrictions on the freedom of inter-State trade, commerce and intercourse. If the taxing laws cast restrictions it hampers the free flow of trade. Laying of roads, maintenance of inter-State roads in proper shape and form, setting up of terminal facilities and the facilities of travel in its various elements effectuate transport of goods; they can be put in the realm of compensatory tax. It has also been held that if there is sufficient nexus between the subject and the object of the levy, it is not necessary that the money realised by the levy should be proportionate to the expenditure. By some enhancement of tax, the character of compensatory tax is not erased. If the charge is imposed, not affecting the trade or commerce, it would be compensatory in nature. Be it noted, it has been observed that there is distinction between restrictive imposition and regulatory measures. In Kamaljeet Singh v. Municipal Board, Pilkhwa AIR 1987 SC 56 a two-judge Bench of the apex court was dealing with the validity of the imposition of toll tax by Municipal Board, Pilkhwa on vehicles and other conveyances, animals and laden coolies entering the municipal limits. The apex court took note of the fact that the township of Pilkhwa is off the national highway and is quite at some distance. Thereafter their Lordships proceeded to state that usually the consideration for a toll is some amenity, service, benefit or advantage to the persons liable to pay the toll.
The apex court took note of the fact that the township of Pilkhwa is off the national highway and is quite at some distance. Thereafter their Lordships proceeded to state that usually the consideration for a toll is some amenity, service, benefit or advantage to the persons liable to pay the toll. Their Lordships further opined that even if the municipal board has constructed the "nallah" for flow of the sewage water from the town it does not entitle the Board to levy a toll tax on stage carriage operators as a compensatory tax. Thereafter it was stated as follows : "... Even assuming that the municipal board has to incur expenditure on maintenance of the connecting road and the nallah, but they are facilities provided for the residents of the town for which it recovers various taxes. Furthermore, maintenance of roads, bridges, etc., are statutory duties of the municipal board under section 7 of the Act. The levy of the toll tax by the municipal board must therefore be struck down as ultra vires." The aforesaid decision is distinguishable as the court was in seisin of a lis that related to construction of a "nallah" for flow of sewage water from the tank. The said case, in my considered opinion, has to rest on its own facts and cannot be treated as a precedent for dealing with the facet of compensatory tax. Before the existing scenario is tested on the anvil of law as it stands today, it is apt to refer to certain decisions of the High Courts which have been placed heavy reliance upon by the learned counsel for the petitioners to pyramid the edifice that entry tax is not compensatory. The learned counsel for the petitioners have commended to the decisions rendered by various High Courts as to how the entry tax levied in the respective State enactments does not fulfil the requirement of article 304(a) of the Constitution despite the stance of the State that the tax collected is transferred to the local bodies.
The learned counsel for the petitioners have commended to the decisions rendered by various High Courts as to how the entry tax levied in the respective State enactments does not fulfil the requirement of article 304(a) of the Constitution despite the stance of the State that the tax collected is transferred to the local bodies. In Dinesh Pouches Ltd. v. State of Rajasthan decided on August 21, 2007 ([2008] 16 VST 387 (Raj)) by the High Court of Rajasthan the Bench after referring to various spectrum of the law eventually came to hold that apart from mentioning that the amount was spent on cleaning and sanitation, fire extinction, street light and development work, no data had been provided in detail as regards the expenses for which entry tax was alleged to have been spent. The Bench also observed that no such details about the expenses incurred in respect of various functions discharged by the Panchayat have been furnished which could be related to providing of facilities and benefits to the trade and commerce or imposing regulatory measures for its benefits in an identifiable or quantifiable measure. Be it noted, the Bench has also observed that the municipality is under statutory obligation to provide facilities or benefits to trade or commerce and that is not the object of the levy which is collected. On reading of the judgment in entirety, I am of the considered opinion that the same is basically based on two principles, namely, carrying out the functions of the municipalities and that being statutory, the same cannot be put in the compartment of the theory of "some link" which is in the arena of compensatory tax; and further the State has failed to provide the relevant data. Thus, the furnishing of data and analysis of the data are the main foundations to treat the tax non-compensatory. In the said case, as is perceivable, adequate data was not given.
Thus, the furnishing of data and analysis of the data are the main foundations to treat the tax non-compensatory. In the said case, as is perceivable, adequate data was not given. In Jindal Strips Limited v. State of Haryana [2008] 12 VST 149 (P&H), the High Court of Punjab after adverting to the provisions of the Entry Tax Act and referring to the decisions rendered by the apex court culled out the principles and further dealt with the 73rd and 74th Constitutional Amendments, by which Chapters IX and IXA were introduced in the Constitution of India for the purpose of conferring autonomy to the local bodies at the grass-root level and addressed itself to the enumerations made in the XI and XII Schedules of the Constitution. Further particulars/analysis of data were brought on record after remand by the apex court. Be it noted, the Bench has discussed the various data in the backdrop of the Entry Tax Act prevalent in the State and came to hold that the amount spent for general development of the State, though termed as facilitating trade and commerce, the Bench noted two aspects, namely, 60 per cent of the tax is spent and 40 per cent is accounted for different involvements and hence, the same does not meet the facial test. Thus, as is perceptible, the court was not satisfied with regard to the data furnished. Hence, the basic principle comes to analysis of the data. In Bharat Earth Movers Ltd. v. State of Karnataka [2007] 8 VST 69 (Karn), the Bench held the provisions to be unconstitutional on the ground that there was no serious attempt at all on the part of the State to demonstrate either that the expenditure incurred towards the so-called services to the trading community in general is a particular amount and that the assessees under the Act constitute 30 per cent of such members of the trading community for whose benefit the expenditure is incurred. The Bench further came to hold that no material at all was placed by the State with regard to the revenue allotted to the local authorities under the other enactments, which have a link or nexus to the kind of the facilities sought to be provided such as provision for roads, water, lighting, drainage, etc.
The Bench further came to hold that no material at all was placed by the State with regard to the revenue allotted to the local authorities under the other enactments, which have a link or nexus to the kind of the facilities sought to be provided such as provision for roads, water, lighting, drainage, etc. It is further pointed out that in absence of any link or correlation at all on the facts in respect of the revenue from the levies under the present enactment, the defence of the State that the levy imposed under the Act is compensatory is not acceptable. Thus, on a perusal of the said decision, it is manifest that data was inadequate and further there was no stance that the amount was allocated to the local bodies in lieu of octroi compensation. Judged singularly, the whole decision rests on the analysis of the data. In Tata Iron & Steel Company Ltd. v. State of Jharkhand [2007] 6 VST 587 (Jharkh.), the Bench declared the statute as ultra vires as no material was placed before it. In ITC Limited v. State of Assam [2007] 9 VST 250 (Gauhati); [2006] 1 GLR 584, in absence of data, the Bench came to the conclusion that the tax was not compensatory. In Thressiamma L. Chirayil v. State of Kerala [2007] 7 VST 293 (Ker), the Bench dealt with the data relating to various expenditure incurred by the State for maintenance of roads, bridges, water transport, development of industries and allied matters and came to hold that the tax was not compensatory and declared the enactment as ultra vires. A Division Bench of the Madras High Court in Writ Petition No. 12553 of 2002 (ITC Limited v. State of Tamil Nadu [2007] 7 VST 367 (Mad)) and other connected matters has dealt with the data and come to hold that the levy of entry tax on the imported goods and facilities given to the importers do not meet the working test and hence, the same cannot be said to be compensatory in nature. Be it noted, in the said decision the Bench also addressed itself to the duties of the local bodies. As I understand, it is also fundamentally based on data. Presently, I shall advert to the Constitution Bench decision in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241.
Be it noted, in the said decision the Bench also addressed itself to the duties of the local bodies. As I understand, it is also fundamentally based on data. Presently, I shall advert to the Constitution Bench decision in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. In the said case their Lordships, while dealing with the scope of articles 301 and 302 vis-a-vis compensatory measure, have stated thus : "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. [1961] 1 SCR 809; AIR 1961 SC 232 . It is equally important to note that in Atiabari Tea Co. [1961] 1 SCR 809; 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 yes, 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 a restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature.
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 a 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." Thereafter in the concluding paragraph their Lordships have held thus : "50. 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. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide paragraph 19 of the Report, will continue to apply and the test of 'some connection' indicated in paragraph 8 of the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and followed in the case of State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 is, in our opinion, not good law.
..." At this juncture it is thought condign to catalogue the parameters of compensatory tax as held by the Constitution Bench in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241, I would like to cull out the principles laid down by their Lordships : (i) A tax is levied as a part of common burden and the basis for imposing tax is on the ability or capacity to pay. (ii) A fee is based on the principles of equivalence which stand in converse to the principle of ability to pay. In case of compensatory tax, principle of equivalence applies. (iii) The main basis for compensatory tax is quantifiable and measurable benefit. (iv) In a case relating to compensatory tax, there is an indication of quantifiable data, a benefit which is measurable. (v) A compensatory tax has to be broadly proportionally founded on the principle of equivalence. (vi) The quantifiable benefit which is inhered in compensatory tax is represented by the cost in procuring the facility/services which costs in turn become the basis or reimbursement/recompense for the provider of the services/facilities. (vii) Compensatory tax is always proportional to the benefits and is levied on an individual as a member of a class. A compensatory tax is different from fee as a fee is levied on an individual. (viii) 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. (ix) For a tax to be compensatory, there must be some link between the quantum of tax and the facility/services. (x) Every benefit is measured in terms of cost which has to be reimbursed by recompense in the form of compensatory tax. In other words, compensatory tax is a recompense/reimbursement. (xi) In the context of article 301 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.
It may incidentally bring in net revenue to the Government but that circumstance is not an essential ingredient of compensatory tax. (xii) When the tax imposed as a part of regulation or a part of regulatory measure, the 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. (xiii) If the effect of the operation of an enactment is to impede trade and commerce, then article 301 is violated. (xiv) An enactment, must facially indicate the quantifiable data on the basis of which the compensatory tax is sought to be levied. It must broadly indicate proportionality to the quantifiable benefit. (xv) If the provisions of the Act are ambiguous or if the Act does not indicate patently or 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 and measurable benefit provided or to be provided to its payer(s). Before I deal with the various affidavits filed by the State and the eventual clarificatory affidavits that provide the data, it is condign to take note of the objections raised by Mr. Kishore Shrivastava, learned senior counsel who has placed reliance upon the decision rendered in B. Prabhakar Rao [1985] Supp SCC 432 wherein it has been held as under : "It is amazing that the same Deputy Secretary to the Government, representing the same Government, should have sworn to two such contradictory affidavits. It reveals a total sense of irresponsibility and an utter disregard for veracity. It shows that the deponent had signed the affidavits without even reading them or that he signed them to suit the defence to the particular writ petition without any regard for truth. In either case, it is reprehensible and totally unworthy of the spokesman of a Government and most unflattering to the Government on whose behalf he spoke. ..." In M. Veerabhadra Rao AIR 1985 SC 28 a two-judge Bench of the apex court expressed the view as under : "17. ...
In either case, it is reprehensible and totally unworthy of the spokesman of a Government and most unflattering to the Government on whose behalf he spoke. ..." In M. Veerabhadra Rao AIR 1985 SC 28 a two-judge Bench of the apex court expressed the view as under : "17. ... The essential ingredients of an affidavit are that the statements or declarations are made by the deponent relevant to the subject-matter and in order to add sanctity to it, he swears or affirms the truth of the statements made in the presence of a person who in law is authorised either to administer oath or to accept the affirmation. The responsibility for making precise and accurate statements in affidavit were emphasised by this court in Krishan Chander Nayar v. Chairman, Central Tractor Organisation [1962] 3 SCR 187; AIR 1962 SC 602 . ..." On a perusal of the aforesaid decisions, it is discernible that affidavit has to be sacrosanct and contradictions are not welcome features. But, a pregnant one, in the case at hand the affidavits filed by the State from time to time contain the lis of sacrosanctity. There is no such contradiction which can raise eyebrow or put the same in the realm of obnoxiousness. On the contrary, a clarificatory affidavit brings out a picture from which one can find out the truth. It is apt to note that justice is wedded to truth and the duty of the court to find out the truth, in a way. Thus, I am not inclined to accept the submission of Mr. Shrivastava, learned senior counsel, that the affidavits being contradictory and there being incurable veracity the affidavits are to be ignored. Therefore, I will consider the furnished data on the parameters of law. Having regard to the law laid down in Jindal Stainless Steel [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the factual matrix has to be tested. I have, in my humble way, culled out the principles. It is to be seen whether the factual data provided by the State meet the said requirements. As is perceivable, their Lordships have clearly held that the doctrine of direct and immediate effect of the impugned law on trade and commerce as propounded by Atiabari Tea Co.
I have, in my humble way, culled out the principles. It is to be seen whether the factual data provided by the State meet the said requirements. As is perceivable, their Lordships have clearly held that the doctrine of direct and immediate effect of the impugned law on trade and commerce as propounded by Atiabari Tea Co. AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) AIR 1962 SC 1406 are to be kept in view while testing whether a tax is compensatory or not as the said tests are applicable. Their Lordships have also opined that if the statute is ambiguous or patently does not indicate that the tax is compensatory, the State has a burden to file documents to show that as an actuality the levy is compensatory in nature. In the case at hand, initially a counter-affidavit was filed which was absolutely broad and general. Thereafter, additional return was filed showing various heads and as has been stated earlier, the affidavits and clarificatory affidavits have been filed. It is submitted by the learned counsel for the petitioners that the clarificatory affidavits contradict the earlier affidavits. I have already held that they do not contradict the earlier affidavits. In fact, some portion of the affidavits has been withdrawn and some figures have been given. I have already repelled the objection pertaining to the affidavits. At this juncture, a question that requires to be posed is whether the tax collected is in proportion to the expenditure incurred in providing the facilities or whether most of the revenue collected therefrom goes into the State exchequer as general revenue. Regard being had to the same, I proceed to examine the figures and statistics filed by the State along with the pleadings. The respondents/State, in its additional return and subsequent affidavits, has filed detailed charts showing the figures of the entry tax collected, the entry tax disbursed and has also given details of the amount spent by local bodies on commercial and industrial purposes and has vehemently urged that a perusal of these figures would clearly demonstrate and establish that the entire amount collected by way of entry tax is disbursed as octroi compensation to the local bodies in the State of Madhya Pradesh after deducting two per cent therefrom towards regulatory and service charges and is utilised for providing facilities which are used by the trades people.
In support of the contention the respondents have also given details of the total amount spent by the local bodies in providing facilities and have submitted that a perusal of these figures demonstrates that octroi compensation forms only a small part of the actual amount spent by the local bodies in providing facilities within the local area and, therefore, the amount received as octroi compensation is not utilised for providing civil amenities and facilities to the residents of the local area at large which are statutorily required to be provided by the local bodies. To further buttress these submissions, the respondent/State has also furnished figures of the revenue generated by the local bodies by levying local taxes and have also given figures of the various grants, etc., given to the local bodies by the State from the consolidated fund for carrying out this statutory obligation. It is apparent from a perusal of the figures submitted by the respondents that they have given details of the amount of entry tax collected and the amount disbursed to the local bodies therefrom as octroi compensation after deducting two per cent for the years 2001-02 to 2006-07 in Document No. 2 filed by them along with their additional affidavit dated November 3, 2007 after clarifying discrepancies which is reproduced below for ready reference : Chart No. I --------------------------------------------------------------------------------------------------------- Year Total amount of Budgetary allocation for Actual amount released Difference entry tax collected ULBS after deducting 2% to ULBS as octroi by State collection charges compensation --------------------------------------------------------------------------------------------------------- 2001-02 333.85 327.17 295.32 --------------------------------------------------------------------------------------------------------- 2002-03 262.40 257.15 261.55 --------------------------------------------------------------------------------------------------------- 2003-04 351.20 344.18 308.85 --------------------------------------------------------------------------------------------------------- 2004-05 388.73 380.95 380.27 --------------------------------------------------------------------------------------------------------- 2005-06 457.98 448.82 458.71 --------------------------------------------------------------------------------------------------------- 2006-07 530.89 520.27 566.63 --------------------------------------------------------------------------------------------------------- Total 2278.54 2271.33 7.21 --------------------------------------------------------------------------------------------------------- The State, in its additional affidavit filed on November 3, 2007, has clarified the discrepancies regarding the amount collected and the amount disbursed to the local bodies after deducting two per cent therefrom by stating in paragraph 7 of the affidavit that the discrepancies have cropped up in view of the fact that there was some difference between the figures of the collection year and the disbursement year as the disbursement year is subsequent to the collection year.
It is further stated in paragraph 10 of the affidavit that the State is not retaining any amount collected by way of entry tax except two per cent as collection charge and is disbursing the entire amount to the urban and local bodies and has also clarified that the difference in amount, if any, is carried forward to the next year and released to the local bodies as octroi compensation in the next year. The State has filed another affidavit giving clarification relating to various affidavits filed before this court on January 9, 2008 and clarified the various other discrepancies, facts and figures and details submitted by the State and has also submitted that in all, there are 14 Municipal Corporations, 87 Municipal Councils and 237 Nagar Panchayats, i.e., 338 urban local bodies in the State of Madhya Pradesh which are divided in 7 Revenue Divisions and has clarified that the discrepancies in the previous figures given by them had resulted as facts and figures in respect of some of the urban local bodies had not been given previously. It has also been clarified that in Chart No. II given at page 2 of the affidavit dated December 27, 2007 the words "column 3 with column 8" mentioned in column No. 10 be read as "column No. 3 with column No. 6". In their affidavit dated December 27, 2007, the respondent/State had furnished the following figures relating to the amount of octroi compensation released to the urban and local bodies, the other amounts released to the urban and local bodies under various other heads and the amount spent by the urban and local bodies in commercial and industrial sectors and has also furnished the percentage-wise calculation to demonstrate that the amount disbursed as octroi compensation forms only a part of the total amount spent by the urban and local bodies in commercial and industrial sectors within the local area.
It is pertinent to note that the said figures do not show the revenue earned by the urban and local bodies from collection of municipal taxes, which have been shown separately and the said figures have been given in lacs and have been divided division-wise and are the consolidated figures of five years from 2002-03 to 2006-07 and are as follows : Chart No. II Division-wise information regarding grants released and expenses incurred by urban local bodies for providing facilities/services to commercial and industrial sectors since 2002-03 to 2006-07 Amount in lacs ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- S. Division Amount Amount Total of Expenses Expenses incurred Total (6 + 7) Percentage of Percentage of No. released released to (3 + 4) incurred by ULBS in total amount amount of octroi against ULBS other by ULBS in industrial sector released against compensation against octroi heads commercial total expenses commercial sector compensation sector (col. 5 with (col. 3 with col. 6) col. 8) ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 5 6 7 8 9 10 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1 Indore 49263.10 31327.58 80590.68 33353.48 1880.28 35233.76 43.72 68.00 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 2 Bhopal 33002.39 31987.50 61989.89 32022.47 538.19 32560.66 50.10 97.00 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 3 Ujjain 25177.78 21743.83 46921.61 30916.43 1668.58 32585.01 69.45 123.00 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 4 Gwalior 27739.15 25917.10 53656.13 15300.13 277.84 15577.97 29.03 55.00 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 5 Jabalpur 30876.18 23064.89 53941.07 25843.10 2247.26 28090.46 52.08 84.00 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 6 Rewa 15304.72 14337.67 29642.39 17303.90 1172.07 18475.97 62.33 113.00 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 7 Sagar 16237.68 13802.09 30039.77 27196.51 458.93 27655.44 92.06 167.00 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total 197601.00 162180.66 359781.66 181936.02 8243.25 190179.27 52.86 92.00 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- The respondent - State, in the affidavit dated December 27, 2007, has also given the details of the division-wise break-up of the number of urban and local bodies as well as the break-up of the total amount received by the urban and local bodies under the heads of Government grants, octroi compensation, local taxes levied and collected and the approximate amount spent out of M.P. and M.L.A. funds in the division. The aforesaid figures have also been submitted in lacs and are for the same period of five years and are as follows : Chart No. III Rs. in lacs -------------------------------------------------------------------------------------------------- Division No. of Grant by Amount of Taxes levied Approximate Total ULBs Govt.
The aforesaid figures have also been submitted in lacs and are for the same period of five years and are as follows : Chart No. III Rs. in lacs -------------------------------------------------------------------------------------------------- Division No. of Grant by Amount of Taxes levied Approximate Total ULBs Govt. (other octroi and collected amount spent than E.T.) compensation by the ULBs out of MPs and released to MLAs funds ULBs -------------------------------------------------------------------------------------------------- 1 2 3 4 5 6 7 -------------------------------------------------------------------------------------------------- Indore 47 32327.58 49263.10 22647.39 1673.58 104911.65 -------------------------------------------------------------------------------------------------- Bhopal 52 31987.50 33002.39 21788.79 1590.14 88368.81 -------------------------------------------------------------------------------------------------- Ujjain 57 21743.83 25177.78 7391.15 1119.72 55432.48 -------------------------------------------------------------------------------------------------- Gwalior 48 25917.10 27739.15 3805.34 0 57461.59 -------------------------------------------------------------------------------------------------- Jabalpur 43 14337.67 15304.72 4183.76 462.96 34289.11 -------------------------------------------------------------------------------------------------- Rewa 42 23064.89 30876.18 15391.36 1025.79 70358.22 -------------------------------------------------------------------------------------------------- Sagar 49 13802.09 16237.68 2637.78 0 32677.55 -------------------------------------------------------------------------------------------------- Grant total 338 162180.66 197601.00 77845.56 5872.19 4434499.41 -------------------------------------------------------------------------------------------------- A conjoint reading of the aforesaid two charts indicates that the total amount of revenue of the urban and local bodies in the State for the period 2002-03 to 2006-07 was Rs. 4,43,499.41 lacs out of which a sum of Rs. 1,97,601 lacs constituted the amount received by them as octroi compensation from levy of entry tax which approximately constitutes 45 per cent of the total revenue. It is also apparent from a perusal of the total amount indicated at column 8 of Chart II reproduced above that the urban and local bodies have spent an amount of Rs. 1,90,179 lacs on commercial and industrial sectors which constitutes almost 44 per cent of the total revenue of the urban and local bodies in the State and which is roughly equal to the total amount of Rs. 1,97,601 lacs distributed to them as octroi compensation during 2002-03 to 2006-07 shown in column No. 4 of Chart No. III or in column No. 4 of Chart No. I after deducting the amount of octroi compensation released in the year 2001-02. At this juncture, it is imperative to note that the learned counsel for the petitioners have submitted that the facilities that have been given by the local bodies do come within their statutory obligations and hence, they cannot be treated as special advantages. The aforesaid submission, at a first flush, appears quite convincing but on a keener scrutiny loses its structural solidity.
The aforesaid submission, at a first flush, appears quite convincing but on a keener scrutiny loses its structural solidity. A Municipal Corporation or a Municipality or a Nagar Panchayat has an obligation to do certain things but to say that the entry tax collected and spent for certain aspects which have nexus with facilitation of trade cannot be compensatory in nature is not correct. Be it noted, construction of roads, bridges, building of commercial and industrial units do facilitate trade and commerce and do not hinder free flow of trade. The State aid and other grants do not meet the same in entirety. Only forty-four per cent (44%) of the amount spent by the local bodies come from the impost of entry tax. One should bear in mind that there is a distinction between the obligation provided under the municipal laws and the concept of sources from which the revenue comes. The facilities that have been provided are not being provided from the other taxes collected and grants received. In entirety, the utilisation of the entire entry tax has a major role. The percentage has to be seen and not to be lightly brushed aside. One can look at the scenario from another perspective. The twin concepts, namely, purpose and quantum are to be kept in mind; simultaneously, the nature of use and the convenience that are availed of. It is unthinkable of a trade facility without a commercial centre. The purchaser may go to purchase but the seller has the advantage. It can safely be stated that there is primary use and secondary use. Because of the existence of secondary use, it cannot be said that the primary user, the traders, the sellers, the goods importers do not gain any special advantage. That apart, what is to be seen is whether there is any positive aspect for the smooth flow of trade. In the scheme of things, the incidental use by the community cannot obliterate the main positive spectrum. The main or primary use stays and is not destroyed. Quite apart from the above, the statutory obligations and the duties of a welfare State are to be studied vis-a-vis the tax collected by way of entry tax.
In the scheme of things, the incidental use by the community cannot obliterate the main positive spectrum. The main or primary use stays and is not destroyed. Quite apart from the above, the statutory obligations and the duties of a welfare State are to be studied vis-a-vis the tax collected by way of entry tax. To give an extreme example, if it is held that it is the duty of the welfare State to construct roads and if entry tax is levied it cannot be compensatory, then the said broad proposition would run counter to the decision in Automobile Transport case AIR 1962 SC 1406 which has been reiterated in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. Therefore, neither extreme proposition nor microscopic concepts are to be introduced. As for the balance, as the Constitution Bench has held, I am humbly disposed to think that the eventual "some link" and "broad proportionality to the special and quantifiable benefits" strike the balance. Their Lordships have not held that it should be in arithmetical exactitude. Neither have their Lordships held that it has to be individualistic. What has been stated is that if by a positive action a particular measurable advantage is conferred, it is only fair to the community that the beneficiary shall pay for it. Studied in this perspective, the argument that the benefit should be only and exclusively for the traders does not withstand scrutiny. I would be failing in my duty if I do not refer to the illustrations given by Mr. S. Ganesh, learned Senior Counsel appearing for some of the petitioners. On a scrutiny of the said illustrations except illustration No. 8 (as the same has been taken from Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241), there can be no trace of doubt that the said examples at their very foundation are relatable to the fundamental and inherent concept of fee-keeping in view the conception of quid pro quo in stricto sensu. The said illustrations can be appreciated from another angle. In my considered opinion they exemplify a range of hypothesis which makes an endeavour to fresco a picture of compensatory tax keeping in view the inflexible, rigid and strait-jacket arena which does not allow any other facet/principle which has been laid down by their Lordships in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241.
In my considered opinion they exemplify a range of hypothesis which makes an endeavour to fresco a picture of compensatory tax keeping in view the inflexible, rigid and strait-jacket arena which does not allow any other facet/principle which has been laid down by their Lordships in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. I may humbly put that the fundamental grammar of compensatory tax has been erroneously set out in the said examples. Hence, I am disposed to think that they do not deserve to be considered as such illustrations by their very nature defeat the inherent character of compensatory tax. Regard being had to the enunciation of law and the factual projection in entirety, I am inclined to hold that the entry tax imposed is compensatory in nature for the following reasons : (a) The local bodies maintain roads and the maintenance of roads within the municipal area facilitates trade and commerce. (b) The traders choose to avail these services of convenience and without the same there could not have been facilitation of trade and hence, there is no direct or immediate impact impairing the trade facilities. (c) A distinction can be made between the use of roads by the business community and that by a common man in the community because on such roads move the heavy vehicles of the traders and thus advantage is taken by them. (d) The entry tax collected is allotted to the local bodies for the loss sustained due to abolition of octroi and the said grant or allotment to the local bodies is not general in nature. To elaborate : the data has been furnished how the allocated entry tax is spent by the local bodies. The State has been able to show that considerable amount of the entry tax that is allotted to the local bodies is spent in the commercial or industrial sectors. (e) The provisions made for fire extinction measures do facilitate trade. (f) The State has given data about the money received from other sources and given to the local bodies and the amount collected from the entry tax and given to the local authorities. It is not a case where municipal functions, as ascribed to the municipal corporations or the municipalities or other local bodies are done from the funds allotted by the State or the Central Governments by way of grants.
It is not a case where municipal functions, as ascribed to the municipal corporations or the municipalities or other local bodies are done from the funds allotted by the State or the Central Governments by way of grants. (g) Measures have been taken to provide trading facilities and markets have been established and specific data have been given as the chart would indicate. (h) The data provided meet the test of proportionality between the quantum of tax and the facilities/services provided inasmuch as the entire entry tax which is collected and allocated to the local bodies constitutes 44 per cent of the amount that is spent by them and such expenditure includes creating facilities for trade, commerce and industries. (i) The tax imposed is a single-point tax and hence, the stance is in contradistinction to the one where the tax is imposed upon the entry by different local bodies in a successive manner. The levy is identifiable and there is nexus between the subject and the object of the levy. (j) The data, as scrutinised, clearly show that the tax collected is proportional to the benefits and without which the trading facilities could not have been availed of. It is worth noting that in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the apex court has held that the theory of compensatory tax rests upon the principle that if the Government by some positive action confers upon the individual(s) a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it. Thus, the stand that it has to be totally cost-oriented is not acceptable inasmuch as what is required is proportionality between the quantum of tax and the facilities/services provided for facilitation of trade. (k) The stand of the petitioners that a particular local body is given more amount and another lesser sum and hence, the tax is not compensatory is untenable inasmuch as the local bodies as a singular compartment has to be viewed. (l) The incidental use by the community cannot annihilate the primary or principal use of facilities by the traders which facilitate the trade and commerce. Now I shall advert to the notifications issued under the Act. For the said purpose it is relevant to produce certain provisions of the Act.
(l) The incidental use by the community cannot annihilate the primary or principal use of facilities by the traders which facilitate the trade and commerce. Now I shall advert to the notifications issued under the Act. For the said purpose it is relevant to produce certain provisions of the Act. In this context we may quote the definition of "entry tax" which reads as under : "2(b) 'entry tax' means a tax on entry of goods into a local area for consumption, use or sale therein levied and payable in accordance with the provisions of this Act and includes composition money payable under section 7A." Section 3 which deals with the incidence of taxation reads as under : "3(1).
There shall be levied an entry tax, - (a) on the entry in the course of business of a dealer of goods specified in Schedule II, into each local area for consumption, use or sale therein; and (b) on the entry in the course of business of a dealer of goods specified in Schedule III, into each local area for consumption or use of such goods but not for sale therein; and such tax shall be paid by every dealer liable to tax under the Vanijyik Kar Adhiniyam who has effected entry of such goods : Provided that no tax under this sub-section shall be levied, - (i) in respect of goods specified in Schedule II other than the local goods, purchased from a registered dealer on which entry tax is payable or paid by the selling registered dealer; (ii) in respect of goods specified in Schedule II which after entry into a local area are sold outside the State or in the course of inter-State trade or commerce or in the course of export out of the territory of India; (iii) in respect of goods specified in Schedule III imported from outside the State for consumption or use but which have been disposed of in any other manner; (iv) in respect of goods exempted from entry tax under section 10; and if tax on the entry of any goods specified in Schedule II or Schedule III effected during any period has been deposited by a dealer into the Government treasury and subsequent to such entry the goods are disposed of in the manner described in clause (ii) of this proviso, such dealer shall be entitled to a set-off of the tax already paid by him in respect of such goods and such set-off shall be adjusted towards the tax payable by him in such manner as may be prescribed : Provided further that notwithstanding anything contained in this Act, where a dealer in the course of his business, purchases goods from a person or a dealer other than a registered dealer who has effected entry of such goods into a local area prior to such purchase, the entry tax shall be paid by the dealer who has purchased such goods : Provided also that notwithstanding anything contained in this Act, where a dealer liable to pay tax under the Vanijyik Kar Adhiniyam in the course of his business into a local area, purchases goods specified in Schedule III, other than goods which are local goods in relation to such local area, from another dealer of the same local area for consumption or use, the entry of such goods shall be deemed to have been effected into such local area by the dealer who has purchased such goods for the aforesaid purpose and entry tax shall be paid by such dealer : Provided also that in respect of packing material 'sale' shall mean the sale of packing material as such and shall not include its sale along with the goods packed or contained therein.
(2)(a) There shall be levied an entry tax on the entry into any local area for consumption, use or sale therein, - (i) of such goods specified in Schedule II or Schedule III, other than motor vehicles, on which entry tax is not leviable under the provisions of sub-section (1); and (ii) by such persons or class of persons, as may in either case, be notified by the State Government and thereupon such tax shall be paid by such person or class of persons : Provided that entry tax under this sub-section shall not be levied on the entry of such goods, if it is proved to the satisfaction of the assessing authority that such goods have already been subjected to entry tax or that the entry tax is liable to be paid by any other person or dealer under this Act. (b) Copy of every such notification shall be laid on the table of the Legislative Assembly. (3) The entry tax levied under sub-section (1) and sub-section (2) shall be paid on the value of such goods. (4) No entry tax shall be payable on the goods specified in Schedule I. (5) The State Government may, by notification, amend Schedule I, so as to include therein any goods not already specified therein and may, by a like notification, amend Schedule II or Schedule III to exclude therefrom the goods so included in Schedule I and thereupon Schedule II or Schedule III, as the case may be, shall stand amended accordingly." Section 4 deals with the rate at which entry tax is to be charged. Section 4A which is the ground of attack is as under : "4A. Provision for entry tax at enhanced rate on certain goods consumed or used in manufacture of other goods. - (1) The State Government may, by notification, specify the local area or areas and the goods which are used or consumed in such local area or areas mainly for the manufacture of other goods and may direct that, as from the date specified in the notification and in such manner as may be prescribed, the entry tax payable by a dealer under this Act shall be charged on his taxable quantum relating to such goods at a rate not exceeding ten per centum as may be specified in such notification notwithstanding anything to the contrary contained in section 4.
(2) On the issue of the notification under sub-section (1), entry tax shall not be chargeable and payable on such goods at any other rate mentioned in any other provisions of this Act." Section 6 of the 1976 Act lays down the principles governing the levy of entry tax on dealers or persons and the same reads as under : "6. Principles governing levy of entry tax on dealer or person. - The entry tax payable by a dealer under sub-section (1) of section 3 or by a person notified under sub-section (2) of that section shall be levied in accordance with the principles stated below : (a) entry tax shall not be payable unless the dealer or such person effects entry of goods specified in Schedule II or Schedule III into a local area; (b) where any such goods are consumed, used or sold in a local area by the dealer or such person, it shall be presumed until the contrary is proved by him, that such goods had entered into that local area for consumption, use or sale therein; (c) when a dealer purchases goods specified in Schedule II or Schedule III in a local area from a person or a dealer who is not a registered dealer, it shall be presumed, unless the contrary is proved by him, that the entry of such goods had been effected by him into such local area before they were purchased by such dealer; (d) ... (e) all records, documents, account books, information and any other material produced before or used by the assessing authority for the purpose of an assessment of tax on a dealer under the Vanijyik Kar Adhiniyam may, as far as may be and to the extent relevant for the purpose of this Act, form the basis for levy of entry tax on that dealer under this Act : Provided that the assessing authority may call for or use such additional information for the purpose of assessment under this Act as it may deem necessary." It is submitted by the learned counsel for the petitioners who have 1 assailed the notifications that the rate has been enhanced as a consequence of which the entry tax has lost its character of compensatory nature and fallen into the compartment of imposition of tax simpliciter. It is also canvassed that it is totally discriminatory.
It is also canvassed that it is totally discriminatory. On a perusal of the Schedule, it is noticed that the rate of tax has not been enhanced in respect of all the items. It is restricted to a few. Be it noted, the notifications had come under assail on two occasions before this court in Associated Cement Companies Ltd. [1996] 29 VKN 32 and Mysore Cement Ltd. [2006] 143 STC 432 (MP); [2003] 2 STJ 615 (MP). The Division Bench of this court in Associated Cement Companies Ltd. [1996] 29 VKN 32 has held as under : "26. The provisions of the Act clearly reveal two legislative schemes in the matter of imposition of entry tax. One scheme which may be regarded as the normal scheme is comprised in sections 3, 4, 9 and related sections. The second scheme is the one comprised in section 3, 4A and 12. The normal scheme deals with goods specified in Schedules II and III subject to the exactions and concessions provided under the statutory provisions for which rates of tax are prescribed in Schedules II and III subject to power of the State Government under section 9 to modify the rates which is subject to the limitation contained in the proviso. Section 4A takes certain local areas and certain goods from outside the purview of the rates specified in Schedules II and III subject to the amendatory power of the State Government. Section 12 takes certain categories of persons dealt with under section 3(2) outside the purview of the rate of tax specified in Schedules II and III, subject to the mandatory power of the State Government. The limitation introduced on the power of the State Government under first proviso to section 9(1) relates only to the rates of tax specified in Schedules II and III which in turn are applicable only in cases not governed by sections 4A and 12. By the alternative scheme contemplated under section 4A and section 12, entries of certain goods in certain areas or entry caused to be made by persons falling under certain categories are excluded from the operation of the rates of tax specified in Schedules II and III and, therefore, must necessarily be outside the purview of section 9.
By the alternative scheme contemplated under section 4A and section 12, entries of certain goods in certain areas or entry caused to be made by persons falling under certain categories are excluded from the operation of the rates of tax specified in Schedules II and III and, therefore, must necessarily be outside the purview of section 9. Rates of tax contemplated under sections 4A and 12 are prescribed by the State Government by notifications issued under those sections and not by notifications issued under section 9(1) of the Act. Necessarily the limitation introduced on the power of the State Government by the first proviso to section 9(1) can apply only to the exercise of power under section 9(1) and not to the power under sections 4A and 12. The rates of tax originally specified in the Schedules ranged from 1/4 to 7 3/4 per cent. Under section 9, the State Government can increases the rate of tax from time to time subject to limit of 25 per cent in the aggregate. Necessarily, in regard to a variety of goods, 10 per cent would far exceed this limit. Nevertheless, the Legislature under section 4A imposed a distinct ceiling of 20 per cent on the entry of goods covered by those provisions. This supports our view that the first proviso to section 9(1) has no application to the notifications contemplated under section 4A or 12. We, therefore, reject the contention that the impugned notifications being violative of the first proviso to section 9(1) of the Act are beyond the competence of the State Government. The point is answered accordingly." In Mysore Cement Ltd. [2006] 143 STC 432 (MP); [2003] 2 STJ 615 (MP) where the notifications were under challenge, this court, after referring to section 4A, the Schedules and the rate of tax, has expressed the opinion on the following terms : "18. We may notice another contention raised by the learned counsel for the petitioners that the Presidential assent was necessary. It is urged that the Government could not have empowered to notify. It was submitted that for the same Presidential assent is necessary and it could not have been delegated.
We may notice another contention raised by the learned counsel for the petitioners that the Presidential assent was necessary. It is urged that the Government could not have empowered to notify. It was submitted that for the same Presidential assent is necessary and it could not have been delegated. In this context we may profitably refer to the Constitution Bench decision rendered in the case of Shree Digvijay Cement [2000] 117 STC 395 (SC) wherein the decisions rendered in the cases of Indian Cement Ltd. [1988] 69 STC 305 (SC) and Shri Digvijay Cement Co. v. State of Rajasthan [1997] 106 STC 11 (SC); [1997] 5. SCC 406 were overruled and their Lordships while dealing with the notification issued under section 8(5) of the Central Sales Tax Act upheld the same. In the said case the law laid down in the case of Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 (SC); [1990] 3 SCC 87 was approved. It is worth noting here as the entry tax has a different colour and does not create a free flow in trade and the notification has been issued under the statute, in our considered view, the conception enshrined under articles 301 to 304 of the Constitution of India is not attracted. Thus, we do not find any error in issue of the said notification. 19. ... 20. Another facet which requires to be dealt with is that the rate fixed in the notification is exorbitant and portrays arbitrariness. It is worth noting here that the stand of the petitioner that he is liable to pay entry tax on diesel at the rate of one per cent on the goods brought from outside the State or purchased from oil companies is incorrect. It is also canvassed that there is no petroleum refinery in the State of Madhya Pradesh and all refineries are located outside the State of M.P. When a dealer is registered under the M.P. Commercial Tax Act as well as under the Central Sales Tax Act and purchases diesel or any other petroleum product in the course of inter-State sale he is also liable to pay four per cent Central sales tax by using form C in the State where the sale transaction has taken place.
It is also stated that it came to the notice of the Government that so many registered dealers were either misusing form C for the purposes of import or were using bogus form C instead of purchasing petroleum products from the same nationalised companies in the State of M.P. Keeping in view the aforesaid, the concept of levy of entry tax was introduced and the notification was issued, this has a wholesome purpose. It is also submitted by Mr. Yadav that bulk quantity of diesel are brought inside the local area by industrial units for use as raw material for generation of electricity. As import of bulk quantity is only available to industrial units, not to any individual and the individual has to buy the petroleum products only from the authorised petrol pump which purchases petroleum products from regional depots of nationalised companies situated within the State of M.P. It is also put forth by him that keeping in view the collective good and to avoid the evasion of tax, the notification in question has been issued. Taking note of the aforesaid stand we are of the considered opinion that the notification does not suffer from the vice of arbitrariness and we unhesitatingly give the stamp of approval to the same." At this juncture, I may state with profit that on a query being made whether by virtue of the enhancement of the rate of entry tax, the prices have gone up in any particular area, learned counsel for the petitioners, I must say conceded with all fairness that prices have not increased and there has been no change in the tax effect or impact. In view of the aforesaid, it is difficult to accept the Submissions that the tax has become discriminatory or disproportionate so as to lose its compensatory nature. That apart, they do not offend article 14 of the Constitution of India. Therefore, I hold the notification to be valid in law. Though I have recorded my findings and conclusions at various stages of the judgment, it is condign to record my conclusions seriatim : (a) The plea raised by the learned Advocate - General for the State that the constitutional validity of the 1976 Act having been upheld in the cases of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673, Sanjay Trading Co.
[1994] 93 STC 589 and Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 that they operate as res judicata, is not acceptable. (b) The petitioners have the right to challenge the constitutional validity of the 1976 Act on the parameters laid down by the Constitution Bench in Jindal Stainless Ltd. [2006] 145 STC 544 (SC); [2006] 7 SCC 241. (c) The 1976 Act has been enacted to compensate the local bodies, as they have suffered loss due to abolition of octroi. (d) The provisions of the 1976 Act cannot facially or patently show imposition of entry tax in the very nature of things to be compensatory but the State has produced adequate data to discharge the onus that the tax is compensatory. (e) The judgments of various High Courts that have been placed reliance upon by the petitioners are distinguishable. (f) The data furnished by the respondent - State meet the requisite parameters as postulated in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. (g) The notifications issued by the State from time to time are in consonance with the provisions of the 1976 Act. (h) By virtue of the enhancement of the rate of tax, the effect of tax is not changed and the tax remains compensatory in nature. (i) The rate of tax does not create a changed scenario, as in the ultimate eventuate, the rate does not affect the price and no excess amount is collected. (j) The State having discharged its onus, the provisions of the 1976 Act and the notifications are treated to be constitutional and not ultra vires article 304(a) of the Constitution of India. Resultantly, the writ petitions, being sans substratum, stand dismissed. There shall be no order as to costs. R. S. JHA, J. - I respectfully agree with the conclusions arrived at by my learned brother Dipak Misra, J., in the present petitions, however, looking to the importance of the questions raised in the present petitions and the several complex arguments raised by the learned counsel appearing for the petitioners, I think it apposite to give my own separate reasons for arriving at the conclusions.
This batch of petitions wherein the constitutional validity of the imposition of entry tax by the State of Madhya Pradesh has been challenged, depict a typical instance of resurrection of issues that had been given quietus as a result of subsequent events and changes in law giving fresh cause of action. In these petitions the petitioners have challenged the constitutional validity of the provisions of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (hereinafter referred to as, "the Act") under which entry tax is levied on entry of goods for consumption, use or sale within the area of local bodies in the State of Madhya Pradesh on rates prescribed under the Schedule. The petitioners have also challenged the constitutional validity of certain notifications issued under the provisions of the Act enhancing the rate of entry tax of certain goods. The validity of the Act has been challenged pursuant to and relying upon the judgment of the Supreme Court in Jindal Stainless Ltd. v. State of Haryana [2006] 145 STC 544 (SC); [2006] 7 SCC 241. Background events leading to the filing of the present petitions : Before I advert to the issues involved in the petitions it would be apposite to take into consideration certain events leading to the filing of the present petitions which have specific reference to the State of Madhya Pradesh. The constitutional validity of the provisions of the Act was challenged before this court in a bunch of petitions which were ultimately dismissed vide order dated February 10, 1994 passed in the case of Sanjay Trading Co. v. Commissioner of Sales Tax [1994] 93 STC 589 (MP). Some of the petitioners whose petitions were dismissed by this common order assailed the legal validity of the order passed by this court in the case of Sanjay Trading Co. [1994] 93 STC 589 (MP) before the Supreme Court and these petitions were also dismissed by order dated November 25, 1994 in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M.P. [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673.
[1994] 93 STC 589 (MP) before the Supreme Court and these petitions were also dismissed by order dated November 25, 1994 in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M.P. [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673. While dismissing the petitions the Supreme Court made observations in paragraph 8 to the effect that "the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid." Rasing doubts over this legal proposition the issue was referred to a Constitution Bench by the Supreme Court in the case of Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC); [2003] 8 SCC 60 and vide the Constitution Bench judgment rendered in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 the apex court has held the "some connection" test laid down in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 as not a good law. It is in the backdrop of the aforesaid events that the present petitions have been filed by the petitioners contending that the provisions of the Act deserve to be declared unconstitutional as it does not satisfy the tests which have now been laid down by the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006] 7 SCC 241. It is contended by the learned counsel appearing for the petitioners that in view of the Constitution Bench judgment of the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006] 7 SCC 241 wherein the judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 upholding the constitutional validity of the Act has been declared to be no longer good law, the provisions of the Act have become susceptible to the vice of unconstitutionality and, therefore, deserve to be declared as such.
The main issues raised by the petitioners in the present petitions may be broadly categorised as under : (A) That in view of the declaration of law by a Constitution Bench of the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006] 7 SCC 241 to the effect that the judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673, which had upheld the constitutional validity of the Act is no longer good law, the Act in its entirety deserves to be declared ultra vires as previous sanction of the President was not obtained while introducing the Act in the Legislature of the State. (B) The provisions of the impugned Act are rendered violative of article 301 of the Constitution of India as the tax is not compensatory in nature as per the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. (C) That the provisions of the Act are hit by the doctrine of "direct and immediate effect" on trade, commerce and intercourse throughout the territory of India as propounded in the case of Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and also because it does not satisfy the working test prescribed for a compensatory tax to save it from violating the provisions of article 301 of the Constitution of India as enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 and is, therefore, unconstitutional. (D) That the tax levied under the impugned Act is purely for generating revenue without providing any facilities in return to the tax-payers commensurate to the quantum of tax and, therefore, the impugned Act fails to satisfy the test of compensatory tax as enunciated in Automobile Transport AIR 1962 SC 1406 and elaborated in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and, therefore, in the absence of prior approval of the President as required by article 304(b) proviso the Act being violative of article 301 of the Constitution of India, deserves to be struck down as ultra vires the powers of the State Legislature.
The learned counsel for the petitioners has strenuously urged that in view of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 overruling the whole judgment, including both the reasoning and operative portion, in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673, the entry tax levied by the impugned Act has been rendered unconstitutional as it is non-compensatory. It is further submitted that as the Act had been upheld in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 by applying the "some connection" test which has specifically been overruled in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241, therefore, the impugned Act deserves to be declared unconstitutional. The learned counsel has relied upon the judgment in the case of Ramdas Bhikaji Chaudhari v. Sadanand [1980] 1 SCC 550 to submit that on a previous decision being overruled by a larger Bench the previous decision is completely wiped out and article 141 would not apply to such a judgment and, therefore, the court would have to decide the present cases in accordance with the law laid down by the latest decision. The judgment in the case of State of Maharashtra v. Mana Adim Jamat Mandal [2006] 4 SCC 98 has been relied upon by the learned counsel for the petitioners to submit that even observations and evidence in an overruled judgment cannot be referred to and has also cited the case of Assistant Commissioner v. Kheria Brothers [2000] 117 STC 420, Shankerlal v. State of Rajasthan [2005] 12 SCC 330 and has also relied upon the judgment in the case of Mana Adim Jamat Mandal [2006] 4 SCC 98 in support of the submission that even otherwise the judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and the judgment in the case of Geo Miller & Co. (P) Ltd. v. State of M.P. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 upholding the validity of the Act stand overruled by necessary implication by the Constitution Bench judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241.
(P) Ltd. v. State of M.P. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 upholding the validity of the Act stand overruled by necessary implication by the Constitution Bench judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. Shri H. S. Shrivastava, learned Senior Counsel and Shri K. Gulati, appearing for the petitioners in W.P. No. 8745 of 2007 have additionally submitted that even if the decisions in the cases of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 be treated as precedents, it would be incumbent upon this court to reconsider the constitutional validity of the Act by reopening the question regarding its compensatory nature in the light of the legal principles laid down by the subsequent Constitution Bench of the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and read judge the compensatory nature of the tax in view of the changed circumstances and has contended that a law which was initially valid, may subsequently become invalid with the lapse of time in view of changed circumstances and subsequent events and for this proposition has relied upon the judgments in the cases of Motor General Traders v. State of Andhra Pradesh [1984] 1 SCC 222, Rattan Arya v. State of Tamil Nadu [1986] 3 SCC 385 and K. Rajan v. C. K. Rajan [2003] 7 SCC 588. It is also contended by them that in a case like the present one where this court is confronted with two judgments of the Supreme Court, the High Court is bound to follow the law laid down by the larger Bench notwithstanding the fact that the judgment of the smaller Bench has not been specifically overruled by placing reliance upon the decision of the Supreme Court in the case of Union of India v. K. S. Subramanian [1976] 3 SCC 677.
The learned Advocate - General, appearing on behalf of the respondent - State, on the other hand, submits that the Supreme Court in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 has clearly upheld the validity of the Act on the basis of the facts and statistics placed on record by the State to establish the compensatory nature of the tax and thereafter made certain additional observations in paragraph 8 of the judgment regarding "some link" between the tax and the facilities and it is these additional observations that have been overruled by the Supreme Court in the judgment of Jindal Stainless [2006] 145 STC 544; [2006] 7 SCC 241 and not the finding recorded on facts that the tax was compensatory on the basis of the facts and statistics placed on record and in support of his submissions, the learned Advocate - General has meticulously taken us through paragraphs 15 to 19, 37 to 45 and 50 to 53 of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. The learned Advocate - General has also heavily relied upon the judgment in the case of Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 in support of his contention that it is only the additional observations made in paragraph 8 in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 made after upholding the validity of the Act, regarding the "some link" hypothesis that has been set aside.
[2004] 136 STC 241 (SC); [2004] 5 SCC 209 in support of his contention that it is only the additional observations made in paragraph 8 in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 made after upholding the validity of the Act, regarding the "some link" hypothesis that has been set aside. The learned Advocate - General appearing on behalf of the respondent/State has refuted the submissions of the learned counsel for the petitioners on the basis of the following submissions : (A) That the Constitution Bench in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 while declaring certain observations made in paragraph 8 of the judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 as no longer good law has neither delved upon nor set aside that part of the judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 wherein the constitutional validity of the Act has been upheld holding it to be compensatory in nature on the basis of statistics and data submitted by the State authorities and, therefore, the present petitions which seek to re-assail the constitutional validity of the Act deserve to be dismissed. (B) The Supreme Court has already held the provisions of the M.P. Act as compensatory by holding that the nature of the levy has been demonstrated to be compensatory and this finding of fact has not been disturbed by the Constitution Bench in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and, therefore, the present Act does not violate the provisions of articles 301 and 304(b) of the Constitution of India. (C) The Act was enacted to levy entry tax which is distributed among the local bodies to compensate them for the loss of revenue from octroi which was abolished with a view to facilitate trade and intercourse and by its very nature does not violate the doctrine of "direct and immediate effect" on trade and commerce under article 301 and also satisfied the working test laid down in paragraph 19 of Automobile Transport case AIR 1962 SC 1406 and, therefore, the contentions to the contrary deserve to be rejected.
(D) That without prejudice to or diluting the submissions made in respect of the validity of the impugned Act on the basis of the judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 the State has furnished more than sufficient statistics and data to establish without doubt the fact that direct facilities far in excess of the proportion of the tax levied on the tax-payers is made available to them and, therefore, the tax is compensatory in nature and satisfies the test as laid down in the case of Automobile Transport AIR 1962 SC 1406 and Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. These submissions have been elaborated by the learned Advocate - General by submitting that the validity of the Act has previously been upheld on as many as five occasions in the cases of Sanjay Trading Co. [1994] 93 STC 589 (MP), Associated Cement Companies Ltd. v. State of M.P. AIR 1996 MP 116 , Mysore Cement v. State of Madhya Pradesh [2006] 143 STC 432 (MP); [2003] 2 STJ 615, Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 and, therefore, the issue of the validity of the Act is no longer res integra and the petitions filed by the petitioners deserve to be dismissed on the principle of res judicata. To appreciate the rival submissions made by the learned counsel for the parties on the question as to whether the entire judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 has been overruled, it would be profitable to refer to the judgments relied upon by the parties. In this respect, the decision in the case of Sanjay Trading Co. [1994] 93 STC 589 (MP), wherein the constitutional validity of the Act was upheld by this court, specifically, paragraphs 12, 13, 14, 15, 18, 19, 20, 21, 22 and 23 which are reproduced below, need to be considered. I am constrained to quote extensively from the relevant judgments to clearly understand as to what were the issues involved therein and as the present petitions are based solely on them : "12.
I am constrained to quote extensively from the relevant judgments to clearly understand as to what were the issues involved therein and as the present petitions are based solely on them : "12. Item 54 of List II of the Seventh Schedule to the Constitution relates to tax on sale or purchase of goods subject to the provisions of entry 92A of List I. Item 52 of List II relates to tax on entry of goods into local area for consumption, use or sale therein. Item 92A of List I relates to sale of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. Item 92B relates to tax on consignment of goods. Tax on sale or purchase, tax on entry of goods into local area for consumption, use or sale therein and tax on consignment of goods are different in nature and character and are imposed by local authorities under separate laws. Octroi is in the nature of a multi-point imposition. Various State Legislatures, with the intention of reducing harassment of dealers, abolished octroi which is a multi-point imposition and at the same time, legislated on single-point entry tax for the purpose of compensating the local authorities who suffered loss of revenue on account of abolition of octroi. 13. Single-point entry tax is a substitute for multi-point octroi and falls within the ambit of entry 52 of List II. It is a tax on entry and does not restrict freedom of trade or commerce, as is made clear in Transport Corporation of India v. Chairman, Municipal Council, Municipal Corporation, Indore AIR 1963 MP 253 and City Municipality v. Mahado Seetha Ram AIR 1967 AP 363 . It is true that State Legislature is competent to levy entry tax only in respect of goods brought into a local area for the purposes of consumption, use or sale. Even where words of wide and general import are used, it has to be presumed that the Legislature was using the words in regard to activity in respect of its competence to legislate and to no other. (Jothi Timber Mart v. Corporation of Calicut AIR 1970 SC 264 ). 14. We have adverted to the scheme of the provisions of the Entry Tax Act.
(Jothi Timber Mart v. Corporation of Calicut AIR 1970 SC 264 ). 14. We have adverted to the scheme of the provisions of the Entry Tax Act. The Act is intended to levy entry tax on entry of specified goods into local area for consumption, use or sale. It is not possible to accept that in pith and substance, the Act levies entry tax on entry of all goods, irrespective of the purpose of entry. That the purpose of the entry is fundamental to the levy is made clear by the presumption laid down in section 6 as if goods are consumed, used or sold in local area by the dealer or other person, it shall be presumed, until the contrary is proved by him, that such goods are entered into local area for consumption, use or sale therein. Where the dealer purchases specified goods in a local area from a person or dealer who is not a registered dealer, it shall be presumed, until the contrary is proved by him, that the entry of goods had been effected by him into the local area. Section 11 deals with burden of proof of certain aspects and makes the matter clearer. The burden of proving that a dealer or a notified person has not effected entry of specified goods in the local area for consumption, use or sale therein, lies on him. The Rules framed under the Act provide among other things, for furnishing of returns, payment of tax or penalty imposed on him, order of assessment and form thereof, authority and manner for assessment of tax and appeal or revision against the order of assessment. These provisions completely negative the contention of the petitioners that in pith and substance, entry tax contemplated under the Act is a tax on entry, irrespective of the purpose of entry and amounts to purchase tax. Therefore, article 286(3) of the Constitution and section 15 of the Central Sales Tax Act, 1956, are not attracted to this legislation. The point is answered against the petitioners. 15. For the same reasons as aforesaid, it has to be held that levy of entry tax does not amount to levy of consignment tax and the contention that it offends article 92A of List I of the Constitution is not tenable. 18. Article 304 reads as follows : '304.
The point is answered against the petitioners. 15. For the same reasons as aforesaid, it has to be held that levy of entry tax does not amount to levy of consignment tax and the contention that it offends article 92A of List I of the Constitution is not tenable. 18. Article 304 reads as follows : '304. Notwithstanding anything in article 301 or article 303, the Legislature of a State may, by law - (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest : Provided that no bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.' This is a provision enabling the State Legislatures to introduce certain restrictions on trade, commerce and intercourse amongst States. There may be State tax imposed on goods imported from other States or Union territories to which similar goods manufactured in that State are subject so as not to discriminate between the goods so imported and goods manufactured. What is contemplated is a tax imposed on goods imported from outside the State. Entry tax is not a tax on goods, but a tax on entry of goods into a local area for particular purposes. Entry tax would be levied on specified goods either manufactured or produced within the State or imported from outside on their entry into a local area. The tax does not discriminate between the specified goods manufactured or produced within the State or those imported from outside. The differential treatment accorded to goods produced within the area and those imported from outside the area is microscopic and irrelevant for the purpose of article 304(a). (State of Karnataka v. Hansa Corporation AIR 1981 SC 463 ). Therefore, article 304(a) of the Constitution is not attracted. 19.
The differential treatment accorded to goods produced within the area and those imported from outside the area is microscopic and irrelevant for the purpose of article 304(a). (State of Karnataka v. Hansa Corporation AIR 1981 SC 463 ). Therefore, article 304(a) of the Constitution is not attracted. 19. It is contended that article 304(b) enables the State Legislature to impose reasonable restrictions on the freedom of trade, commerce and intercourse with or within the State as may be required in public interest, provided no bill or amendment for the said purpose shall be introduced or moved in the Legislature without the previous sanction of the President. According to the petitioners, there is no public interest involved in this restriction and the bill did not have the previous sanction of the President. Both sides have referred in this connection to the decision in State of Karnataka v. Hansa Corporation AIR 1981 SC 463 . 20. The above decision dealt with the challenge against the validity of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act (27 of 1979). Reference has been made to the majority view in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 . The decision clarifies the position in para 25 as follows : '... If a measure is shown to be regulatory or the tax imposed is compensatory in character meaning the tax instead of hampering trade or commerce would facilitate the same, it would be immune from a challenge under article 301. In other words, if the tax is shown to be compensatory in character, irrespective of the fact whether it is saved by article 304 or not, it does not come within the inhibition of article 301.
In other words, if the tax is shown to be compensatory in character, irrespective of the fact whether it is saved by article 304 or not, it does not come within the inhibition of article 301. Accordingly, if validity of a tax law is challenged on the ground that it violates freedom of inter-State commerce, trade and intercourse guaranteed by article 301, the contention may be repelled by showing (i) that the tax is compensatory in character as explained in Automobile Transport (Rajasthan) Ltd.'s case AIR 1962 SC 1406 or (ii) it satisfies the requirements of article 304.' The court further held as follows : 'On a conspectus of these decisions, it appears well-settled that if a tax is compensatory in character, it would be immune from the challenge under article 301. If on the other hand, the tax is not shown to be compensatory in character, it would be necessary for the party seeking to sustain the validity of the tax liability, to show that the requirements of article 304 have been satisfied.' In that case, the State did not attempt in the High Court to sustain the validity of the law on the ground that it is compensatory in character. 21. In the present case, the State has taken the stand that the levy of entry tax is compensatory in character, i.e., to compensate the municipalities for loss of income by way of octroi which has been abolished in the State. This contention is met by learned counsel for the petitioners by pointing out that the legislative provisions indicative of the compensatory nature of the levy, have been deleted and, therefore, it is no longer open to the State to contend that the levy is compensatory in character. 22. Section 17 of the Act, as it originally stood, required that the tax collected shall be credited to the consolidated fund of the State and that net tax collection be placed to the credit of M.P. Octroi Compensation Fund under section 7B of the Sales Tax Act. By Act No. 24 of 1978, this provision was omitted with effect from April 1, 1978. Section 7B was introduced in the Sales Tax Act with effect from October 1, 1978, specifically providing for grant-in-aid for loss of octroi to the municipality. This provision was deleted in 1990.
By Act No. 24 of 1978, this provision was omitted with effect from April 1, 1978. Section 7B was introduced in the Sales Tax Act with effect from October 1, 1978, specifically providing for grant-in-aid for loss of octroi to the municipality. This provision was deleted in 1990. This is the foundation for the contention that the entry tax is not compensatory in character. 23. The Statement of Objects and Reasons of the Act states that it is enacted to levy a tax on entry of goods in lieu of octroi tax collected by the municipalities and municipal corporations and to make transportation of goods trouble-free by abolishing octroi check-posts. A copy of the Statement of Objects and Reasons is found in annexure A. R-1 appended to the additional submissions made on behalf of the respondents in M.P. No. 2289 of 1989. It indicates that the statute had the view of raising financial resources to compensate local bodies consequent upon abolition of octroi with a view to simplifying the taxation structure. Annexure A. R3 gives summary in respect of levy and details of allotment made to local bodies. The document shows that during the period 1976-77 till 1988-89, provision was made in the budget to compensate the municipalities and the amount budgeted was made over. It also shows that with effect from the year 1983-84, there has been a regular annual increase of 10 per cent in total compensation amount. Considering the Statement of Objects and Reasons and the particulars given in annexure A. R3, the statutory changes referred to above have no significance. Entry tax remains compensatory in nature and, therefore, it is immune from challenge." From a perusal of the above it is apparent that the past history of entry tax as a tax imposed to compensate the loss of income due to abolition of octroi, which was utilised for providing facilities in the local areas as well as the subsequent amendments in the Act were duly considered and thereafter it was held that the tax remained to be compensatory in nature on the basis of the figures supplied by the State. It is also to be noted that the judgments in the case of Automobile Transport AIR 1962 SC 1406 , Atiabari Tea Co.
It is also to be noted that the judgments in the case of Automobile Transport AIR 1962 SC 1406 , Atiabari Tea Co. Ltd. AIR 1961 SC 232 and Hansa Corporation AIR 1981 SC 463 were followed and that the tax was upheld without applying the "some connection" theory. When this matter travelled up to the Supreme Court in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673, the Supreme Court, while dismissing the appeal, held the following in paragraph 8 : "8. Even the submission on article 301 of the Constitution is not well-founded. The article came up for interpretation by this court in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 . A combined reading of the two decisions indicates that so long as a tax is regulatory and compensatory it is not within the mischief of article 301. In the counter-affidavit filed on behalf of the State which was not disputed, the nature of levy has been demonstrated to be compensatory. The appellants did not dispute the figure furnished by the State. It is settled by now that if the tax is compensatory then it is immune from challenge under article 301 (Khyerbari Tea Co. Ltd. v. State of Assam [1964] 5 SCR 975; AIR 1964 SC 925 and State of Karnataka v. Hansa Corporation [1981] 1 SCR 823; [1980] 4 SCC 697). The submission of Shri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid.
The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide municipal services more efficiently, which would help or ease free-flow of trade and commerce, because of which the impost has to be regarded as compensatory in nature, in view of what has been stated in the aforesaid decisions, more particularly in Hansa Corpn.'s case [1981] 1 SCR 823; AIR 1981 SC 463 ." In the case of Jindal Stripe Ltd. [2004] 134 STC 303 (SC); [2003] 8 SCC 60 the Supreme Court expressed doubts in respect of the "some connection" test propounded in paragraph 8 of the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and referred the matter to a larger Bench for deciding whether the "some connection" test was in consonance with the working test laid down in the case of Automobile Transport AIR 1962 SC 1406 in the following terms : "19. In 1995, some of the principles set out supra appear to have been deviated from when the principle of compensatory tax was applied to entry tax in Bhagatram v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673, which was decided by a Bench of three Judges. 20. In Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673, the subject-matter of challenge was the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976. In that case, although it was demonstrated by the appellant - State and not disputed by the respondents that the levy was compensatory, nevertheless the court went on to say : 'The submission of Sri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound.
In that case, although it was demonstrated by the appellant - State and not disputed by the respondents that the levy was compensatory, nevertheless the court went on to say : 'The submission of Sri Ashok Sen, learned Senior Counsel, that compensation is that which facilitates the trade only does not appear to be sound. The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide municipal services more efficiently, which would help or ease free flow of trade and commerce, because of which the impost has to be regarded as compensatory in nature, in view of what has been stated in the aforesaid decisions, more particularly in Hansa Corporation's case [1980] 4 SCC 697; AIR 1981 SC 463 .' 22. The dicta in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 was relied on by a Bench of two judges in the case of State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136, which reiterated the position that 'some connection' between the tax and the trading facilities is sufficient to characterise it as compensatory tax. The court went further and took judicial notice of the fact that the State provides several facilities to the trade such as laying and maintenance of roads, waterways, markets, etc., and on this premise, held that the entry tax was compensatory in nature. The learned judges did not consider it necessary to insist on the State coming forward with the details of facilities provided to the traders and the expenditure incurred or incurrable thereafter. Even though the Act was upheld on an independent ground, i.e., compliance with article 304(b), nevertheless the characterisation of the Act impugned in that case as compensatory and the reasoning adopted for that conclusion cannot be brushed aside as mere obiter dicta. 25.
Even though the Act was upheld on an independent ground, i.e., compliance with article 304(b), nevertheless the characterisation of the Act impugned in that case as compensatory and the reasoning adopted for that conclusion cannot be brushed aside as mere obiter dicta. 25. To sum up : the pre - 1995 decisions held that an exaction to reimburse/recompense the State the cost of an existing facility made available to the traders or the cost of a specific facility planned to be provided to the traders is compensatory tax and that it is implicit in such a levy that it must, more or less, be commensurate with the cost of the service or facility. The decisions emphasised that the imposition of tax must be with the definite purpose of meeting the expenses on account of providing or adding to the trading facilities either immediately or in future provided the quantum of tax sought to be generated is based on a reasonable relation to the actual or projected expenditure on the cost of the service or facility. 26. The decisions in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 now say that even if the purpose of imposition of the tax is not merely to confer a special advantage on the traders but to benefit the public in general including the traders, that levy can still be considered to be compensatory. According to this view, an indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be legitimately brought within the concept of compensatory tax, the nexus between the tax known as compensatory tax and the trading facilities not being necessarily either direct or specific. 27.
According to this view, an indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be legitimately brought within the concept of compensatory tax, the nexus between the tax known as compensatory tax and the trading facilities not being necessarily either direct or specific. 27. 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); [1995] Suppl 1 SCC 673 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)." Subsequently, the validity of the Act again came up for consideration before the Supreme Court in the case of Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 and the Supreme Court after considering the judgment in case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 as well as the subsequent judgment of the Supreme Court in the case of Jindal Stripe Ltd. [2004] 134 STC 303 (SC); [2003] 8 SCC 60, wherein the "some connection" test propounded in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 was referred to the larger Bench, segregated the issue of the validity of the Act on the basis of the figures and data furnished by the State from the additional observations regarding "some link" made in paragraph 8 of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 which was referred to a larger Bench and again held that the Act did not violate article 301 of the Constitution of India as it was compensatory in nature. Paragraphs 3 to 13 of the judgment in the case of Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 which are relevant for the purposes of the present case, are reproduced hereunder : "3.
Paragraphs 3 to 13 of the judgment in the case of Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 which are relevant for the purposes of the present case, are reproduced hereunder : "3. The questions that arise for consideration herein are : (i) Whether the M.P. Entry Tax Act, 1976, is unconstitutional as it is hit by article 301 of the Constitution for not satisfying the conditions laid down in article 304(b) ? (ii) Whether in any event the goods used by the appellants are subject to entry tax by virtue of section 3 of the M.P. Entry Tax Act, 1976 ? 4. It is the submission of the appellants that the M.P. Entry Tax Act, 1976 is unconstitutional as it offends article 301 owing to non-compliance of the conditions laid down in article 304(b). 5. The appellants relied on the cases of Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491, to state that taxation may impede the movement of goods from one barrier to the other and would accordingly bring article 301 into play. They then contend that the conditions of article 304(b) have not been complied with thereby rendering the M.P. Entry Tax Act, 1976 unconstitutional. 6. This argument of the appellants does not seem to be correct. It is well-settled by the decision in Atiabari Tea Co. [1961] 1 SCR 809 at page 860, that only such restrictions or impediments which directly or immediately impede the free-flow of trade, commerce and intercourse fall within the prohibition imposed by article 301. This Court did not accept the argument that all taxes whether or not their impact on trade is immediate or mediate, direct or remote should be governed by article 301. This view was further upheld in the Automobile Transport case [1963] 1 SCR 491 and in State of Kerala v. A. B. Abdul Kadir [1969] 2 SCC 363. Hence, the mere fact that a tax is imposed does not automatically bring article 301 into play. 7. In fact the concept of 'compensatory taxes' was propounded in the Automobile Transport case [1963] 1 SCR 491. By virtue of this, taxes, which would otherwise interfere with the unfettered freedoms under article 301, will be protected from becoming unconstitutional if they are compensatory. 8.
7. In fact the concept of 'compensatory taxes' was propounded in the Automobile Transport case [1963] 1 SCR 491. By virtue of this, taxes, which would otherwise interfere with the unfettered freedoms under article 301, will be protected from becoming unconstitutional if they are compensatory. 8. Thus, the reliance placed by the appellants on the observations made in the Atiabari case [1961] 1 SCR 809; AIR 1 SC 232 and the Automobile Transport case AIR 1962 SC 1406 ; [1963] 1 SCR 491 that taxation may impede the movement of goods from one barrier to the other and accordingly submitting that the M.P. Entry Tax Act, 1976 is hit by article 301 is not properly founded. 9. In fact, section 3 of the said Act was under challenge in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673. A three-Judge Bench of this court, found that the levy of tax under the M.P. Entry Tax Act, 1976 was constitutional, since the nature of revenue earned was compensatory, as it was handed over to the local bodies to compensate them for the loss caused. 10. In the present case, too, the respondents have reiterated that the tax being imposed is compensatory in nature as the revenue earned therefrom passes over to the local bodies to compensate them for the loss incurred due to abolition of octroi. 11. Augmentation of their finance would enable them to promote municipal services more efficiently helping in the free-flow of trade and commerce. 12. The Act being compensatory in nature it is not open to challenge under article 301 and there is no need to venture into the argument based on article 304(b). Accordingly, the constitutionality of the Act is upheld. 13. In the case of Jindal Stripe Ltd. v. State of Haryana [2004] 134 STC 303 (SC); [2003] 8 SCC 60, a division Bench of this court, raised doubts over the legal proposition laid down in the aforementioned Bhagatram case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 (which upheld the validity of the M.P. Entry Tax Act, 1976) and refers the matter to a Constitution Bench over the interpretation of article 301 vis-a-vis compensatory tax. In Bhagatram case [1995] 96 STC 654 (SC); [1995] Supp.
1 SCC 673 (which upheld the validity of the M.P. Entry Tax Act, 1976) and refers the matter to a Constitution Bench over the interpretation of article 301 vis-a-vis compensatory tax. In Bhagatram case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673, although it was demonstrated by the appellant - State and not disputed by the respondents that the levy was compensatory, the court goes on to make an observation that compensation need not be that which facilitates the trade only. It observes that 'the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid'. In the Jindal Stripe case [2004] 134 STC 303 (SC); [2003] 8 SCC 60, the division Bench noted that the above observation would mean that : 'An indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be legitimately brought within the concept of compensatory tax. ....'. Accordingly it refers the matter to a Constitution Bench to decide what exactly would fall under the ambit of 'compensatory tax', and thereby falls outside the purview of article 301. Inasmuch as the Act in question has been upheld on the basis that it had been demonstrated by the State and not disputed by the dealers that the levy was compensatory it may not be necessary for us to dilate on this aspect any further." It is pertinent to note that in the case of Geo Miller [2004] 136 STC 241 (SC); [2004] 5 SCC 209, the validity of the Act was upheld specifically on the ground that it was demonstrated to be compensatory in nature in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 and, therefore, not violative of article 301 of the Constitution of India and was not upheld simply by applying the "some connection" test or theory as alleged by the petitioners after specifically taking note of the fact that the "some connection" test had been referred to a larger Bench in the case of Jindal Stripe [2004] 134 STC 303 (SC); [2003] 8 SCC 60.
Relevant parts of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 are hereinbelow reproduced for the purposes of determining whether the entire judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl 1 SCC 673 including the finding that the Act was not in violation of article 301 of the Constitution of India as it was demonstrated to be compensatory in nature on the basis of the facts and figures furnished by the State, has been set aside or whether it is only the observations regarding "some connection" that have been declared to be no longer a good law : "3. In a batch of appeals, the constitutional validity of the Haryana Local Area Development Tax Act, 2000, has been challenged on two grounds : (1) that, the Act is violative of article 301 and is not saved by article 304; and (2) that, the Act in fact seeks to levy sales tax on inter-State sales, which is outside the competence of the State Legislature. However, the referral order is confined to the abovementioned first question. 10. In Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 , it was said, vide AIR para 19, that 'a working test for deciding whether a tax is compensatory or not is to enquire whether the trade is having the use of certain facilities for the better conduct of its business and paying not patently much more than what is required for providing the facilities'. 12. According to the referral order, after 1995, some of the principles set out stood deviated from when the principle of compensatory tax was applied to the entry tax in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673, which was decided by a Bench of three judges. 13. In Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673, the challenge was to M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976.
1 SCC 673, which was decided by a Bench of three judges. 13. In Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673, the challenge was to M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976. In that case, although it was demonstrated by the State and not disputed by the assessee that the levy was compensatory, nevertheless, the court went on to say, that : 'the concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to dealers directly or indirectly the levy cannot be impugned as invalid'. 15. The dictum in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 was relied on by a Bench of two judges in the case of Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136, which reiterated the position that 'some connection' between the tax and the trading facilities extended to dealers directly or indirectly is sufficient to characterise it as compensatory tax. The court went further to hold that the State provides several facilities to the trade, such as, laying and maintenance of roads, waterways, markets, etc., and on this premise, it was held that the entry tax was compensatory in nature. The learned judges did not consider it necessary to put the burden on the State to furnish the details of facilities provided to the traders and the expenditure incurred or incurrable thereafter. 16. To sum up : the pre - 1995 decisions held that an exaction to reimburse/recompense the State the cost of an existing facility made available to the traders or the cost of a specific facility planned to be provided to the traders is compensatory tax and that it is implicit in such a levy that it must, more or less, be commensurate with the cost of the service or facility. Those decisions emphasised that the imposition of tax must be with the definite purpose of meeting the expenses on account of providing or adding to the trading facilities either immediately or in future provided the quantum of tax is based on a reasonable relation to the actual or projected expenditure on the cost of the service or facility. However, the post - 1995 decisions in Bhagatram case [1995] 96 STC 654 (SC); [1995] Supp.
However, the post - 1995 decisions in Bhagatram case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and in Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136, now say that even if the purpose of imposition of the tax is not merely to confer a special advantage on the traders but to benefit the public in general including the traders, that levy can still be considered to be compensatory. According to this view, an indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be brought within the concept of compensatory tax, the nexus between the tax known as compensatory tax and the trading facilities not being necessarily either direct or specific. 17. According to the referral order, 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 judicially evolved concept are blurred, particularly, by reason of the decisions in Bhagatram case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136, the court felt 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)." Again while dealing with the arguments of the appellants the Supreme Court in paragraphs 18 and 23 has only referred to the second part of paragraph 8 in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 wherein the observations regarding "some link" or "some connection" have been made. In paragraph 19 of the judgment, the case of Sanjay Trading Co. [1994] 93 STC 589 (MP) was also brought to the notice of the court and it was specifically argued that in the case of Sanjay Trading Co. [1994] 93 STC 589 (MP) the Act was held to be compensatory on the basis of the figures furnished by the State which was not the case in respect of the Haryana Act which was subject-matter in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. The issue was again summarised in paragraphs 50 and the conclusion was recorded in paragraph 53 which are also reproduced as under : "50.
The issue was again summarised in paragraphs 50 and the conclusion was recorded in paragraph 53 which are also reproduced as under : "50. As stated above, in the post 1995 era, the said working test propounded in the Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 , stood disrupted when in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673, 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's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 is not only contrary to the working test propounded in Automobile Transport's case [1963] 1 SCR 491; AIR 1962 SC 1406 , 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 the case of Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 and the test of 'some connection' enunciated by a Bench of three judges in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 cannot stand together. Therefore, in our view, the test of 'some connection' as propounded in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeev kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 stand overruled. 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.
1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 stand overruled. 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. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide paragraph 19 of the report, will continue to apply and the test of 'some connection' indicated in paragraph 8 of the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and followed in State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 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." From a perusal of the above, it is clear that in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 the observations made in the latter part of paragraph 8 in Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 regarding "some link" or "some connection" were declared to be no longer a good law "to that extent" only and the validity of the Haryana Act and the other similar Acts pending adjudication were directed to be adjudged on the basis of the working test enunciated in the case of Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 . In other words, there appears to be some substance in the submissions of the Advocate-General that the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006]. 7 SCC 241 has not set aside or declared bad law the finding recorded by the Supreme Court in Bhagatram Rajeev Kumar [1995] 96 STC 654; [1995] Suppl.
In other words, there appears to be some substance in the submissions of the Advocate-General that the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006]. 7 SCC 241 has not set aside or declared bad law the finding recorded by the Supreme Court in Bhagatram Rajeev Kumar [1995] 96 STC 654; [1995] Suppl. 1 SCC 673 to the effect that the Act was not violative of article 301 of the Constitution of India as it was demonstrated to be compensatory in nature on the basis of the facts and figures submitted therein and for the same reason the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 cannot be said to have set aside the judgment in the case of Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209 by implication. The judgments relied upon by the learned counsel for the petitioners regarding implied overruling and total wiping out of an overruled judgment have no applicability to the present case, specifically, in view of the fact that the Constitution Bench in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 has, in so many words, only overruled that part of the judgment in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 wherein the "some connection" test was propounded in para 8 by specifically declaring it to be no longer good law "to that extent" while apparently not disturbing the finding recorded by the Supreme Court in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 to the effect that the impugned tax was not violative of article 301 of the Constitution as it was compensatory in nature in view of the facts and figures furnished by the State and in the case of Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209, this distinction has been clearly brought out and clarified, while reaffirming the validity of the Act.
[2004] 136 STC 241 (SC); [2004] 5 SCC 209, this distinction has been clearly brought out and clarified, while reaffirming the validity of the Act. This is further evident from the fact that the finding regarding constitutionality of the Act was neither referred to the Larger Bench in the case of Jindal Stripe Ltd. [2004] 134 STC 303 (SC); [2003] 8 SCC 60 nor did the Constitutional Bench in Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 hold or decide that the finding of fact regarding constitutionality of the M.P. Act in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 was in any way unsustainable or unconstitutional and had it intended to reopen that issue, notice would have been issued to the State of Madhya Pradesh and a specific finding regarding the validity or otherwise of the M.P. Act would also have been recorded or the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 would also have been reopened and remitted for re-adjudication as was done in the case of the Haryana Act. As the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006] 7 SCC 241 has declared the judgment in the case of Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 as no longer good law only "to the extent" it propounded the "some connection" test and no more, it is not for this court (a High Court) to hold that the entire judgment stands overruled and wiped out by applying the concept of implied overruling, more so, in view of the fact the Supreme Court has itself refrained from doing so although the entire judgment was before it. The concept of implied overruling or total wiping out is, therefore, apparently not applicable to the present case. I am fortified in taking this view as the Supreme Court in the subsequent case of Geo Miller [2004] 136 STC 241 (SC); [2004] 5 SCC 209 has itself taken note of the limited and restricted reference to the larger Bench and again upheld the validity of the Act by referring to Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl.
I am fortified in taking this view as the Supreme Court in the subsequent case of Geo Miller [2004] 136 STC 241 (SC); [2004] 5 SCC 209 has itself taken note of the limited and restricted reference to the larger Bench and again upheld the validity of the Act by referring to Bhagatram [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 as well as the fact that the Act was demonstrated to be compensatory on the basis of the figures produced by the State, and this court is bound by the law laid down by the Supreme Court. It is pertinent to note that these are the background facts which place the Madhya Pradesh Act on a different footing than the Haryana and other State Acts. The learned counsel for the petitioners have submitted that even otherwise, the Constitutional validity of an Act can be challenged subsequently, if, with the passage of time provisions which were previously intra vires have been rendered ultra vires due to subsequent events and change in circumstances. It is submitted by Shri H. S. Shrivastava, learned Senior Counsel and Shri Kevin Gulati, learned counsel for the petitioners, that though initially the Act purported to levy entry tax in lieu of abolition of octroi and that there was specific mention in this respect in the Statement of Object and Reasons of the Act and there were clear and specific provisions like sections 4A and 17 in the Act as it initially stood which provided for creation of an Octroi Compensation Fund from the taxes collected under the Act and also statutorily provided for withdrawal and distribution from this octroi compensation fund to the local bodies as octroi compensation, the provisions of sections 4A and 17 have been substituted in 1976 itself and thereafter the Act does not facially indicate that the tax collected thereunder is by way of compensation for the loss of revenue to the local bodies in lieu of abolition of octroi.
The learned counsel for the petitioners have relied upon the Budget speech of the year 1999 and 2005 to contend that with the passage of time the tax collected under the Act has become more in the nature of a substitute of sales tax and as a measure to compensate loss of revenue from sales tax rather than octroi and, therefore, is a mere revenue - making measure and cannot be said to be compensatory in nature. It is further submitted that with the passage of time increase in the rate of tax has also rendered it non-compensatory and as no specific quantifiable equivalent benefit is extended to the trade community as a recompense for the tax levied under the Act, it does not satisfy the test as prescribed by the Constitution Bench in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 any more and, therefore, deserves to be declared unconstitutional. In support of this contention the learned counsel for the petitioners have relied upon the judgments in the case of Motor General Traders v. State of Andhra Pradesh [1984] 1 SCC 222, Rattan Arya v. State of Tamil Nadu [1986] 3 SCC 385 and Indian Handicrafts Emporium v. Union of India [2003] 7 SCC 589 to contend that the entry tax levied under the provisions of the Act has lost its compensatory character with the passage of time and, therefore, the Act deserves to be declared ultra vires being hit by article 301 of the Constitution of India.
Though the learned Advocate-General has seriously disputed this contention and submitted that nothing has changed as the tax collected under the Act is still distributed amongst the local bodies as "octroi compensation", I am of the considered opinion that in view of the aforesaid judgments of the Supreme Court as well as the Constitution Bench judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 this court is required to re-examine the issue raised by the petitioners as to whether with the passage of time and subsequent events that have taken place since the year 1995 onwards the tax has lost its compensatory character and having become a pure revenue - earning measure, violates article 301 of the Constitution of India in the absence of prior approval by the President under proviso to article 304(b) of the Constitution of India. On behalf of the petitioners it has been vehemently contended that in view of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the validity of the Act has to be re-examined by making a limited enquiry into the fact as to whether the tax is compensatory and has been levied and utilised only for providing some special benefit to traders. However, I find no substance in this submission as the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006] 7 SCC 241, after declaring the "some connection" test to be no longer good law, has held that the validity of the Act must be judged on the basis of the law as laid down in the cases of Atiabari Tea Co. AIR 1961 SC 232 and Automobile Transport AIR 1962 SC 1406 . In view of the above, I think it apposite to quote and refer to relevant portions of the judgment in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 , Automobile Transport AIR 1962 SC 1406 and Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. In the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 , Justice Gajendragadkar, speaking for the majority, has held in paragraphs 50 and 51 that : "50. Let us now revert to article 301 and ascertain the width and amplitude of its scope.
In the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 , Justice Gajendragadkar, speaking for the majority, has held in paragraphs 50 and 51 that : "50. Let us now revert to article 301 and ascertain the width and amplitude of its scope. On a careful examination of the relevant provisions of Part XIII as a whole as well as the principle of economic unity which it is intended to safeguard by making the said provisions, the conclusion appears to us to be inevitable that the content of freedom provided for by article 301 was larger than the freedom contemplated by section 297 of the Constitution Act of 1935, and whatever else it may or may not include, it certainly includes movement of trade which is of the very essence of all trade and is its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported, that, in our opinion, directly affects the freedom of trade as contemplated by article 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII the freedom of trade on which so much emphasis is laid by article 301 would turn to be illusory. When article 301 provides that trade shall be free throughout the territory of India primarily it is the movement part of the trade that it has in mind and the movement or the transport part of trade must be free subject of course to the limitations and exceptions provided by the other articles of Part XIII. That we think is the result of article 301 read with the other articles in Part XIII. 51. Thus the intrinsic evidence furnished by some of the articles of Part XIII shows that taxing laws are not excluded from the operation of article 301; which means that tax laws can and do amount to restrictions freedom from which is guaranteed to trade under the said Part. Does that mean that all tax laws attract the provisions of Part XIII whether their impact on trade or its movement is direct and immediate or indirect and remote ?
Does that mean that all tax laws attract the provisions of Part XIII whether their impact on trade or its movement is direct and immediate or indirect and remote ? It is precisely because the words used in article 301 are very wide, and in a sense vague and indefinite that the problem of construing them and determining their exact width and scope becomes complex and difficult. However, in interpreting the provisions of the Constitution we must always bear in mind that the relevant provision 'has to be read not in vacua but as occurring in a single complex instrument in which one part may throw light on another', (James v. Commonwealth of Australia [1936] AC 578). In construing article 301 we must, therefore, have regard to the general scheme of our Constitution as well as the particular provisions in regard to taxing laws. The construction of article 301 should not be determined on a purely academic or doctrinaire considerations; in construing the said article we must adopt a realistic approach and bear in mind the essential features of the separation of powers on which our Constitution rests. It is a federal constitution which we are interpreting, and so the impact of article 301 must be judged accordingly. Besides, it is not irrelevant to remember in this connection that the article we are construing imposes a constitutional limitation on the power of the Parliament and State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus considered we think it would be reasonable and proper to hold that restrictions, freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of article 301. The argument that all taxes should be governed by article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld.
The argument that all taxes should be governed by article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. We are, therefore, satisfied that 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 ? It is in the light of this test that we propose to examine the validity of the Act under scrutiny in the present proceedings." From a perusal of the above it is clear that the majority view of the Supreme Court in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 is that the freedom of trade, commerce and intercourse throughout the territory of india under article 301 primarily relates to the movement and transport part of the trade and a tax which amounts to a direct and immediate restriction in the free flow and movement of trade would violate the provisions of article 301 but at the same time the Supreme Court has specifically clarified and rejected the argument that all taxes whether or not their impact on trade was immediate, direct or remote would be hit by article 301. The judgment in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 came up for reconsideration before a seven-judge Bench of the Supreme Court in the case of Automobile Transport AIR 1962 SC 1406 wherein the constitutional validity of the provision of the Rajasthan Motor Vehicle Taxation Act was under challenge. The view expressed in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 was upheld in the case of Automobile Transport AIR 1962 SC 1406 by the majority.
The view expressed in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 was upheld in the case of Automobile Transport AIR 1962 SC 1406 by the majority. However, while doing so, further exception to article 301 was carved out by stating that regulatory measures and compensatory taxes would not come within the purview or the restrictions contemplated by article 301 and such measures need not comply with the provisions of the proviso to article 304(b) of the Constitution. Relevant parts of the judgment in the case of Automobile Transport AIR 1962 SC 1406 are quoted below : "10. ... If the word 'free' in article 301 means 'freedom to do whatever one wants to do', then chaos may be the result; for example, one owner of a motor vehicle may wish to drive on the left of the road while another may wish to drive on the right of the road. If they come from opposite directions, there will be an inevitable clash. Another class of examples relates to making a charge for the use of trading facilities, such as, roads, bridges, aerodromes, etc. The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to 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 'restrictions' (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 'restrictions' (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. 11. ... This in actual practice will mean that if the State Legislature wishes to control or regulate trade, commerce and intercourse in such a way as to facilitate its free movement, it must yet proceed to make a law under article 304(b) and no such Bill can be introduced or moved in the Legislature of a State without the previous sanction of the President. The practical effect would be to stop or delay effective legislation which may be urgently necessary. Take for example a case where in the interests of public health, it is necessary to introduce urgently legislation stopping trade in goods which are deleterious to health, like the trade in diseased potatoes in Australia. If the State Legislature wishes to introduce such a Bill, it must have the sanction of the President. Even such legislation as imposes traffic regulations would require the sanction of the President. Such an interpretation would, in our opinion, seriously affect the legislative power of the State Legislatures which power has been held to be plenary with regard to subjects in List II. The States must also have revenue to carry out their administration and there are several items relating to the imposition of taxes in List II. The Constitution - makers must have intended that under those items the States will be entitled to raise revenue for their own purposes.
The States must also have revenue to carry out their administration and there are several items relating to the imposition of taxes in List II. The Constitution - makers must have intended that under those items the States will be entitled to raise revenue for their own purposes. If the widest view is accepted, then there would be for all practical purposes, an end of State autonomy even within the fields allotted to them under the distribution of powers envisaged by our Constitution. An examination of the entries in the lists of the Seventh Schedule to the Constitution would show that there are a large number of entries in the State list (List II) and the Concurrent list (List III) under which a State Legislature has power to make laws. Under some of these entries the State Legislature may impose different kinds of taxes and duties, such as property tax, profession tax, sales tax, excise duty, etc., and legislation in respect of any one of these items may have an indirect effect on trade and commerce. Even laws other than taxation laws, made under different entries in the Lists referred to above, may indirectly or remotely affect trade and commerce. If it be held that every law made by the Legislature of a State which has repercussion on tariffs, licensing marketing regulations, price-control, etc., must have the previous sanction of the President, then the Constitution insofar as it gives plenary power to the States and State Legislatures in the fields allocated to them would be meaningless. In our view the concept of freedom of trade, commerce and intercourse postulated by article 301 must be understood in the context of an orderly society and as part of a Constitution which envisages a distribution of powers between the States and the Union, and if so understood, the concept must recognise the need and the legitimacy of some degree of regulatory control, whether by the Union or the States : this is irrespective of the restrictions imposed by the other articles in Part XIII of the Constitution. We are, therefore, unable to accept the widest view as the correct interpretation of the relevant articles in Part XIII of the Constitution. 14.
We are, therefore, unable to accept the widest view as the correct interpretation of the relevant articles in Part XIII of the Constitution. 14. After carefully considering the arguments advanced before us we have come to the conclusion that the narrow interpretation canvassed for on behalf of the majority of the State cannot be accepted, namely, that the relevant articles in Part XIII apply only to legislation in respect of the entries relating to trade and commerce in any of the Lists of the Seventh Schedule. But we must advert here to one exception which we have already indicated in an earlier part of this judgment. Such regulatory measures as do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by article 301. They are excluded from the purview of the provisions of Part XIII of the Constitution for the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them. 17. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co. case [1961] 1 SCR 809; AIR 1961 SC 232 is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by article 301 and such measures need not comply with the requirements of the proviso to article 304(b) of the Constitution. 19. ... If the Act and the Schedules appended thereto are examined in this manner, it will be noticed that the tax imposed is really a tax for the use of the roads in Rajasthan and it cannot be said that it hinders the free movement of trade, commerce and intercourse. 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. Whether a tax is compensatory or not cannot be made to depend on the preamble of the statute imposing it. Nor do we think that it would be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used in providing any facilities.
Whether a tax is compensatory or not cannot be made to depend on the preamble of the statute imposing it. Nor do we think that it would be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used in providing any facilities. It is obvious that if the preamble decided the matter, then the mercantile community would be helpless and it would be the easiest thing for the Legislature to defeat the freedom assured by article 301 by stating in the preamble that it is meant to provide facilities to the tradesmen. Likewise actual user would often be unknown to tradesmen and such user may at some time be compensatory and at others not so. It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of a tax by a meticulous test, and in the nature of things that cannot be done. 20. Nor do we think that it will make any difference that the money collected from the tax is not put into a separate fund so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may be. In the cases under our consideration the tax is based on passenger capacity of commercial buses and loading capacity of goods vehicles; both have some relation to the wear and tear caused to the roads used by the buses. In basing the taxes on passenger capacity or loading capacity, the Legislature has merely evolved a method and measure of compensation demanded by the State but the taxes are still compensation and charge for regulation. 21. We were addressed at some length on the distinction between a tax, a fee and an excise duty. It was also pointed out to us that the taxes raised under the Act were not specially earmarked for the building or maintenance of roads. We do not think that these considerations necessarily determine whether the taxes are compensatory taxes or not.
We were addressed at some length on the distinction between a tax, a fee and an excise duty. It was also pointed out to us that the taxes raised under the Act were not specially earmarked for the building or maintenance of roads. We do not think that these considerations necessarily determine whether the taxes are compensatory taxes or not. We must consider the substance of the matter and so considered, there can be no doubt that the taxes imposed are no hindrance to the freedom of trade commerce and intercourse. 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 of consideration charged in respect of an advantage sought and received. In Armstrong v. State of Victoria [1957] 99 CLR 28, Dixion, C.J. said : 'The reason, as I venture to suggest, simply is that, without the bridge, the aerodromes and airways, the wharves and the sheds, the respective inter-State operations could not be carried out and that the charges serve no purpose save to maintain these necessary things at a standard by which they may continue. However it may be stated, the ultimate ground why the exaction of the payments for using the instruments of commerce that have been mentioned is no violation of the freedom of inter-State trade lies in the relation to inter-State trade which their nature and purpose give them. The reason why public authority must maintain them is in order that the commerce may use them, and so for the commerce to bear or contribute to the cost of their upkeep can involve no detraction from the freedom of commercial intercourse between States.' The learned Chief Justice reiterated the same view in Commonwealth Freighters Property Ltd. v. Sneddon [1959] 102 C.L.R. 280 at page 291. 22. We have, therefore, come to the conclusion that the Act does not violate the provisions of article 301 of the Constitution and the taxes imposed under the Act are compensatory taxes which do not hinder the freedom of trade, commerce and intercourse assured by that article.
22. We have, therefore, come to the conclusion that the Act does not violate the provisions of article 301 of the Constitution and the taxes imposed under the Act are compensatory taxes which do not hinder the freedom of trade, commerce and intercourse assured by that article. The taxes imposed were, therefore, legal and the High Court rightly dismissed the writ petitions filed by the appellants. In the result the appeals fail and are dismissed with costs; one hearing fee." As is evident from reading the above, the Supreme Court, while excluding regulatory measures and compensatory taxes from the purview of article 301, also laid down a working test in paragraph 19 to determine whether the tax is compensatory or not, that is, by making an enquiry as to whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently more than what is required for providing the facilities but while doing so it was also observed that it would be impossible to judge the compensatory nature of a tax by a meticulous or rigid test as by the very nature of things that cannot be done. Both these judgments were extensively considered in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and on the basis of these judgments the "some connection" test propounded in the case of Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 was held to be no longer good law. Relevant parts of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 may profitably be referred to here under. In the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 the parameters of compensatory tax were dealt with in paragraphs 39 to 451 which are reproduced below for ready reference : "39. As stated above, in order to lay down the parameters of a compensatory tax, we must know the concept of taxing power. 40. Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the taxpayer to pay. The principle behind the levy of a tax is the principle of ability or capacity.
40. Tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the taxpayer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. In the case of a tax, a particular advantage, if it exists at all, is incidental to the States' action. It is assessed on certain elements of business, such as, manufacture, purchase, sale, consumption, use, capital, etc., but its payment is not a condition precedent. It is not a term or condition of a licence. A fee is generally a term of a licence. A tax is a payment where the special benefit, if any, is converted into common burden. 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 turn become the basis of reimbursement/recompense for the provider of the services/facilities. Compensatory tax is based on the principle of 'pay for the value'. It is a sub-class of 'a fee'. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities.
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. 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 the 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 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 fee/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.
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. 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." Thereafter holding that the working test propounded in the case of Automobile Transport AIR 1962 SC 1406 remains unaltered and has to be applied, it was held as follows in paragraphs 49, 50 and 53 : "49. The concept of compensatory taxes was propounded in the case of Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 , in which compensatory taxes were equated with regulatory taxes. In that case, a working test for deciding whether a tax is compensatory or not was laid down.
The concept of compensatory taxes was propounded in the case of Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 , in which compensatory taxes were equated with regulatory taxes. In that case, a working test for deciding whether a tax is compensatory or not was laid down. In that judgment, it was observed that one has to enquire whether the trade as a class is having the use of certain facilities for the better conduct of the trade/business. This working test remains unaltered even today. 50. As stated above, in the post 1995 era, the said working test propounded in the Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 , stood disrupted when in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673, 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's case [1995] 96 STC 654 (SC); [1995] Suppl. 1 SCC 673 is not only contrary to the working test propounded in Automobile Transport's case [1963] 1 SCR 491; AIR 1962 SC 1406 , 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 the case of Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 and the test of 'some connection' enunciated by a Bench of three judges in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 cannot stand together. Therefore, in our view, the test of 'some connection' as propounded in Bhagatram's case [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 stand overruled. 53.
1 SCC 673 and State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 stand overruled. 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. v. State of Assam [1961] 1 SCR 809; AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491; AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide paragraph 19 of the report (AIR), will continue to apply and the test of 'some connection' indicated in paragraph 8 (of SCC) the judgment in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 and followed in the case of State of Bihar v. Bihar Chamber of Commerce [1996] 103 STC 1 (SC); [1996] 9 SCC 136 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." From a careful reading of the above, I am of the considered opinion that the broad criteria for determining whether the impugned Act and the entry tax imposed thereunder violates article 301 and to determine the nature of a tax to be compensatory that have to be addressed in the present batch of petitions in the light of the judgments in the cases of Atiabari Tea Co. Ltd. AIR 1961 SC 232 , Automobile Transport AIR 1962 SC 1406 and Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 may be generally stated to be : (A) The rational and workable test propounded in paragraph 51 in the case of Atiabari Tea Co.
Ltd. AIR 1961 SC 232 , Automobile Transport AIR 1962 SC 1406 and Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 may be generally stated to be : (A) The rational and workable test propounded in paragraph 51 in the case of Atiabari Tea Co. Ltd. [1961] 1 SCR 809; AIR 1961 SC 232 for determining whether the impugned tax violates the freedom enshrined in article 301 that "does the impugned restriction operate directly or immediately on trade or its movement" and as further explained and elaborated in paragraph 10 of Automobile Transport case [1963] 1 SCR 491; AIR 1962 SC 1406 to the effect that if the tax facilitates trade, commerce and intercourse and does not directly and immediately restrict trade or its movement it would not fall foul of article 301 of the Constitution of India. (B) The working test propounded in paragraph 19 of the case of Automobile Transport [1963] 1 SCR 491; AIR 1962 SC 1406 is in the following terms : "19. ... 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." (C) While doing so, it is also to be seen that from whatever source, broadly in proportion of the tax collected, money is utilised for the purpose of providing certain facilities which are of use to the trades people or are being used for better conduct of business by the trades people. In other words there must be a direct nexus between trade and the nature and type of facilities provided. (D) It is also to be borne in mind that substantial part of the tax collected is utilised for providing facilities which facilitate trade and the movement of trade and that the trades people are having the use of these facilities. In other words, it would not be sufficient if it is only demonstrated that there is merely "some link" or "some connection" between the money collected from imposition of the tax and the facilities provided to establish a tax as compensatory.
In other words, it would not be sufficient if it is only demonstrated that there is merely "some link" or "some connection" between the money collected from imposition of the tax and the facilities provided to establish a tax as compensatory. For example, if out of the total revenue collected from imposition of the tax only 10 or 20 per cent of the money collected is required or has been spent for providing the facilities that are of use to the trades people while the rest is treated as general revenue and utilised for other purposes, then on that basis the tax cannot be justified and upheld as a compensatory tax by holding that there is "some link" or "some connection" between the tax collected and the facilities provided. Before I proceed any further, it would be appropriate to first address an argument raised by the learned counsel for the petitioners that the entry tax levied under the Act cannot be tested and adjudged on the basis of the judgments in the cases of Atiabari Tea Co. Ltd. [1961] 1 SCR 809; AIR 1961 SC 232 and Automobile Transport AIR 1962 SC 1406 and other cases as the tax in all those cases was a tax on motor vehicles whereas the tax in question in the present case is an entry tax. In my considered opinion the contention of the learned counsel for the petitioners is misconceived. For the purposes of judging whether a tax falls within the purview of article 301 of the Constitution of India, it has to be seen whether the tax directly and immediately affects the movement part of trade, commerce and intercourse throughout the territory of India as has been held by the Supreme Court in the cases of Atiabari Tea Co. Ltd. AIR 1961 SC 232 and Automobile Transport AIR 1962 SC 1406 wherein it has been held that any tax on movement of goods which directly and immediately affects trade and its movement, irrespective of the nature of the tax would be hit by article 301.
Ltd. AIR 1961 SC 232 and Automobile Transport AIR 1962 SC 1406 wherein it has been held that any tax on movement of goods which directly and immediately affects trade and its movement, irrespective of the nature of the tax would be hit by article 301. In view of the above, it is apparent that for the purposes of article 301 any tax, whether it is a motor vehicle tax or any other tax, that directly and immediately affects the movement of goods stands on the same footing and can be saved only if it is demonstrated to be compensatory or regulatory or in cases where it has received prior approval of the President. In other words, for the purposes of article 301 all taxes that directly and immediately restrict the free movement of trade belong to the same genus and have to be judged by applying the same parameters. This view has also been expressed in the concurring judgment of Subba Rao, J. in Automobile Transport AIR 1962 SC 1406 wherein it has been held in paragraph 39 that : "... If a law, whatever may have been its source, directly and immediately affects the free movement of trade, it would be restriction on the said freedom. ..." Parameter A : Relying on the judgment in Atiabari Tea Co. Ltd. AIR 1961 SC 232 the learned counsel for the petitioners submits that entry tax directly impedes the movement and free flow of trade and commerce throughout the territory of India and, therefore per se violates article 301 of the Constitution of India and as the State has not obtained prior approval of the President under the proviso to article 304(b) nor is the tax compensatory in nature as per the criteria laid down by the Supreme Court in the case of Automobile Transport AIR 1962 SC 1406 , Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 as well as the judgment in the case of State of Karnataka v. Hansa Corporation AIR 1981 SC 463 . Per contra, it is submitted by the learned Advocate-General that the entry tax imposed in the State of M.P. is by its very nature compensatory as it has been imposed with the specific object of facilitating trade and has been imposed in lieu of octroi to compensate the loss of revenue due to abolition of octroi.
Per contra, it is submitted by the learned Advocate-General that the entry tax imposed in the State of M.P. is by its very nature compensatory as it has been imposed with the specific object of facilitating trade and has been imposed in lieu of octroi to compensate the loss of revenue due to abolition of octroi. He has relied upon a division Bench decision of this court in the case of Transport Corporation of India v. Chairman, Municipal Council, Municipal Corporation, Indore AIR 1963 MP 253 wherein it has been held that octroi imposed under the provisions of Madhya Bharat Municipal Corporation Act does not impede the movement and free flow of trade nor is it a direct tax on trade after duly considering the judgments in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 and Automobile Transport AIR 1962 SC 1406 . The learned Advocate-General also relied upon the judgment in the case of Mrs. Meenakshi Alias Rama Bai v. State of Karnataka [1984] Supp. SCC 326 to submit that in the State of Karnataka where a tax was imposed by abolishing octroi, the apex court has categorically held that such a tax by its very nature acquires the character of being compensatory as it facilitates the movement of goods rather than impeding it. The State has taken a specific plea that entry tax under the Act has been imposed only to facilitate trade by doing away with octroi which impeded trade and to compensate the loss of revenue to the local bodies in lieu of abolition of octroi and the entire tax so collected is disbursed to the local bodies as "octroi compensation" after deducting two per cent therefrom as regulatory charges and is utilised only for the purposes of providing conveniences, facilities, amenities and other benefits by the local authorities as agencies of the State, like, roads, their maintenance, markets, shops, etc., which facilities are utilised by the trades people and, therefore, the tax by its very nature is compensatory. To appreciate the rival contentions in the proper perspective it is proper to take note of the relevant provisions of the Constitution of India, i.e., articles 301, 304 and entry 52 of Schedule VII, List II, which are reproduced as under : "301. Freedom of trade, commerce and intercourse.
To appreciate the rival contentions in the proper perspective it is proper to take note of the relevant provisions of the Constitution of India, i.e., articles 301, 304 and entry 52 of Schedule VII, List II, which are reproduced as under : "301. Freedom of trade, commerce and intercourse. - Subject to the other provisions of this part, trade, commerce and intercourse throughout the territory of India shall be free. "304. Restrictions on trade, commerce and intercourse among States. - Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law, - (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest : Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President." Seventh Schedule, List II, entry 52. Taxes on the entry of goods into a local area for consumption, use or sale therein." The interpretation and import of these articles need not detain us as the Supreme Court in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 and Automobile Transport AIR 1962 SC 1406 has extensively delved into the said issues and held that only such taxes which result in having a direct and immediate adverse effect on the movement of trade, commerce and intercourse fall within the purview of article 301 of the Constitution of India and can be saved only in case the proviso to article 304(b) has been complied with by obtaining previous approval of the President or in cases where the nature of the tax is regulatory or compensatory and for this I may profitably rely upon the latter part of paragraph 14 of the judgment in the case of Automobile Transport AIR 1962 SC 1406 wherein it has been held that : "14. ...
... Such regulatory measures as do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by article 301. They are excluded from the purview of the provisions of Part XIII of the Constitution for the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them." and paragraph 10 wherein it has been stated that a tax that facilitates trade and its movement does not fall within the purview of article 301. To properly appreciate what constitutes a restriction on the freedom of trade and its movement it is necessary to take into consideration paragraphs 35, 36, and 39 of the concurring judgment of Subba Rao, J. in the case of Automobile Transport AIR 1962 SC 1406 which are to the following effect : "35. The next question is, what is the content of the concept of freedom ? The word 'freedom' is not capable of precise definition, but it can be stated what would infringe or detract from the said freedom. Before a particular law can be said to infringe the said freedom, it must be ascertained whether the impugned provision operates as a restriction impeding the free movement of trade or only as a regulation facilitating the same. Restrictions obstruct the freedom, whereas regulations promote it. Police regulations, though they may superficially appear to restrict the freedom of movement, in fact provide the necessary conditions for the free movement. Regulations such as provision for lighting, speed, good condition of vehicles, timings, rule of the road and similar others, really facilitate the freedom of movement rather than retard it. So too, licensing system with compensatory fees would not be restrictions but regulatory provisions; for without it, the necessary lines of communication, such as roads, waterways and airways cannot effectively be maintained and the freedom declared may in practice turn out to be an empty one. So too, regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom. To say all these is not to say that every provision couched in the form of regulation but in effect and substance a restriction can pass off as a permissible regulation.
So too, regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom. To say all these is not to say that every provision couched in the form of regulation but in effect and substance a restriction can pass off as a permissible regulation. It is for the court in a given case to decide whether a provision purporting to regulate trade is in fact a restriction on freedom. If it be a colourable exercise of power and the regulator provision in fact is a restriction, unless the said provision is one of the permissible restrictions under the succeeding articles, it would be struck down. This view is consistent with the principles laid down by the Australian High Court and the Privy Council in the context of interpretation of the words 'absolutely free' in section 92 of the Commonwealth of Australia Constitution Act, which is more emphatic than the word 'free' in article 301 of our Constitution. 36. The Constitution confers on the Parliament and the State Legislatures extensive powers to make laws in respect of various matters. A glance at the entries in the Lists of the Seventh Schedule to the Constitution would show that every law so made may have some repercussion on the declared freedom. Property tax, profession tax, sales tax, excise duty and other taxes may all have an indirect effect on the free flow of trade. So too, laws, other than those of taxation, made by virtue of different entries in the Lists, may remotely affect trade. Should it be held that any law which may have such repercussion must either be passed by the Parliament or by the State Legislature with the previous consent of the President, there would be an end of provincial autonomy, for in that event, with some exceptions, all the said laws should either be made by the Parliament or by the State Legislature with the consent of the Central Executive Government. By so construing, we would be making the Legislature of a State elected on adult, franchise the handmaid of the Central executive. We would be rewriting the Constitution and introducing by side wind autocracy in the field of legislation allotted to the States while our Constitution has provided meticulously for democracy.
By so construing, we would be making the Legislature of a State elected on adult, franchise the handmaid of the Central executive. We would be rewriting the Constitution and introducing by side wind autocracy in the field of legislation allotted to the States while our Constitution has provided meticulously for democracy. Therefore, any construction which may bring about such an unexpected result shall be avoided unless the Constitution compels us by express words to do so. There are admittedly no such words of compulsion. At the same time it is also difficult to accept the argument advanced by the States that only the laws made under entry 42 of List I, entry 26 of List II and entry 33 of List III, of the Seventh Schedule to the Constitution are subject to that freedom; for firstly, the article does not restrict the freedom to the area covered by those entries, and, secondly, laws made under the other entries may more effectively and directly affect the movement of trade. 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. The Court will have to ascertain whether the impugned law in a given case affects directly the said movement or indirectly and remotely affects it. 39. But the more difficult question is, what does the word 'restrictions' mean in article 302 ? The dictionary meaning of the word 'restrict' is 'to confine, bound, limit'. Therefore, any limitations placed upon the freedom is a restriction on that freedom. But the limitation must be real, direct and immediate, but not fanciful, indirect or remote. In this context, the principles evolved by American and Australian decisions in their attempt to reconcile the commerce power and the State police power or the freedom of commerce and the Commonwealth power to make laws affecting that freedom can usefully be invoked with suitable modifications and adjustments. Of all the doctrines evolved in my view, the doctrine of 'direct and immediate effect' on the freedom would be a reasonable solvent to the difficult situation that might arise under our Constitution. If a law, whatever may have been its source, directly and immediately affects the free movement of trade, it would be restriction on the said freedom.
Of all the doctrines evolved in my view, the doctrine of 'direct and immediate effect' on the freedom would be a reasonable solvent to the difficult situation that might arise under our Constitution. If a law, whatever may have been its source, directly and immediately affects the free movement of trade, it would be restriction on the said freedom. But a law which may have only indirect and remote repercussions on the said freedom cannot be considered to be a restriction on it. Taking the illustration from taxation law, a law may impose a tax on the movement of goods or persons by a motor vehicle; it directly operates as a restriction on the free movement of trade, except when it is compensatory or regulatory. On the other hand, a law may tax a vehicle, as property, or the garage wherein the vehicle used for conveyance is kept. The said law may have indirect repercussion on the movement, but the said law is not one directly imposing restrictions on the free movement. In this context two difficulties may have to be faced : firstly, though a law purporting to impose a tax on a property or a motor vehicle, as the case may be, may in fact and in reality impose a tax on the movement itself; secondly, a law may not be on the movement of trade, but on the property itself, but the burden may be so high that it may indirectly affect the free flow of trade. In the former case, the court may have to scrutinise the provisions of a particular statute to ascertain whether the tax is on the movement. If the provisions disclose a tax on the movement, it will be a restriction within the meaning of article 302. In the latter case, if the provisions show that the tax is on property, the reasonableness of the tax may have to be tested against the provisions of article 19 of the Constitution. The question whether a law imposes a restriction or not depends on the question whether the said law imposes directly and immediately a limitation on the freedom of movement of trade. If it does, the extent of the impediment relates to the question of degree rather than to the nature of it.
The question whether a law imposes a restriction or not depends on the question whether the said law imposes directly and immediately a limitation on the freedom of movement of trade. If it does, the extent of the impediment relates to the question of degree rather than to the nature of it. If it is a restriction, it must satisfy the conditions laid down in article 302 of the Constitution." The Entry Tax Act falls within entry 52 of List II of the Seventh Schedule to the Constitution of India, which empowers the State Legislature to make laws imposing taxes on entry of goods into local areas for consumption, use or sale therein. Section 3 of the Act, which is the charging section, provides for levy of tax on entry of goods into local areas for consumption, use or sale therein. While section 3(1) provides for levy of entry tax in respect of entry of goods caused by dealers in the course of their business within the local areas for consumption, use or sale therein, sub-section (2) of section 3 is not restricted to dealers alone but also encompasses in its applicability all persons causing entry of goods within the local areas for consumption, use or sale therein whether the entry is in the course of business or otherwise and, therefore, three things become immediately clear on a perusal of entry 52 of List II and the provisions of section 3 of the Act and they are - firstly, that the charge of entry tax is per se not directly on the movement or the transport of goods as the charging event is not the movement but the entry of goods in a local area for consumption, use or sale therein; secondly, the entry tax can be charged and levied only in case where entry of goods is made within a local area for consumption, use or sale of goods within the local area and thirdly, that the charge is not restricted to dealers or traders alone.
It is also apparent from a perusal of the Act that no entry tax is charged or levied on inter-State trade or transport of goods; for example, if goods are transported by traders from Maharashtra to Chhattisgarh and on their way move across the State of M.P., no entry tax would be charged or levied on such movement of trade or goods as the entry of such goods is not caused within any local area of M.P. for consumption, use or sale therein. Similarly, even if the movement of goods during trade stretches all over the State of M.P., no entry tax whatsoever would be charged or levied on these goods until entry of any of these goods is caused within a particular area with the specific purpose of consumption, use or sale. It is also apparent that once the goods have suffered tax, their movement throughout the State during trade would not attract any tax and would be free. It is also obvious that entry tax cannot and would not be charged where the movement of goods originates in a local body and ends in some other State under the provisions of the Act. That apart, by its very nature entry tax is an indirect tax and the entire tax burden, if any, on the traders is passed on to the consumer as a result of which there is no adverse impact of the imposition of tax on the traders in the ultimate result. The petitioners have neither alleged nor given any facts and figures to the effect that they have suffered any loss in their business or trade as a result of imposition of entry tax. In fact, there is no allegation in the petitions that the tax has directly and immediately affected their trade or business adversely. I may hasten to add that I have taken into consideration the above mentioned aspects of entry tax only to take note of the fact that entry tax is not a general tax imposed on all or any movement or transport part of trade and that the imposition is not restricted to trades people alone but also encompasses non-traders who cause entry of specified goods within a local area for consumption, use or sale therein.
The aforesaid aspects are necessary to be kept in mind while adjudging as to whether the tax as imposed by the State of Madhya Pradesh directly and immediately hampers or restricts the freedom and movement of trade and whether it satisfies the rational and workable test propounded in the case of Atiabari Tea Co. Ltd. AIR 1961 SC 232 , as directed by the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. To properly appreciate the submissions made by the learned counsel for the parties regarding the nature of the tax, I think it apposite to advert to the history and the background of the entry tax legislation in the State of M.P. In the State of M.P. even prior to its coming into existence in the year 1956 octroi as a tax on entry of goods within local areas of Municipalities was being levied and was formally given statutory sanction under section 66(e) of the Central Provinces and Berar Municipalities Act, 1922. Subsequently, octroi continued to be levied under the provisions of section 132 of the Madhya Bharat Municipal Corporation Act, 1956. Thereafter, on formation of the State of Madhya Pradesh, the provisions of this Act were extended to the entire State of Madhya Pradesh by the provisions of the Municipal Corporation Law (Extension) Act, 1960 (Act No. 13 of 1961) after receiving Presidential assent on March 18, 1961 which was first published in the M.P. Gazette (extraordinary) on April 12, 1961. Thus, the octroi which was imposed under section 132(e) of the M.P. Municipal Corporation Act, 1956, as extended to the entire State of M.P. by Act No. 13 of 1961, was imposed after having received Presidential assent on March 18, 1961. The provisions of section 132(e) of the M.P. Municipal Corporation Act empowering the levy of octroi were deleted vide M.P. Municipal Laws (Amendment) Ordinance, 1976 (No. 4 of 1976) with effect from May 1, 1976 and in its place Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, that is, entry tax under the Act was introduced.
The provisions of section 132(e) of the M.P. Municipal Corporation Act empowering the levy of octroi were deleted vide M.P. Municipal Laws (Amendment) Ordinance, 1976 (No. 4 of 1976) with effect from May 1, 1976 and in its place Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, that is, entry tax under the Act was introduced. Though octroi was sought to be reintroduced as a local body tax in the year 1997 by introducing section 132(1)(f) in Municipal Corporation Act and section 127(1)(f) in Municipalities Act, but due to serious protest by the trades people who did not want the obnoxious features of octroi to be reintroduced the operation of the provisions were, and still remain, suspended and entry tax under the Act continues to be levied. The replacement of octroi by entry tax became necessary as under the Municipal laws each local body was empowered to install check-posts and barriers for the purposes of levying octroi at varying rates and the persons causing entry of goods in local areas were put to immense inconvenience as they were required to stop at each check-post and barrier installed by the various local bodies, pay tax and, thereafter, undertake the procedure of seeking refund and in this process, allegedly the trades people were ruthlessly harassed and, therefore, there was a general demand for abolition of octroi. Consequently, the State, while abolishing octroi which was levied by the concerned local body, enacted the provisions of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam 1976, i.e., the Entry Tax Act taking over the responsibility of levy and collection of the tax from the local bodies by converting it into a one - point tax and thereafter distributing the proceeds therefrom to the local bodies as "octroi compensation" in lieu of the loss of revenue resulting from the abolition of octroi. The Statement of Objects and Reasons of the Act has been published in the M.P. Rajpatra dated September 9, 1976 and is as follows making the aforesaid position clear : "The Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (No. 6 of 1976) was promulgated with a view to raising financial resources to compensate the local bodies consequent upon the abolition of octroi.
It is now proposed to replace the Ordinance by an Act of the Legislature with modifications as below taking into account the representations of the dealers and after looking to the public interest. (a) conversion of entry tax from multi-point tax to single-point tax; (b) conversion of flat rate of 1.55 per cent, into different rates for different kinds of goods; (c) fixing concessional rate for raw materials; (d) provisions for ensuring that tax on local goods is not evaded. Hence this Bill." However, prior approval of the President under article 304(b) proviso was not obtained while enacting the Entry Tax Act. It is in the backdrop of the aforesaid history that the validity of the impugned Act as far as it relates to the State of M.P. was challenged and upheld on the ground that it was compensatory in the cases of Sanjay Trading Co. [1994] 93 STC 589 (MP), Bhagatram Rajeev Kumar [1995] 96 STC 654 (SC); [1995] Sup. 1 SCC 673, Geo Miller & Co. [2004] 136 STC 241 (SC); [2004] 5 SCC 209, etc., and has to be again adjudged. A perusal of the provisions of the Act makes it apparent that the Act sought to do away with all the offending features of the octroi tax levied by municipalities which were said to impede the movement and development of trade and commerce and in its place made adequate provisions to regulate the levy of entry tax with a view to ensure that the impediments in the movement and free flow of trade and commerce were removed and the movement of goods was facilitated. It is also evident from a reading of the provisions of the Act that it also sought to regulate and simplify the levy of tax, the manner of filing returns, the procedure for making assessments, filing appeals against orders of assessment, providing machinery for set off and refund of tax, regulating levy in such a manner that the traders were required to pay entry tax at only one point and further regulating the tax by specifying the goods on which the entry tax would be levied by doing away with the system of permitting individual municipalities to levy octroi in respect of all and any goods on their whims and fancies.
The Act removed the impediments and restrictions in the movement of trade created by the local bodies for levying octroi by making provision for a single point levy of tax under the Act. Thus, the Act generally sought to simplify and regulate the levy of octroi and replace it by entry tax to facilitate the movement of goods. That apart, as undoubtedly, octroi was the most important and major source of revenue of the municipalities and as its abolition caused a tremendous reduction and dent in municipal finances, the Act sought to compensate the loss to some extent by providing a system of distributing the revenue from collection of entry tax to various municipalities as octroi compensation. Thus, the Act sought to replace octroi which was being levied under the municipal laws after due approval of the President, by the regulated and simplified entry tax which also provided for compensating the loss of revenue of the municipalities by making provisions for distributing the revenue collected from the tax to the municipalities as octroi compensation. To put it differently the Act was enacted with the object of regulating the imposition of tax on entry of goods for consumption, use or sale within a local area by doing away with the alleged objections that were being voiced against octroi which it replaced. The situation in respect of levy of octroi under various Municipality Acts in the country wherever levied was similar and for this purpose I may profitably refer to the historical background in this respect as noticed by the Supreme Court in paragraph 8 in the case of Hansa Corporation AIR 1981 SC 463 : "8. Entry 52 in State List read with article 246 of the Constitution confers power on the State Legislature to enact a law to levy tax on the entry of goods into a local area for consumption, use or sale therein. This tax in common parlance is known as 'octroi'. Octroi was leviable by the municipality under the power delegated to it under various laws providing for setting up of and administration of municipal corporations and municipalities. Octroi thus understood was being levied by various municipalities and municipal corporations in Karnataka State. Since some time a feeling had grown that octroi was obnoxious in character and impeded the development of trade and commerce and there was a clamour for its abolition.
Octroi thus understood was being levied by various municipalities and municipal corporations in Karnataka State. Since some time a feeling had grown that octroi was obnoxious in character and impeded the development of trade and commerce and there was a clamour for its abolition. Taking note of the resentment of the business community, Karnataka State abolished octroi with effect from April 1, 1979. However, no one was in doubt that octroi was a major source of revenue to municipalities and its abolition would cause such a dent on municipal finances that compensation for the loss would be inevitable. Accordingly, the State Government undertook a policy of compensating the municipalities year by year. For generating funds for this compensation, rates of sales tax were raised and in some cases a surcharge was levied. The amount so collected was not sufficient to bridge the gap in municipal budget. To further augment the finances for compensating the municipalities, additional fund was sought to be generated by levy of tax under the impugned legislation. No doubt, the tax levied was one on entry of Scheduled goods in local areas, meaning thereby, it had all the broad features of octroi, yet the manner of levy, the method of collection and the persons liable to pay the same were so devised by the impugned Act as to remove the obnoxious features of octroi. As the charging section shows, the tax was to be levied on entry of scheduled goods in a local area at a rate to be specified by the Government not exceeding two per cent ad valorem. The taxing event would be the entry of Scheduled goods in a local area. In fact, octroi was being levied on almost all conceivable goods entering into a local area for consumption, use or sale therein. There appears to be a discernible policy in selecting the goods set out in the Schedule, the entry of which in a local area would provide the taxing event. ..." It was further observed in paras 34 and 35 that such a levy does not impose an unreasonable restriction on trade and commerce and is in fact, in public interest in the following terms : "34. ...
..." It was further observed in paras 34 and 35 that such a levy does not impose an unreasonable restriction on trade and commerce and is in fact, in public interest in the following terms : "34. ... Even apart from this, a levy which appears to be quite reasonable in its impact on the movement of goods and is imposed for the purpose of augmenting municipal finances which suffered a dent on account of abolition of octroi cannot be said to impose an unreasonable restriction on the freedom of inter-State trade, commerce and intercourse. In this connection it would be useful to recall the observations of this court in Khyerbari Tea Co. Ltd. case AIR 1964 SC 925 that the power conferred on this court to strike down a taxing statute if it contravenes the provisions of articles 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character. It is, therefore, idle to contend that the levy imposed an unreasonable restriction on the freedom of trade and commerce. 35. The next question is whether this levy is in public interest. As has been pointed out earlier, the levy was to compensate the loss suffered by abolition of octroi. These very people were paying octroi without a demur. After removing the obnoxious features of octroi a very modest impact levied on entry of goods in a local area and that too not for further augmenting finances of the municipalities but for compensating the loss suffered by the abolition of octroi is certainly a levy in public interest.
These very people were paying octroi without a demur. After removing the obnoxious features of octroi a very modest impact levied on entry of goods in a local area and that too not for further augmenting finances of the municipalities but for compensating the loss suffered by the abolition of octroi is certainly a levy in public interest. As has been repeatedly observed by this Court, the taxes generally are imposed for raising public revenue for better governance of the country and for carrying out welfare activities of our welfare State envisaged in the Constitution and, therefore, even if a tax to some extent imposes an economic impediment to the activity taxed, that by itself is not sufficient either to stigmatise the levy as unreasonable or not in public interest." As is evident from a perusal of paragraphs 34 and 35 of the judgment in the case of Hansa Corporation AIR 1981 SC 463 as quoted above the Supreme Court has observed that an entry tax which is imposed by replacing octroi after doing away with the obnoxious features of octroi does not impose an unreasonable restriction on the freedom of trade and commerce nor does it result in further augmentation of revenue or finance but only results in compensating the loss suffered on account of abolition of octroi and is certainly in public interest and not unreasonable. The said findings in respect of the tax in question in the case of Hansa Corporation AIR 1981 SC 463 were recorded by the Supreme Court even though the issue as to whether the tax was compensatory or not was neither considered nor decided. In the case of Mrs. Meenakshi Alias Rama Bai [1984] Supp.
The said findings in respect of the tax in question in the case of Hansa Corporation AIR 1981 SC 463 were recorded by the Supreme Court even though the issue as to whether the tax was compensatory or not was neither considered nor decided. In the case of Mrs. Meenakshi Alias Rama Bai [1984] Supp. SCC 326 the Supreme Court, while again considering the nature of a tax levied after abolition of octroi by removing its obnoxious features and imposed not for augmentation of revenue but to compensate for the loss of revenue caused as a result of the abolition, has in so many words held that it can be said without fear of contradiction that trade, commerce and intercourse received a fillip and free, smooth, unimpeded flow of goods and passenger vehicles was considerably facilitated and the abolition of octroi was welcomed in trade and business circles and that such a tax acquires the character of being compensatory after duly considering and referring to the judgments in the case of Atiabari Tea Co. AIR 1961 SC 232 and Automobile Transport AIR 1962 SC 1406 in the following terms : "7. If tax was enhanced to meet the loss suffered on account of abolition of octroi, one can say without the fear of contradiction that the abolition of octroi facilitates both inter-State and intra-State movements of goods and passengers. 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 vehicle 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. Karnataka took the lead and abolished octroi. One can take judicial notice of a universal demand for abolition of octroi as an evil.
Karnataka took the lead and abolished octroi. One can take judicial notice of a universal demand for abolition of octroi as an evil. Therefore, if tax was enhanced on passenger vehicles to fill in the dent made in the revenues of the State by the abolition of octroi, it can be said without fear of contradiction that thereby trade, commerce and intercourse received a fillip and free, smooth, unimpeded flow of goods and passenger vehicles was considerably facilitated and the abolition of octroi was welcome in trade and business circles. Therefore, not only the enhanced tax does not lose the character of being compensatory on the ground that it was enhanced to compensate the loss suffered by the State in its revenues on account of abolition of octroi, but as a matter of fact on this very ground it acquires the character of being compensatory." In the present case also the impugned tax imposed in the State of M.P. by the Act has been imposed on abolition of octroi in view of a similar situation prevailing and existing in the State of M.P. wherein the system of stopping, checking and levying tax at each barrier erected by all the local areas within the State of M.P. along with all its accompanying obnoxious features, causing hardship as well as slow movement of goods was abolished by imposing a one-point entry tax as a measure to remove the impediment in freedom of trade, commerce and intercourse and with the specific object of facilitating trade and the movement of goods. Consequently, I have no hesitation in holding that in view of the aforesaid past history of the tax as prevailing in the State of Madhya Pradesh, the tax imposed by the impugned Act by its very nature does not directly or indirectly impede trade. On the contrary, it has been introduced and in fact results in facilitating the movement and the freedom of trade and commerce, is in public interest as it regulates the levy, collection, assessment, etc., of entry tax and as it facilitates the movement of goods rather than impeding the same, it does not fall foul of article 301 of the Constitution of India in view of the law laid down by the Supreme Court in paragraph 7 of the cases of Automobile Transport AIR 1962 SC 1406 and Mrs. Meenakshi Alias Rama Bai [1984] Supp. SCC 326.
Meenakshi Alias Rama Bai [1984] Supp. SCC 326. There is yet another reason specific to and relating to the State of M.P. to hold that the tax is not violative of article 301 of the Constitution of India as it facilitates the movement part of trade. It is evident from a perusal of the law relating to municipalities that the provisions for levy of octroi in the name of a local-body tax already exists therein but the operation of these provisions has been stayed as entry tax is being levied under the Act and if entry tax under the Act is withdrawn or prohibited, the provisions of the municipalities and Municipal Corporation Act providing for levy of octroi as a local-body tax in the State of M.P., would come into operation enabling and empowering the local bodies to levy and recover octroi and for that purpose to take all regulatory measures including establishment of Nakas/barriers, etc., and thereby revive the alleged objectionable features of octroi which had previously been opposed and objected to by the trades people themselves alleging that they impeded the movement part of trade. To put it differently, the fact of levy of entry tax under the Act and its continuance as a one-point levy by the State has resulted in abolition and prohibition of imposition of the much opposed octroi by local bodies and has thereby resulted in directly and immediately facilitating trade and the very movement of trade. Therefore, this fact in itself goes a long way to establish that the tax does not directly and immediately hinder or restrict the freedom of trade and its movement, but, on the contrary, its very object is to facilitate it and therefore it does not violate article 301 and that the nature of entry tax imposed under the Act is compensatory. In view of the above, I do not find any merit in the contention of the learned counsel for the petitioner in respect of the aforesaid issue.
In view of the above, I do not find any merit in the contention of the learned counsel for the petitioner in respect of the aforesaid issue. Parameter B : Before I take up the issue as to whether the tax is compensatory or not, I think it appropriate to state that once I have held that the entry tax imposed in the State of Madhya Pradesh as a replacement of and by abolishing octroi, in fact, results in facilitating trade and its movement in view of the past history as enumerated above and as it does not directly and immediately hamper or impede trade and its movement, it is not in violation of article 301 of the Constitution of India, the present issue, i.e., as to whether the tax is compensatory or not, becomes secondary and loses significance as the requirement that a tax must be compensatory is only necessary to be established in cases where it hampers free flow of trade and acts as a direct and immediate impediment to trade, thereby falling foul of article 301 of the Constitution of India. As I have held that the impugned tax is not hit by article 301 of the Constitution of India, the question as to whether the tax is compensatory or non-compensatory would have no impact on its constitutional validity vis-a-vis article 301 of the Constitution of India. I am constrained to say so as reading of the judgment of the Supreme Court in the cases of Atiabari Tea Co. AIR 1961 SC 232 , Automobile Transport AIR 1962 SC 1406 and Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 makes it abundantly clear that a tax which falls within the purview of article 301 of the Constitution of India can be saved only in case it is demonstrated to be compensatory and regulatory or by obtaining prior approval of the President. If, however, the tax does not fall within the purview of article 301, there is no need to establish the aforesaid requirements as the tax is valid and constitutional even otherwise.
If, however, the tax does not fall within the purview of article 301, there is no need to establish the aforesaid requirements as the tax is valid and constitutional even otherwise. There is another aspect which I would like to reiterate before I proceed any further and that is, that admittedly, the entry tax imposed in place of octroi by the impugned Act took care to duly and properly regulate the charge, levy, assessment, recovery, set off, penalty, etc., in respect of the tax and also converted it into a single-point tax and sought to remove all the impediments and barriers in the free flow of trade and, therefore, the impugned Act is also a regulatory measure enacted with a view to smoothen the entire process of levy of entry tax by removing all the obnoxious features of octroi which were alleged to impeded and hamper freedom of trade and its movement. While ascertaining as to whether the tax is compensatory or not, in the light of the parameters and guidelines laid down by the Supreme Court, it is necessary to deal with the arguments of the learned counsel for the petitioners based upon paragraphs 39 to 45 of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 at this stage itself, that the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006] 7 SCC 241 has now held that a tax can be held to be compensatory only in case where the revenue derived from the tax is used for providing some quantifiable and measurable special benefits and special advantages "exclusively" to the persons paying the tax in direct proportion to the quantum of tax by applying the principal of equivalence and "pay for the value". In other words it is submitted that the tax to be compensatory must not be utilised in providing or maintaining such facilities that are used by the general public as well as the traders but must be utilised for providing some special benefits and facilities for the exclusive use of the traders people only. The learned Advocate-General, appearing for the State has seriously refuted the contentions of the petitioners and has taken us through several paragraphs of the judgment in the cases of Atiabari Tea Co.
The learned Advocate-General, appearing for the State has seriously refuted the contentions of the petitioners and has taken us through several paragraphs of the judgment in the cases of Atiabari Tea Co. AIR 1961 SC 232 , Automobile Transport AIR 1962 SC 1406 and Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 in support of his contention. Additionally, the learned Advocate-General has submitted that the contention of the petitioners is misconceived in view of paragraphs 42 to 45 of the judgment of the Supreme Court in the case of Jindal Stainless [2006] 145 STC 544; [2006] 7 SCC 241 itself as the Supreme Court in the said paragraphs has stated that a compensatory tax is like a fee and if that be so, then the concept of quid pro quo as interpreted by the Supreme Court itself postulates that if the person paying the fees receives general benefit in return, the element of service is satisfied and it is not necessary that the person paying the fee must receive some special benefit or advantage for payment of the fee and for this proposition has placed reliance on the judgments of the Supreme Court in the cases of City Corporation of Calicut v. Thachambalath Sadasivan [1985] 2 SCC 112, State of H.P. v. Shivalik Agro Poly Products [2004] 8 SCC 556, Sona Chandi Oal Committee v. State of Maharashtra [2005] 2 SCC 345. The learned Advocate-General has placed heavy reliance on paragraphs 25 to 28 of the recent judgment in the case of Vijayalakshmi Rice Mill v. Commercial Tax Officer, Palakol reported in [2006] 147 STC 609 (SC); [2006] 6 SCC 763, to contend that after considering the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the Supreme Court has upheld the fees levied in the form of a cess under the Andhra Pradesh Rural Development Act, 1996 and utilised for providing roads, bridges, storage facilities, etc., by holding that the cess was utilised for providing services to the people in the rural areas even though, no specific service was rendered to any particular individual. As is apparent from paragraph 41 of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the Supreme Court has observed that the basis of "a free or a compensatory tax is the quantifiable and measurable benefit".
As is apparent from paragraph 41 of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241, the Supreme Court has observed that the basis of "a free or a compensatory tax is the quantifiable and measurable benefit". In paragraph 42 it has been observed that "a fee or compensatory tax has to be broadly proportional and not progressive" and that "in the principle of equivalence which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services, which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities. Compensatory tax is based on the principle of pay for the value. It is a sub-class of a fee. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities" and again that "the theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individuals, a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it". It has further been stated that "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". In paragraph 43 it has been held that "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". In paragraph 53, in conclusion, the Supreme Court has held 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.
In paragraph 53, in conclusion, the Supreme Court has held 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. v. State of Assam AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide para 19 of the report (AIR), will continue to apply." In the case of Automobile Transport AIR 1962 SC 1406 the Supreme Court in paragraph 10 has specifically stated that "a charge for the use of trading facilities, such as, roads, bridges, aerodromes, etc., the collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome, is no barrier or burden or deterrent to traders who in their absence may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to anybody's freedom so long as they remain reasonable" and further "that which in reality facilitates trade and commerce is not a restriction and that which in reality hampers or burdens trade is a restriction. It is the reality or substance that has to be determined". In the same paragraph it has also been held that a prohibited tax is one which directly hinders the movement part of trade.
It is the reality or substance that has to be determined". In the same paragraph it has also been held that a prohibited tax is one which directly hinders the movement part of trade. The Supreme Court in the aforesaid judgment has further held that if articles 301 and 304(b) are broadly interpreted and applied to all enactments made by the State Legislature relating to imposition of taxes for raising revenue to carry out administration under various entries relating to imposition of tax enumerated in List II of the Seventh Schedule to the Constitution of India in exercise of its plenary powers, then there would be an end of State autonomy for all practical purposes even within the fields of legislation allowed to them under the distribution of powers by the Constitution and would render the plenary power of the State to legislate meaningless and thereafter in paragraph 14 has held that "regulatory measures that do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by article 301 and are excluded from the purview of the provisions of Part XIII of the Constitution." In paragraph 19 it has been specifically stated that a tax imposed for the use of roads in Rajasthan cannot be said to hinder or prohibit the movement part of trade and commerce and that such a tax is compensatory. It has also been held that determination of the nature of tax cannot be made to depend upon the preamble of the statute and that it cannot be said that a tax is not compensatory because the precise or specific amount is not actually used in providing any facility. Importantly, it has further been clarified that actual user would often be unknown to traders and that such user may at times be compensatory and at others not so and that by the very nature of things it would be impossible to judge the compensatory nature of a tax by a meticulous test. In paragraph 19 it has been held that the working test that was propounded 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.
In paragraph 19 it has been held that the working test that was propounded 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. ..." In paragraph 20 it has been held that the money collected from the tax need not be put into a separate fund as long as the facilities for the trades people who bear the burden are provided and the expenses incurred in providing the facilities are borne by the State out of whatever source it may be. In paragraph 21 it has further been clarified that even if the taxes collected are not specifically earmarked for the building or maintenance of roads that would not necessarily determine whether the tax is compensatory or not if in substance the tax is no hindrance to the freedom of trade, commerce or intercourse and further 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. In such a case the imposition assumes the character of remuneration or consideration charged in respect of an advantage sought and received". The Supreme court has thereafter gone on to quote with approval a paragraph of Dixon C.J. from Armstrong v. State of Victoria [1957] 99 C.L.R. 28, wherein it has been stated that without roads, bridges, aerodromes, airways, wharves, sheds, etc., inter-State trade could not be carried out and so for commerce to bear or contribute to the cost of their upkeep would not detract from inter-State trade or commerce.
It is, therefore, apparent that the Supreme Court in the case of Automobile Transport AIR 1962 SC 1406 has held such taxes to be compensatory which are utilised in providing general facilities like roads, bridges, aerodromes, wharves, sheds, etc., even though these facilities are not meant or provided for the exclusive use or benefit of the trades people only and while doing so it has been specifically held that the fact that the statute does not provide for use of the tax collected for providing a facility or that the specific and quantified amount collected is not spent on providing the facility or the fact that the tax collected is not specifically earmarked for being utilised for providing the facility would not detract from or change its compensatory character. Quite apart from the above even from a conjoint reading of the judgments in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 parts of which where the words special benefit and special advantage have been used have been heavily relied upon by the petitioners, along with the judgment in the case of Automobile Transport AIR 1962 SC 1406 . I am unable to agree with the learned counsel for the petitioners that the Supreme Court, in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241, has held that a tax can be said to be a compensatory tax only when it is levied for providing some measurable and quantifiable special benefit or facility exclusively to the traders in direct proportion to the quantum of tax. I am constrained to say so as in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 the Supreme Court was specifically dealing with the correctness or otherwise of the "some connection" or "some link" theory as propounded in the case of Bhagatram [1995] 96 STC 654 (SC); [1995] Supp. 1 SCC 673 according to which even if only some portion or part of the tax is utilised for providing some facility to the trades people the tax would be compensatory.
1 SCC 673 according to which even if only some portion or part of the tax is utilised for providing some facility to the trades people the tax would be compensatory. This theory has been held to be no longer good law by referring to the law laid down in the case of Automobile Transport AIR 1962 SC 1406 and while doing so and in that context it has been stated that the tax to be compensatory must be mostly and substantially utilised for providing some specific facility which specifically benefits trade or can be used with advantage by the trades people. Furthermore in the case of Automobile Transport AIR 1962 SC 1406 , the law laid down therein has been specifically reaffirmed in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 wherein the Supreme Court has held a tax imposed for construction and maintenance of roads, bridges and aerodromes which are basically for the convenience of the public at large but which are also used as facilities by the trades people and which specifically benefits trade, to be a compensatory tax. A similar example has been given by the Supreme Court in paragraph 38 in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 to the following effect : "38. ... For example, for installation of pipeline carrying gas from Gujarat to Rajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come in the category of manifestation of regulatory power. However, a tax levied on sale or purchase of gas which flows from that very pipe is a manifestation of exercise of the taxing power.
For example, for installation of pipeline carrying gas from Gujarat to Rajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come in the category of manifestation of regulatory power. However, a tax levied on sale or purchase of gas which flows from that very pipe is a manifestation of exercise of the taxing power. ..." To expand the same example in accordance with the test laid down in Automobile Transport AIR 1962 SC 1406 further, if a charge or a tax would be levied on trades people who are also given the facility of using the gas pipeline along with others and the tax so collected is mostly utilised for the construction, expansion, maintenance and repairs of the gas pipeline, the charge or tax would firstly, be outside the purview of article 301 as it would facilitate the movement part of trade and secondly would also be compensatory in nature in view of the working test laid down in the case of Automobile Transport AIR 1962 SC 1406 even if the pipeline is not reserved for the exclusive use of the tax-payers. This in fact, is what the Supreme Court in Automobile Transport AIR 1962 SC 1406 has said in so many words while giving examples of roads, bridges, aerodromes, wharfs, etc., before propounding the working test. In none of the judgments has the Supreme Court laid down that the road, bridge, aerodrome or any such facility must be provided only to and exclusively for the use of trades people as a special advantage or benefit in lieu of the tax paid by them, that only then the tax would be compensatory as contended by the petitioners, and I believe, deliberately so, as the proposition of providing roads, bridges, aerodromes, etc., for the exclusive use of only the trades people as a condition precedent for levying a compensatory tax, itself borders on absurdity.
I am further fortified in my view from the fact that the Supreme Court, in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 in the ultimate analysis has directed such taxes to be tested only on the basis of the working test propounded in the case of Automobile Transport AIR 1962 SC 1406 according to which it has to be adjudged as to whether the trades people are having the use of certain facilities for the better conduct of their business. This test does not lay down that the facility must be a special or an exclusive facility only for the use of the trades people as a special quantifiable benefit or advantage in lieu of the levy of tax but only prescribes that the facility must be provided by the State and that the trades people must have the use of the facility for better conduct of their business and that they are not required to pay patently much more than the costs for providing the facility. In view of the above, I am unable to agree with the learned counsel for the petitioners that a tax would be compensatory only in case the revenue therefrom is fully utilised for the purpose of providing some special benefit or facility only and exclusively to the trades people. Shri Kishore Shrivastava, learned senior counsel for the petitioner, relying on paragraph 14 of the judgment of the Supreme Court in the case of Burmah-Shell Oil Storage and Distributing Co. of India Ltd., Belgaum v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906 , submits that octroi which was being levied prior to the levy of the present entry tax was by its very nature a tax levied for the purposes of earning revenue and the present entry tax which has replaced octroi, is also a revenue - earning tax and, therefore, cannot be said to be compensatory in view of the judgment in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241. In my considered opinion, the said argument suffers from two basic infirmities. Firstly, levy and imposition of tax in all cases results in raising revenue and, therefore, the mere fact that money is received on imposition of a tax is not the determining factor for the purposes of adjudging the nature of a tax as compensatory or otherwise.
In my considered opinion, the said argument suffers from two basic infirmities. Firstly, levy and imposition of tax in all cases results in raising revenue and, therefore, the mere fact that money is received on imposition of a tax is not the determining factor for the purposes of adjudging the nature of a tax as compensatory or otherwise. Secondly, the Supreme Court in the case of Automobile Transport AIR 1962 SC 1406 or in the case of Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 has nowhere held that the mere fact of revenue being earned from imposition of a tax would per se render the tax as non-compensatory. What the Supreme Court has held is that if the revenue collected from the imposition of the tax is mostly utilised for providing facilities to the trades people and that they are not made to pay patently much more than the cost of providing and maintaining the facilities then the nature of such a tax would be compensatory and it would not fall within the purview of article 301 of the Constitution of India. To put it differently, for a tax to be compensatory, the revenue earned from imposition of the said tax should not fill the general coffers of the State but must be utilised in providing facilities to the trades people broadly in proportion to the tax collected and it is in this context that the Supreme Court has held that if the revenue earned from levy of a tax is not utilised for providing facilities to the traders but is treated as general revenue and is utilised for other purposes, the tax would be a mere revenue - raising measure and would not be compensatory in nature. It is also pertinent to take note of the fact that the most important source of revenue of the local bodies was from imposition of octroi which was abolished and as submitted by the respondents in their return, the entry tax was introduced in its place.
It is also pertinent to take note of the fact that the most important source of revenue of the local bodies was from imposition of octroi which was abolished and as submitted by the respondents in their return, the entry tax was introduced in its place. The entire money collected from imposition of the entry tax under the impugned Act which was introduced in its place is being distributed amongst the local bodies after deducting 2% (two per cent) therefrom towards collection and regulation charges to compensate them for the loss of revenue caused due to abolition of octroi and, therefore, the sole purpose and object of levy of entry tax under the Act is to compensate the loss of revenue of the local bodies and to fill in the dent in their revenue resulting from abolition of octroi and the State is simply collecting and thereafter distributing the tax collected under the Act to the local bodies and is not keeping or retaining it with itself as general revenue generated from imposition of a tax as is being done in the case of sales tax and other taxes. For the aforesaid reasons I do not find merit in the submissions of learned senior counsel, Shri Kishore Shrivastava. Parameter C : For the purpose of adjudging the aforesaid aspect I may pause to analyse as to what was the object of the levy of octroi by the municipalities under the local Acts and the purpose for which the revenue earned therefrom was utilised, and whether the revenue earned from collection of the impugned entry tax and distributed as octroi compensation under the Act continues to be utilised for the same purposes and whether the utilisation of this revenue results in providing facilities to the trades people who are having use of these facilities for better conduct of their business as also for regulating the levy collection, assessment, etc., of the entry tax. From a perusal of the provisions of the M.P. Municipalities Corporation Act, 1956 and the M.P. Municipalities Act, it is apparent that the municipality is required to construct and maintain roads within the municipal area, provide for market areas and shops, provide for all essential civic amenities like drainage, lighting, water, fire fighting, etc., for maintenance and proper functioning of market areas and also undertake development activities by creating commercial and industrial zones, etc.
As is evident from the averments made by the respondents, the entry tax collected and distributed to the various municipalities as octroi compensation subsequent to abolition of octroi is also utilised for the same purpose, like construction of roads, maintenance of roads, providing for market areas, godowns, shops, providing for commercial areas, establishing industrial areas, providing civic amenities to traders as well as providing civic amenities to the commercial and industrial areas like water, electricity, etc., making the establishment of the traders attractively and easily accessible to the consumers so as to enhance the consumption, use or sale of the goods brought by them within the local areas. The fact that without the existence of a developed urban agglomeration like a Municipal Corporation and Municipality, trade and commerce cannot flourish, cannot be ignored or brushed aside, as it is the residents of the local area who constitute the market, being consumers, for traders who in turn are motivated to cause entry of goods within the municipal areas for consumption, use or sale therein, for the residents of the local area and the larger and more developed the local area, more the entry of goods for consumption, use or sale therein. Here, I may profitably rely upon the Constitution Bench judgment of the Supreme Court rendered in the case of State of Madras v. N. K. Nataraja Mudaliar [1968] 22 STC 376 (SC); AIR 1969 SC 147 , in paragraph 14 that : "... The flow of trade does not necessarily depend upon the rates of sales tax : it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. Instances can easily be imagined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part, where a higher rate of tax prevails.
Instances can easily be imagined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part, where a higher rate of tax prevails. Supposing in a particular State in respect of a commodity, the rate of tax is two per cent, but if the benefit of that low rate is offset by the freight which a merchant in another State may have to pay for carrying that commodity over a long distance, the merchant would be willing to purchase the goods from a nearer State, even though the rate of tax in that State may be higher. Existence of long-standing business relations, availability of communications, credit facilities and a host of other factors - natural and business - enter into the maintenance of trade relations, and the free flow of trade cannot necessarily be deemed to have been obstructed merely because in a particular State the rate of tax on Sales is higher than the rates prevailing in other States." The aforesaid observations clearly establish that the place of consumption, existence of trade channels, availability of a good consumer market and all the host of other factors and amenities that are provided by the local bodies are also necessary for proper conduct of trade and therefore if the amount collected by the levy of entry tax is utilised for providing such facilities which are of use to the trades people and ultimately facilitate the free flow and movement of trade, the tax and the nature of such a tax can be said to be compensatory. As taken note of by the Supreme Court in the case of Automobile Transport AIR 1962 SC 1406 , in para 10, a tax or charge for providing trading facilities like roads, bridges, aerodromes, is a compensatory tax.
As taken note of by the Supreme Court in the case of Automobile Transport AIR 1962 SC 1406 , in para 10, a tax or charge for providing trading facilities like roads, bridges, aerodromes, is a compensatory tax. It is also admitted and can be taken note of that the trades people have full use of these facilities within the municipal areas for the better conduct of their business and, therefore, there is a definite object and purpose for which the entry tax levied under the Act is utilised and there is also an established connection between the object and the subject, i.e., the purpose and object behind levy of the tax and the facilities provided by its utilisation to the traders, as the traders are undeniably having the use of these facilities. For this proposition I may profitably rely upon the judgment of the Supreme Court in the case of International Tourist Corporation v. State of Haryana [1981] 2 SCC 318 wherein in paragraph 9 it has been observed that "... what is necessary to uphold a regulatory and compensatory tax is the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy. If the object behind the levy is identifiable and if there is sufficient nexus between the subject and the object of the levy, it is not necessary that the money realised by the levy should be put into a separate fund or that the levy should be proportionate to the expenditure ..." by relying upon the judgment in the case of Automobile Transport AIR 1962 SC 1406 . In the case of Automobile Transport AIR 1962 SC 1406 the Supreme Court has specifically held that if the money collected from the imposition of tax is utilised for providing services and amenities which facilitate the movement of goods and the trades people have the use of these facilities for better conduct of their business, then the tax is compensatory in nature. While coming to this conclusion the Supreme Court has specifically dealt with amenities like roads, bridges, aerodromes, etc.
While coming to this conclusion the Supreme Court has specifically dealt with amenities like roads, bridges, aerodromes, etc. Additionally, it has also been held in paragraph 21 that if a statute fixes a charge for the convenience of the services provided by the State or an agency of the State and imposes it upon those who choose to avail themselves of the services and conveniences, freedom of trade and commerce may well be considered unimpaired as the imposition assumes the character of remuneration and consideration in respect of the advantage sought and received; and in this respect quoted with approval Dixon C.J., from Armstrong v. State of Victoria [1957] 99 CLR 28 wherein it has been held that - "without the bridge, the aerodromes and airways, the wharves and the sheds, the respective inter-State operations could not be carried out and that the charges serve no purpose save to maintain these necessary things at a standard by which they may continue. However it may be stated, the ultimate ground why the exaction of the payments for using the instruments of commerce that have been mentioned is no violation of the freedom of inter-State trade lies in the relation to inter-State trade which their nature and purpose give them. The reason why public authority must maintain them is in order that the commerce may use them, and so for the commerce to bear or contribute to the cost of their upkeep can involve no detraction from the freedom of commercial intercourse between States." In view of the above, if the tax is mainly utilised in providing any service, convenience or amenity or the host of other factors, some of which have been taken note of by the Supreme Court in the case of Nataraja Mudaliar [1968] 22 STC 376; AIR 1969 SC 147 which facilitate trade as well as the movement part of trade and without which inter-State trade, commerce and intercourse would either be restricted, hampered or would not be smooth, the tax would by its very nature be a compensatory tax falling outside the purview of article 301. It is for the aforesaid reasons that I have no hesitation in holding that the tax collected under the Act is compensatory in nature and does not fall within the purview of article 301 of the Constitution of India.
It is for the aforesaid reasons that I have no hesitation in holding that the tax collected under the Act is compensatory in nature and does not fall within the purview of article 301 of the Constitution of India. Parameter D : The respondent/State, in its return and a series of affidavits has given facts and figures to demonstrate that the impugned tax is compensatory in nature as the entire money collected from the levy of the tax is distributed to the urban local bodies for being utilised for providing facilities which are of use to trades people as well as factors which effect and have an impact on trade. The petitioners have seriously refuted the contention of the respondent/State and have contended that the State has totally failed to demonstrate that the tax is compensatory in nature. The facts furnished and the charts, specifically those given by the respondent/State in their clarificatory affidavits dated November 3, 2007 and December 27, 2007, have been quoted and analysed in detail by brother, Dipak Misra, J. In his detailed judgment it has been concluded that the entire amount collected from levy of the tax is distributed by the State to the urban and local bodies as octroi compensation after deducting two per cent therefrom, that the tax is utilised by the local bodies for providing facilities which are for use of the trades people in the industrial and commercial sectors, that the urban and local bodies have other sources of revenue including revenue from levy of local taxes, that octroi compensation distributed to the urban and local bodies from the collection of the impugned tax constitutes only 45 per cent of the amount spent by the urban and local bodies on the commercial and industrial sectors within the area. To avoid prolixity, I respectfully adopt and agree with the analysis and conclusion recorded by brother, Dipak Misra, J. in his judgment. In addition to the aforesaid aspects, it is submitted by the respondent/State that in reply to the allegations of the petitioners they have specifically given the breakup of the amount spent by the local bodies in the commercial and industrial sectors under 10 specific heads which, according to them, facilitate trade and are used by the trades people, in paragraph 9 of the additional affidavit filed by them on December 27, 2007.
The 10 heads in respect of which details of expenditures have been given by the respondent/State are : (1) Construction and repair of roads, (2) tarring of roads, (3) shop/buildings, (4) water supply, (5) sanitation, (6) fire fightings, (7) environment of parks, etc., (8) the street lighting (9) solid waste management, and (10) others. The submission of the learned counsel appearing for the petitioners in respect of the facts and figures furnished by the respondent/State in the aforementioned charts and other documents is that the amount spent by the urban and local bodies in respect of abovementioned 10 heads clearly establishes that the entry tax collected under the Act forms part of the general revenue. It is further submitted that the amount of octroi compensation disbursed to the urban and local bodies is not utilised for providing any specific and special benefit to the trades people. As far as the facts and figures regarding expenditure furnished by the State are concerned, the petitioners submit that they do not render any assistance to the respondent/State in respect of the issues involved in the present petition as allegedly the amount disbursed as octroi compensation is being utilised for the purposes of discharging statutory obligations of the urban and local bodies as prescribed by the various laws relating to municipalities and in respect of which the urban and local bodies levy and recover taxes under the laws relating to municipalities and, therefore, the amount spent in respect of discharge of statutory obligations by the urban and local bodies cannot be taken into consideration for the purposes of determining the compensatory nature of the impugned tax. It is further contended that the State releases grant for construction and maintenance of roads as well as for other civic amenities like, grants from the State Financial Commission Tribal sub-plan and other Schemes of the Central State Government and, therefore, as specific allocation of fund is made for most of the 9 heads enumerated by the respondent - State, the amount spent on them by the urban and local bodies cannot be taken into consideration for the purposes of accounting for the amount utilised by the urban and local bodies from octroi compensation.
It is submitted that as the amount collected as entry tax under the Act by the State is not directly and specifically utilised for the specific head, the facts and figures furnished by the State, on the contrary, establish that the tax is not compensatory. It is also submitted by the petitioners that the entire stand of the State is per se misconceived as the nine heads in respect of which details of expenditure have been submitted by the State do not facilitate trade nor can they be said to be special benefits for the trades people. The aforesaid submissions have to be scrutinised keeping in view the law laid down by the Supreme Court. For the purposes of clarity I recapitulate the law as laid down by the Supreme Court in the cases of Atiabari Tea Co. Ltd. AIR 1961 SC 232 , Automobile Transport AIR 1962 SC 1406 , Jindal Stainless [2006] 145 STC 544 (SC); [2006] 7 SCC 241 and Nataraja Mudaliar [1968] 22 STC 376 (SC); AIR 1969 SC 147 which is relevant to analyse the facts and figures furnished by the respondent/State, wherein it has been stated that : (A) The compensatory nature of the tax does not depend upon the preamble of the statute; (B) It cannot be said that the tax is not compensatory because the precise or specific amount collected from levy of the tax is not used in providing facilities to the trades people; (C) The nature of the facilities provided must be such as facilitate trade, are for use of the trades people or have an effect or impact on trade; (D) Actual user of the facilities would often be unknown to trades men and that such user may at times, be compensatory and at other times not so; (E) For the purposes of demonstrating that the tax is compensatory it is not necessary or compulsory to put the amount collected from levy of the tax into a separate fund as long as the facilities of proportionate value are provided to the trades people who bear the burden; (F) The expenses incurred in providing the facilities are borne by the State out of whatever source it may be; and (G) The facilities, convenience or service may be provided by the State or an agency of the State.
It is also significant to note at this stage that the tax which was subject-matter of challenge in the case of Automobile Transport AIR 1962 SC 1406 , though levied as a road tax was not specifically earmarked for the building and maintenance of the roads as taken note of in paragraph 21 of the judgment in the case of Automobile Transport AIR 1962 SC 1406 in spite of which it was held to be compensatory simply by taking into consideration the fact that the income from the motor vehicle in the year 1952-53 was Rs. 34 lacs while the expenditure on new roads and maintenance of old roads was about Rs. 60 lacs and that in the year 1954-55 the estimated income from the motor vehicle tax was Rs. 35 lacs while the estimated expenditure was Rs. 65 lacs and, therefore, the State was charging the users of the motor vehicles something in the neighbourhood at 50 per cent of the cost incurred in maintenance and making roads as is evident from a perusal of paragraph 19 of the judgment in the case of Automobile Transport AIR 1962 SC 1406 . When the facts and figures submitted by the respondent/State are judged on the basis of the aforementioned parameters, the objection of the petitioner in respect of the aforesaid figures deserves to be rejected, as the expenditure incurred by the State or its agency, the urban and local bodies in the present case in construction and repair of roads, tarring of roads, constructing shops and buildings for the trades people, providing water supply to the commercial and industrial sectors, providing street lights, sanitation, solid waste management facility, fire fighting and environment in parks, etc., are provided by the urban and local bodies, are made available for use of the trades people, are utilised by the trades people for better conduct of their trade and business and are factors that affect and have an impact on trade and business as stated in the case of Nataraja Mudaliar [1968] 22 STC 376 (SC); AIR 1969 SC 147 even if in some cases actual use by the trades people may be unknown.
That apart, the objections raised by the petitioners also deserve to be rejected as it has been clearly established by the State that the expenditure has been incurred by the State or its agency in providing these facilities from whatever source it may be. I am also of the considered opinion that the tax is compensatory as only 45 per cent of the cost incurred in providing the facilities is charged from the trades people whereas rest of the expenditure is borne from other sources including statutory taxes levied and recovered by the urban and local bodies under the provisions of the Act relating to municipalities and other grants. While recording these conclusions I particularly take note of the fact that the State has not furnished the figures of the total expenditure incurred by the urban local bodies in providing the facilities to the residents of the local area but have furnished figures only in respect of the expenditure incurred by the urban local bodies in the industrial and commercial sectors. In respect of the aforesaid aspect of the manner of utilisation of the tax it is significant to reiterate that the object and purpose of imposition of the entry tax was and is to do away with and prevent the urban and local bodies from imposing octroi which, had it continued to impose or reimpose, would reintroduce its alleged obnoxious features which the traders have themselves consistently opposed on the ground that they restrict and impede trade and its movement and as these urban and local bodies have suffered considerable loss of income due to abolishing of octroi, which was the main source of their revenue and as the entire revenue collected from imposition of entry tax is Undisputedly distributed amongst the urban and local bodies, after deducting two per cent therefrom towards collection charges, therefore, as far as the State is concerned, the entire revenue from the tax is utilised solely for fulfilling the object of the Act, of removing the impediments in trade, to facilitate trade and its movement and to compensate the urban local bodies for the loss of revenue caused due to abolishing octroi. In other words, there is a definite connection between the object and the subject of the levy of entry tax.
In other words, there is a definite connection between the object and the subject of the levy of entry tax. Admittedly, as the revenue from the levy of entry tax is utilised for the purpose of compensating the local bodies for the loss of revenue from abolishing octroi and to prevent them from levying octroi and as the State has given facts and figures in respect of the manner of utilisation of the octroi compensation by the local bodies, the objection of the petitioners regarding relevance of the facilities for which the tax is utilised to trade, are rendered insignificant. To put it differently though the entire 98 per cent of the revenue collected from levy of entry tax is distributed by the State to the urban and local bodies in the name of octroi compensation, it constitutes only 44 to 45 per cent of the total amount spent by the urban and local bodies on industrial and commercial sectors within their areas for providing facilities and making available factors which facilitate and effect trade. Had the local bodies been permitted to levy octroi or a local-body tax as prescribed under section 127(1)(f) of the Municipalities Act and section 132(1)(f) of the Municipal Corporation Act, the revenue generated by them from levy of octroi/local body tax would have been utilised by them for discharging their statutory obligations and performing their statutory duties as required by the law relating to Municipalities. However, as the urban and local bodies have been deprived of the revenue from levy of octroi/local body tax and in its place they are paid some amount from the collection of entry tax under the provisions of the Act as octroi compensation, it goes without saying that the tax levied under the impugned Act has been imposed only to fill up the dent or compensate the loss of revenue resulting from the abolition of octroi/local-body tax and, therefore, if the urban local bodies utilise the octroi compensation disbursed to them in discharging their statutory duties, especially those which facilitate trade or provide factors, which affect trade in the industrial and commercial sectors within their local areas, that would not, in any way, affect or detract from the nature of the tax which will continue to remain compulsorily.
For the same reasons as aforesaid the tax is not a revenue - earning measure as it does not fill the coffers of the State. In view of the aforesaid, I have no hesitation in holding that the objections and contentions of the learned counsel for the petitioners in respect of the facts and figures submitted by the State deserve to be rejected. Consequently, I also have no hesitation in holding that the State has been successful in demonstrating that the impugned tax is compensatory in nature. The next contention of the petitioners is that the respondents have increased the rate of the tax to such an extent that it has become an impediment and hindrance to trade with the passage of time. Before I advert to the factual aspect of this issue, I think it proper to take note of the fact that none of the petitioners has either alleged or given figures in respect of the decline or loss in business income, trade or earnings as a result of the increase in the rate of entry tax to demonstrate that the impugned levy has adversely affected trade and therefore is discriminatory and also constitutes a direct and immediate impediment to trade and is non-compensatory. In fact, there is no averment in the petitions to the effect that the increase in the rate of tax has in any manner adversely affected trade. From a perusal of Schedules II and III of the Act it is evident that the rate of entry tax on various goods generally still continues to range between half per cent to two per cent of the value of the goods, except in a few cases where it is more than two per cent.
From a perusal of Schedules II and III of the Act it is evident that the rate of entry tax on various goods generally still continues to range between half per cent to two per cent of the value of the goods, except in a few cases where it is more than two per cent. Levy of tax generally at the rate of half per cent to two per cent of the value of the goods cannot under any circumstances be said to be a tax at exorbitant rate or a tax which is discriminatory and acts as a direct and immediate impediment to the freedom of movement of trade, more so, when the facts and figures furnished by the State as discussed above clearly indicate that the entire revenue collected from the levy of the tax is utilised for providing trading facilities and constitutes only 45 per cent of the total amount spent by the local bodies in commercial and industrial sectors for the purposes of providing facilities which are of use to the trades people. Though the petitioners have alleged that in a few cases the rate of tax has been increased several folds and have also challenged the validity of the notifications increasing the rate of tax in that respect, I am of the considered opinion that the increase of tax in respect of a few commodities would not render the imposition of the entry tax non-compensatory as a whole, specifically, when in general the rate of tax under the Act continues to be between half per cent to two per cent. In this respect I may profitably rely upon the judgments of the Supreme Court in the cases of Hansa Corporation AIR 1981 SC 463 and Meennakshi Alias Rama Bai [1984] Supp. SCC 326. I am also of the opinion that the validity of the entry tax or the rate of tax in respect of a particular goods cannot be adjudged on the basis of the tax impact or the services rendered in lieu thereof qua an individual tax-payer for the purposes of article 301 of the Constitution of India as alleged by the petitioners.
For the purpose of adjudging as to whether a tax directly and immediately impedes the free flow of trade or whether it is compensatory in nature it is the general rate of tax, the total revenue collected from levy of the tax and the trading facilities provided to the trading community at large which have to be considered and are relevant. That apart, for the purposes of adjudging the compensatory nature of the tax with reference to article 301 of the Constitution of India when it is alleged that the tax has lost its compensatory nature due to increase in the rate of tax with the passage of time, the relevant factors to be considered are as to whether the increase in the rate of tax has directly and immediately hindered or impeded trade and its movement and whether the total revenue earned and collected as a result of the increase in the rate of tax has far exceeded the budget or money required for providing facilities to the trades people and when the increase in respect of a few goods is judged from this perspective, the contention of the petitioners loses significance as in spite of the impugned increase in the rate of tax the petitioners do not contend that trade or business has suffered a loss and as the revenue generated from collection of the tax continues to constitute only 45 per cent of the amount spent by the local bodies in providing facilities in the commercial and industrial sectors which are of use to the trades people. Therefore, I have no hesitation in holding that there is no material change in the nature and character of the impugned tax with the passage of time nor can it be said that the rate of tax has been, with the passage of time, increased to such an extent as to render the tax confiscatory and non-compensatory. I am also of the considered opinion that in view of the aforementioned facts and circumstances the State has successfully demonstrated that the impugned tax is compensatory in nature and has not lost its character of being compensatory with the passage of time as alleged by the petitioners.
I am also of the considered opinion that in view of the aforementioned facts and circumstances the State has successfully demonstrated that the impugned tax is compensatory in nature and has not lost its character of being compensatory with the passage of time as alleged by the petitioners. As far as the challenge to the constitutional validity of the several notifications issued by the State, mostly under section 4A of the Act, on the ground that few persons and goods have been selected for the purposes of imposing higher rate of tax, is concerned, the issues stand concluded by the judgments of this court in the cases of Associated Cement Companies Ltd. v. State of M.P. AIR 1996 MP 116 and Mysore Cement v. State of Madhya Pradesh [2006] 143 STC 432 (MP); [2003] 2 STJ 615 wherein prescriptions of such higher rates under section 4A were held to be valid. Though the petitioners have also challenged the notifications on the ground that they violate article 301 as well as articles 14 and 19 of Constitution of India on the ground that the rates of tax have been increased to such an extent that it has become an impediment and hindrance to trade with the passage of time, as noted in the preceding paragraph, the petitioners have neither alleged nor given figures to demonstrate and establish that there has been any decline or loss in the business income of the trade or earning of the petitioners as a result of increase in the rate of entry tax, nor have they, in any manner, stated or demonstrated that the impugned levy has adversely affected their trade and, therefore, constitutes a direct and immediate impediment on trade and is non-compensatory. I am also bound to take note of the fact that the learned counsel for the petitioners, during arguments, have fairly conceded that in spite of the increase in the rate of tax by the impugned notifications the actual and total tax impact on the goods, imported within the local area in comparison to local goods, still remains practically the same. This statement also indicates that the rate of tax has been increased by the impugned notification with a view to equalise and remove the disparity between the rate of tax applicable to local and imported goods.
This statement also indicates that the rate of tax has been increased by the impugned notification with a view to equalise and remove the disparity between the rate of tax applicable to local and imported goods. In view of the aforesaid aspects I do not find any merit in the challenge to the notification made by the petitioners and I find support for the view taken by me from the judgments of the Supreme Court in the cases of Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 (SC); AIR 1990 SC 820 and Shri Digvijay Cement Co. Ltd. v. State of Rajasthan [2000] 117 STC 395 (SC); [2000] 1 SCC 688. For the purposes of clarity the conclusions recorded may be summarised as under : (A) The entry tax imposed by the impugned Act in the circumstances prevailing in the State of Madhya Pradesh does not directly and immediately hamper or hinder the free flow of trade and, therefore, does not fall foul of article 301 of the Constitution of India. (B) That in view of the background history and the facts and circumstances prevailing in the State of Madhya Pradesh entry tax imposed under the impugned Act by its very nature and object facilitates trade and its movement and is compensatory. (C) The revenue collected from imposition of the impugned tax is utilised by the State and its agencies like the urban and local bodies for the purposes of providing facilities which affect trade and which are for the use of the trades people and, therefore, the impugned tax is compensatory in nature. (D) That the impugned tax has not become non-compensatory with the passage of time. (E) The impugned notifications do not violate articles 14, 19 and 301 of the Constitution of India. It would be apposite to state that apart from the issues taken up by me in my separate judgment, I am in respectful agreement with my learned brother Dipak Misra, J., in respect of the analysis made by him of the pleadings and contentions of the parties. In view of the aforesaid facts and circumstances, I find no merit in the petitions which are accordingly dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs.