IN THE HIGH COURT OF JUDICATURE AT PATNA CWJC No.11785 of 2008 M/S GANGA TRACTOR Versus THE STATE OF BIHAR & ORS ----------- For the petitioner: Mr. Ratna Deep Prasad For the respondents : Mr. Siddhartha Prasad, JC to AAG - IX --- P R E S E N T Hon'ble the Chief Justice And Hon'ble Mr. Justice Kishore K. Mandal --- Dated, the 17th September, 2008 Rule is made returnable forthwith. 2. Mr. Siddhartha Prasad, Government Counsel waives service for respondents. 3. The counsel for the petitioner relies upon a Division Bench judgment of this court in the case of M/S Indian Oil corporation Limited & Anr. Vs. The state of Bihar & Ors., 2007(1) PLJR 503, wherein Bihar ( Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein) Act, 1993, as amended by amending Act, 10 of 2001 and Act 9 of 2004, has been declared ultra vires in support of his argument that assessment order dated 28th March, 2007 is bad in law. 4. The Division Bench in the case of M/s Indian Oil Corporation Limited summarized its conclusions thus: (i) The levy under the Parent Act of 1993, before its amendments, was not compensatory in character and was, therefore, violative of Article 301 of the Constitution. (ii) The Parent Act of 1993, before it amendments , was nevertheless saved by virtue of Article 304(b) of the Constitution and the decision in Bihar Chamber of 2 Commerce to that extent remains subsisting till date. (iii) The amendments introduced by the Act by amending Acts 10 of 2001 and 9 of 2004 were bad because the former made the Act violative of Article 304(a) of the Constitution and further because both the amendments were made without the previous sanction of the President. (iv) The introduction of imported goods within the definition of „Entry of Goods‟ was bad for being retrospective as also for want of the Presidential sanction/assent. (v) After the 2006 Amendment the levy under the Act acquired the nature of a compensatory tax and the Act in its present form is a valid piece of legislation.” 5. The Government Counsel, however, submits that the levy of entry tax on tractors has been imposed by virtue of Item – 1 in the Schedule of the Parent Act itself and, therefore, invalidity of the Act, 1993 as mended by Act 10 of 2001 and Act 9 of 2004 is not effected. 6. That the Parent Act, namely, Bihar ( Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein) Act, 1993, has been held to be constitutional and saved by Article 304(b) of the Constitution is clearly reflected from clause (ii) of summary of the conclusion arrived at in M/s Indian Oil Corporation Limited. This conclusion is founded on the decision of the Supreme Court in the case of State of Bihar & Ors. vs. Bihar Chamber of Commerce, (1996) 9 SCC 136. 7. In the case of Bihar Chamber of Commerce in paragraphs- 11, 12, 14, 15, 24, 27, 29, 36 & 38 it was held thus: “This Court has held that tax laws are not outside the purview of Article 301 and that taxes which directly and immediately restrict trade and interfere with the flow of trade and commerce do offend Article 301. Similarly, non-fiscal measures which have the above effect are equally hit by Article 301. It has, however, been held by a seven-judge 3 constitution Bench of this Court in Automobile Transport (Rajasthan) Ltd. V. State of Rajasthan that “regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 301 and such measures need not comply with the requirements of the proviso to Article 304(b) of the constitution”. It is held that regulatory measures do not really impede the trade, commerce or intercourse but rather facilitate it. Similarly, it is held that compensatory taxes for the use of trading facilities are outside the purview of Article 301. Since the impugned Act is not a regulatory measure but a taxing enactment and the tax is levied upon the entry of goods into a local area, i.e., upon the movement of goods, the question is whether the impugned tax is compensatory in nature for the use of trading facilities provided by the State. The High Court has observed that the State has failed to adduce any material to establish the compensatory nature of the tax. The only averment in the counter-affidavit filed in the High Court is the following one (counter-affidavit filed by Shri Binoy Krishan, Deputy Commissioner, Commercial Taxes, Bihar): “the Entry Tax Ordinance was thought to be promulgated in view of the loss of revenue on cess due to the decision rendered by the Hon‟ble Supreme Court in the case of India Cement Ltd. As well as several decisions of the Hon‟ble Patna High Court following the decision”. The learned Additional Solicitor General, however, contended that the following indisputable facts do establish the compensatory nature of the tax, viz., the entire State of Bihar is divided into local areas of one or the other kind and that the Government and the local authorities do provide several trading facilities to promote trade and commerce with and within the State in the form of laying and maintenance of roads, establishment and maintenance of markets, establishment and operation of market yards for agricultural commodities and a host of other facilities. He submitted that the impugned tax will naturally help in providing the above facilities and, therefore, it must be held to be compensatory. He requested us to take notice of these undeniable facts and to hold, on that basis, that the impugned tax is compensatory. The learned Additional Solicitor General further submitted that when the entire State is divided into local areas-when no part of the State is left uncovered by a local area-and when the impugned tax is levied for the purposes of the State including the welfare schemes being undertaken by it, the tax cannot but be compensatory in nature. The impugned tax will help the State in providing and improving the trading facilities since the interest of the State lies in promoting trade and commerce in goods and commodities with and within the 4 State of Bihar. Reliance is placed upon the following observations of Automobile Transport (Rajasthan) Ltd., which read: “….. licensing system with compensatory fees would not be restrictions but regulatory provisions; for without it, the necessary lines of communication, such as roads, waterways and airways cannot effectively be maintained and the freedom declared may in practice turn out to be an empty one. So too, regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom.” It is not possible to deny the force of this submission. Where the local areas contemplated by the Act cover the entire State, the distinction between the State and the local areas practically disappears. (The situation would, no doubt, be different if the local areas are confined to a few cities or towns in the State and the levy is upon the entry of goods into those local areas alone. This is an important distinction which should be kept in mind while appreciating this aspect and also while examining the decisions of this Court rendered in “fifties and sixties”.) The facilities provided in the State are the facilities provided in the local areas as well. Interests of the State and the interests of the local authorities are, in essence, no different. It is not and it cannot be stipulated that for the purpose of establishing the compensatory character of the tax, it is necessary to establish that every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities. It is enough if some connection is established between the tax and the trading facilities provided. The connection can be a direct one or an indirect one, as held by this Court in Bhagatram Rajeevkumar v. CST:(SCCp.678 para 8) “The concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and the facilities extended to such dealers directly or indirectly the levy cannot be impugned as invalid”. Though not stated in the counter-affidavit, we can take notice of the fact that the State does provide several facilities to the trade including laying and maintenance of roads, waterways and markets, etc. As a matter of fact, since the levy is by the State, we must also look to the facilities provided by the State for ascertaining whether the State has established the compensatory character of the tax. On this basis, it must be held that the State has established that the impugned tax is compensatory in nature. This finding is by itself sufficient to negative the attack based on Article 301 but even if we assume that the State has not established the said fact, even so the result is no different. We proceed to elaborate. 5 Question No.2- In case the impugned tax is not established to be compensatory- or as a measure of regulation- whether it is saved by virtue of the provisions contained in Article 304(b) read with Article 255 of the Constitution. In other words, (a) whether the Act has received the assent of the President as alleged by the State, (b) whether the levy of the said tax constitutes a reasonable restriction and (c) whether the said levy is conceived in public interest? In this case, the Bill was not introduced or moved in the Assembly with the previous sanction of the Resident as required by Article 304(b) but the contention of the State is that the Bill has been assented to by the president and hence, the requirement is satisfied. The writ petitioners deny the same. They point out that the impugned Act does not recite the said fact. It cannot, however, be said that in the absence of such recital, the said fact cannot be established aliunde. In support of its contention, the State relies upon para 11 of the supplementary counter-affidavit filed in the High Court and upon the telegram sent from Shri M.L.Gupta , Director(Home), New Delhi bearing No. 17/36/93-JUDL dated 22-8-1993 addressed to Shri P.S. Cheema, Commissioner and Secretary to the Governor, Bihar, Raj Bhawan, Patna. Para 11 of the counter affidavit reads: “11. That thereafter the Bill was introduced in the Assembly and it was passed on getting assent communication on 22-8-1993 and same was published in Bihar Gazette on 22- 8-1993.” The telegram reads thus: “REF. YOUR LETTER NO. 1414/GS (I) DATED 18-1- 1993(.) PRESIDENT ASSENTED TO THE BIHAR (TAXES ON ENTRY OF GOODS INTO LOCAL AREAS CONSUMPTION, USE OR SALE THEREIN) BILL, 1993 ON 21-8-1993(.) LETTER WITHOUT COMMENTS FOLLOWS (.)” In the absence of any material to the contrary, we accept the averment of the State and hold that the requirement of prior consent has been satisfied in the case of the impugned Act. The next question is whether the impugned tax constitutes a reasonable restriction and whether it is imposed in public interest? In other words, the question is whether the interference with and the restriction upon the freedom guaranteed by Article 301 in the form of the impugned tax is a reasonable one and whether it is required in public interest. The learned Additional Solicitor General says that both the requirements are satisfied in this case. He says that in view of the sudden loss of revenue from the cess upon minerals as a result of the judgment of this Court in India Cement Ltd. and 6 other judgments of the Patna High Court following it, public interest required the State to find alternative sources of revenue to keep its various welfare programmes and other governmental functions going and that the impugned tax was conceived as one of the alternate sources. He relies upon the statement in the counter-affidavit of Shri Binoy Krishan, filed on behalf of the State, referred to hereinbefore, in support of his submissions. He also relies upon the Objects and Reasons appended to the Bill, which are to the following effect: “To collect funds for various public welfare schemes and to implement various financial recommendations of the State Government, taxation according to the existing financial condition is highly essential. With a view to fulfil the above object and to make the provisions of the Bihar Finance Act more workable, it is essential that tax is levied and collected on certain goods entering the local areas of the State for consumption, use or sale; Bihar (Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein) Second Ordinance, 1993(Bihar Ordinance 19 of 1993) has been promulgated incorporating the aforesaid provisions. The object of this Bill is to get the essential provisions of the Bihar (Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein) Ordinance, 1993 substituted by an Act of the Legislature.” It is not possible to agree with Shri Ganesh. Entry tax is a tax levied at the point of entry of goods into a local area for the purpose of consumption, use or sale therein. It is not a tax on sale. It is a tax on the entry of goods into a local area and it is precisely because of this that the petitioners say, Article 301 is attracted. They cannot, at the same time, say that it is not a tax on entry but a tax in the nature of a tax on sale-apart from the fact that such a contention is wholly misconceived. Taxes on sale and purchase of goods are provided by Entry 52 in List II. Moreover, Entry 52 has been the subject-matter of several decisions of this Court which say that the tax is upon the entry of goods into a local area, i.e., upon entry of goods for the purpose of consumption use or sale therein. Neither mere entry of goods is enough to attract the levy nor the mere sale thereof within the local area. What attracts the levy under Entry 52 (and under the impugned enactment) is the entry of goods into a local area for consumption or for use or for sale within that local area for the purpose of consumption or use within that local area. Indeed, when it was contended by one of the States, State of Karnataka, that the expression „sale‟ occurring in Entry 52 should be given its full and normal meaning and should not be confined to sale of goods in a local area for consumption or use 7 therein, the contention was rejected by this Court with reference to the earlier decisions of this Court (see Entry Tax Officer v. Chandanmal Champalal & Co. The said decision refers to and follows the earlier decisions of this Court on the point. Secondly, it is abundantly clear from the material, which we shall presently refer to, that the ADE Act was meant as a substitute for the taxes on the sale or purchase of scheduled commodities alone and not for all kinds of taxes, cesses and fees which the States are entitled to impose by virtue of the entries in List II or for that matter List III of the Seventh Schedule to the Constitution. The Statement of Objects and Reasons appended to the Bill reads thus: “The object of the Bill is to impose additional duties of excise in replacement of the sales taxes levied by the Union and States on Sugar, tobacco and mill-made textiles and to distribute the net proceeds attributable to Union Territories, to the States. The distribution of the proceeds of the additional duties broadly follows the pattern recommended by the Second Finance Commission. Provision has been made that the States which levy a tax on the sale or purchase of these commodities after 1- 4-1958 do not participate in the distribution of the net proceeds. Provision is also being made in the Bill for including these three goods in the category of goods declared to be of special importance in inter-State trade or commerce so that, following the imposition of uniform duties of excise on them, the rates of sales tax if levied by any State are subject from 1-4-1958 to the restrictions in Section 15 of the Central Sales Tax Act, 1956.” The ADE Act is enacted by Parliament with reference to Entry 84 in List I of the Seventh Schedule to the Constitution whereas the impugned enactment is made by the State with reference to Entry 52 in List II. The power to levy taxes on sale or purchase of goods is conferred upon the States and the States alone by Entry 52 in List II. Parliament cannot make a law either with reference to Entry 52 or for that matter with reference to Entry 54. The ADE Act is also not a law made under and with reference to Article 252 of the Constitution, which article empowers Parliament to make a law with respect to any matter mentioned in List II, if two or more States pass resolutions requesting Parliament to make a law in that behalf. The impugned Act is also not relatable to any of the Articles 249 to 253 which are in the nature of exceptions to the normal rule that parliament can make no law with respect to the entries in List II. If so, it follows that the State Legislatures are not denuded or deprived of their power to make a law either with reference to Entry 52 or with reference to Entry 54 in List II. That power remains untouched and unaffected. All that Parliament has said by enacting the ADE Act is that it will levy 8 additional duties of excise and distribute a part of the proceeds among the States provided the States do not levy taxes on sale or purchase of the scheduled commodities. Parliament has also provided the consequence that follows if any State levies tax on sale or purchase of scheduled commodities; all that happens is that the State will be deprived of its share in the proceeds of additional duties of excise for that financial year. Even this is subject to the power of the Central Government to direct otherwise. Parliament could not, and did not, prohibit any State from making any law or levying any tax which a State can levy by virtue of the entries in List II. The decision of this Court in State of Kerala v. Attesee (Agro Industrial Trading Corpn.) does bear out our understanding. This Court observed: (SCC p.744 , para 8) “The 1957 Act also has a bearing on the sales tax levy of various States. By levying sales tax on an item covered by the Schedule to the 1957 Act, the State will have to forego its share on distribution of the proceeds of the additional excise duty levied. Whether it should impose sales tax on an item of declared goods, limited by the restrictions in Section 15 of the CST Act and at the risk of losing a share in the additional excise duty levied in respect of those very items, is for the State to determine. As pointed out by Shri Poti, it was open to the Kerala Legislature to decide- and it did so also- that on some items there should be one or other of the levies or both of them and to modify these levies depending upon its financial exigencies. But these factual or periodical variations do not detract from the basic reality that the policy or sales tax levy on declared goods has to keep in view, and be influenced by, the provisions of the CST Act and the 1957 Act.” We are also of the opinion that the scope of the ADE Act cannot be extended by reference to anterior reports or correspondence between the Centre and the States, as the case may be, apart from the fact that the material referred to is not unambiguous. Para 32 at p. 126 of the Taxation Enquiry Commission (1953-54), the relevant portion whereof we have extracted hereinbefore, is more in the nature of a statement of fact coupled with a recommendation. All that it says is that the States had imposed several duties and other imposts upon tobacco which were casting an unduly heavy burden upon it and that, therefore, there should be coordination between different taxes on tobacco levied by the Central Government, the States and the local authorities. For that purpose, the Commission recommended the constitution of an Inter-State Taxation Council. Admittedly, no such Council has ever been constituted. Similarly, the letter of the then Finance Minister, Shri T.T. Krishnamachary, relied upon by Shri Ganesh, which we have 9 set out hereinabove, is also not quite clear. The extract speaks, in the first instance, of “ a complete exemption from sales tax or purchase tax or any other impost by whatever name called on these commodities under the respective State laws” but then it immediately proceeds to explain, what it means by the said expression, by saying,” ( I)n other words, the State which does not exempt completely all these three commodities from its sales tax Act or any other similar legislation will not be entitled to partake in the distribution of the proceeds of the additional excise duties‟‟. Again, the fact that subsequent to the ADE Act, certain States withdrew certain enactments providing for levy of taxes/fees other than sales tax on the scheduled commodities, in the light of the enactment of the ADE Act-assuming that it was for that reason alone-is not relevant on the meaning and interpretation of the ADE Act or for that matter, the proviso to Rule (2) in the Second Schedule thereto. So long as the language of the enactment is clear and unambiguous, it is not permissible to refer to the kind of material relied upon by Shri Ganesh for altering, expanding or modifying the meaning or scope of the provisions of the Act. We are, therefore,, unable to say that by agreeing to take a share in the proceeds of the additional duties of excise, the States of Bihar has deprived itself of its power to levy entry tax under and by virtue of Entry 52 in List II in the Seventh Schedule to the Constitution. Indeed, it has not even forsaken its power to levy taxes on sale or purchase of tobacco or any other scheduled commodity; if it does so, all that would happen is that the consequence provided in the proviso to Rule (2) in the Schedule to the ADE Act will follow and nothing more. The ADE Act does not affect the legislative competence of the State Legislature to make a law with reference to any of the entries in List II. The contention of Shri Ganesh on this score is accordingly rejected. We find it difficult to agree with the submission of Shri Ganesh. Entry 49 of List II of the Seventh Schedule to the Government of India Act, 1935 as well as Entry 52 in List II in our Constitution speak of “local areas” and not “local authorities”. The tax, by whatever name called, is levied upon the entry of goods into a local area for consumption, use or sale therein. The decisions relied upon by Shri Ganesh too use the same words. Entry 52 empowers the State Legislature to levy this tax. The local authorities cannot themselves levy this tax. The power is that of the State Legislature and of none else. So long as the tax is levied upon the entry of goods into a local area for the purpose of consumption, use or sale therein, the requirement of Entry 52 is satisfied. The character of the tax so levied is that of entry tax- by