* THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.12455 of 2005; WRIT PETITION Nos.21260, 21316, 23253 and 25323 of 2007; WRIT PETITION Nos.8204, 10110 and 11216 of 2008; WRIT PETITION No.1564, 7970, 21096 and 25856 of 2009; WRIT PETITION Nos.5946, 6231, 6713, 6864, 7227, 9010, 10922, 11276, 12155, 12213, 12246, 12355, 12358, 14378, 14404, 14410, 14834, 15012, 15733, 21336, 21706, 26105, 30662, 33868 of 2010 AND WRIT PETITION No.2348 of 2011 % 22.06.2011 # M/s.Vijaya Traders, Kadapa, represented by its Managing Partner, Mr.C.Vijay Sekhar Reddy And others. ...Petitioners VERSUS $ The Commercial Tax Officer–I, Kadapa And others ...Respondents < GIST: > HEAD NOTE: ! Counsel for Petitioners: M/s.S.Krishna Murthy, Shaik Jeelani Bash, R.Raghunandan, V.Bhaskar Reddy, S.Dwaraknath, M.V.J.K.Kumar, B.Srinivas and ^Counsel for Respondents: Sri A.V.Krishna Kaundinya and Sri P.Balaji Varma ? Cases referred 1. 46 APSTJ 1 : 13 VST 15 2. 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(1998) 6 KTR 2 (Ker) THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.12455 of 2005; WRIT PETITION Nos.21260, 21316, 23253 and 25323 of 2007; WRIT PETITION Nos.8204, 10110 and 11216 of 2008; WRIT PETITION No.1564, 7970, 21096 and 25856 of 2009; WRIT PETITION Nos.5946, 6231, 6713, 6864, 7227, 9010, 10922, 11276, 12155, 12213, 12246, 12355, 12358, 14378, 14404, 14410, 14834, 15012, 15733, 21336, 21706, 26105, 30662, 33868 of 2010 AND WRIT PETITION No.2348 of 2011 22.06.2011 Between: M/s.Vijaya Traders, Kadapa, represented by its Managing Partner, Mr.C.Vijay Sekhar Reddy And others. … Petitioners AND The Commercial Tax Officer–I, Kadapa And others … Respondents THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.12455 of 2005; WRIT PETITION Nos.21260, 21316, 23253 and 25323 of 2007; WRIT PETITION Nos.8204, 10110 and 11216 of 2008; WRIT PETITION No.1564, 7970, 21096 and 25856 of 2009; WRIT PETITION Nos.5946, 6231, 6713, 6864, 7227, 9010, 10922, 11276, 12155, 12213, 12246, 12355, 12358, 14378, 14404, 14410, 14834, 15012, 15733, 21336, 21706, 26105, 30662, 33868 of 2010 AND WRIT PETITION No.2348 of 2011 COMMON ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) PART - I INTRODUCTION The challenge in these writ petitions is to the Andhra Pradesh Tax on Entry of Motor Vehicles into Local Areas Act, 1996 (A.P.Act No.26 of 1996) (the Act, for brevity). Though the attack is against the constitutional vires of charging Section 3 of the Act, without which the other provisions cannot survive, the entire Act may have to suffer invalidation if the petitioners succeed in these cases. THE BACKGROUND The following background of these cases is taken from W.P.Nos.1564 of 2009, 6713 of 2010 and 2348 of 2011. (A) W.P.No.1564 of 2009 The petitioner, a company having its registered office at Hyderabad is engaged in the business of civil contracts, consulting and engineering. They are registered dealers under the Andhra Pradesh Value Added Tax Act, 2005 (the VAT Act, for brevity) on the rolls of the Commercial Tax Officer, Jubilee Hills Circle. M/s.Patel Soma JV awarded them works contract of left main canal of Polavaram Project and Hiramandalam Reservoir of Vamsadhara Project. The contract inter alia includes excavation, lining the canal and construction of CM and CD works. For these works, the petitioner purchased three wheel loaders viz., Model TWL-3036 with 2.00 cum Bucket and Kit from M/s.Telco Construction Equipment Limited, Jamshedpur. The petitioner approached the road transport authority (RTA), Rajahmundry for registration of the vehicles. He insisted for payment of entry tax at 12.5% of the value of the wheel loaders. The petitioner would contend that the tax proposed under Section 3 of the Act restricts inter-State trade and commerce in violation of Articles 301 and 304(a) of the Constitution of India (hereafter, the Constitution). According to the petitioner, the levy is not a compensatory tax and therefore, is not saved by Article 304(b) of the Constitution, that the impugned Act in the absence of Presidential assent, is a device to circumvent the State’s disability to tax inter-State purchases prohibited by the Articles 269 and 286 of the Constitution. (B) W.P.No.6713 of 2010 M/s.Kesoram Cements is in the business of manufacture and sale of cement. They are dealers under the VAT Act. During 2007-08 and 2008-09 the petitioner purchased earth moving equipment, rear dumpers from M/s.Bharat Earth Movers, Mysore worth Rs.6,53,56,704/- for the purpose of mining limestone. According to them, they are not motor vehicles, they are used at the mines or factory enclosure, no registration is required under Motor Vehicles Act, 1988 (the MV Act, for brevity) and, therefore, the impugned Act has no application to earth moving equipment which cannot be considered as motor vehicles. However the Assistant Commissioner, Karimnagar, acting upon the report dated 15.07.2009 of the Regional Vigilance and Enforcement Officer, Hyderabad, issued show cause notice dated 21.12.2009 proposing to levy tax under the impugned Act. The petitioner submitted objections on 29.12.2009. The Assistant Commissioner by assessment order dated 23.10.2010 confirmed the levy. Being aggrieved, the petitioner filed the writ petition. The petitioner would contend that the impugned Act is violative of Articles 301 and 304(a). It is further contended that the impugned Act is in pari materia with the Andhra Pradesh Tax on Entry of Goods into Local Areas Act, 2001 (hereafter A.P.Act No.39 of 2001), which has been declared unconstitutional by a Division Bench of this Court in M/s.Rayalaseema Alkalies and Allied Chemicals v State of Andhra Pradesh[1]. When there is no levy of entry tax on the movement of vehicles produced in Andhra Pradesh entering into local area from another local area within the State, levy of entry tax on the vehicles imported into the State of Andhra Pradesh is discriminatory and is not saved by Article 304(a). The State has no legislative competence to enact a law and it is only Parliament which can impose restrictions on the freedom of trade, commerce and intercourse in public interest or on account of scarcity of goods in any part of the country. The tax levied under the impugned Act is not compensatory tax and, therefore, it cannot be sustained. The charging provision would be operative only when the government notifies the rate of entry tax, no such notification has been issued under Section 3 and the levy of tax at 12% is without any authority of law. (C) W.P.No.2348 of 2011 M/s.Srinivasa Stone Crusher, a proprietary concern engaged in the business of stone crushing is the petitioner in W.P.No.2348 of 2011 for their quarry operations – excavating earth and crushing the quarried stones. The petitioner purchased Truck Mounted Chain Run Hydraulic Excavator/Crawter Driller from M/s.L&T Komatsu Limited, and M/s.Atlas Copco (India) Limited, Bangalore. The invoice value includes Central Sales Tax at 2%. The Government of Andhra Pradesh issued notification vide G.O.Ms.No.27, dated 09.05.2007 under Section 3 of the Andhra Pradesh Act No.39 of 2001 notifying that the tax shall be levied and collected on the entry of goods inter alia on excavators and other earth moving equipment at 12.5%. In Rayalaseema Alkalies, this Court struck down the said Act. The Commissioner of Commercial Taxes (hereafter, the CCT) issued a Circular dated 24.10.2008 instructing the officers of the Department to levy and collect entry tax on all motor vehicles including excavators, if such vehicles satisfied the definition of motor vehicles under Section 2(28) of the MV Act. Based on the said circular, the CTO, Nandigama Circle, Vijayawada issued the impugned assessment order dated 21.10.2010 levying the tax on the hydraulic excavator and crawter drillers. In all other writ petitions, the allegations are similar. The common contention raised in all the cases is that the vehicle/construction equipment purchased by them outside the State are not motor vehicles because they are not adapted for use on the road and/or because they are used in enclosed premises. (D) The case of the State The CCT filed counter affidavit on behalf of the State in W.P.No.2348 of 2011 taking the following pleas. The limitation imposed by Article 301 is lifted when the tax is imposed on goods imported from other States or Union Territories when similar goods manufactured in the State are also subjected to such levy. The non-discriminatory levy under the impugned Act does not violate Article 304(a). The ban under Article 303(1) stands lifted even if discriminatory restrictions are imposed by the State legislature provided, it fulfils three conditions, namely, such restriction shall be in public interest, they shall be reasonable and shall be subjected to procurement of prior sanction of the President before introduction of the bill. The Act does not discriminate between the motor vehicles produced locally and motor vehicles imported from other States. It ensures that the ultimate tax burden on both types of motor vehicles is equal. The Presidential assent is not required as it is not tax that falls under Article 304(b). The Statement of Objects and Reasons appended to the Bill introducing the Act would show that failure of implementation of uniform floor rates by some of the neighbouring States resulted in diversion of trade, crippling the business activities of local dealers and causes loss of revenue. The Act was enacted, in order to prevent such losses, to create a uniform level playing field between the dealers of the State and dealers of outside State, and to ensure that the total tax burden on the locally produced motor vehicles as well as motor vehicles imported from other states is equal. The CCT who is arrayed as respondent in all the cases filed a separate counter. In addition to the pleas taken by the State, a further plea is raised to the effect that the impugned levy is compensatory tax not requiring previous sanction of the President. The CCT further contends that local bodies have been taking up programmes relating to laying of roads, upkeep of roads, installation of street lights, supply of water, maintenance of sanitation within the local area. They need huge funds for implementing these schemes. There is resource crunch. The local bodies especially the villages are not able to generate their own resources to meet the growing expenditure towards amenities and facilities. There is a need for funding the local bodies to discharge the statutory obligations. The laying of roads would ensure free flow of trade and commerce. Establishment of market yards, water ways and other infrastructure facilities will attract more trade from other States. The substantial allocation of funds is to be met by the State and therefore, entry tax is compensatory and regulatory in nature. Denying the allegation of the petitioners, it is stated that excavators and road rollers are motor vehicles, and therefore, the CCT issued a clarificatory circular informing the subordinates the decision of the Supreme Court in M/s.Bose Abraham v State of Kerala[2]. They were advised to levy tax on these vehicles after examining each case. PART - II SUBMISSIONS AND ISSUES M/s.S.Krishna Murthy, R.Raghunandan, V.Bhaskar Reddy, S.Dwaraknath, Shaik Jeelani Basha, M.V.J.K.Kumar and B.Srinivas made submissions on behalf of the petitioners. M/s.A.V.Krishna Kaundinya and P.Balaji Varma, the Special Counsel for Commercial Taxes defended the impugned Act. Both the parties referred to various precedents which are adverted to infra. Following is the summary of the petitioners’ submissions. (A) There is no specific entry in List II enabling the State to make a law levying tax on entry of motor vehicles into local areas although entry 52 deals with levy of tax on entry of goods into local areas. MV Act coming under entry 35 of List III takes in its fold the mechanically propelled vehicles on which taxes are levied and therefore, the impugned Act is a colourable piece of legislation. (B) The impugned Act is violative of Part XIII of the Constitution. Levy of entry tax on imported motor vehicles is discriminatory and contravenes Article 304(a). In the absence of sanction of the President of India under Article 304(b), it does not stand exempted from Article 301 as levy tax only on the vehicles brought for use or sale, is an unreasonable restriction and is not in public interest. Under Section 3 read with Section 4 of the impugned Act, entry tax is levied on the vehicles brought from other States and there is no similar levy on goods moving from one local area to another local area in Andhra Pradesh. (C) The levy under the impugned Act is not compensatory in nature. The State has not discharged the required burden of proof by placing evidence to show that the levy is intended to regulate the business and that the tax collected is spent for providing trade friendly facilities. (D) Alternatively and at all times, the levy under the Act is unconstitutional. Various machines/vehicles involved, are not motor vehicles within the meaning of Section 2(28) of the MV Act. The summary of the contentions made by the Special Counsel for the State is as follows. (A) In Jai Prakash Associates v State of Madhya Pradesh[3], the Supreme Court held that precedents dealing with compensatory tax in transportation cases do not apply to general notion of entry tax. Therefore, the three leading decisions of the Supreme Court on compensatory tax are not of any help to test the vires of the impugned Act. (B) The legislative entries have to be given widest meaning. Entry 52 of List II deals with levy of tax on sale or purchase of goods into local areas. This includes motor vehicles that are imported from other States. The impugned Act is, therefore, not a colourable piece of legislation nor Andhra Pradesh State lacks legislative competency. (C) Maharashtra Tax on Entry of Motor Vehicles Act, 1997 (the Maharashtra Act) an in pari materia legislation was upheld in Jaika Automobiles Private Limited v State of Maharashtra[4]. The Supreme Court affirmed the Bombay High Court Judgment in Shaktikumar M.Sancheti v State of Maharashtra[5]. When ‘in pari materia’ legislation has been upheld by the Supreme Court, the Act is not open to challenge. (D) The impugned Act does not directly and immediately restrict or impede trade nor have the petitioners demonstrated any such impediment to the trade carried on by them and therefore, it does not violate Part XIII of the Constitution. (E) The impugned Act is non-discriminatory. The VAT Act does not exempt similar motor vehicles in Andhra Pradesh from payment of VAT nor there is any exemption granted by the State to the motor vehicles imported into the State from payment of VAT. As the tax levied by the impugned Act is non-discriminatory, it is saved under Article 304(a). (F) The entry tax on motor vehicles is compensatory in nature. The tax collected is for the development of trade friendly infrastructure facilities for promotion of development of trade, and therefore, the Act is immune from challenge on the ground that it is violative of Part XIII of the Constitution. (G) All the vehicles involved in these cases are motor vehicles as held by the Supreme Court in Bose Abraham and, in any event, the same is a question of fact. The vehicles not being motor vehicles are not decisive of the vires of the impugned Act. The various submissions and points can conveniently be dealt with under three main headings – (i) Legislative Competence; (ii) Freedom of trade and commerce; and (iii) The nature of the vehicles. PART - III ANALYSIS OF THE IMPUGNED ACT (1) The Scheme of the Act The Act provides “for the levy of tax on entry of motor vehicles into local areas in the State of Andhra Pradesh”. It has seven chapters and 31 Sections. Chapter I contains title and the dictionary clause; Chapters II and III contain the charging Sections and the machinery provisions. Chapters IV, V and VI contain incidental or supplemental machinery provisions dealing with filing of returns, appeals/revisions, imposition of penalties and power to check and impound the motor vehicles on import. Chapter VII creates bar for registration of motor vehicles unless there is tax compliance. It also creates offences for certain breaches. Section 30 confers delegated legislative power on the Government of Andhra Pradesh. (2) The objects and reasons In the pre-VAT regime, the rates of General Sales Tax besides being umpteen slab rates, were not uniform in various States. Depending on the exigencies, the States frequently increased/decreased rate of tax on various goods sold and purchased in the State under the respective sales tax laws. The customer psychology to procure the same quality of goods at lesser rates prompted them to purchase the goods at low tax in the neighbouring States and bring them for use in the State of Andhra Pradesh, inevitably denying it general sales tax in respect of the vehicles purchased in neighbouring States. To get over the situation, the States of Karnataka, Kerala and Tamil Nadu introduced entry tax on motor vehicles as well as other goods. In 1987, the Andhra Pradesh Entry of Goods into Local Area Tax Act was passed which received the assent of the President. Under this enactment, entry tax was introduced on Textiles, Tobacco and Sugar. The Act was, however, repealed in April, 1990. Half a decade thereafter, the State of Andhra Pradesh again decided to levy entry tax, “on motor vehicles only to plug leakage of revenue”. (3) The Conspectus of relevant provisions The existence of levy of tax in point of law, generally depend on four components which enter into the concept of tax. These are: (i) the character of the imposition known by its nature which prescribes the taxable event attracting the levy; (ii) the indication of the person on whom the levy is imposed and who is obliged to pay the taxes; (iii) the rate at which the tax is imposed; and (iv) the measure or value to which the rate will be applied for computing the tax liability (Govind Saran Ganga Saran v CST[6]). In CIT v Suresh N. Gupta[7] the Supreme Court indicated that a tax law generally contains (i) the charging section; (ii) a computation section; (iii) a procedural section for assessment; (iv) limitation provision for completion of assessment; and (v) the provisions for imposition of interest and penalty. To be compliant with Article 265 of the Constitution, the legislative scheme of the tax law must be free from uncertainty or vagueness in defining any of the four components of the levy. So as to appreciate the contentions in these cases, we may analyse the impugned Act with reference to four components of levy of the entry tax. The relevant provisions which need to be read are certain terms as defined in Section 2 and Sections 3 and 4. Section 2. Definitions (d) ‘entry of motor vehicle into a local area’ with all its grammatical variations and cognate expressions, means entry of motor vehicle into a local area from any place outside the State for use or sale therein; ( e) ‘General Sales Tax Act’ means the Andhra Pradesh General Sales Tax Act, 1957 (Act No.VI of 1957); (g) ‘Importer’ means a person who brings a motor vehicle into a local area from any place outside the State for use or sale therein or who owns the vehicle at the time of its entry into the local area; ( h ) ‘Local area’ means the area of jurisdiction of a local authority; (i) ‘local authority’ means the area within the limits of, a city as declared under the Hyderabad Municipal Corporation Act, 1955, or the Visakhapatnam Municipal Corporation Act, 1979, or the Vijayawada Municipal Corporation Act, 1981 or any other Municipal Corporation in the State, as in force or a municipality as constituted or deemed to have been constituted under the Andhra Pradesh Municipalities Act, 1965, or any notified area,