Case: Jaiprakash Associates Ltd Vs. State of Madhya Pradesh and Ors

the similar enactments made by the said States. Some of the High Courts upheld the legislation holding the tax to be compensatory tax whereas some other High Courts found the legislation not to be compensatory in nature and, thus, struck down the provisions thereof. Some High Courts had taken support of certain other reasons also in striking down these legislations. The Assessees as well as the States had filed special leave petitions against those judgments. Those cases were heard and decided by the Constitution Bench of this Court in Jindal Stainless Ltd. (2) and Anr. v. State of Haryana and Ors. [2006 (7) SCC 241 ].4. Jindal Strips Ltd. is an industry manufacturing products within the State of Haryana. The raw-material is purchased from outside the State. The finished products are sent to other States on consignment basis or stock transfer basis. No sales tax is paid on the input of the raw material. Similarly, no sales tax is paid on the export of finished products.5. The impugned Act came into force w.e.f. 5th May, 2000, to provide for levy and collection of tax on the entry of goods into the local areas of the State for consumption or use therein. The Act is enacted to provide for levy and collection of tax on the entry into a local area of the State, of a motor vehicle for use or sale, and of other goods for use or consumption therein. The Act seeks to impose entry tax on all goods brought into a "local area". The entire State is divided into local areas. The Act covers not only vehicles bringing goods into the State but also vehicles carrying goods from one local area to another. However, those who pay sales tax to the State are exempt from payment of entry tax. Ultimately, the entry tax only falls on concerns, like Jindal Strips, which, by virtue of the provisions of the Central Sales Tax Act, 1956, pay sales tax on purchase of raw-material and sale of finished goods to other States and do not pay sales tax to the State of Haryana. This is the context in which the challenge to the Act under Article 301 has been made. At this stage, we may point out that prior to September 30, 2003, Section 22 stated that the tax collected under the Act shall be distributed by the State Government amongst the local bodies to be utilized for the development of local areas. However, on 30th September, 2003, Section 22 was amended clarifying that the tax levied and collected shall be utilized for facilitating free flow of trade and commerce.REASONS FOR THE REFERRAL ORDER:6. In Atiabari Tea Co. Ltd. etc. v. State of Assam and Ors., it was held that taxing laws are not excluded from the operation of Article 301, which means that tax laws can and do amount to restrictions on the freedoms guaranteed to trade under Part-XIII of the Constitution. However, the prohibition of restrictions on free trade is not an-absolute one. Statutes restrictive of trade can avoid invalidation if they comply with Article 304(a) or (b).7. In Automobile Transport (Rajasthan) Ltd. (Supra), it was held that only such taxes that directly and immediately restrict trade would fall within the purview of Article 301 and that any restriction in the form of taxes imposed on the carriage of goods or their movement by the State Legislature can only be done after satisfying the requirements of Article 304(b). The statute which was challenged in Atiabari Tea Co. (supra) was the Assam Taxation (On Goods Carried By Roads And Inland Waterways) Act, 1954. It was held that the Act had put a direct restriction on the freedom of trade and since the State Legislature had not complied with the provisions of Article 304(b), the Act was declared void.8. It is in the aforesaid background, reference was made to Nine Judges Bench, as indicated at the outset of this order.9. We may also mention at this stage that when the matters were argued before the Nine Judges Bench, certain other aspects were also argued. Primarily, three kinds of issues were taken by the Assessees which are to the following effect:(1) Whether the entire State can be treated as local area for the purposes of entry tax?(2) Whether entry tax can be levied on the goods which are directly imported from other countries and brought in a particular State?.(3) In some statutes enacted by certain States, there was a provision for giving adjustment of other taxes like VAT, incentives etc. paid by the indigenous manufacturers and it was contended by the Assessees that whether the benefits given to certain categories of manufacturers would amount to discrimination Under Section (sic Article) 304.10. The Nine Judges Bench while answering the reference deemed it appropriate to leave these questions to be agitated before the regular Bench. That is how these matters are posted before this Bench and it is agreed that the aforesaid issues are the main issues to be decided.11. During the hearing of arguments, counsel for both sides submitted that since the main challenge in the writ petitions, which were filed by the writ Petitioners before the High Court, was predicated on the law laid down by the Constitution Bench in Atiabari Tea Co. Ltd. (supra), the High Court essentially confined its discussion only on "compensatory tax theory", as propounded in the aforesaid judgment so the High Courts looked at the issue by only keeping in mind the principle propounded in the aforesaid judgment and decided as to whether the tax imposed by a particular statute is compensatory in nature or not. Thus, when other issues are to be dealt with, as indicated above, we find that in many cases there is no adequate factual foundation and there is no discussion in the impugned judgments as well. It is also agreed by counsel for both the sides that in the absence thereof, it may not be possible for this Court to decide these issues.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]11. During the hearing of arguments, counsel for both sides submitted that since the main challenge in the writ petitions, which were filed by the writ Petitioners before the High Court, was predicated on the law laid down by the Constitution Bench in Atiabari Tea Co. Ltd. (supra), the High Court essentially confined its discussion only on "compensatory tax theory", as propounded in the aforesaid judgment so the High Courts looked at the issue by only keeping in mind the principle propounded in the aforesaid judgment and decided as to whether the tax imposed by a particular statute is compensatory in nature or not. Thus, when other issues are to be dealt with, as indicated above, we find that in many cases there is no adequate factual foundation and there is no discussion in the impugned judgments as well. It is also agreed by counsel for both the sides that in the absence thereof, it may not be possible for this Court to decide these issues