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W.P. 565 of 2012
Whirlpool of India Ltd.
Vs.
State of West Bengal & Ors.
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U.A.L. Industries Ltd. & Anr.
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Senior Joint Commissioner, Sales Tax & Ors.
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W.P. 595 of 2012
Pepsico India Holdings Pvt. Ltd.
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The State of West Bengal & Ors.
Indian Kanoon - http://indiankanoon.org/doc/111274715/
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
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Tata Teleservices Limited
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W.P. 619 of 2012
Philips Carbon Black Ltd. & Anr.
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State of West Bengal & Ors.
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Ranbaxy Laboratories Ltd.
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State of West Bengal & Ors.
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W.P. 624 of 2012
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W.P. 627 of 2012
Marico Limited
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W.P. 628 of 2012
Cadbury India Limited
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The State of West Bengal & Ors.
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W.P. 629 of 2012
Nokia India Private Limited
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The State of West Bengal & Ors.
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W.P. 646 of 2012
Ambuja Cements Ltd. & Anr.
Indian Kanoon - http://indiankanoon.org/doc/111274715/
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
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State of West Bengal & Ors.
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W.P. 648 of 2012
Wacker Metroark Chemicals Pvt. Ltd. & Ors.
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State of West Bengal & Anr.
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W.P. 649 of 2012
Dutch Tech Tools Pvt. Ltd.
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State of West Bengal & Ors.
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W.P. 659 of 2012
Vodafone East Ltd. & Anr.
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The State of West Bengal & Ors.
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W.P. 662 of 2012
Vodafone South Ltd. & Anr.
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The State of West Bengal & Ors.
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W.P. 673 of 2012
Rohit Ferrotech Ltd. & Anr.
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The State of West Bengal & Ors.
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W.P. 674 of 2012
Impex Ferrotech Ltd. & Anr.
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The State of West Bengal & Anr.
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W.P. 675 of 2012
Impex Metal & Ferro Alloys Ltd. & Anr.
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The State of West Bengal & Anr.
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Section 2(2) of the impugned Act interalia provides that words and
expressions used but not defined in the impugned Act but defined in the West
Bengal Sales Tax Act, 1994 or the West Bengal Value Added Tax, 2003 would
have the same meanings as assigned to them in those Acts to the extent they
are not inconsistent with the impugned Act and the Rules made thereunder.
The relevant Sections of the impugned Act are set out hereinbelow for
convenience.
"Section 4. Incidence and levy of tax-- (1) Subject to the-provisions of
this Act, there shall be levied a tax under this Act which shall be payable
by a dealer or an importer other than a dealer, on the entry of all or any
Indian Kanoon - http://indiankanoon.org/doc/111274715/
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
specified goods into a local area for consumption, use or sale therein, on
his taxable turnover of imports or on the quantity or weight of any
specific goods as may be notified by the State Government at such rate or
rates as may be specified under sub-section (2).
(3)
The State Government shall have regard to financial needs for
development and facilitation of trade, commerce and industry in the local
areas of the State while specifying the rate or rates of tax under subsection (2).
(4)
Subject to such restrictions and conditions as may be prescribed,
no tax. under this Act shall be levied, and accordingly the import value
of goods shall not be included in turnover of imports of a dealer or an
importer other than a dealer, in respect of-
(a)
entry of specified goods dispatched, at the time of entry into a
local area, directly to a place for immediate export of such goods out
of the territory of India within the meaning of sub-section (1) of section
5 of the Central Sales Tax Act. 1956. from such place in the same form
in which such goods have been entered into the local area; 74 of 1956.
(b)
entry of specified goods dispatched at the time of entry into a
local area directly to a place outside the State in the same form in
which such goods have been entered into the local area; and
(c)
such other entry of goods, either in full or in part, as
may be prescribed.
(5)
The expression "taxable turnover of imports" as stated in subsection (1) shall mean, in respect of a dealer or an importer other than a
dealer liable to pay tax on the entry of specified goods into a local area
for consumption, use or sale therein, that part of his turnover of imports
which remains after deducting therefrom-(a)
turnover of imports relating to entry of specified goods into a
local area, if it is proved to the satisfaction of the Commissioner
that such goods have already been subjected to tax under this Act
Indian Kanoon - http://indiankanoon.org/doc/111274715/
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
(b)
turnover of imports relating to entry of specified goods into a
local area, if it is proved to the satisfaction of the Commissioner
that such goods have been purchased in the same form against a
tax invoice, or invoice, or bill issued under the West Bengal Value
Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, by
a dealer registered under the West of Bengal Value Added Tax Act,
2003, or the West Bengal Sales Tax Act, 1994, as the case may
be; (West Ben. Act XXXVII of 2003 West Ben. Act XLIX of 1994)
(c)
turnover of imports relating to entry of specified goods into a
local
area
where it is proved to
the satisfaction of
the
Commissioner that such goods have been transported from within
West Bengal from another place of business of such dealer or
importer other than a dealer;
(d)
such other turnover of imports, either in full or in part, as
may be prescribed."
(2) Any exemption notified under sub-section (1) may be subject to such
restrictions and conditions as may be specified in the notification.
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
"Section 15.
Establishment of fund
- (1) There shall be
established for the purposes of this Act, a fund to be called the West
Bengal Compensatory Entry Tax Fund.
(2)
The fund shall be under the control of the State Government and
there shall be credited thereto (a)
any sum of money credited under section 16;
(b)
any sum of money credited under section 17;
(c)
any sum realised by the State Government in carrying out
its function under this Act or in the administration of this
Act;
(d)
any fund provided by the Central Government for the
development
or
facilitating
the
trade,
commerce
and
industry in the State as mentioned in section 18.
(3)
The balance to the credit of the Fund shall not lapse at the end of
the financial year."
"Section 16.
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
the levy under this Act shall first be credited to the Consolidated Fund of
West Bengal, and the State Government may, if the State Legislature by
appropriation made by law in this behalf so provides, credit such
proceeds to the Fund from time to time, after deducting the expenses of
collection for being utilized exclusively for the purposes of this Act."
"Section 17.
Grants and loans by state Government - The State
Government may, after due appropriation made by the State Legislature
by law in this fore, credit in the Fund, by way of grants or loans, such
sums or money as the State Government may consider necessary."
"Section 18.
Utilization of proceeds of levy - (1) The proceeds of
the levy under this Act, net of the cost of collection and incidental
expenses, shall be utilized for the development or facilitating the trade,
commerce and industry in the State which shall include the following:-
(a)
construction, development and maintenance of roads and
bridges for linking the market and industrial areas;
(b)
construction, development and maintenance of transport
hubs and cold storage facilities wherever possible;
(c)
construction, development and maintenance of linking the
markets
and
industrial
areas
to
railway
stations,
waterways and airports, wherever possible;
(d)
construction, development and maintenance of railway overbridges and sub-ways;
ports,
(e)
creating infrastructure for supply of electricity and water to
industries and other commercial complexes;
(f)
creating,
development
and
maintenance
of
other
infrastructure for the furtherance of trade, commerce and industry
in general;
(g)
providing finance, aids, grants and subsidies for creating,
developing and maintaining pollution free environment in the
concerned areas;
(h)
any other purpose connected with the development of trade,
commerce and industry or for facilities relating thereto;
(i)
10
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
(2)
(b)
identify the areas which require immediate development or
maintenance of infrastructure and other facilities and allot
proceeds of tax under this Act for the purposes specified in subsection (1);
(c)
ensure that the proceeds of tax collected under this Act, net
of the cost of collection and incidental expenses, are not-much
more than the amount actually required for development of local
areas for facilitating trade, commerce and industry in the State."
"Section 19.
Maintenance of accounts
- The State Government
shall maintain proper accounts and other records, such forms in and in
such manner, as may be prescribed."
"Section 20.
Administration of Fund - The State Government shall
administer the Fund and take such decisions regarding investment in
the development or facilitating the trade, commerce and industry in the
State."
"Section 22.
Power of State Government to make rules - (1) The
State Government may, by notification, make rules, with prospective or
retrospective effect, for carrying out the purposes of this Act.
(2)
In particular and without prejudice to the generality of the
foregoing power, such rules may provide for all or any of the matters
which under any provision of this Act are required to be prescribed, or to
be provided for, by rules.
(3)
In making any rules under this section the State Government may
direct that a breach thereof shall be punishable with fine not exceeding
one thousand rupees and, when the offence is a continuing one, with a
daily fine not exceeding one hundred rupees during the continuance of
such offence."
Mr. Binod Poddar, Senior Advocate appearing with Mr. Sumeet Gadodia
and Mr. Somak Basu, on behalf of the petitioners, in W.P. No.11407 (W) of
2012, Tata Steel Ltd. Vs. State of West Bengal, Mr. S.K. Kapur, Senior
Indian Kanoon - http://indiankanoon.org/doc/111274715/
11
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar submitted that the impugned Entry Tax Act is violative of
Article 301 of the Constitution of India, which guarantees free trade,
commerce and intercourse throughout the territory of India, read with Article
304 of the Constitution of India which enables the state to impose on goods
imported from other States or Union Territories, any tax to which similar
goods manufactured or produced in that State are subject, so that there is no
discrimination between goods so manufactured or produced in the State and
those brought from outside the State and also to impose restrictions on
freedom of trade or commerce in public interest.
Mr. Poddar submitted and rightly that the impugned Entry Tax does not
seek to impose tax to which similar goods manufactured or produced in the
State of West Bengal are subject, to place goods manufactured or produced in
the State at the same level with goods brought from outside the State.
Indian Kanoon - http://indiankanoon.org/doc/111274715/
12
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar argued that in the absence of prior sanction of the President
of India, the impugned Entry Tax Act was hit by Article 304(b) of the
Constitution of India, since no Bill for enactment or amendment in law to
impose restrictions on freedom of trade, commerce or intercourse with or
within the State could be introduced or moved without the previous sanction
of the President, if such enactment or amendment was proposed in public
interest.
Mr. Poddar submitted that taxing laws are not excluded from the
operation of Article 301 of the Constitution of India. Mr. Poddar submitted
that a taxing law which purports to impose a tax on inter-State or interregional trade, commerce and intercourse can interfere with the right of
freedom of trade, commerce and intercourse throughout the territory of India
guaranteed under Article 301 of the Constitution of India.
In support of his submission that taxing laws amount to restrictions on
the freedom of trade, commerce and intercourse throughout the territory of
India. Mr. Poddar cited the judgement of Constitutional Bench of the Supreme
Court in Atia Bari Tea Company Limited Vs. State of Assam reported in
AIR 1961 SC 232.
13
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr.
Poddar
submitted
that,
in
Bhagatram
Rajiv
Kumar
Vs.
The Supreme Court reiterated this view in State of Bihar Vs. Bihar
Indian Kanoon - http://indiankanoon.org/doc/111274715/
14
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar also cited the decision of the Constitution Bench of the
Supreme Court in Jindal Stainless Ltd. (2) & Ors. Vs. State of Haryana &
Ors. reported in (2006) 7 SCC 241
"16.
15
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
16
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar submitted that the basic difference between a tax and a fee
or a compensatory tax was, that the former was based on the concept of
burden, whereas the latter was based on the concept of recompense and/or
reimbursement. For a tax to be compensatory, there had to be some link
between the quantum of tax and the facilities or services for which the tax
was being imposed.
Mr. Poddar submitted that Section 18 of the impugned Entry Tax Act
prescribes the purposes for which proceeds of levy under the impugned Entry
Tax Act might be utilized. According to Mr. Poddar a perusal of the aforesaid
provision would demonstrate that the State, while creating the fund and
providing the purposes for which the proceeds of the fund would be spent,
has completely ignored the principle of compensatory tax by way of
17
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar argued that the creation of a fund and the purpose for
which the proceeds would be utilized, could not be said to be for the benefit
and/or interest of the trading people of the local area in which the Entry Tax
was sought to be levied. Mr. Poddar argued that the construction,
development and maintenance of roads, as contemplated under Section 18 of
the impugned Entry Tax Act could not be treated to be compensatory in
nature, so as to construe any special advantage to trade, commerce and
intercourse.
Mr. Poddar submitted that the State is bestowed with the responsibility
of providing good roads and bridges for tax paying citizens. The providing of
roads and bridges as contemplated in Section 18 of the Entry Tax Act cannot
be said to be for the benefit of the trading people of the local area who are
subjected to the levy. The maintenance and construction of roads and bridges
are met from the general revenue of the State. Irrespective of whether the
goods are transported into the State from some other State or abroad, the
State has the duty to provide facilities such as roads, bridges etc., which are
not enjoyed just by persons who bring the notified goods, but by the public in
general. No exclusive or special advantage is provided to the trading people.
Mr. Poddar next argued that the provision in Section 18(1)(i) of the
Entry Tax Act for providing financial aid, grants and subsidies to local bodies
and State Government agencies is totally vague and devoid of any particulars.
18
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
contemplated in Section 18(1) (c) of the Entry Tax Act is also a common
burden and responsibility of a welfare State and cannot be held to be
compensatory for meeting the expenses incurred for the outlay for providing
any special advantage to trade, commerce and intercourse.
Mr. Poddar argued that in Jindal Stainless Ltd. (2) (supra)
the
Mr. Poddar, thus, argued that the purpose for which the proceeds of
Entry Tax was sought to be spent could not be treated as compensatory in
nature. Mr. Poddar reiterated that the Entry Tax Act does not patently
indicate the quantifiable data, on the basis of which Entry Tax is sought to be
levied. In the circumstances, the burden was on the State, as the
service/facility provider to show by placing materials before the Court, that
the payment of compensatory tax is reimbursement and/or recompense for
the quantifiable/measurable benefit provided or to be provided to its payers.
Mr. Poddar argued that the State of West Bengal has miserably failed to
discharge its burden. No data has been provided. No attempt has been made
Indian Kanoon - http://indiankanoon.org/doc/111274715/
19
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar argued that it was not material that the Entry Tax Act was a
new Act. It was open for the State to place data which could have been in the
form of field project report, for levy of tax and utilization of its fund upon
assessment of collection of tax. Mr. Poddar submitted that the State has not
furnished particulars of even a single proposed project report or conceived
idea where the amount of Entry Tax collected would be spent. The State had,
thus, failed to discharge its burden as enunciated in the judgement of the
Constitution Bench of the Supreme Court in Jindal Stainless Steel Ltd.
(supra), as it had not placed any material before the Court to demonstrate
that payment of Entry Tax was for the reimbursement/recompense for the
Indian Kanoon - http://indiankanoon.org/doc/111274715/
20
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar strenuously contended that the Entry Tax Act not being
compensatory in nature was violative of Article 301 of the Constitution of
India and liable to be struck down. Admittedly the Act had not been
introduced after obtaining prior approval of the President of India. In support
of his submission that the impugned Entry Tax Act was not compensatory in
nature, Mr. Poddar cited the following judgements:-
(i)
390;
(ii)
ITC Limited Vs. State of Tamil Nadu & Ors. reported in (2007)
Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors.
(vi)
Steel Limited Vs. State of Jharkhand & Ors. dated 3rd April, 2012.
Mr. Poddar further argued that under Section 16 of the Entry Tax Act
the proceeds of the levy under the Entry Tax Act are to be credited to the
consolidated fund of the State of West Bengal.
Indian Kanoon - http://indiankanoon.org/doc/111274715/
21
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Referring to Section 16 of the Entry Tax Act, Mr. Poddar submitted that
the Entry Tax credited to the consolidated fund of the State of West Bengal
could only be credited to the Compensatory Entry Tax fund created under
Section 16 of the Entry Tax Act, only if the State Legislature by appropriation
made by law in that behalf, so provides.
(ii)
Mr. Poddar argued that the provision of Article 266 of the Constitution
of India, read with Section 16 of the Entry Tax Act makes it amply clear that
the proceeds under the Entry Tax Act are to be treated by the State
Government as revenue received by it. This fact is sufficient to declare the levy
as not compensatory in nature, as it loses the character of 'fee' and assumes
the character of 'tax'.
22
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Consolidated Fund of the State had to be done by way of Money Bill. Thus,
the Entry Tax collected by the State is to be treated as general revenue at the
hand of the State, at the first instance, and is to be credited into the State
Consolidated Fund. Its utilisation would directly be dependent upon
budgetary allocation to be made by the State Legislature by way of 'Money
Bill".
23
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar submitted that apart from Clause 5.3 two other Clauses i.e.
5.1 and 5.2 would demonstrate that the amount of Entry Tax collected under
the Entry Tax Act was to be mixed with the general tax collected and forming
part of the Consolidated Fund of the State.
Mr.
Poddar
submitted
that
for
determining
whether
tax
was
24
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
levying Tax on entry of Goods into a local area. The power of the State
Legislature to charge under Entry 52 of List II was in case of entry of goods
into a local area. The court is, thus, required to examine the effect of the
charging provision vis- -vis the utilisation of Fund. Entry Tax can be treated
to be compensatory only and only if the Entry Tax collected is spent only for
the benefit of the trading people of the said local area.
25
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Poddar finally argued that if goods have been subjected to tax
under the West Bengal Value Added Tax Act 2003 or the Bengal Sales Tax
Act, 1994, such goods, on their entry into a local area, would not be liable to
Entry Tax. The Section, thus, patently discriminates between goods imported
from outside the State and goods manufactured within the State. In the
matter of levy of Entry Tax, for example, if any of the writ petitioners bring
raw materials to West Bengal from outside the State, they will be liable to pay
Entry Tax. However, if they produce the same raw materials within the State
they would not be required to pay Entry Tax. Such discrimination is also
patent in Sub-section (c) of Section 4 which provides that if goods are
transported from one place of business of a dealer to another place of
business then no Entry Tax would be payable on such transfer.
(i)
ITC Limited Vs. State of Tamil Nadu & Anr. reported in (2007)
26
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
(iv)
Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & kashmir
Mr. Poddar finally argued that under Section 2 (h) of the Entry Tax Act,
the term entry of goods has been defined. The Entry Tax Act provides for levy
of tax on entry of goods from outside the country into any local area within
the State of West Bengal. By providing for levy of Entry Tax on entry of goods
from outside the country, the State Legislature has acted beyond its legislative
competence and has transgressed the power of the Parliament. In the context
of his argument, Mr. Poddar referred to Article 286 of the Constitution of India
which prevents the State Legislature from imposing tax on sale or purchase of
goods, when such sale or purchase takes place in course of the import of
goods into or export of goods out of the territory of India.
Mr. Poddar argued that it was evident from the aforesaid entries that
Parliament had exclusive jurisdiction in the matter of levy of duties on the
export and import and to frame laws in respect of trade and commerce with
foreign countries including import and export across, customs frontiers.
27
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
under the impugned Entry Tax Act, Entry Tax for delivery of such imported
goods in factories, godowns etc. in the State of West Bengal. Thus, in a
transaction which was in course of import the importer would have to pay
Entry Tax over and above import duty.
2 SCC 515;
Mr. Poddar submitted that, in enacting the impugned Entry Tax Act,
the State Legislature had nullified the effect of the judgement dated 22nd
November, 2007 of the West Bengal Taxation Tribunal in case of National
Hydro Power Corporation Limited Vs. ACCT Siliguri Circle reported in
2008 (15) VST 158 (WBTT) whereby the West Bengal Taxation Tribunal had
struck down the West Bengal State Taxes on Consumption or Use of Goods
Act 2001. Without removing the defects pointed out by the West Bengal
Taxation Tribunal, in the said Act of 2001, the legislature re-enacted the law
which was not permissible. Poddar cited the judgement of Supreme Court in
State of Tamil Nadu Vs. K. Shyam Sunder reported in (2011) 8 SCC 737
where the Supreme Court relying on its earlier judgements in Shri Prithvi
Cotton Mills Ltd. Vs. Broach Borough Municipality reported in (1969) 2
SCC 283; S.R. Bhagwat Vs. State of Mysore reported in (1995) 6 SCC 16;
Cauvery Water Disputes Tribunal reported in AIR 1992 SC 522; G.C.
Kanungo Vs. State of Orissa reported in (1995) 5 SCC 96; Madan Mohan
Pathak Vs. Union of India reported in (1978) 2 SCC 50 and K. Sankaran
28
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Nair Vs. Devaki Amma Malathy Amma reported in (1996) 11 SCC 428
held as follows:"65.
In view of the above, the law on the issue can be
summarised to the effect that a judicial pronouncement of a
competent court cannot be annulled by the legislature in exercise of
its legislative powers for any reason whatsoever. The legislature, in
order to revalidate the law, can reframe the conditions existing prior
to the judgment on the basis of which certain statutory provisions
had been declared ultra vires and unconstitutional."
Mr. S.K. Kapur, Senior Advocate appeared with Mr. Ananda Sen on
behalf of the Writ Petitioners W.P. No.464 of 2012 Bharti Bharti Airtel Limited
vs. State of West Bengal & Ors., W.P. No.465 of 2012 Bharti Telemedia
Limited Vs. State of West Bengal and W.P. 615 of 2012 Tata Teleservices
Ltd. Vs. State of West Bengal & Ors. in the Original Side adopted the
arguments advanced by Mr. Poddar and also made further arguments at
length.
Mr. Kapur reiterated that whenever a law was impugned it was the
burden of State to prove and the duty of the Court to see whether the
impugned enactment "facially or patently" indicates quantifiable data on the
basis of the which compensatory tax is to be levied and the Act must facially
indicated the benefit which is quantifiable or measurable. In Jindal
Stainless
Steel
Ltd.
(supra)
the
Supreme
Court
held
that
the
29
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
and
fulfil
certain
mandatory
requirements.
Briefly
summarized
these
parameters are:(i)
the Act must facially indicate the benefits to the payers which
the Act must indicate proportionality between the levied tax and
the benefit;
(v)
if the Act does not indicate the above features facially then the
burden is on the State to establish by placing full data and material before the
Court that the levy of the tax is a reimbursement or recompense for the
quantifiable/measurable benefit provided to is payers;
(vi)
the Court has to examine the pith and substance of the levy to
see its effect and operation. In other words, the Court has to see, what is the
scope of the operation of law;
(vii)
it is not enough to say that the levy can be shown to have "some
connection" with the facilities provided to the payers;
(viii) the rule is that "direct and immediate effect" has to be established
in respect of the levy, otherwise it will fail on the question of constitutional
validity.
30
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
(ii)
(iii)
(iv)
(v)
Mr. Kapur reiterated the submission of Mr. Poddar that no data had
been produced by the State. Mr. Kapur also argued that Section 16 provides
that proceeds of the levy under the Act would firstly be credited to the
Consolidated Fund of West Bengal. This means that from the beginning the
entry tax proceeds will be mixed up with the other funds of the State.
According to Mr. Poddar as well as Mr. Kapur this provision contravenes the
settled rule that no entry tax can be levied to augment the revenue of the
State. By making a provision that the tax realized under the Entry Tax Act
would be credited to the Consolidated Fund of West Bengal clearly offends the
rule that such a tax ought not to be levied as a means of increasing the
revenue of the State.
Mr. Kapur argued that there were grammatical errors in Section 17,
which render it unintelligible and meaningless. If the Act contains mistakes it
is not for the Court to supply the omissions. But, even leaving the
unintelligible parts aside, the use of the word 'may' in express terms confers
an option upon the State to direct that levy of Entry Tax may be credited to
the compensatory fund.
31
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Kapur further submitted that the legislature had neither legislative
authoirity nor any legislative power to reserve to itself a choice or right to elect
whether it would make a credit to the fund or not. Since the fund had to be
utilized only to provide a service/facility to the payers thereof, the mandate of
the Act should have been that all and any realizations of Entry Tax - would all
necessarily be required to be transferred to the Compensatory Fund in full.
Mr. Kapur submitted that the Act ought not to have left any choice to
the Government to transfer the full amount of the levy to the compensatory
fund.
Rather,
the
Act
should
have
facially
provided/mandate
and
Mr. Kapur submitted that the very terms of Section 18 of the Act make
it clear that the proceeds of the levy are not intended to be used to directly
provide service/facilities to the payers, which is the fundamental basis for
realization of compensatory taxes. Sub-section 1 clearly indicates by use of
the word 'may' in two places that the State has again reserved to itself
alternatives or preferences to do whatever it may choose to do with the levy at
its absolute discretion.
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Kapur emphatically argued that entry tax realized could not
generally be utilized for development or facilitating trade, commerce and
industry in the State. The application of funds had to be for the benefit of the
payers in the local areas. Mr. Kapur finally argued that the broad objects stay
out in Sub-section 9 of Section 18. There was no regard for the requirement of
proportionality or quantifiable benefit to the payers.
Referring to the West Bengal Compensatory Entry Tax Fund Rules 2012
produced at the time of hearing, Mr. Kapur submitted that it was settled law
that the provisions of the parent Act must prevail and the Rules cannot
supplant or replace the provisions of the Act. In any case rules only reiterated
that utilization of the proceeds shall be in accordance with Section 18 which
is otiose and unnecessary. Rule 4 evidences that the parameters will not be
followed because it envisages that "the criteria as well as the amounts for
allocation among concerned departments of the State Government" shall be
determined by a Committee.
Mr. Kapur further submitted that the details and what should be
facially apparent from the Act is not even to be found in the purported Rules
which are redundant and do not advance the State's argument at all.
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Khaitan argued that the Entry Tax Act is not compliant with clause
(a) of Article 304 since similar similar goods manufactured or produced in the
State of West Bengal are not subject to Entry Tax.
In terms of clause (b) of Section 4(5) of the impugned Entry Tax Act,
goods purchased from a registered dealer, against a tax invoice or invoice or
bill, issued under the West Bengal Value Added Tax Act, 2003, or the West
Bengal Sales Tax Act, 1994, are not liable to pay Entry Tax under the
impugned Entry Tax Act.
Mr. Khaitan further submitted that under the Value Added Tax Act, an
importer-dealer is compulsorily liable to obtain registration and pay tax in
respect of all his sales. A manufacturer/producer or a re-seller has to
compulsorily obtain registration and pay tax as soon as his turnover exceeds
Rs.5
lakhs,
a
petty
amount,
in
the
present
day
and
age.
manufacturer/producer or re-seller also has the option to obtain voluntary
registration even before he becomes liable to pay tax. Thus every dealer,
unless he is a petty trader, is required to be registered under the Value Added
Tax Act or the Sales Tax Act, as applicable.
34
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Khaitan submitted that in terms of clause (b) of rule 6(1) of the
West Bengal Tax on Entry of Goods into Local Areas Rules 2012, hereinafter
referred to as the Entry Tax Rules, goods manufactured in a local area of West
Bengal, using goods on which tax is paid or payable under the Act, are not
liable for tax on entry into another local area in the State. In other words,
goods manufactured in the State of West Bengal using any raw material,
plant, machinery, equipment, etc. on which entry tax is paid/payable are not
subject to entry tax upon entry into any local area in the State.
Mr. Khaitan submitted that the effect of Rule 6(1)(b) of the Entry Tax
Rules is that goods manufactured or produced in the State of West Bengal are
not subject to Entry Tax. Such manufactured goods would invariably be a
new commercial commodity distinct and different from the imported raw
material, plant, machinery, equipment, etc. on which entry tax is paid.
Payment of Entry Tax on raw materials, etc. is not payment of tax on
manufactured goods.
Mr. Khaitan submitted that it is thus evident that the provisions of the
impugned Entry Tax Act clearly discriminate between imported goods and
goods manufactured or produced in the State of West Bengal. The former are
subject to tax whereas the latter are not. The provisions of the Act are not
35
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Khaitan further submitted that that Rule 5(u) of the West Bengal
Compensatory Entry Tax Fund Rules, 2012 is ultra vires the Entry Tax Act
and the constitution of India.
Mr. Khaitan submitted that Section 22 of the Entry Tax Act enables the
making of rules for carrying out the purposes of the said Act. When the Act
provides that appropriation out of the Consolidated Fund shall be made by
the State Legislature by law for credit to the Entry Tax Fund, any rule made
in exercise of the power under section 22 of the Act cannot provide for such
appropriation. Rule 5(u) of the Entry Tax Fund Rules is ultra vires the
36
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
provisions of the Entry Tax Act and also ultra vires the provisions of the
Constitution.
37
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Khaitan submitted that Article 283 does not deal with appropriation
of moneys out of the Consolidated Fund of the State. Detailed provisions in
respect of appropriation are contained in Chapter III of Part VI of the
Constitution adverted to hereinbefore. Article 283 deals with custody of the
Consolidated Fund, payment of moneys into and withdrawal of moneys
therefrom, which is to be regulated by law made by the State Legislature.
Until the State Legislature makes such law, the Governor of the State can
make rules for such regulation.
Mr.
Khaitan
submitted
that
"withdrawal
is
not
the
same
as
38
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Khaitan submitted that the act does not provide for compulsory!
mandatory appropriation of the proceeds of the levy to the Entry Tax fund.
Mr. Khaitan submitted that the scheme of the Act is that the proceeds of the
levy will first be credited to the Consolidated Fund. Then the State Legislature
has to appropriate moneys out of the Consolidated Fund for credit to the
Entry Tax Fund and thereafter the moneys credited to the Entry Tax Fund
shall be utilised for the purposes specified under section 18 of the Act. The
utilisation cannot take place if the State Legislature does not appropriate by
law any money for credit to the Entry Tax Fund. Whether or not the proceeds
of the levy under the Act shall be credited to the Entry Tax Fund is dependent
entirely on the State Legislature. The State Legislature which has made the
Act, has reserved to itself the power to decide whether the proceeds of the levy
under the Act or any part thereof shall be appropriated out of the
Consolidated Fund for credit to the Entry Tax Fund.
Mr. Khaitan submitted that Credit to the Entry Tax Fund and therefore,
utilisation is entirely dependent on appropriation by law by the State
Legislature. It is settled law that there is no estoppel against the Legislature.
It is clear that the Act does not contain any compulsory/ mandatory provision
for credit of the proceeds of the levy to the Entry Tax. Fund to ensure its
utilisation for the purposes enumerated in section 18. The levy under the Act
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
is not compensatory.
Mr. Khaitan submitted that Goods manufactured in the State are sold
not only within the State but also in the other States and are also exported
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Khaitan submitted that all the States do not impose entry tax. If the
burden of the levy is taken into account, the cost of goods manufactured in
West Bengal by using raw materials, plant, machinery, equipment, etc.
imported from outside the State would obviously be higher as compared to the
cost incurred by a similarly placed manufacturer/ producer in a State which
does not impose any entry tax. Thus, if the manufacturer/ producer in the
State of West Bengal were to pass on the burden of the levy as part of the
price
Of
his
finished
goods,
his
goods
would
become
costlier
aid
41
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
materials required for export production can be imported duty free. Even
indigenous raw materials can be procured duty-free. There are also special
schemes granting export benefits for exports to South East Asian countries.
Again, units located in Special Economic and/or Export Zones and/or 100%
Export Oriented Undertakings are not liable to pay any entry tax and enjoy a
distinct cost advantage. The object of all such provisions/ schemes made by
the Government of India is to ensure that Indian goods are competitively
priced and can stand in competition in the international market. It is
submitted that the levy under the Act is entirely counter-productive since it
makes the goods manufactured/ produced in the State of West Bengal by an
importer-manufacturer costlier and uncompetitive.
Counsel appearing for some of the other writ petitioners namely Mr.
Samit Talukdar and Mr. Moinak Bose adopted and elaborated on the
submissions made by Mr. Poddar, Mr. Kapur and Mr. Khaitan, and as such
their arguments are not separately recorded, to avoid repetition and prolixity.
Mr. Bose cited International Tourist Corporation Vs. State of
Haryana reported in (1981) 2 SCC 318 and the judgement of the Division
Bench in Central Coalfields Ltd. Vs. the State of Jharkhand. Mr. Bose
further argued that a fee is compensatory if that particular fee improves the
42
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
flow of trade, and if so, it would be outside the purview of Article 301.
Mr. Mazumdar submitted that there were trade barriers raised by the
Indian States in exercise of their legislative powers and the Constitutionmakers had to make provisions with regard to those trade barriers as well.
The evolution of a federal structure or a quasi-federal structure necessitated
distribution of powers and basic part of our Constitution relates to that
distribution with the three legislative lists in the Seventh Schedule as noticed
in Automobile Transport (Rajasthan) Ltd. Vs. State of Rajasthan reported
in (1963) 1 SCR 491.
The object of Part XIII was to maintain the economic unity of the nation.
Part XIII of the Constitution, which contains the provisions relating to trade,
commerce and intercourse within the territory of India. Article 301 of the
Constitution guarantees the freedom of trade, commerce and intercourse
embodies the Constitutional philosophy that the economic unity of the
country will provide the main sustaining force for the stability and progress of
43
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
(b)
by virtue of anything in this Act have power to impose
any tax, cess, toll, or due which, as between goods
manufactured or produced in the Province and similar goods
not so manufactured or produced, discriminates in favour of the
former, or which, in the case of goods manufactured or
produced outside the Province, discriminates between goods
manufactured or produced in one locality and similar goods
manufactured or produced in another locality.
(2)
Any law passed in contravention of this section shall, to
the extent of the contravention, be invalid."
Mr. Mazumdar pointed out that the founding fathers of the Constitution
while incorporating commerce clause in Part XIII of the Constitution were also
inspired by commerce clause contained in Section 92 of the Australian
Constitution, which reads thus:"On the imposition of uniform duties of customs, trade,
commerce, and intercourse among the States, whether by
means of internal carriage or ocean navigation, shall be
absolutely free."
44
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Constitution of India.
The Supreme Court, inter alia held that the content of freedom provided
by Article 301 is larger than the freedom contemplated by Section 297 of the
Constitution Act of 1935. If the transport or the movement of goods is taxed
solely on the basis that the goods are thus carried or transported that directly
affects the freedom of trade as contemplated by Article 301.
The Supreme Court held in Atiabari (supra) 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 Part XIII of the Constitution of India. The Supreme Court, however,
clarified that only taxes which directly and immediately restricted trade would
fall within the purview of Article 301. The Constitution Bench of the Supreme
Court followed the ratio laid down by Privy Council in Commonwealth of
Australia Vs. Bank of New South Wales wherein it was held in the context
of Section 92 of the Australian Constitution that regulation of trade,
commerce and intercourse among the State is compatible with its absolute
freedom, and that Section 92 is violated only when a legislative or executive
act operates to restrict such trade, commerce and intercourse directly and
immediately as distinct from creating some indirect or consequential
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
It appears that the judgement in Atiabari (supra) has been referred for
reconstruction to a Larger Bench. However, no decision has yet been taken by
the Larger Bench. The law laid down in Atiabari (supra) is binding on this
Court and this Court cannot take any contrary view only because a foreign
judgement relied upon in Atiabari (supra) has been reversed.
Mr. Mazumdar argued that the ration laid down in Atiabari (supra)
was revisited by Seven Judges Constitution Bench in Automobile Transport
(supra).
The
Constitution
Bench
judicially
evolved
the
concept
of
and
(b)
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 aerodrome is no barrier or burden
or deterrent to traders who, in their absence, may have to take a
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
longer
or
less convenient or
more
expensive
compensatory taxes are no hindrance to anybody's freedom so
long as they remain reasonable.
route.
Such
(c)
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 hindrance.
(d)
Regulatory measures which 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.
(e)
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.
(f)
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. it would not 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.
(g)
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.
(h)
Creation of separate fund would not be necessary. The
Constitution Bench held that-
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
"(i)
Taxing laws are not excluded from the operation of Article
301, which means tax laws do amount to restriction as held in
Atiabari (supra). It has to be examined whether such tax laws
directly
and
immediately
restricts
trade
and
commerce.
(paragraphs 6 & 47).
(ii)
Compensatory taxes constitute an exception to Article 301. It
is a judicially evolved concept in Automobile Transport case as a
part of regulatory charge. (paragraphs 31).
(iii)
Whenever any law is impugned as violative of Article 301,
the Courts will have to examine the effect of the operation of the
impugned law on the inter-State and the intra-State movement of
goods, which movement constitutes an integral part of trade.
(paragraphs 47).
(iv)
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
(v)
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. (paragraphs 43).
(vi)
Such compensatory tax may incidentally bring in netrevenue to the government but that circumstance is not an
essential ingredient of compensatory tax. (paragraphs 43).
(vii)
The act, impugned as being violative of Article 301 of the
Constitution of India, must facially indicate the benefit which is
quantifiable
or
measurable.
It
must
broadly
indicate
proportionality to the quantifiable benefit. (paragraphs 46).
(viii)
If the provisions are ambiguous or even if the Act does not
indicate facially the quantifiable benefit, the burden will be on the
State as a service/facility provider to show by placing the material
before the Court, that the payment of compensatory tax is a
reimbursement/recompense
for
the
quantifiable/measurable
benefit provided or to be provided to its payer. (paragraphs 46).
(ix)
The 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 as held by the Constitution Bench in Automobile
Transport case. (paragraphs 49).
(x)
The doctrine of 'direct and immediate effect' of a law on
trade and commerce under Article 301 as propounded in Atiabari
(supra) and the working test enunciated in Automobile Transport
(supra) for deciding whether a tax is compensatory or not vide
paragraph 19 of the Report (AIR), would continue to apply and the
test of 'some connection' indicated in paragraph 8 (of SCC) of the
judgment in Bhagatram Rajeevkumar (surpa) and followed in
State of Bihar v. Bihar Chamber of Commerce (supra) was in the
opinion of the Constitution Bench not good law. (paragraphs 53).
(xi)
The constitutional validity of various local enactments,
which were the subject matters of pending appeals, special leave
petitions and writ petitions, were directed to be disposed of in the
light of this judgement. (paragraphs 53)."
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Mazumdar could not dispute that a tax of any kind that related to
movement of goods from one part of the territory of India to another would
amount to a restriction on the right to free trade, commerce and intercourse
throughout the territory of India guaranteed by Article 301. Mr. Mazumdar,
however, argued that the tax imposed by the impugned Entry Tax Act being a
compensatory tax, it was outside the purview of Article 301 of the
Constitution of India. Mr. Mazumdar emphatically argued that the proposition
that a compensatory tax would not impede free flow of trade, commerce and
intercourse and would not offend Article 301 of the Constitution of India, as
evolved in Automobile Transport (Rajasthan) Ltd. and confirmed in Jindal
Stainless Steel Ltd. (supra) was well established. There was, thus, no
requirement for prior Presidential sanction before passing of the impugned
Entry Tax Act.
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Mazumdar argued that impugned Entry Tax Act itself provides for
creation of a compensatory Entry Tax Fund for deposit and utilization of the
proceeds of Entry Tax realized under the impugned Entry Tax Act for
facilitating trade and commerce. Mr. Mazumdar referred to the various Subsections of Section 18 where the purposes for which the proceeds of Entry Tax
are to be utilized have been enumerated. Mr. Mazumdar emphatically argued
that the services and/or facilitate set forth in Section 18 of the impugned
Entry Tax Act facilitate trade and commerce. The purposes stipulated are only
illustrative and not exhaustive.
Mr. Mazumdar submitted that the proceeds of the levy of Entry Tax
under the impugned Entry Tax Act are wholly to be utilized for the purposes
of adumbrated in Section 18 of the impugned Entry Tax Act. Thus, the
impugned Entry Tax Act satisfies the working test of a compensatory tax as
enunciated in Automobile Transport (Rajasthan) Limited (Supra).
Mr. Mazumdar pointed out that in Jindal Stainless Steel Ltd. 2
(supra) the Constitutional Bench decided the questions of law referred to it.
The various pending appeals were, however directed to be remanded to the
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
respective High Courts for hearing and adjudication in the light of the
principles enunciated in Jindal Stainless Ltd. 2 (supra) by an order
reported in 2006 (7) SCC 271.
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Mazumdar further argued that the impugned Entry Tax Act
provides for uniform, non-discriminatory rate of taxation in respect of all
goods brought from outside the State and goods manufactured/produced
locally and therefor in compliance with Article 304(a) of the Constitution of
India. In support of his submission Mr. Mazumdar cited the following
judgements:(i)
SC 147;
(ii)
Rattan Lal & Co. Vs. Assessing Authority, Patiala reported in
AIR 1970 SC 1742;
(iii)
M/s Associated Tanners. Vizianagaram, Andhra Pradesh Vs.
Commercial Tax Officer, Vizianagaram, Andhra Pradesh And Ors.
reported in (1986) 2 SCC 479;
53
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Mazumdar finally argued that Article 286 is not applicable to the
impugned tax on entry of goods into local Areas for consumption or use
therein under Entry 52, List II of the Seventh Schedule. Only the power to tax,
sales are subject to the restrictions of Article 286. Imposition of Entry Tax
under the impugned Act does not tantamount to tax on sale. Mr. Mazumdar
submitted once the goods are cleared from warehouse the importation is
complete.
Applying the principles of law enunciated by the Supreme Court in Automobile
Transport (Rajasthan) Ltd. (supra) as reiterated in Jindal Stainless Steel Ltd. (supra).
Mr. Mazumdar argued that the trend of the decisions of the various
High Courts, after pronouncement of the judgement in Jindal Stainless Ltd.
54
Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Mr. Mazumdar submitted that the impugned Entry Tax Act provided for
the imposition of a levy which is compensatory, to be used for purposes
specified therein, by creation of a compensatory Entry Tax Fund, which would
facilitate trade and commerce in the State.
In support of his submission that the impugned Entry Tax Act should
be construed as compensatory, Mr. Mazumdar cited the following judgements.
10 VST 140; Godfrey Philips India Ltd. Vs. State of Madhya Pradesh &
Ors. reported in (2008) 17 VST 467 (M.P.), 21 VST 76; Steel Authority of
India Ltd. Vs. The State of Chhattisgarh reported in 45 VST 483;
Municipal Academy of Higher Education Vs. State of Karnataka reported
in (2008) 13 VST 377 (Karnataka); 48 VST 28.
The parliament and the State Legislatures derive their power to legislate
from inter alia the provisions of Part XI of the Constitution of India, and in
particular Article 246 contained in the said part, which provides as follows:-
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Articles 286(1) and (2) of the Constitution provide as follows:"286. Restrictions as to imposition of tax on the sale or
purchase of goods.(1)
No law of a State shall impose, or authorise the imposition of,
a tax on the sale or purchase of goods where such sale or purchase
takes place(a)
outside the State; or
(b)
in the course of the import of the goods into, or export of
the goods out of, the territory of India.
(2)
Parliament may by law formulate principles for determining
when a sale or purchase of goods takes place in any of the ways
mentioned in clause (1).
Parliament alone has the power to enact laws in respect of trade and
commerce with foreign countries, Inter-State trade and commerce and duties
of customs on import and export. The relevant entries in this regard are
Entries 41, 42 and 83 of List I. Entry 41 of List I relates to "trade and
commerce with foreign countries; import and export across customs frontiers;
definition of customs frontiers". Entry 42 of List I relates to Inter-State trade
and Commerce" and Entry 83 of List I relates to "duties of customs including
export duties".
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
68.
No State can therefore by describing an item as a luxury, seek
to levy tax on its supply. It cannot be disputed that as far as U.P.
and A.P. are concerned, were it not for their interpretation of Entry
62 of List II, the tax would be referable only to Entry 54 List II. If
Entry 62 List II does not allow the taxation of goods, the levy would
not be constitutionally sustainable.
69.
In our opinion, to read Entry 62 List II as including articles of
luxury cannot allow all these constitutional restrictions to be
bypassed allowing States to levy tax on the supply of goods by
describing them as luxury goods. As has been rightly contended by
Mr Parasaran appearing for the Union of India, the supply of luxury
is nothing but the supply of goods since the goods themselves
constitute the luxury"
"93.
Given the language of Entry 62 and the legislative history we
hold that Entry 62 of the List II does not permit the levy of tax on
goods or articles. In our judgment, the word "luxuries" in the entry
refers to activities of indulgence, enjoyment or pleasure. Inasmuch
as none of the impugned statues seek to tax any activity and
admittedly seek to tax goods described as luxury goods, they must
be and are declared to be legislatively incompetent."
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
to be referable to Entry 54 of List II, which empowered the State to enact law
on sale of goods subject to the provisions of Entry 92A of List I of the Seventh
Schedule, and thus violative of Article 286(a)(b) of the Constiuttion.
In Godfrey Phillips India Ltd. (supra), the Supreme Court held that
"taxing entries must be construed with clarity and precision so as to maintain
exclusivity, and a construction of a taxation entry which may lead to
overlapping must be eschewed". Thus, where an entry describes the object of
a tax, "all taxable funds pertaining to the object are within that field of
legislation unless the fund is specifically provided for elsewhere under a
different head".
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
goods are removed from the bonded warehouse. That apart, this
Court has held in Sea Customs Act, SCR at p. 803 that in the case of
duty of customs the taxable event is the import of goods within the
customs barriers. In other words, the taxable event occurs when the
customs barriers is crossed. In the case of goods which are in the
warehouse the customs barriers would be crossed when they are
sought to be taken out of the customs and brought to the mass of
goods in the country...."
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
goods, which takes place in the course of import into, or export out
of, the territory of India. The power to levy sales tax is derived from
entry 54 of List II of the Seventh Schedule to the Constitution of
India; whereas the power to levy entry tax is derived by entry 52 of
the List II of the Seventh Schedule to the Constitution. Under entry
54, the point of levy is purchase or sale, but under entry 52, the
point of levy is the point of entry into a local area. Therefore, taxable
event under the Entry Tax Act is entry of specific goods into a local
area for consumption, use or sale therein. Viewed thus, it is clear
that levy of tax on sale or purchase, on the one hand, and the levy of
tax on entry of goods into a local area, on the other, are covered by
different entries in the Constitution and the incidence of taxation in
both the cases is different. The restriction, imposed by article
286(1)(b) of the Constitution, is in respect of the levy of tax on sale or
purchase of goods and not as regards entry of the goods into a local
area for consumption, use or sale therein and, hence, the contention
of the petitioners that levy of entry tax on goods imported from
outside the State is hit by article 286(1)(b) of the Constitution of India
has no force and is misconceived......"
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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013
Tax on entry of goods into local areas for consumption use or sale
therein, imposed in exercise of legislative power under Entry 52 of List II, is
distinct from tax on trade and commerce with foreign countries, import and
export across customs frontiers, inter-state trade and commerce, taxes on
sale or purchase goods or taxes on consignment of goods etc in course of
inter-state trade or commerce and sale or purchase of newspapers etc.
covered by Entries 41, 42, 92, 92A, 92B of List I of the Seventh Schedule to
the Constitution of India. While import takes place as soon as the goods cross
into the Indian customs territory, in case of Entry Tax, the taxable event is
the entry into the local area after coming out of the customs area. Tax on
entry of goods cannot be equated to tax on sale or purchase and is, therefore,
not hit by Article 286(1)(b) of the Constitution.
Articles 301, 302, 303 and 304 of the Constitution of India, relevant in
the context of the challenge to the impugned Entry Tax Act, are set out
hereinbelow for convenience:"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.
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commerce
and
intercourse
throughout
the
territory
of
India,
guaranteed under Article 301, subject only to the other provisions of Part XIII,
that is, subject to Articles 302 to 307 of the Constitution, but not any other
provision of the Constitution of India.
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The impugned Entry Tax Act has also been attacked as violative of
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In ITC Limited Vs. State of Tamil Nadu & Ors (supra) the Division
Bench of Madras High Court found that the impugned legislation was
discriminatory, since Entry Tax was only levied on goods imported into the
State of Tamil Nadu from outside the State, for consumption, use or sale
within the State. The Division Bench found that goods which were produced
or obtained within the State did not attract any Entry Tax at all, on their entry
into a local area within the State. The Division Bench, thus, held that the
impugned legislation was violative of Article 303(1) of the Constitution of India
in that it discriminated against States and/or gave preference to the State of
Tamil Nadu.
In Bharat Earth Movers Ltd. Vs. State of Karnataka (supra) the validity
of the Karnataka Special Tax on Entry of Certain Goods Act, 2004 was
challenged before the Karanataka High Court. The Karnataka High Court
observed:"......We also notice, the State is also discriminating between
traders who bring goods from outside the State or country to a local
area as defined under section 2(1)(h) read with section 2(1)(d) and
person who brings goods from an area within the State to a local
area in the State. Facts
would indicate that on the introduction of entry tax, manufacturers have opted to purchase raw
materials from within the State because they are less costlier since the levy of entry tax has definitely
created a tax barrier affecting the free-flow of trade, commerce and intercourse, such a tax violates
article 301 of the Constitution and therefore liable to be declared as unconstitutional. The apex court
in Vijayalashmi Rice Mill's case [2006] 147 STC 609; [2006] 6 SCC 763 held that even in the case of
imposing cess for providing facilities like roads, bridges and storage facilities in rural areas, there
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must be a broad correlation between the fee being realised and the services rendered, even for
traders who do their business in the State of Andhra Pradesh. Entry tax in Kerala, it may be noticed,
is being collected only from persons who bring goods from outside the State while persons within
the State are not burdened with the levy which is discriminatory and violative of article 14 of the
Constitution of India. The decision in Rajan's case [2003] 133 STC 598 (Ker); [1995] 2 KLT 369, in
our view, is contrary to the principle laid down by the apex court in Jindal's case [2006] 145 STC
544 (SC); [2006] 7 SCC 241 and Vijayalashmi Rice Mill's case [2006] 147 STC 609; [2006] 6 SCC
763 and is no longer good law."
In West Bengal Hosiery Association & Ors. Vs. State of Bihar & Ors. reported in (1988) 4 SCC 134,
cited by Mr. Poddar, the Supreme Court held that Notification No.SO934 dated 1st August, 1984
exempting hosiery industries in Bihar from the levy of sales tax was discriminatory and violative of
Article 301 read with Article 304(a) of the Constitution of India.
In Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & Kashmir reported in (1996) 11 SCC 39, cited by
Mr. Poddar, the Supreme Court held that the power of the States to levy sales tax on goods imported
from other States/union territories cannot be exercised to effect discrimination between imported
goods and similar goods manufactured or produced locally.
Article 303 provides that neither the Parliament nor the Legislature of a State shall have the power
to make any law giving or authorising the giving of any preference to one State over another, or
making or authorising the making of any discrimination between State and another, by virtue of any
entry relating to trade and commerce in any of the Lists in the Seventh Schedule.
Entry Tax is not levied under any entry relating to trade or commerce in any of the List in the
Seventh Schedule. There is a distinct entry relating to Entry Tax i.e. Entry 52 of List II as observed
hereinabove. The judgements of the Supreme Court in West Bengal Hosiery Association & Ors. Vs.
State of Bihar & Ors. (supra) and Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & Kashmir
(supra) relate to entries regarding sale or purchase and/or trade or commerce.
Article 304(a) enables the legislature of a State to impose on goods imported from other State or
Union Territories, any tax to which similar goods manufactured or produced in that State are
subject, so that there is no discrimination between goods so manufactured or produced in the State
and those brought from outside the State.
The condition precedent for exercise of power by the State Legislature, to enact a law under Article
304(a) of the Constitution of India is (i) similar goods manufactured or produced in the State should
be subject to tax; (ii) there should be no such tax and/or tax at lower rate on the goods in the
State/Union territory from which the goods are imported; and (iii) the object of the imposition
should be to prevent discrimination between imported goods and similar goods manufactured or
produced within the State.
To cite an example, if the Excise Duty on wines liqueurs and other alcoholic beverages is lower in the
neighbouring State of Sikkim, than in the State of West Bengal, or if there is no excise duty at all in
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Sikkim on wines, liqueurs and other alcoholic beverages, it would be permissible for the West
Bengal State Legislature to impose a tax that covers the difference in the excise duty, in exercise of
power under Article 304(a) of the Constitution, to prevent discrimination in the State of West
Bengal between wines liqueurs and other alcoholic beverages produced in West Bengal and those of
similar quality imported from Sikkim, which would sell cheaper and thus affect adversely the market
for locally produced wines, liqueurs and other alcoholic beverages.
The object of the Entry Tax Act, as stated in its preamble is to provide for levy and collection of taxes
on the entry of certain goods into a local area of the State of West Bengal, for consumption use or
sale therein and to provide for matters connected therewith, or incidental thereto, for the purpose of
creating a Compensatory Entry Tax Fund.
From the preamble to the impugned Entry Tax Act, as well as its recital, which is almost a verbatim
reproduction of the preamble, it is patently clear that the Entry Tax Act has not been enacted in
exercise of power under Article 304(a) of the Constitution. This is also evident from the other
provisions of the impugned Entry Tax Act, apart from its preamble and recital, particularly, the
charging Section, that is, Section 4, in terms whereof a uniform tax is leviable on goods entering into
local areas, irrespective of the State or Union Territory from which the goods originate, and
irrespective of the prevalent duties and taxes on similar goods at the place from which the goods
originate.
Section 4(2) of the impugned Entry Tax Act empowers the State Government, by notification, to
specify the rate of tax to be levied under the impugned Entry Tax Act, which is not to exceed 5%
when such tax is levied on the taxable turnover of imports, and different rate or rates of tax may be
specified, in respect of different specified goods, or for the different categories of consumption or
use or sale of such specified goods, or for different local areas. The State Government is not
authorized to fix different rates depending on the place of origin of the goods, taking into account
the prevalent rates of various applicable taxes in that place. The impugned Entry Tax Act is not
protected by Article 304(a) of the Constitution.
Under Article 304(b), a State Legislature may impose such reasonable restrictions on the freedom of
trade, commerce or intercourse with or within that State, as may be required in public interest.
However, no Bill or amendment to impose restrictions on the freedom of trade, commerce or
intercourse, with or within the State, is to be introduced or moved in the Legislature of a State,
without the previous sanction of the President of India, even though the same may be in public
interest. In this case admittedly the Bill was introduced without the previous sanction of the
President of India.
It is true, that a Five Judge Bench of the Supreme Court has referred the issue of whether Article
304(a) and 304(b) of the Constitution are conjunctive or disjunctive, to a larger Bench, as pointed
out by Mr. Mazumdar. However, there is no order of the Supreme Court, of stay of proceedings, in
which the aforesaid issue may be of relevance.
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There is no authoritative pronouncement of the larger Bench of the Supreme Court, on the issue of
whether Clause (a) and Clause (b) of the impugned Entry Tax Act are disjunctive or conjunctive.
Having regard to the language and tenor of the proviso to Article 301(b), which provides that no Bill
or amendment for the purposes of Clause (b) shall be introduced or moved in the Legislature of a
State, without previous sanction of the President, this Court is of the view that clauses (a) and (b) of
Article 304 of the Constitution, are to be construed as disjunctive.
Had Clauses (a) and (b) of Article 304 been intended to be conjunctive, legislation in relation to the
purposes of Clause (b) alone, would not have been subject to the specific restriction of previous
sanction of the President. The Constitution makers have, in their wisdom, consciously not included
Clause
(a) in the proviso.
It is well settled that the word 'and' may be construed disjunctively and read as 'or' to carry out the
intention of the Legislature, as held by the Supreme Court in S. Krishnan Vs. State of Madras
reported in AIR 1951 SC 301 and in Ishwar Singh Bindra Vs. The State of Uttar Pradesh reported in
AIR 1968 SC 1450, and certainly, when there is compelling reason to do so.
None of the counsel appearing on behalf of the writ petitioners have seriously argued that Clauses
(a) and (b) of Article 304 are conjunctive and not disjunctive. If this Court were to take a contrary
view, any statute enacted in public interest, imposing the most reasonable restrictions on free
movement of trade and commerce, with the previous sanction of the President, would be exposed to
attack on the ground of non-conformity with Article 304(a). In this case too, this Court has found
that the impugned Entry Tax Act is not in furtherance of Article 304(b).
In Atiabari Tea Company Ltd. Vs. State of Assam reported in AIR 1961 SC 232 the majority of the
Constitution Bench of the Supreme Court held as follows:"50. ...On a careful examination of the relevant provision 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 Art. 301 was larger than the freedom contemplated by S.297
of the Constitution Act of 1935, and whatever else it may or may not include, it
certainly includes movement of trade which is of the very essence of all trade and is
its integral part. If the transport or the movement of goods is taxed solely on the basis
that the goods are thus carried or transported that, in our opinion, directly affects the
freedom of trade as contemplated by Art. 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 Art. 301 would turn to be illusory. When Art. 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
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302. Similarly, a law made by the State Legislature in compliance with the conditions
imposed by Article 304 shall not be hit by Article 301. Article 301 thus provides for
freedom of inter-State as well as intra-State trade and commerce subject to other
provisions of Part XIII...."
"38. In the generic sense, tax, toll, subsidies, etc. are manifestations of the exercise of the taxing
power. The primary purpose of a taxing statute is the collection of revenue. On the other hand,
regulation extends to administrative acts which produces regulative effects on trade and commerce.
The difficulty arises because taxation is also used as a measure of regulation. There is a working test
to decide whether the law impugned is the result of the exercise of regulatory power or whether it is
the product of the exercise of the taxing power. If the impugned law seeks to control the conditions
under which an activity like trade is to take place then such law is regulatory. Payment for regulation
is different from payment for revenue. If the impugned taxing or non- taxing law chooses an activity,
say, movement of trade and commerce as the criterion of its operation and if the effect of the
operation of such a law is to impede the activity, then the law is a restriction under Article 301.
However, if the law enacted is to enforce discipline or conduct under which the trade has to perform
or if the payment is for regulation of conditions or incidents of trade or manufacture then the levy is
regulatory. This is the way of reconciling the concept of compensatory tax with the scheme of
Articles 301, 302 and 304. 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. This example
indicates the difference between taxing and regulatory. powers (see Essays in Taxationby
Seligman)." "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. ....In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee,
the value of the questionable benefit is represented by the costs incurred in procuring the
facilities/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"....From the point of view of the Government, a compensatory tax is a charge for offering
trading facilities.........Compensatory taxes, like fees, are always proportional to benefits. They are
based on the principle of equivalence. ......... 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."
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"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 cost 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."
"46. ......whenever a law is impugned as violative of Article 301 of the Constitution, the Court has to
see whether the impugned enactment facially or patently indicates quantifiable data on the basis of
which the compensatory tax is sought to be levied. The Act must facially indicate the benefit which is
quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. if
the provisions are ambiguous' or 'even if the Act does not indicate facially the quantifiable benefit,
the burden will be on the State as a service/facility provider to show by placing the material before
the Court, that the payment of compensatory tax is a reimbursement/recompense for the
quantifiable/measurable benefit provided or to be provided to its payer(s)"
After the judgement of the Constitution Bench was pronounced in Jindal Stainless Ltd. (2) (supra)
the pending appeals were listed before a two judge Bench of the Supreme Court for adjudication in
the light of the law as enunciated by the Constitution Bench. In Jindal Stainles Ltd. (3) Vs. The State
of Haryana reported in (2006) 7 SCC 271. The Supreme Court found that data had not been placed
before the High Courts to determine whether the impugned levies were 'compensatory' as per the
requirements laid down in Jindal Stainless Ltd. (2) (supra), and accordingly remitted the respective
writ petitions to the concerned High Courts for adjudication. The parties were permitted to bring
relevant facts on record in the writ petition in the High Court.
In Jaiprakash Associates Limited Vs. State of Madhya Pradesh & Ors. reported in (2009) 7 Supreme
Court Cases 339 Dr. Arijit Pasayat and S.H. Kapadia, JJ., considering the importance of the issues
relating to Article 301 and 304 and Part XIII of the Constitution, referred the following questions to
a larger bench in terms of Article 345(3) of the Constitution:"(1) Whether the State enactments relating to levy of entry tax have to be tested with
reference to both clauses (a) and (b) of Article 304 of the Constitution for
determining their validity and whether clause (a) of Article 304 is conjunctive with or
separate from clause
(b) of Article 304?
(2) Whether imposition of entry tax levied in terms of Entry 52 List 11 of the Schedule
VII is violative of Article 301 of the Constitution? If the answer is in the affirmative
whether such levy can be protected if entry tax is compensatory in character and if
the answer to the aforesaid question is in the affirmative what are the yardsticks to be
applied to determine the compensatory character of the entry tax?
.............
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(8) Whether the non-discriminatory indirect State tax which is capable of being
passed on and has been passed on by traders to the consumers infringes Article 301
of the Constitution? .............
(10) Whether a levy under Entry 52 List II, even if held to be in the nature of a
compensatory levy, must, on the principle of equivalence demonstrate that 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) to be provided in the "local area" concerned
and Whether the entire State or a part thereof can be comprehended as local area for
the purpose of entry tax?
In Jindal Stainless Ltd. and Anr. (4) Vs. State of Haryana reported in (2010) 4 SCC 595, the States
whose Entry Tax Laws had been challenged, contended that the tests propounded in Atia Bari Tea
Company Limited (supra) and Automobile Transport (Rajasthan) Limited (supra) had failed to
strike a balance between the freedom of trade and commerce under Article 301 of the Constitution
of India, and the authority of the States to levy taxes under Article 245 and 246 of the Constitution,
read with the appropriate legislative entries in the Seventh Schedule to the Constitution of India.
The States sought reconsideration of the decisions of the Supreme Court in Atia Bari Tea Company
Limited (supra) and Automobile Transport (Rajasthan) Limited (supra) by a larger bench.
The Supreme Court was of the view that certain aspects which needed the consideration of a larger
Bench of the Supreme Court were interplay and interrelationship between Article 304(a) and
304(b); the significance of the non obstante clause in Article 304; the balancing of freedom of trade
and commerce under Article 301 vis a vis the authority of the State Legislature to levy taxes under
Article 245 and 246 of the Constitution of India, read with the appropriate legislative entries in the
Seventh Schedule, particularly in the context of movement of trade and commerce. The Five Judge
Bench directed that the batch of cases be placed before the Chief Justice of India for constituting a
larger bench for reconsideration of the judgements of the Supreme Court in Atia Bari Tea Company
Limited (supra) and Automobile Transport (Rajasthan) Limited (supra).
The questions referred to the larger bench of the Supreme Court are yet to be answered. Even
though there is no authoritative decision of the Supreme Court directly dealing with the issue of
applicability of Articles 301 and 304 of the Constitution of India to a State law imposing a
reasonable Entry Tax in exercise of its legislative power under Entry 52 of List II of the Seventh
Schedule to the Constitution, the law laid down inter alia in Atiabari Tea Company Ltd. (supra),
Automobile Trnasport (Rajasthan) Ltd. (supra) and Jindal Stainless Ltd. (2) (supra) relating to taxes
which affect movement of goods still prevail.
The validity of the impugned Entry Tax Act, therefore, has to be decided on the basis of the law
pronounced by the Supreme Court in Jindal Stainless Steel Ltd. (supra), and the other important
judgments of the Supreme Court, including the judgement of the Supreme Court in Atia Bari Tea
Company Limited (supra) and Automobile Transport (Rajasthan) Limited (supra).
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Mr. Avrotosh Mazudar submitted that the writ petitions were sketchily drafted. In the absence of
detailed pleadings, the writ petitions were liable to be dismissed, since presumption is in favour of
the constitutionality of a Statute and the burden is on those questioning the Act, to show that the Act
is ultra vires and invalid.
In support of his aforesaid submission, Mr. Mazumdar cited R. Samthil Babu Vs. State of Tamilnadu
reported (2009) 2 SCC 309, where the Constitutional validity of the Tamilnadu Motor Vehicles
Taxation (Amendment) Act, 1998, increasing the rate of tax in respect of contract carriage from
Rs.1,500/- per seat per quarter to Rs.2,000/- per seat per quarter and later to Rs.3,000/- per seat
per quarter, was under challenge.
In R. Samthil Babu Vs. State of Tamilnadu (supra) the challenge rested on the ground that tax had
been imposed indiscriminately, to cross subsidise stage carriage, and uneven burden had been
placed on the owners of contract carriage, which had no nexus with the services or amenities
provided. The levy was impugned as discriminatory and violative of Article 14 of the Constitution of
India. The Supreme Court held that in a matter of that nature, quantifiable data formed the basis of
the challenge, as otherwise, the challenge to the impugned levy, on the ground of irrationality of the
levy, could not be decided. The Supreme Court found that the appellants had not been able to
discharge the initial burden, as the writ petitions were sketchy and lacking in material particulars
and accordingly, allowed the writ petitions to be withdrawn, with liberty to file a proper writ
petition, if so advised.
Where the challenge to an action is required to be adjudicated on the basis of factual data the
burden would be on those attacking the action to disclose sufficient facts to substantiate their case.
For example, where an action is challenged as violative of Article 19(1)(g) of the Constitution of
India, the burden would be on the writ petitioner to establish that the Act would constitute an
infringement on the fundamental right guaranteed under Article 19(1)(g) of the Constitution of
India. Similarly, when an action is challenged as discriminatory, a case of discrimination will have to
be made out.
However, when a statute is challenged on the ground of lack of legislative competence or on the
ground of an apparent infringement of a constitutional provision, as in this case, factual details may
not be necessary. A tax on movement of goods, having judicially been construed as a restriction on
the right to free trade, commerce and intercourse, if any Statute imposing such tax is challenged on
the ground of non-compliance of the requisites of Section 304(b), the State would have to disclose
data to establish that the tax was compensatory and hence beyond the net of Articles 301 to 304 of
the Constitution of India. The State would have to disclose quantifiable data, to establish that the tax
sought to be raised is more or less commensurate with the benefits provided and/or to be provided
to the tax payers as a class.
In Saghir Ahmad Vs. The State of U.P. reported in AIR 1954 SC 728 the Supreme Court observed
that, when an enactment, on the face of it was found to violate a fundamental right guaranteed
under Article 19(1)(g), it must be held to be invalid, unless those who support the legislation can
bring it within the purview of the exception laid down in Clause (6) of Article 19.
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In Khyerbari Tea Company Vs. State of Assam reported in AIR 1964 SC 925, the Supreme Court
relying on Saghir Ahmad (supra), held that once infringement of a fundamental right under Article
19(1) was proved, the State would have to justify its case under Clause (6) which is in the nature of
an exception to the main provisions contained in Article 19(1). The position with regard to the onus
would be the same in dealing with law passed under Article 304(b). The Supreme Court observed
that in the case of such a law, the position is somewhat stronger in favour of the citizen, because the
very fact that a law is passed under Article 304(b) means that it purports to restrict the freedom of
trade. That being so, the Supreme Court was of the view that as soon as it was shown that the Act
invaded the right of freedom of trade, it would be necessary to enquire whether the State had proved
that the restrictions imposed by it by way of taxation were reasonable and in the public interest
within the meaning of Article 304(b).
As submitted by Mr. Khaitan, the entire burden of the levy under the impugned Entry Tax Act, has
to be borne by persons, who import goods including raw materials into the State. May be, the cost of
goods manufactured in West Bengal, using raw materials imported from other States or from
abroad, would be higher in comparison to the costs of similar goods manufacture in a State, which
does not impose any Entry Tax, and thereby adversely affect sales of such goods, as argued by Mr.
Khaitan. Some of the writ petitioners might also rightly be aggrieved by imposition of the levy, only
on goods imported from outside the State, since the benefit of the development, if any, would be
enjoyed equally by manufacturers/producers in the State who do not have to make any imports.
However, hardship, inconvenience or irrationality are no grounds to sustain a challenge to a Statute
enacted by legislature, in exercise of power conferred by the Constitution, unless the Statute
infringes some provision of the Constitution itself.
In Khyerbari Tea Company (supra) the Supreme Court has said that a principle which has to be
borne in mind, in examining the constitutionality of a statute is, that it must be assumed that the
legislature understands and appreciates the needs of the people, and the laws it enacts are directed
to problems which are made manifest by experience, and that the elected representatives assembled
in a legislature enact laws which they consider to be reasonable for the purpose for which they are
enacted.
As pointed out by Mr. Khaitan, earlier Entry Tax Laws enacted in the State of West Bengal, such as
Tax on Entry of Goods into Local Areas Act, 1962 and Tax on Entry of Goods into Calcutta
Metropolitan Area Act, 1972 were enacted with the previous sanction of the President of India.
The West Bengal State Taxes on Consumption or Use of Goods Act, 2001, which had not been
enacted with previous sanction of the President of India, had been struck down by the West Bengal
Taxation Tribunal in the case of National Hydro Power Corporation Limited Vs. ACTT Siliguri
reported in 2008 (15) VST 158.
It is immaterial that the State Legislature might have earlier, in exercise of legislative power
conferred under Entry 52 of List II of the Seventh Schedule to the Constitution, enacted law with the
previous sanction of the President of India, in conformity with Article 304(b) of the Constitution of
India.
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There can be no estoppel against exercise of legislative power conferred by the Constitution. The
West Bengal Legislature has legislative power to enact law imposing Entry Tax. A Compensatory
Entry Tax does not infringe Article 301 and is, therefore, not vitiated or invalidated for want of the
previous sanction of the President of India, in view of the law laid down by the Supreme Court in
Automobile Transport (Rajasthan) Limited (supra), and reiterated in Jindal Stainless Ltd. (2)
(supra).
Th the proposition of law propounded in the judgements of the Supreme Court in State of Tamil
Nadu Vs. K. Shyam Sunder (supra), Shri Prithvi Cotton Mills Ltd. (supra), S.R. Bhagwat Vs. State of
Mysore (supra), Cauvery Water Disputes Tribunal (supra), G.C. Kanungo Vs. State of Orissa (supra),
Madan Mohan Pathak Vs. Union of India (supra), K. Sankaran Nair Vs. Devaki Amma Malathy
Amma (supra) cited by Mr. Poddar, that the effect of a judicial pronouncement of a competent Court
cannot be nullified by the legislature in exercise of its legislative powers, for any reason whatsoever,
is unexceptionable. The Legislature can, however, validate any law, that has been declared ultra
vires, by re-framing it, removing the infirmities, which led to the law being declared ultra vires.
In enacting the impugned Entry Tax Act, the West Bengal State Legislature has not nullified any
judicial pronouncement. The State Legislature has not merely re-enacted a new law retaining
unaltered the provisions of the Act of 2001, which had been struck down by the West Bengal
Taxation Tribunal. An attempt has been made by the State Legislature to reframe the law and cure
the defects in the Act of 2001, that existed prior to the judgement of the West Bengal Taxation
Tribunal in National Hydro Power Corporation Limited (supra) that rendered the Act of 2001
unconstitutional.
As observed above, the object of the impugned Entry Tax Act, as declared in its preamble, is to set
up a Compensatory Entry Tax Fund. The recital of the impugned Entry Tax Act also states that the
levy and collection of Taxes on entry of certain goods, for consumption, use or sale in the local area
and matters connected therewith and incidental thereto, is for the purpose of creating a
Compensatory Entry Tax Fund.
Section 4(3) casts an obligation on the State Government to specify the rates of tax under
Sub-section (2) of Section 4, having regard to the financial needs for development and facilitation of
trade, commerce and industry in the local areas of the State. Section 15 provides for establishment of
the West Bengal Compensatory Entry Tax Fund. Section 16 provides for the manner in which the
proceeds of Entry Tax are first to be credited to the West Bengal State Consolidated Fund, and
thereafter, by appropriation, if law enacted by the State Legislature so provides, be credited to the
Compensatory Entry Tax Fund, after deduction of expenses. Section 18 restricts the purposes for
which the proceeds of the levy under the impugned Entry Tax Act might be utilised. The question is
whether the impugned Entry Tax Act as enacted is in effect and substance a compensatory tax,
applying the tests laid down in Jindal Stainless Ltd. (2) (supra).
In view of the law laid down by the Constitution Bench of the Supreme Court in Jindal Stainless Ltd.
(2) (supra), whenever a law is impugned as violative of Article 301, in that it restricts free movement
of goods, by imposing a tax on entry of goods into any particular area or areas, the Court would have
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to examine whether the law complies with the requisites of Article 304, and if not, whether the tax is
a compensatory tax.
Since the concept of compensatory has judicially been evolved, in deciding whether a tax is
compensatory, the Court would have to carefully apply the tests laid down in Jindal Stainless Ltd.
(2) (supra) and satisfy itself that facially and patently, there is sufficient indication in the impugned
enactment, of the quantifiable and measurable benefit provided and/or to be provided in lieu of the
levy, to the class of persons on whom the levy is imposed, and that the amount expected to be raised
by imposition is more or less equivalent to the value of the quantifiable measurable benefit.
As held in Jindal Stainless Ltd. (supra), for a tax to be compensatory there must be a link between
the quantum of tax and the cost of the facility and/or facilities for which the tax is imposed, which
must be indicated in the enactment impugned. If the impugned enactment does not facially disclose
sufficient data to establish the proportionality of the levy to the quantifiable benefit, or if the
provisions are ambiguous or vague, it would still be open to the State, as service provider, to show,
by placing materials before the Court, that payment of compensatory tax is a recompense and/or
reimbursement for the specific, tangible, measurable, quantifiable benefits provided or to be
provided to its payers.
In Kamaljeet Singh & Ors. Vs. Municipal Board Pilkhwa and Ors. reported in (1986) 4 SCC 174, the
valdidity of imposition of a toll tax imposed by the Municipal Board Pilkhwa, on vehicles and other
conveyances, animals and laden collies entering the Pilkhwa Municipal area, under Section
128(1)(viii) of the U.P. Municipalities Act, 1916, upheld by the High Court was questioned before the
Supreme Court.
The Supreme Court held:"......The High Court has upheld the levy of the toll tax relying upon the decision of this Court in
Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan as being compensatory in nature. In
Automobile Transport case, the majority held that regulatory measures imposing compensatory
taxes for the use of trading facilities do not hamper trade, commerce or intercourse, but rather
facilitate them and therefore are not hit by freedom of trade and commerce guaranteed by Article
301 of the Constitution. The toll tax in question however cannot be treated to be a compensatory tax
for the use of trading facilties. The Municipal Board provides no facilities whatever to the owners of
vehicles like stage carriages making use of National Highway No. 24. The township of Pilkhwa is off
the national highway and is quite at some distance. It is connected by a road and a part of the
national highway has been included within the municipal limits. Merely because stage carriage
operators like the appellant play their stage carriages on permits issued on the inter-statal route
Delhi-Garhmukteshwar which falls on the national highway and stop their buses for the facility of
passengers going to and coming from Pilkhwa, or that the Municipal Board has set out two electric
poles at the toll barriers for facility of collection of the toll tax, does not justify the imposition of a
toll tax. Usually, the consideration for a toll is some amenity, service, benefit or advantage which the
person entitled to the toll undertakes to provide for the public in general, or the persons liable to pay
the toll. The national highway is being maintained by the government and the approach road built
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by the Public Works Department. There is a nallah constructed by the Municipal Board for flow of
the sewage water from the town of Pilkhwa, but that does not entitle the Board to levy a toll tax on
stage carriage operators like the appellants as a compensatory tax. 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."
In R. Gandhi Vs. State of Tamil Nadu & Ors. (supra) cited by Mr. Poddar the constitutional validity
of the Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act, 1990, was under challenge
mainly on the ground of infringement of Articles 301 and 304 of the Constitution. The question
before the Division Bench was, whether the levy of Entry Tax under the said Tamil Nadu Tax on
Entry of Motor Vehicles into Local Areas Act, 1990 could be justified as a compensatory tax. The
aforesaid question was answered in the negative. The Division Bench held that there was no
connection or nexus between the collection of Entry Tax, and its utilization for the benefit of
traders/manufacturers from whom such tax was collected and consequently the levy of Entry Tax
was unauthorized and violative of Article 301 of the Constitution.
The Division Bench observed as follows:"The essence of compensatory tax is that the services rendered or facilities provided should be more
or less commensurate with the tax levied. Services provided will have a direct co-relation with the
trade. The main basis of compensatory tax is the quantifiable and measurable benefit represented by
the cost incurred in procuring the facilities/services. The cost in turn becomes the basis of
reimbursement/recompense for provider of services/facilities. As held in Jindal's case [2006] 145
STC 544 (SC); [2006] 7 SCC 241, the compensatory tax is a charge for offering trade facilities and
they are based on the principle of equivalence. Applying the above test, we are of the opinion that
maintaining of roads, providing bridges, etc., cannot be said to be compensatory in nature so as to
constitute special advantage to trade, commerce and intercourse. Even otherwise, a welfare State is
bestowed with the responsibilities of providing good roads and bridges for the benefit of the
tax-paying citizens and hence to contend that the impugned levy is being raised only for the said
purpose is not justified. Maintenance of roads, bridges, etc., are generally met from the general
funds or revenue. Whether goods are transported into the State from outside the State or abroad,
the State has got a duty to provide facilities like roads, bridges, etc., which are being enjoyed not
only by the persons who bring the goods notified for levy of entry tax, but also by others." In
Thressiamma L. Chirayil Vs. State of Kerala & Anr. (supra) cited by Mr. Poddar, a Division Bench of
Kerala High Court considered the Constitutional Validity of Kerala Tax on Entry of Goods into Local
Areas Act, 1994. Applying the principle of equivalence laid down by the Supreme Court in Jindal
Stainless Steel Ltd. (supra), the Division Bench found that there was no connection or nexus with
the collection of Entry Tax under the Kerala Entry Tax Act, 1990 and its utilization for the benefit of
traders/manufacturers from whom such tax was collected and consequently the levy of Entry Tax
was unauthorized and violative of Article 301 of the Constitution of India. The Division Bench held:-
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"...If the provision of the Act does not indicate facially the quantifiable benefit,
burden is on the State as a service/facility provider to show by placing the materials
before the court that the payment of compensatory tax is a
reimbursement/recompense for the quantifiable/measurable benefit provided or to
be provided to the payer. We have already found that the compensatory character of
tax is not self-evident from the Kerala Entry Tax Act...."
".......Essence of compensatory tax is that the services rendered or facilities provided
should be more or less commensurate with the tax levied. Services provided will have
a direct co-relation with the trade. The main basis of a compensatory tax is the
quantifiable and measurable benefit, represented by the costs incurred in procuring
the facility/service. The cost, in turn, became the basis of
reimbursement/recompense for the provider of services/facilities. From the point of
view of Government, as stated by the apex court in Jindal Stainless Ltd.'s case [2006]
145 STC 544 (SC); [2006] 7 SCC 241, a compensatory tax is a charge for offering
trading facilities and they are based on the principles of equivalence. Applying the
above test, it cannot be said that maintaining of roads, providing bridges, etc., is
compensatory in nature so as to meet the outlay incurred for some special advantage
to trade, commerce and intercourse. Providing the above facilities and its use may
incidentally bring in net revenue to the Government, but that circumstance is not an
essential ingredient of compensatory tax......"
"...... Some indirect connection or some connection, more or less commensurate, etc.,
are not the tests, but the direct and immediate effect is the test. Maintaining of roads,
bridges, etc., and promotion of SSI units, etc., are generally met from the general
funds or revenue. Whether goods are transported into the State from outside the
State or abroad the State has got a duty to provide those facilities, like roads, bridges,
etc., which is being enjoyed not only by persons who bring goods notified for levy of
entry tax but also others...."
In ITC Limited Vs. State of Tamil Nadu & Ors (supra) cited by Mr. Poddar a Division Bench of
Madras High held that the Tamil Nadu Tax of Goods into Local Areas Act, 2001 did not satisfy the
test laid down for compensatory tax, inter alia observing that the pleadings filed on behalf of the
State merely gave statistics with regard to total costs of building roads and bridges and on
maintenance of roads that had been incurred by the State from year to year.
The Madras High Court was of the view that irrespective of whether any goods were transported into
the State from other States, or abroad, the State had a duty to provide facilities such as roads and
bridges and in any case there were taxes for maintenance of roads, realized from owners of motor
vehicles, on the basis of the laden weight of the vehicles, which had not been disclosed by the State
in its affidavit. In West Bengal too, there are taxes levied on motor vehicles, on the basis of laden
weight, which are utilized to meet inter alia the costs of construction and maintenance of roads.
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In Jindal Strips Limited & Anr. Vs. State of Haryana & Ors. reported in [2008] 12 VST 149 (P&H)
(supra) cited by Mr. Poddar, the Division Bench of the Punjab and Haryana High Court held that the
impugned levy under the Haryana Local Area Development Act (13 of 2000) as amended by the
Haryana Local Area Development Tax (Amendment) Ordinance (1 of 2007), was not compensatory,
tested in the light of the judgement of the Supreme Court in Jindal Stainless Ltd. (supra) as the levy
was not to meet the cost of any specific facilities for trade, commerce and intercourse already
provided or planned to be provided and therefore, hit by Article 301 of the Constitution. The Court
held that the impugned levy was meant to be for assistance to local areas for their development
generally and the amendment by the Haryana Local Area Development Tax (Amendment)
Ordinance, 2007 only brought about a superficial change in the language while retaining the basic
character of the levy as a source for general development.
In Bharat Earth Movers Ltd. Vs. State of Karnataka (supra) cited by Mr. Poddar, D.V. Shylendra
Kumar, J., held that the Karnataka Special Tax on Entry of Certain Goods Act, 2004 was not a
compensatory levy as the State had not been able to demonstrate any exclusive or special service
provided to the class of taxpayers who bore the tax under the Karnataka Special Tax on Entry of
Certain Goods Act, 2004. The Court also held that imposition of tax only in respect of the goods
brought into a local area by an importer from outside the State and not on other persons who
brought similar goods to the same local area from other parts of the State was discriminatory and
violative of Article 304(A) of the Constitution. The Court also observed as follows:"The concept of a compensatory tax being outside the purview of Part XIII itself as
propounded in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406
and as explained in Jindal Stainless Ltd.'s case [2006] 145 STC 544, is that a levy
which is exclusively for meeting a special service or benefit to the taxpayer is not even
in the nature of a tax or a general levy and is more akin to the taxpayer receiving the
service from the State and paying for it. Such is not the situation in the present cases
and under the enactment under challenge."
In National Aluminum Company Limited & Ors. Vs. State of Orissa & Ors. reported in [2008] 15
VST 296 (Orissa) cited by Mr. Kapur the Constitutional vires of the Orissa Entry Tax Act 1999 was
challenged as violative of Article 301 and 304 of the Constitution of India and also on the ground
that the State Legislature lacked legislative competence to enact the said Act.
The Division Bench of Orissa High Court found that the levy under the impugned enactment was
not compensatory, since the revenue received by way of Entry Tax was deposited in the
Consolidated Fund of the State, and expenditure therefrom, incurred for development work was not
specifically identifiable. The Court held that tax to meet expenditure in general, for infrastructure
development, for the welfare of the general public, could not be considered compensatory tax.
In Dinesh Pouches Ltd. Vs. State of Rajasthan (supra) cited by Mr. Kapur a Division Bench of
Rajasthan High Court held that the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 was
ultra vires Article 301 of the Constitution of India, observing that the said Act "has not been imposed
for providing specific benefits/facilities to trade or commerce in quantifiable measure".
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The Division Bench of Rajasthan High Court further held:"....When admittedly in the present case requirement of article 304(b) before enacting a law falling
within the domain of article 301 has not been followed, the impugned Act must be held to be ultra
vires to Chapter XIII of the Constitution in consonance with Atibari's case AIR 1961 SC 232."
In Indian Oil Cooperation Limited Vs. State of Uttar Pradesh and Ors. cited by Mr. Kapur, a Division
Bench of Allahabad High Court found that tax imposed by the Uttar Pradesh Tax on Entry of Goods
Act, 2000 was not compensatory tax, there being no evidence and/or material on record giving
required data/statistics with regard to the amount of tax calculated or the expenditure on providing
facilities. In the instant case too neither the impugned Entry Tax Act nor the Affidavit-in-Opposition
of the State gives any indication of the amount expected to be collected, the amount expected to be
expended on providing facilities or the specific facilities to be provided.
In Central Coalfields Vs. State of Jharkhand reported in (2007) 6 VST 614 (Jharkh) cited by Mr.
Mainak Bose a Division Bench of Jharkhand High Court held "...the Bihar Tax on Entry of Goods
into Local Areas for Consumption, Use or Sale thereof Act, 1993, as adopted by the State of
Jharkhand and amended vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption,
Use or Sale thereof (Amendment) Ordinance, 2001" was ultra vires Articles 301 and 304 of the
Constitution.
In Indian Oil Corporation Limited Vs. State of Assam reported in (2009) 21 VST 76, cited by Mr.
Mazumdar, the validity of the Assam Entry Tax Act 2008 and the Rules framed thereunder, along
with the provisions of the Entry Tax (Amendment) Act, 2008, were in question. The Division Bench
of Assam High Court, on considering the relevant provisions of the Act, the rules and in particular
the affidavits filed on behalf of the State of Assam, found that the tax sought to be imposed was
compensatory in nature. A perusal of the judgement reveals that quantifiable data had been
produced to satisfy the Court that the levy was in fact compensatory.
The Assam High Court noted that part of the tax was spent for providing security to the pipelines of
ONGC, which were used by the writ petitioners to import oil into the State of Assam. The Tax was
thus in the nature of quid pro quo for utilisation of pile lines. The Assam High Court observed:"Additionally, the provisions of section 10(2) which impose an embargo of use of any
amount of entry tax collected for any other purpose; the transfer of the amount
collected under the Act of 2001 to the special fund; the provisions of rule 11 providing
for deposit of the amount of entry tax collected under an exclusive head of account,
are sufficient facial indications that the levy under the Act is intended to provide
certain identifiable benefits to trade. The provision in the Budget of 2008-09 for
credit of Rs. 250 crores to the special fund created, the funds earmarked for
infrastructure development and provisions for amenities to different departments
and the constitution of a committee to examine the developmental schemes and to
sanction and allocate funds, which materials have been placed in the affidavit dated
August 8, 2008, are further pointers that should enable the levy to partake of the
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By a judgement and order pronounced on 3rd April, 2012, the Division Bench of Jharkhand High
Court held that Section 3 of the impugned Act of Jharkhand, that is, the charging section, was ultra
vires the Constitution of India and consequently none of the provisions of the impugned Act could
be enforced.
The Court held "the State further failed to discharge its burden by placing material or even
calculation or data before this Court that payment of compensatory tax is reimbursement for the
quantifiable or measurable benefits provided or to be provided to its tax payers. The creation of the
fund under clause (a) to (d) of section 4(3) in the name of the Jharkhand State Trade Development
fund and utilization of the tax amount for the purposes as given in clauses (a) to (d) under
sub-section (3) of section 4 do not indicate and prove reimbursement/recompense of the tax
amount to the tax payers. The purposes shown in clauses (a) to (d) of sub-section (3) of section 4 of
the Act of 2011 are general nature and not specific benefits to the tax payers."
Whether a tax is a compensatory tax or not, would not just depend on the statement of objects and
reasons for the enactment of the statute imposing the tax, the preamble to that statute, any recital in
the statute declaring the tax to be compensatory, or any provisions stating the purposes for which
the proceeds of the tax could be used.
If a specious declaration and some vague ambiguous illustrative provisions, setting forth the
purposes of the levy, could in themselves make the levy compensatory, the easiest thing for all State
Legislatures to do, to get rid of the hurdle of Articles 301 and 304 of the Constitution, would be to
make such a declaration in the Statute, and incorporate some apparently beneficial purposes of a
general nature. After all the revenue earned by the State from various taxing Statutes is also spent,
to a large extent on general development and welfare activities.
A tax can be said to be compensatory, only if the impugned enactment under which the tax is
imposed, facially and patently indicates that the tax is a recompense for specific, tangible and
measurable benefits for the tax payers as a class, for facilitating trade, commerce and intercourse.
The impugned enactment would facially have to indicate that the benefit, which was quantifiable or
measurable, was also more or less commensurate with the levy.
In case the Act impugned does not disclose the corresponding measurable or quantifiable benefits
and other relevant data, or if the provisions of the Act impugned are ambiguous, vague or too wide,
it would still be open to the State to disclose particulars of completed projects, projects in progress
and projects in contemplation, approximate/estimated costs thereof, project reports and plans and
estimates of the amount proposed to be realized from the levy impugned, to show a discernible link
between the levy and the corresponding benefits.
An estimate of costs of proposed projects to facilitate trade and commerce, or of taxes expected to be
realized, can never be exact. Realization of taxes, which varies according to the volume of trade and
commerce, could well be in excess of target, in case of unexpected increase in the volume of trade
and commerce. Similarly, for compelling reasons, projects may be abandoned, inordinately delayed
or modified. The actual costs of projects may be lower than the estimated costs. Even otherwise, the
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actual expenditure may be lesser for various reasons, leaving some part of the tax collected,
unutilized.
Thus, an impugned enactment would not be vitiated only because it might bring in some revenue, in
the sense that the unutilized amount of the levy would be utilized for other general purposes. Nor
would a Statute be vitiated because the specific facilities provided by the State to the class of
taxpayers, may also be enjoyed by some others, who do not have to pay the tax.
If a tax is compensatory, applying the parameters laid down in Jindal Stainless (2) (Supra), that tax
would not cease to be compensatory only because the proceeds of the tax might have to first be
credited to the Consolidated Fund of West Bengal and thereby get mixed up with the revenue
realized by the State. As rightly pointed out by Mr. Mazumdar, in Automobile Transport (Rajasthan)
Limited (supra) the Supreme Court clearly held that it would not make any difference if money
collected from the tax was not put into a separate fund, so long as the tax was for specific facilities
for the trade people who paid the tax and the expenses for providing those facilities were borne by
the State.
However, in this case, the Entry Tax lying to the Consolidated Fund of West Bengal under Section 16
might, by appropriation, be credited to the Compensatory Entry Tax Fund, from time to time, only if
the State Legislature, by law made in this behalf, so provides, for being utilized exclusively for the
purposes of the impugned Entry Tax Act.
The utilization of the proceeds of the Entry Tax Act is, thus, subject to enactment of law by the State
Legislature. As argued by Mr. Poddar, under Article 199(1)(d) of the Constitution of India, any
appropriation of money out of the Consolidated Fund of the State, has to be done by way of a 'Money
Bill'.
The Entry Tax collected by the State may thus be treated as part of general revenue, its utilization
being directly dependent upon budgetary allocation to be made by the State Legislature by way of
'Money Bill'.
Even, assuming, that in passing the 'Money Bill' the State Legislature would be bound by the
provisions of the impugned Entry Tax Act and would make appropriate budgetary provision, the
withdral of the money credited to the Compensatory Entry Tax Fund would depend on enactment of
law, in view of the express provision of Section 16 of the impugned Entry Tax Act. There is, thus, no
guarantee that the proceeds of the Entry Tax would actually be utilized for the purposes specified in
Section 18 of the said Act.
While these writ petitions were being heard, the Government of West Bengal, Finance Department,
Budget Branch issued Notification No.766 FB dated Kolkata, the 24th July, 2012 framing West
Bengal Compensatory Entry Tax Fund Rules, 2012. The notification dated 24th July, 2012 issued by
the Government of West Bengal Finance Department, Budget Branch is in itself contrary to Section
16 of the impugned Entry Tax Act and apparently inconsistent with the Constitution of India
particularly Article 266(3) and Article 199(1)(d), as argued by Mr. Poddar and Mr. Khaitan.
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The Rules framed in exercise of power conferred by Statute cannot be contrary to the provisions of
the Statute. A committee comprising of secretaries of different departments of West Bengal, cannot
determine budget provisions and assume the power exclusively reserved to the State Legislature of
appropriation of money from the Consolidated Fund of the State.
Furthermore, compensatory tax being equivalent to a fee, based on the principle of 'quid pro quo'
and/or equivalence, to qualify as a compensatory tax, the Entry Tax collected from one local area
must be identified to be spent in that local area and in no other area. In Automobile Transport
(Rajasthan) Limited (supra) the Supreme Court was concerned with a tax on motor vehicles and not
a tax on entry of goods into local areas for consumption, use or sale therein. In Jindal Stainless Ltd.
(2) (supra) also the question of whether tax for entry of goods into a local area for consumption, use
or sale therein, could be utilized for the development of another local area was not considered.
Utilization of Entry Tax collected from a local area for consumption, use or sale of goods in that local
area, for development of trade facilities in the rest of the State, would denude the tax of its
compensatory character. The theory of direct and immediate effect and the principle of equivalence
can only be achieved if the amount of Entry Tax collected from one local area is spent for the benefit
of the trading people of that local area, or atleast proportionally allocated between that local area
and those other local areas, which the goods subject to levy might enter, for further consumption,
use or sale. Significantly, in course of arguments learned counsel appearing for the State did not
dispute that it was open to the State to spend the amount collected from one local area in another
local area. This is also apparent from the provisions of the impugned Entry Tax Act.
As noted above, the object of the impugned Entry Tax Act is to provide for the levy and collection of
taxes on the entry of certain goods into a local area in the State of West Bengal, for consumption use
or sale therein, and matters connected therewith, for the purpose of creating a Compensatory Entry
Tax Fund.
The impugned Entry Tax Act facially provides for a levy for the purpose of creating a compensatory
Entry Tax Fund. It also facially indicates some of the purposes for which the proceeds of the Entry
Tax collected may be utilized, that is, the purposes enumerated under Section 18 most of which, if
read and understood as per their plain meaning pertain to general development of the State, and are
within the ambit of the general duties of the State to all its tax payers.
In examining the constitutional validity of the provisions of a statute, the presumption is on its
constitutionality and the onus is on those who challenge the vires of the statute to show that there
has been transgression of constitutional principles. Of course, once a case of transgression of
constitutional principles is made out and a levy on entry of goods into any particular area is shown
to impede free trade, commerce and intercourse throughout the territory of India, the onus would
shift on the State to show that the levy is in the nature of reimbursement and/or recompense for
benefits provided or to be provided to the tax payer.
It is also well settled that the Court adjudicating a challenge to the validity of the provisions of a
statute may, if possible, interpret the provisions of the statute in a manner that saves those
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provisions from constitutional invalidity. Needless to state, that in doing so, the Court must be very
cautious so that it does not embark upon the legislative functions of enacting or re- enacting the law.
However, before reading words into a statute or omitting from the statute words thought to be
surplus, the question which the Court should ask itself is, what could be the intention the legislature
and what would the legislature have done, had its attention been drawn to the confusion caused by
the omission or the surplusage.
Thus, a provision conferring very wide and expansive powers on an authority can be read down and
construed in conformity with the legislative intent that the power should be exercised within
constitutional limitations. As held by the Supreme Court in Arun Kumar Vs. Union of India reported
in (2006) 286 ITR 89 (SC) where a statute is silent or is inarticulate, the Court would attempt to
transmute the inarticulation and adopt a construction which would lean towards its
constitutionality, without departing from the material of which the law is woven.
Where the plain interpretation of a statutory provision gives a manifestly absurd and unjust result,
which could never have been intended by the legislature, the Court may even, 'do some violence' to
the language used by the legislature to achieve the obvious intention of the legislature and save the
constitutionality of the statute and render the same workable. This proposition finds support from
the judgements of the Supreme Court inter alia in Bhudan Singh Vs. Nabi Bux reported in [1969] 2
SCC 481; K.P. Varghese Vs. ITO reported in [1981] 131 ITR 597 (SC); C.W.S. (India) Ltd. Vs. CIT
reported in [1994] 208 ITR 649 (SC) and Calcutta Gujarati Education Society Vs. Calcutta Municipal
Corporation reported in [2003] 10 SCC 533.
In Narang Overseas Pvt. Ltd. Vs. ITAT reported in [2007] 295 ITR 22 (Bom) the Division Bench of
Bombay High Court referred to the observation of the Supreme Court in CIT Vs. J.H. Gotla reported
in [1985] 156 ITR 323 (SC) that:
"Though equity and taxation are often strangers, attempts should be made that these
do not remain always so and if a construction results in equity rather than in
injustice, then such a construction should be preferred to the literal construction."
The impugned Entry Tax Act appears to be a hastily drafted enactment, fraught with errors, passed
in haste, in abdication of essential legislative duties and functions, without sufficient deliberation or
discussion, with a view to augment revenue, for general development of the State.
There are, as pointed out by Mr. Kapur, glaring errors in various provisions of the impugned Entry
Tax Act, which render the said provisions unintelligible, particularly Sections 16 and 18(1)(c).
However, it is well settled that grammatical errors, inadvertent omissions and the like are no
grounds to strike down a statute that is otherwise comprehensible and workable. It is also difficult to
accept Mr. Kapur's submission that if the Act contains defects, which render a provision
meaningless, the Court cannot cure the same. It is true that the Courts should not ordinarily
transgress into the legislative sphere of enactment, re- enactment and amendment. This court may,
however, interpret a statutory provision in a manner, that renders the provision workable and
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constitutional.
Section 16 as enacted reads as follows:"Section 16. Crediting of proceeds to the Fund - The proceeds of the levy under this Act shall first be
credited to the Consolidated Fund of West Bengal, and the State Government may, if the State
Legislature by appropriation made by law in this behalf so provides, credit such proceeds to the
Fund from time to time, after deducting the expenses of collection for being utilized exclusively for
the purposes of this Act." Section 16, as it stands is unintelligible. This Court, therefore, construes
Section 16 to read "the proceeds of the levy shall first be deposited to the Consolidated Fund of West
Bengal and the State Government may, by appropriation, if the State Legislature, by law in this
behalf so provides, credit such proceeds to the Fund from time to time, after deducting the expenses
of collection, for being utilized exclusively for the purposes of this act"
Section 16 as construed above, read with Sections 15 and Section 18(1) of the impugned Entry Tax
Act, casts a mandatory statutory duty and/or obligation on the State Government to appropriate and
credit the proceeds to the Compensatory Entry Tax Fund, provided the State Legislature, by law,
provides for such appropriation.
The use of the word 'may' in Section 16 of the impugned Entry Tax Act, would make no difference. In
ordinary parlance, 'may' implies discretion. Normally the world 'may' is used when a provision is
meant to be directory where a statutory provision confers power, coupled with performances of a
public duty, as in this case, may would mean 'must' as held by the Supreme Court in Delhi
Administration Vs. I.K. Nanjia reported in (1980) 1 SCC
258. Going by the plain ordinary meaning of Section 18 and the Sub-sections thereunder, many of
the benefits contemplated therein might, as observed above, be part of the general obligations of the
State to its tax payers and the people of the State, for example, construction of roads and bridges for
linking markets, construction of railway over-bridges and subways, supply of electricity and water
and maintaining pollution free environment.
Furthermore, having regard to the obligation cast by Section 18(1) to utilize the proceeds of the levy
for development of or facilitating trade including the purposes specified in Sub-clause (a) to (i), this
court may construe the various sub paragraphs, particularly sub paragraphs (a), (c), (f) in harmony
with the statutory obligation to utilize the proceeds of the tax to develop and facilitate trade and
commerce.
The State has a general duty to construct roads and bridges for all its citizens, and utilization of the
proceeds of the levy to construct and maintaining roads and bridges throughout the State,
irrespective of the trading activities would render the levy a tax to collect revenue. This court may
thus construe 'roads and bridges' in Section 18(1)(a), to read special roads and bridges for carriage
of goods.
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Similarly "construction development and maintenance of linking the market areas" in sub-clause 'c'
would make no sense unless the Court reads the word 'roads' or may be 'roads and bridges' as in
Clause (c) into Sub- section (b), and construe 'roads and bridges' in the manner indicated above.
Utilization of the proceeds of Entry Tax under the impugned Entry Tax Act for the purpose specified
in Sub-clause (g) of creating, developing and maintaining pollution free atmosphere in the
concerned areas has remote connection, if not, no connection with developing and facilitating trade
and commerce, even though the same might improve the quality of life for citizens. Taxes utilized for
keeping the environment free of pollution, would not qualify as a compensatory Tax. Be it
mentioned that individual industries are responsible for ensuring that they conform to the
environmental norms. Similarly vehicles including those which carry goods, are required to comply
with pollution norms.
The cost of railway over bridges and/or subways are substantially borne by the Railways and as
argued by Mr. Poddar the purpose specified in Sub- clause (1) of providing financial aid grants and
subsidies to local bodies and government agencies is totally vague and devoid of material
particulars.
In view of the law laid down by the Supreme Court in Atiabari Tea Company Ltd. (supra), the
impugned Entry Tax must be held to restrict the right to free trade, commerce and intercourse,
throughout the territory of India, even though the restriction is reasonable and in public interest.
There can be no doubt that the State Legislature has exclusive power to enact legislation imposing a
tax on the entry of goods into a local area, for consumption use or sale therein by virtue of Entry 52
of List II of the Seventh Schedule to the Constitution of India. However, this power is subject to the
limitations imposed by the Constitution itself, particularly Part XIII thereof.
The imposition of a compensatory tax, being a judicially devised exception to the restrictions of
Articles 301 and 303 of the Constitution of India, the tests judicially enunciated in Jindal Stainless
Ltd. (2) (supra) to examine whether the impugned tax on movement of goods from one area to
another is, in effect and substance, a compensatory tax, must strictly be applied before the validity of
an enactment imposing the impugned tax can be upheld, notwithstanding non-compliance of the
requisites of Article 304(b) of the Constitution of India.
A taxing Statute generates revenue for various developmental and welfare activities. The
expenditure inter alia for facilities of roads, bridges, public transport, pollution control, sanitation,
health care, medical treatment, water supply etc. provided by the State, is met from the revenue
generated by taxing Statutes.
What distinguishes a compensatory tax is that a compensatory tax is imposed for a specific purpose
or a few specific identifiable purposes, to pay for expenses in connection with specific projects,
whether completed, in progress or in contemplation, which provide specific, tangible, measurable
benefits to the tax payers as a class and is based on the 'principle of equivalence' and/or 'quid pro
quo' and/or 'pay for value'. A tax on the other hand generates revenue, but not necessarily for any
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(INDIRA BANERJEE, J.) LATER On the prayer of Mr. Majumder, there will be stay of the operative
part of this Judgement and Order for a period of six weeks from date.
(INDIRA BANERJEE, J.)
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