{"id":26665,"date":"2007-03-22T00:00:00","date_gmt":"2007-03-21T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/itc-limited-vs-the-state-of-tamil-nadu-on-22-march-2007"},"modified":"2018-06-06T21:31:33","modified_gmt":"2018-06-06T16:01:33","slug":"itc-limited-vs-the-state-of-tamil-nadu-on-22-march-2007","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/itc-limited-vs-the-state-of-tamil-nadu-on-22-march-2007","title":{"rendered":"Itc Limited vs The State Of Tamil Nadu on 22 March, 2007"},"content":{"rendered":"
Madras High Court<\/div>\n
Itc Limited vs The State Of Tamil Nadu on 22 March, 2007<\/div>\n
       \n\n  \n\n  \n\n \n \n           IN THE HIGH COURT OF JUDICATURE AT MADRAS\n                              \n                     Dated:   22.03.2007\n                              \n                           Coram:\n                              \n          The Honourable Mr.A.P.SHAH, CHIEF JUSTICE\n                             and\n             The Honourable Mr.Justice K.CHANDRU\n                              \nWrit  Petition Nos. 12553 to 12555\/2002, 13457\/02, 14246\/02,\n14247\/02,  14578 to 14580\/02, 14581\/02, 14593\/02,  15340\/02,\n15667  to  15669\/02, 15809 to 15810\/02, 15830\/02,  15833\/02,\n15862\/02, 15896\/02, 15898\/02, 15902\/02, 15908\/02,  16430  to\n16432\/02,  16433\/02, 16434\/02, 16959 to 16962\/02,  16469  to\n16472\/02, 18225\/02, 18871 to 18874\/02, 18894\/02 to 18898\/02,\n18899  to  18901\/02, 18902 to 18905\/02, 19003\/02,  19284  to\n19286\/02,  19326\/02, 19356\/02, 19570\/02, 19958  &  19959\/02,\n20054  to  20058\/02, 20332\/02, 20466\/02, 20738\/02, 20790\/02,\n20791  to  20793\/02, 21268\/02, 21566\/02, 21655\/02, 21815\/02,\n21816  &  21817\/02, 21818\/02 & 21819\/02, 21823\/02, 22016\/02,\n22023  to  22027\/02, 22039 to 22043\/02, 22072  to  22075\/02,\n22260\/02, 22285\/02 to 22287\/02, 22288 to 22291\/02, 22302  to\n22306\/02,  22408\/02, 22458\/02, 22519 &  22521\/02,  22541  to\n22544\/02,  22545\/02, 22597\/02, 22679 to 22685\/02,  22738\/02,\n22956  to  22958\/02, 23103\/02, 23140\/02, 23175\/02, 23176\/02,\n23263  to 23266\/02, 23443\/02, 23553\/02 & 23554\/02, 23738  to\n23742\/02,  23941 to 23943\/02, 24143\/02, 24181  to  24184\/02,\n24385\/02,  24419  to  24420\/02, 24525 & 24526\/02,  25021\/02,\n25346\/02,  25373\/02, 29937\/02, 29963\/02, 30035\/02, 30532\/02,\n30668  to  30673\/02, 30906\/02, 31195\/02, 31198\/02, 31241\/02,\n31535  to  31540\/02, 31541 to 31544\/02,  31612  &  31613\/02,\n31633\/02,  31690\/02,  32425\/02, 32460 &  32461\/02,  32463  &\n32464\/02,  32734  & 32735\/02, 33099\/02, 33100\/02,  33101\/02,\n33102\/02,  33103\/02, 33104\/02, 33105\/02, 33106\/02, 33107\/02,\n33108\/02,  33583\/02, 34203\/02, 34266\/02, 34283\/02& 34284\/02,\n34313\/02,  34342\/02, 34343\/02, 22961\/02, 23177\/02, 24352\/02,\n25068\/02,  29058  & 29059\/02, 29649\/02, 29890\/02,  32412\/02,\n32977\/02, 33875\/02, 34873\/02, 35776\/02, 36273\/02,  36519  to\n36521\/02,  37078\/02, 37465\/02, 37480\/02, 37660\/02, 37718\/02,\n37778\/02,  38430\/02, 38855 to 38858\/02, 39382  to  39384\/02,\n40280\/02,  29825\/02, 33194 to 33197\/02, 34130\/02,  34132\/02,\n34145\/02,  34156\/02, 34159\/02, 34162\/02, 34173\/02, 34186\/02,\n34402\/02,  34406 to 34407\/02, 35554\/02, 35555\/02,  35691\/02,\n35834\/02,  36498\/02, 36503\/02, 36707\/02, 37129 to  37132\/02,\n37281  &  37282\/02, 37297\/02, 37298\/02, 38030\/02,  38214\/02,\n38270\/02,   39051\/02,   39275\/02,  39276\/02   to   39279\/02,\n39392\/02,  39424\/02, 39428 to 39431\/02, 39656\/02,  39791\/02,\n40099\/02,  40534\/02, 40895\/02, 18875\/02, 19603\/02, 19907\/02,\n19920\/02,  19931\/02, 19932\/02, 19955 to 19957\/02,  20229\/02,\n23642\/02,   23908  to  23919\/02,  31808&31809\/02,  31887\/02,\n34304\/02,  34788\/02, 35388\/02, 35847\/02, 35866\/02, 35891\/02,\n35896\/02,  38183\/02,  38261\/02,  38668  &  38669\/02,   39319\n&39320\/02,  41364\/02, 41543\/02, 41712\/02, 41784 &  41785\/02,\n42261\/02,  42487\/02, 42749\/02, 43800\/02, 44412\/02, 44436\/02,\n44470\/02,  44473\/02, 44486\/02, 44487\/02, 44510 to  44512\/02,\n44697\/02,  44997\/02,  45066\/02, 45191 & 45192\/02,  45312\/02,\n45332\/02,  45408\/02, 45943\/02, 46010\/02, 46445\/02, 46651\/02,\n46689 to 46691\/02, 47051\/02,37934\/02, 27\/2003, 59\/03, 61\/03,\n392\/03,  565\/03,  695\/03,  790\/03, 813\/03,  816\/03,  817\/03,\n818\/03,  824\/03,  827\/03,  979\/03, 1031\/03,  1155\/03,  1259,\n2201, 2293,  2313, 2740, 3353, 3779, 3765, 4113, 3513, 4513,\n5458,  5459, 6184, 8608, 8631, 7148, 7587, 7623, 7942, 8124,\n8220, 8221, 9134, 9244, 9571, 9627, 9743, 9908, 9909, 10429,\n10601,  11326, 11327, 11450, 11615, 11616, 11620  to  11625,\n11820  to 11824,  12968, 12969, 12970, 13279, 13407,  13450,\n13567,  13960,  14049, 14050, 14057, 15575 to 15578,  16659,\n16757,  16816,  16926,  17633, 18068, 18213,  18871,  19842,\n20767,  21315, 21723 to 21726, 22039, 22040, 22041,   23309,\n23390,  24069,  24119, 25150 to 25153, 24536, 24540,  24745,\n26710,  27000,  27049,  27479, 27803, 28289,  28618,  28619,\n28708,  28709,  28938,  29085, 29252, 29277,  29476,  29497,\n29657,  29847,  29913,  30144,  30337,  30886,  32767,32777,\n32823,  32824,  32826,  32846, 32850, 32851,  33271,  33319,\n34502,  35490,  29266,  35899, 35971, 35972,  35973,  35994,\n36078,  36115, 36152, 36493, 36522, 36758, 36990  to  36992,\n37026,   38543,  38544,  38653,  38654,  38690,  38802\/2003,\n158\/2004,   223, 484, 510, 675, 955, 977, 989,  1175,  1204,\n1713,  2515,  2691, 2692, 2693, 2839, 2960,  3091,  3153  to\n3158, 3161 to 3163, 3574, 3716, 3721, 24153 to 24168, 37208,\n37807,  37752,  37768,  37798, 37989, 38057,  38058,  38093,\n38442, 2014, 15461, 15634, 15707, 15711, 15912, 7340,  7341,\n15110, 15227, 15453, 15487, 15492, 20305, 20306, 21026\/2004,\n21162,  21192, 21193, 21196\/04, 21246\/04, 26042to  26044\/04,\n27017\/04,  28718\/04, 29915\/04, 29919\/04, 30678\/04, 35055\/04,\n36909\/04,  22292\/04, 30636\/03, 39534\/04, 37582\/04, 37626\/04,\n38024\/04,  38033\/04, 24199\/04, 11412\/04, 11740\/04, 12769\/04,\n12770\/04, 3929 to 3931\/04, 20764, 20765\/05, 18864\/05,  18873\n&  18874\/05,  26122&26123\/05, 26147 to  26149\/05,  26949\/05,\n30564\/05,  32662\/05,  100\/05, 595 to  597\/05,  1144&1145\/05,\n1458\/05,  1495\/05, 1799 & 1800\/05, 1527\/05, 2153 &  2154\/04,\n3824\/04,  4676\/04,  4676\/04,  4679\/04,  4730\/04,   5926   to\n5928\/04,  5604&5605\/04, 5785*04, 5880\/04, 6192\/04,  6440\/04,\n6548   to   6551\/04.  6915\/04,  7418\/04,  7421\/04,  7453\/04,\n7472\/04,   8719\/04,  8964\/04,  9078\/04,  9156\/04,   9393\/04,\n9620\/04,  9806\/04,  9980\/04, 10362\/04,  10655\/04,  11223\/04,\n11224\/04,  11239\/04, 11494\/04, 12573\/04, 13278\/04, 13279\/04,\n13630\/04,  13631\/04,  13561 &13562\/04,  27149\/04,  27175\/04,\n27485\/04,  27575\/04, 27709\/04, 27733\/04, 27827\/04, 27829\/04,\n27835\/04,   27993&27994\/04,  28028\/04,  28029\/04,  28048\/04,\n28361\/04,  29469\/04, 29617\/04, 29679\/04, 29789\/04, 29870\/04,\n5143  &  5144\/04,  5644\/04,  17096\/04,  17163\/04,  19095\/04,\n22114\/04,   22437\/04,  22614\/04,  22791\/04,  22793&22794\/04,\n22948\/04,  24178\/04, 24635\/04, 25291\/04, 25650\/04, 25658\/04,\n25743\/04,      26667&26668\/04,      29057\/04,      29920\/04,\n30282&30283\/04,   30496\/04,   31084\/04,   31210\/04,37668\/04,\n37669\/04,  38420\/04,  39628\/04,  21581\/05,  1317\/04,1372\/04,\n1380\/04,   1513\/04,  1976\/04,  2336  &  2337\/04,   14522\/04,\n14644\/04, 23099\/05, 6247\/04, 6315\/04, 7091 &7092\/04, 204\/05,\n239\/05,   905\/05,  1116\/05,  24699\/05,  13325\/04,  13913\/04,\n14316&14317\/04, 14328\/04,14372\/04, 14420&14421\/04, 16599\/04,\n18736\/04,  19561\/04, 22325\/04, 22660\/04, 23333\/04, 23841\/04,\n23988  to  23990\/04, 25029\/04, 28720\/04, 28971 to  28973\/04,\n21903\/05,   21922\/05,  22031&22032\/05,  22638\/05,  22795\/05,\n23881&23882\/05,   23923\/05,   5566\/05,   5627\/05,   5656\/05,\n5675&5676\/05,   7353\/05,   9369\/05,   10410\/05,    10437\/05,\n10804\/05,13335\/05,  15999\/05, 16082\/05,  25387\/04,  8406\/05,\n8644\/05,   8848\/05,   10171\/05,   10413&10414\/05,   5840\/04,\n19677&19678\/05,  12938\/05,  11800\/05,  19680\/05,   33105\/04,\n33106\/04,  34410  & 34411\/04, 35479\/04, 35776\/04,  37139  to\n37141\/04,  10075\/05, 12027\/05, 20790\/05, 20956\/05, 24190\/05,\n24547\/05,      24652\/05,      24997\/05,      39301&39032\/05,\n39647&39648\/05,  39841&39842\/05, 40150\/05, 320\/06,  8075\/04,\n489\/06,  1030&1031\/06, 1351\/06, 1474\/06,  1642  to  1644\/06,\n4186\/06,   4655\/06,  4945\/06,  12451  to   12454\/04,   22359\n&22360\/04,   39422&39423\/05,  7804\/04,  12674  &   12675\/04,\n15960\/04,   15963\/04,   26440  to  26444\/04,   2150&2151\/05,\n1912\/04,   2443\/04,   16083&16084\/05,  15045\/04,   36484\/04,\n16250\/05,    13335\/04,    29684\/05,    3385\/06,     8948\/06,\n9000\/06,40118\/06,   4105\/05,   15864&  15865\/05,   15135\/04,\n19131\/04, 19845\/04, 20756\/04 & 20757\/04, 33410\/04,  1935\/05,\n6236\/05, 6240\/05, 6241\/05, 33965\/05, 35909\/05, 9240\/06, 9865\n&  9866\/06,  42549\/06, 42963\/06, 4168\/05, 4277\/05,  1415\/06,\n518\/06, 18073\/05 & W.A.Nos. 1320 & 1321\/06.\n                              \nW.P.Nos.12553 to 12555 of 2002\nITC Limited\nhaving its Registered Office\nat Virginia House,\n37, J.L.Nehru Road, Kolkata-700 071.\nAnd one of its Marketing Office at ITC Centre,\n4th Floor, 760, Anna Salai, Chennai - 600 002.\nRep. by its Constituted Attorney,\nMr.Subhatosh Banerjee                        . Petitioner in\n                                             the above petitions\n\n                             vs.\n\n1. The State of Tamil Nadu\n    rep. by the Chief Secretary to\n    Government of Tamil Nadu,\n    Secretariat,\n    Chennai.\n\n2. The Commercial Tax Officer,\n    Thiruvottiyur Assessment Circle,\n    Thiruvottiyur,\n    Chennai.                                    ..Respondents in the\n                                                  above petitions.\n\n            Petitions  filed  under  Article  226   of   the\nConstitution  of India praying for the issue of  a  Writ  of\nDeclaration for the reasons stated therein.\n\nFor Petitioners in                 :::   Mr.Anil B.Divan, SC\nW.P.Nos.12553,12554&12555\/02             Mr.A.L.Somayaji, SC\n15667, 15668 & 15669\/02 &                Mr.S.Ganesh, SC\n36503\/2002                               Assisted by\n                                         Mr.Krishna Srinivas\n                                         Mr.AR.Ramanathan for\t\n\t\t\t\t\t\t     M\/s.Ramasubramaniam&\n                                         Associates\n\nFor Petitioners in\nW.P.Nos.24058, 24059&24060\/06 Mr.Arvind P.Datar, SC\n                              For  M\/s.S.Ramasubramaniam   &\n                              Associates.\n\nFor Petitioners in            Mr.C.Natarajan,  SC for\nW.P.Nos.13457,14246,14578     Mr.Inbarajan\n14581, 14593, 18871, 18894, 18899,\nto 18901, 18902, 19958, 21268,\n21655, 21816, 21818, 22016, 22023,\n22039 to 22043, 22072 to 22075,\n22260, 22285, 22288, 22519, 22541,\n22545, 22679 to 22685, 22738,\n23140, 23553, 23941 to 23943,\n24143, 29937, 34266, 22961, 24352,\n32412, 39275, 19955, 34788,\n42261 of 2002, 4113\/2003, 5458\/03,\n9743\/03, 24069\/03, 29847\/03,\n510\/04, 595\/05, 27709\/04,\n28048\/04, 28200\/04, 26667\/04,\n30282\/04, 38420\/04, 905\/05,\n28971\/04, 23881\/05 & 23923\/05.\n\n\nFor Petitioners in\nW.P.Nos.7091\/04 & 18073\/05         Mr.S.Sivanandam\n\nFor Petitioner in\nW.P.No.40118\/06                    Mr.D.Venkatesh for\n                                    Mr.V.P.Raman\n\n\n\n\n\nFor Petitioners in W.P.Nos.        Mr. R.Venkatraman, SC\n29963\/02,   42749\/02,   9244\/03,   assisted   by\nMr.T.Ramesh Kutty,\n13407\/03, 13450\/03, 16659\/03,\n28708\/03, 29085\/03, 29913\/03       Mr.K.Venkatasubramaniam\n30886\/03,   2014\/04,   20305\/04,   for M\/s.R.V.Chitra Associates\n20306\/04, 30636\/04, 23333\/04,\n& 23988\/04,\n\n\nFor Petitioners in                 Mr.M.N.Rao, SC for\n15830\/02, 15833\/02, 15862\/02,      M\/s.R.Hemalatha\n15896\/02, 15898\/02, 15902\/02,\n15908\/02, 16430\/02, 16433\/02,\n16434\/02, 16959 to 16962\/02,\n16469\/02 to 16472\/02, 18225\/02,\n19284\/02, 20332\/02, 20790\/02,\n20791\/02, 31341\/02, 37078\/02,\n37480\/02, 38855\/02, 37297\/02,\n37298\/02, 38270\/02, 39276 to\n39279\/02, 39428 to 39431\/02,\n18875\/02, 19907\/02, 19920\/02,\n19931\/02, 19932\/02, 35891\/02,\n41712\/02, 41784\/02, 44412\/02,\n44436\/02, 44470\/02, 565\/02,\n8631\/03, 7623\/03, 9571\/03,\n9627\/03, 11326\/03, 22039\/03,\n22040\/03, 22041\/03, 35971\/03,\n35972\/03, 35973\/03, 35994\/03,\n36078\/03, 36115\/03, 36153\/03,\n36493\/03, 36758\/03, 38653\/03,\n38654\/03, 675\/04, 1175\/04,\n1204\/04, 1713\/04, 2693\/04,\n2839\/04, 2960\/04, 3091\/04,\n37208\/03, 37752\/03, 37768\/03,\n38093\/03, 15461\/04, 15634\/04,\n15707\/04, 15711\/04, 15912\/05,\n7340\/04, 7341\/04, 15110\/04,\n21162\/04, 21192\/04, 21193\/04,\n21196\/04, 27017\/04, 3929\/05,\nto 3931\/05, 20764\/05, 18864\/05,\n18873\/05 & 18874\/05, 20765\/05,\n26147 to 26149\/05, 26949\/05,\n30564\/05, 32662\/05, 1144\/05,\n1458\/05, 1495\/05, 2153\/04 ,\n2154\/04, 3824\/04, 4679\/04,\n4730\/04, 5296\/04 to 5298\/04,\n5604 & 5605\/04, 7453\/04,\n8719\/04, 11223\/04, 11224\/04,\n11239\/04, 13279\/04, 13630\/04,\n13631\/04, 27575\/04, 27733\/04,\n27993\/04 & 27994\/04, 19095\/04,\n22437\/04, 22791\/04, 22793\/04,\n24178\/04, 25291\/04, 37668\/04,\n37669\/04, 1317\/04, 1513\/04,\n2336\/04, 23099\/05, 239\/05,\n14316\/04, 14420\/04, 19561\/04,\n22638\/05, 5675\/05, 10437\/05,\n9717\/05, 9582\/05, 10595\/05,\n9611\/05, 9767\/05, 10804\/05,\n10171\/05, 10413 & 10414\/05,\n19677\/05, 19678\/05, 12938\/05,\n19680\/05, 33105\/04, 33106\/04,\n35479\/04, 37139 to 37141\/04,\n10075\/05, 20790\/05, 39301\/05,\n39647 & 39648\/05, 39841 & 39842\/\n2005, 8075\/04, 489\/06, 1030\/06,\n1031\/06, 1351\/06, 1642 to 1644\/\n2006, 4186\/06, 4655\/06, 22359 to\n22360\/04, 15960\/04, 15963\/04,\n2150 & 2151\/05, 36484\/04,\n3385\/06, 42549\/06 & 42963\/06.\n\n\nFor Respondents                     Mr.R.Viduthalai, Advocate General   \n\t                              Assisted by\n      \t                        Mr.Haja Naziurudeen,\n            \t                   Spl.Govt.Pleader (Taxes)\n\n                          O R D E R\n<\/pre>\n
THE HON’BLE CHIEF JUSTICE<\/p>\n
      Constitutional validity of the Tamil Nadu Tax on Entry<\/p>\n
of  Goods  into Local Areas Act, 2001(“Act” for short),  and<\/p>\n
various  notifications  issued by the  State  Government  in<\/p>\n
exercise of the powers conferred by Section 15 of the Act is<\/p>\n
questioned  in  these  writ  petitions  and  connected  writ<\/p>\n
appeals.\n<\/p>\n<\/p>\n
      2. Tamil Nadu State enacted the Act to provide for the<\/p>\n
levy  of  tax  on  entry  of  goods  into  local  areas  for<\/p>\n
consumption, use or sale therein, being Tamil Nadu Act 20 of<\/p>\n
2001. Section – 3 empowers the State Government to levy  and<\/p>\n
collect tax on entry of scheduled goods into any local  area<\/p>\n
for  consumption,  use  or sale therein  at  such  rate  not<\/p>\n
exceeding  30% ad valerom, as may be specified by the  State<\/p>\n
Government. Goods liable for levy of tax under  the  Act  on<\/p>\n
entry  in  the specified local areas at the specified  rates<\/p>\n
are  those  set  out  in the schedule annexed  to  the  Act.<\/p>\n
Section 15 of the Act contains power of the State Government<\/p>\n
to  amend  the schedule and armed with that power the  State<\/p>\n
Government  issued  various notifications inserting  several<\/p>\n
goods\/classes of goods into the schedule annexed to the Act.<\/p>\n
The Act was brought into force on 01.12.2001.<\/p>\n
       3.  Numerous petitions have been filed under  Article<\/p>\n
226  of  the  Constitution contending that the Act  and  the<\/p>\n
notifications  issued  thereunder  are  unconstitutional  on<\/p>\n
diverse  grounds. The main ground of attack is that the  tax<\/p>\n
sought  to be levied under the Act is neither regulatory  in<\/p>\n
nature  nor  does  it  satisfy the tests  laid  down  for  a<\/p>\n
compensatory tax. The tax being discriminatory in nature and<\/p>\n
being  levied on the entry of goods into a local area  is  a<\/p>\n
direct  and  immediate impediment to the  freedom  of  trade<\/p>\n
guaranteed  under  Article  301  of  the  Constitution.   No<\/p>\n
Presidential  assent has been obtained under Article  304(b)<\/p>\n
of  the Constitution for the levy of the entry tax under the<\/p>\n
Act.  The  demand  and  collection of entry  tax  under  the<\/p>\n
impugned   Act   is  therefore  illegal,  unauthorised   and<\/p>\n
violative of Articles 301 and 304 of the Constitution.<\/p>\n
        4. It is necessary at this stage to notice the broad<\/p>\n
features of the Act. The long title and the preamble of  the<\/p>\n
Act  demonstrates the purpose for which the Act was enacted,<\/p>\n
it  being  to  provide for the levy of tax on the  entry  of<\/p>\n
scheduled  goods  into local areas for consumption,  use  or<\/p>\n
sale  thereunder.   Section  3 of  the  Act,  which  is  the<\/p>\n
charging section, reads as under: –\n<\/p>\n
     “3. Levy and Collection of tax –<\/p>\n
           (1)  Subject to the provisions of this Act,
\n     there shall be levied and collected a tax on  the
\n     entry of any scheduled goods into any local  area
\n     for consumption, use or sale therein. The rate of
\n     tax of shall be at such rate not exceeding thirty
\n     percent  on the value of the scheduled  goods  as
\n     may  be  fixed by the Government, by notification
\n     and  different  rates may be fixed for  different
\n     scheduled goods.\n<\/p><\/blockquote>\n
     (2)  The  tax shall be payable by an importer  in<\/p>\n
     accordance with the provisions of the Act.”<\/p><\/blockquote>\n
       5.  The  expression “entry of goods into  local<\/p>\n
area” has been defined under the Act vide Section 2(c)<\/p>\n
and it reads as follows:\n<\/p>\n
          “Section – 2(c): Entry of goods into a local<\/p>\n
     area  –  with all its grammatical variations  and<\/p>\n
     cognate  expressions, means  entry  of  scheduled<\/p>\n
     goods  into  a local area from any place  outside<\/p>\n
     the State for consumption, use or sale therein;”<\/p><\/blockquote>\n
       6.  It  can  be  seen from a plain  reading  of<\/p>\n
Section  2(c)  and Section 3 that levy  of  entry  tax<\/p>\n
under the Act is only on goods which are imported from<\/p>\n
any   place  outside  the  State  of  Tamil  Nadu  for<\/p>\n
consumption,  use or sale within the  Sate.  The  term<\/p>\n
local area is defined in Section 2(h) and it reads  as<\/p>\n
follows: –\n<\/p>\n
          “Section – 2(h) Local Area  means  the  area
\n     within the limits of –\n<\/p><\/blockquote>\n
          (i)  the City of Chennai as defined  in  the
\n     Chennai  City  Municipal  Corporation  Act,  1919
\n     (Tamil Nadu Act No.IV of 1919), or\n<\/p><\/blockquote>\n
          (ii)  the City of Madurai as defined in  the
\n     Madurai  City  Municipal  Corporation  Act,  1971
\n     (Tamil Nadu Act No.15 of 1971), or\n<\/p><\/blockquote>\n
          (iii)  the City of Coimbatore as defined  in
\n     the  Coimbatore  City Municipal Corporation  Act,
\n     1981 (Tamil Nadu Act No.25 of 1981), or\n<\/p><\/blockquote>\n
           (iv) the City of Tiruchirappalli as defined
\n     in  the Tiruchirappali City Municipal Corporation
\n     Act, 1994 (Tamil Nadu Act No.27 of 1994), or\n<\/p><\/blockquote>\n
          (v)  the  City of Tirunelveli as defined  in
\n     the  Tirunelveli City Municipal Corporation  Act,
\n     1974 (Tamil Nadu Act No.28 of 1974), or\n<\/p><\/blockquote>\n
          (vi)  the  City of Salem as defined  in  the
\n     Salem City Municipal Corporation Act, 1994 (Tamil
\n     Nadu Act No.29 of 1994), or\n<\/p><\/blockquote>\n
          (vii)  any other Municipal Corporation  that
\n     may  be  constituted under any law for  the  time
\n     being in force, or\n<\/p><\/blockquote>\n
          (viii)  a Municipality under the Tamil  Nadu
\n     District Municipalities Act, 1920 (Tamil Nadu Act
\n     No.V of 1920), or\n<\/p><\/blockquote>\n
     (ix)  a Panchayat under the Tamil Nadu Panchayats
\n     Act, 1994 (Tamil Nadu Act No.21 of 1994)”.<\/p><\/blockquote>\n
      7. Further, Section 2(c) which defines ‘entry of<\/p>\n
goods  into  a  local area’ has to be  read  with  the<\/p>\n
definion  of ‘importer’ in Section 2(g) because  under<\/p>\n
Section 3(2) the tax is payable only by the ‘importer’<\/p>\n
as defined by Section 2(g), which reads as follows: –<\/p>\n
          “Section  2(g): importer means a person  who<\/p>\n
     brings  or  causes  to be brought  any  scheduled<\/p>\n
     goods whether on his own account or on account of<\/p>\n
     a  principal  or any other person, into  a  local<\/p>\n
     area,  from  any  place  outside  the  State  for<\/p>\n
     consumption use or sale therein or who  owns  the<\/p>\n
     scheduled  goods at the time of  entry  into  the<\/p>\n
     local area”.<\/p><\/blockquote>\n
       8.  Section  4  provides for reduction  in  tax<\/p>\n
liability in certain cases and reads as follows:-<\/p>\n
          “Section  –  4 Reduction in tax liability  –
\n     (1)  Where  an  importer of any  scheduled  goods
\n     liable  to pay tax under this Act, being a dealer
\n     in  scheduled  goods becomes liable  to  pay  tax
\n     under  the  General Sales Tax Act and  additional
\n     sales  tax under the Tamil Nadu Additional  Sales
\n     Tax Act, 1970 (Tamil Nadu Act No.14 of 1970),  by
\n     virtue of the sale of such scheduled goods,  then
\n     his  liability under those Acts shall be  reduced
\n     to the extent of tax paid under this Act.\n<\/p><\/blockquote>\n
          (2)  Where  an  importer who,  not  being  a
\n     dealer  in  scheduled goods,  had  purchased  the
\n     scheduled goods for his own use or consumption in
\n     any Union Territory, or any other State, then his
\n     liability under this Act, shall, subject to  such
\n     conditions as may be prescribed be reduced to the
\n     extent  of the amount of tax paid, if any,  under
\n     the  law relating to General Sales Tax as may  be
\n     in force in that Union Territory or State.”<\/p><\/blockquote>\n
       9.  Chapter III of the Act provides for offences  and<\/p>\n
penalties and cognizance of offences, Chapter IV deals  with<\/p>\n
appeals and revisions and Chapter V contains provisions  for<\/p>\n
returns,  assessments, payments, recoveries and  refunds  of<\/p>\n
tax and reviews.\n<\/p>\n<\/p>\n
       10.  Learned  counsel  appearing  on  behalf  of  the<\/p>\n
petitioners submitted that the right of the State to  impose<\/p>\n
entry tax has to be decided in the light of the decision  of<\/p>\n
the  Constitution  Bench  of the  Supreme  Court  in  Jindal<\/p>\n
Stainless Ltd. vs. State of Harayana, 2006 (7) SCC  241.  It<\/p>\n
was   submitted  that  in  Jindal’s  case,   it   has   been<\/p>\n
specifically  held that the burden is on the  State  placing<\/p>\n
material  before  the  Court to prove that  the  payment  of<\/p>\n
compensatory  tax  is  reimbursement\/re-compensate  for  the<\/p>\n
quantifiable\/measurable services provided or to be  provided<\/p>\n
to  the  payers.  It  was  submitted  that  the  essence  of<\/p>\n
compensatory tax is that the services rendered or facilities<\/p>\n
provided  should be more or less commensurate with  the  tax<\/p>\n
levied  and  tax should not be patently more than  what  was<\/p>\n
required  to  provide trading facilities. It  was  submitted<\/p>\n
that  the tax imposed for augmenting general revenue of  the<\/p>\n
State is not compensatory; that any tax law, which does  not<\/p>\n
or  which has the effect of disrupting the trade movement in<\/p>\n
inter-State trade and commerce between States is contrary to<\/p>\n
the  concept of freedom of trade embodied in Article 301  of<\/p>\n
the   Constitution.  According  to  learned  counsel,   mere<\/p>\n
declaration in law that the levy is compensatory  in  nature<\/p>\n
is not enough. Whether the tax is compensatory or not cannot<\/p>\n
depend upon the preamble of the statute imposing it, and the<\/p>\n
burden  would  lie  heavily on the State  administration  to<\/p>\n
prove that the tax proposed to be levied and collected under<\/p>\n
the  impugned  enactment is for the use of trade  facilities<\/p>\n
and  only then that such levy would come within the  purview<\/p>\n
of  compensatory  tax as laid down in the  judgment  of  the<\/p>\n
Supreme Court in Jindal’s case. It was submitted that  Entry<\/p>\n
52  List II indicates that the levy contemplated therein  is<\/p>\n
on  the  entry of goods into the local area for consumption,<\/p>\n
use  or  sell  therein. Therefore, if levy of entry  tax  is<\/p>\n
claimed to be compensatory in nature such levy would have to<\/p>\n
be,  in  the first instance, confined to a local  area,  and<\/p>\n
secondly,  the  trade facilities sought to be provided  also<\/p>\n
should be confined to such local area. Further, the expenses<\/p>\n
for  such facilities and the levy by which such expenses are<\/p>\n
to  be  met must bear reasonable and rationale relationship.<\/p>\n
It  was  urged that entry tax levied under the impugned  Act<\/p>\n
lacks  basic  ingredients for a valid  compensatory  tax  as<\/p>\n
neither  under the impugned Act nor in connection  with  it,<\/p>\n
any  specific facility, convenience or services is  provided<\/p>\n
to the assessees who are required to pay impugned tax nor is<\/p>\n
there  any  co-relationship  between  the  quantum  of   tax<\/p>\n
recovered   from   the   assessees   and   the   value    of<\/p>\n
convenience\/facility or services provided. It was  submitted<\/p>\n
that the Act has not received the assent of the President as<\/p>\n
required under Article 255 of the Constitution nor the  Bill<\/p>\n
was  moved  on  the floor of the Assembly with the  previous<\/p>\n
sanction  of the President as required under the proviso  to<\/p>\n
Section 304(b) of the Constitution, and thus, the Act is not<\/p>\n
saved by Article 304(b) of the Constitution. Learned counsel<\/p>\n
further submitted that there is an element of discrimination<\/p>\n
between the goods entering the local areas from outside  the<\/p>\n
State  and  goods entering the local areas from  within  the<\/p>\n
State  i.e., from one local area to another local area.  The<\/p>\n
latter  class of goods is not subjected to levy  though  all<\/p>\n
the  facilities, if at all provided, are there in course  of<\/p>\n
inter-State  movement  and entry of goods  in  local  areas.<\/p>\n
Learned    counsel,   therefore,   submitted    that    this<\/p>\n
discrimination  per se militates against the  impugned  levy<\/p>\n
being termed as compensatory. The levy thus violates the non-<\/p>\n
discrimination clause in Article 304(a) of the Constitution.<\/p>\n
     11.  In reply, on behalf of the State, it was submitted<\/p>\n
by  the learned Advocate General that Tamil Nadu Act  20  of<\/p>\n
2001,  does  not suffer from want of legislative competence.<\/p>\n
He  submitted that the State legislature has the  competence<\/p>\n
under  Entry  52 List II to enact the impugned law  and  the<\/p>\n
State legislature is competent to levy such tax because  the<\/p>\n
incidence  of  tax is on the entry of goods into  the  local<\/p>\n
area for consumption, use or sale therein. He submitted that<\/p>\n
the  entry  tax is compensatory in character, and therefore,<\/p>\n
the  impugned levy, which is compensatory in nature, as  can<\/p>\n
be  seen  from  the  preamble of the Act, does  not  attract<\/p>\n
Articles 301 and 304 of the Constitution. He urged that  the<\/p>\n
preamble  of the Act clearly shows that the tax  levied  and<\/p>\n
collected  shall be utilized for facilitating free  flow  of<\/p>\n
trade and commerce and it is sufficiently demonstrated  from<\/p>\n
the  statistical data furnished by the State in relation  to<\/p>\n
the  expenditure  involved  for the  maintenance  of  roads,<\/p>\n
construction of bridges, etc. and thus, the test  laid  down<\/p>\n
by  the  Constitution Bench in Jindal’s  case  stands  fully<\/p>\n
satisfied. He submitted that if the statute fixes  a  charge<\/p>\n
for  convenience  or  services provided  by  the  State  and<\/p>\n
imposes  a  tax  upon  those who avail  themselves  of  such<\/p>\n
services or convenience, freedom of trade and commerce would<\/p>\n
not  be  impaired. He submitted that it would be permissible<\/p>\n
to  consider in the context of entry tax that the  whole  of<\/p>\n
State  is  divided  into local areas, and therefore,  it  is<\/p>\n
necessary  to  consider various facilities provided  by  the<\/p>\n
State  in all local areas, and it is enough, if the  traders<\/p>\n
are  provided  substantial facilities as  a  class.  Learned<\/p>\n
Advocate  General  submitted that the  plea  that  there  is<\/p>\n
discrimination is untenable as the levy of entry tax  is  on<\/p>\n
all  scheduled  goods that enter the State. He  pointed  out<\/p>\n
that  Section 4(2) of the Act provides for set-off when  the<\/p>\n
importer  sells  goods in the situation  contemplated  under<\/p>\n
Section   3(3)  of  the  T.N.General  Sales   Tax   Act   or<\/p>\n
T.N.Additional Sales Tax Act. According to him, the issue of<\/p>\n
discrimination cannot be worked out by merely  referring  to<\/p>\n
an isolated taxing statute like the present one, but the sum<\/p>\n
total  of the taxes levied by the State including under  the<\/p>\n
T.N. General Sales Tax Act and the Additional Sales Tax  Act<\/p>\n
will have to be taken into account. He, therefore, submitted<\/p>\n
that  there  is  no  violation  of  Article  304(a)  of  the<\/p>\n
Constitution.\n<\/p>\n<\/p>\n
     12. In view of the rival contentions raised at the Bar,<\/p>\n
two questions arise for our consideration, namely,<\/p>\n
     a)Whether  the levy of entry tax under Tamil  Nadu  Act<\/p>\n
     20 of 2001 can be justified as a compensatory tax?<\/p>\n
     b)Whether  the impugned levy of entry tax is  violative<\/p>\n
     of Article 304(a) of the Constitution?<\/p>\n
 Re. Question(a): –\n<\/p>\n
    13.Articles  301,  302, 303 & 304 are relevant  for  the<\/p>\n
purpose of deciding the controversy:\n<\/p>\n
          “301.   Freedom  of  trade,   commerce   and
\n    intercourse  – Subject to the other provisions  of
\n    this   Part,   trade,  commerce  and   intercourse
\n    throughout the territory of India shall be free.\n<\/p><\/blockquote>\n
          302.   Power   of   Parliament   to   impose
\n    restrictions on trade, commerce and intercourse  –
\n    Parliament may by law impose such restrictions  on
\n    the  freedom  of  trade, commerce  or  intercourse
\n    between  one State and another or within any  part
\n    of  the  territory of India as may be required  in
\n    the public interest.\n<\/p><\/blockquote>\n
         303.  Restrictions on the legislative  powers
\n    of  the  Union  and of the States with  regard  to
\n    trade  and commerce – (1) Notwithstanding anything
\n    in   Article  302,  neither  Parliament  nor   the
\n    legislature  of a State shall have power  to  make
\n    any  law giving, or authorising the giving of, any
\n    preference  to one State over another, or  making,
\n    or  authorising  the making of, any discrimination
\n    between  one State and another, by virtue  of  any
\n    entry  relating to trade and commerce  in  any  of
\n    the Lists in the Seventh Schedule.\n<\/p><\/blockquote>\n
         (2)  Nothing  in  clause  (1)  shall  prevent
\n    Parliament   from  making  any  law   giving,   or
\n    authorising  the  giving  of,  any  preference  or
\n    making,   or  authorising  the  making   of,   any
\n    discrimination if it is declared by such law  that
\n    it  is  necessary  to  do so for  the  purpose  of
\n    dealing with a situation arising from scarcity  of
\n    goods in any part of the territory of India.\n<\/p><\/blockquote>\n
         304.  Restrictions  on  trade,  commerce  and
\n    intercourse   among   States   –   Notwithstanding
\n    anything  in  Article  301  or  Article  303,  the
\n    legislature of a State may by law –\n<\/p><\/blockquote>\n
         (a)  impose  on  goods  imported  from  other
\n    States  or the Union Territories any tax to  which
\n    similar  goods  manufactured or produced  in  that
\n    State   are  subject,  so,  however,  as  not   to
\n    discriminate between goods so imported  and  goods
\n    so manufactured or produced; and\n<\/p><\/blockquote>\n
         (b)  impose  such reasonable restrictions  on
\n    the  freedom  of  trade, commerce  or  intercourse
\n    with  or  within that State as may be required  in
\n    the public interest:\n<\/p><\/blockquote>\n
         Provided  that no Bill or amendment  for  the
\n    purposes  of  clause (b) shall  be  introduced  or
\n    moved  in  the legislature of a State without  the
\n    previous sanction of the President.<\/p><\/blockquote>\n
      14. In G.K.Krishnan Vs. State of Tamil Nadu, (1975)  1<\/p>\n
SCC  375  K.K.Mathew, J. succintly summarised the  scope  of<\/p>\n
Articles  301 to 304 and stated that Article 301  imposes  a<\/p>\n
general  limitation on all legislative  power  in  order  to<\/p>\n
secure  that trade, commerce and intercourse throughout  the<\/p>\n
territory of India shall be free. Article 302 gave power  to<\/p>\n
Parliament to impose general restrictions upon that freedom.<\/p>\n
But  a  restriction  is  put on this relaxation  by  Article<\/p>\n
303(1) which prohibits Parliament from giving preference  to<\/p>\n
one  State over another or discriminating between one  State<\/p>\n
and  another by virtue of the entries relating to trade  and<\/p>\n
commerce  in  Lists  I  and III of Seventh  Schedule  and  a<\/p>\n
similar  restriction  is placed on the  States,  though  the<\/p>\n
reference  to  the  States  is inappropriate.  Each  of  the<\/p>\n
clauses of Article 304 operates as a proviso to Articles 301<\/p>\n
and  303. Article 304(a) places goods imported from  sister-<\/p>\n
States  on a par with similar goods manufactured or produced<\/p>\n
inside  the  State  in regard to State taxation  within  the<\/p>\n
allocated  field.  Article 304(b) is the State  analogue  to<\/p>\n
Article  302,  for it makes the State’s power  contained  in<\/p>\n
Article 304(b) expressly free from the prohibition contained<\/p>\n
in  Article 303(1) by reason of the opening words of Article<\/p>\n
304. Whereas in Article 302 the restrictions are not subject<\/p>\n
to  such  requirement  of reasonableness,  the  restrictions<\/p>\n
under Article 304(b) are so subject.\n<\/p>\n<\/p>\n
       15.  In Atiabari Tea Co. Vs. State of Assam, AIR 1961<\/p>\n
SC  232  the constitutionality of Assam Taxation  (On  Goods<\/p>\n
Carried by Roads and Inland Waterways) Act, 1954 enacted  by<\/p>\n
the  Legislature  of  Assam providing for  levy  of  tax  on<\/p>\n
certain  goods  carried by road or inland waterways  in  the<\/p>\n
State  of Assam, was questioned by a number of tea companies<\/p>\n
who  sold most of their products outside the State of  Assam<\/p>\n
after  transporting them by road or waterways to West Bengal<\/p>\n
and  other  States.  The  majority opinion  (Gajendragadkar,<\/p>\n
Wanchoo and Das Gupta, JJ.) stated their conclusion  in  the<\/p>\n
following words:\n<\/p>\n
    52)”…  Our  conclusion, therefore, is  that  when
\n    Article  301  provides that  trade  shall  be  free
\n    throughout  the territory of India  it  means  that
\n    the  flow  of trade shall run smooth and unhampered
\n    by  any restriction either at the boundaries of the
\n    States  or  at any other points inside  the  States
\n    themselves.  It  is  the  free  movement   or   the
\n    transport of goods from one part of the country  to
\n    the  other that is intended to be saved, and if any
\n    Act  imposes  any direct restrictions on  the  very
\n    movement  of such goods it attracts the  provisions
\n    of  Article 301, and its validity can be  sustained
\n    only  if  it satisfies the requirements of  Article
\n    302  or Article 304 of Part XIII. At this stage  we
\n    think  it  is necessary to repeat that when  it  is
\n    said  that  the  freedom of the movement  of  trade
\n    cannot  be subject to any restrictions in the  form
\n    of  taxes imposed on the carriage of goods or their
\n    movement  all  that  is  meant  is  that  the  said
\n    restrictions   can   be  imposed   by   the   State
\n    Legislatures    only    after    satisfying     the
\n    requirements of Article 304(b). It is not as if  no
\n    restrictions  at  all can be imposed  on  the  free
\n    movement of trade.”  (AIR p.254, para.52)<\/p>\n
    It was also held:-\n<\/p><\/blockquote>\n
    “….      Thus  considered we think  it  would  be
\n    reasonable  and  proper to hold that  restrictions,
\n    freedom  from  which is guaranteed by Article  301,
\n    would   be   such  restrictions  as  directly   and
\n    immediately  restrict or impede the  free  flow  or
\n    movement  of  trade. Taxes may  and  do  amount  to
\n    restrictions;  but  it  is  only  such   taxes   as
\n    directly and immediately restrict trade that  would
\n    fall  within the purview of Article 301.   …  …<\/p><\/blockquote>\n
\n    …   We   are,   therefore,  satisfied   that   in
\n    determining  the limits of the width and  amplitude
\n    of   the  freedom  guaranteed  by  Article  301   a
\n    rational and workable test to apply would be:  Does
\n    the   impugned  restriction  operate  directly   or
\n    immediately on trade or its movement?”  (AIR  p.254
\n    para.51)<\/p>\n
     16. In Automobile Transport (Rajasthan) Ltd. Vs. State<\/p>\n
of  Rajasthan, AIR 1962 SC 1406 validity of Section 4(1) of<\/p>\n
the   Rajasthan  Motor  Vehicles  Taxation  Act,  1951  was<\/p>\n
challenged. The section levied a tax on all motor  vehicles<\/p>\n
used  in  any  public place or kept for use  at  the  rates<\/p>\n
specified  in  the  Schedules. Violation of  the  provision<\/p>\n
invited   penalties  provided  under  Section  11.  Certain<\/p>\n
operators  challenged the Act as violative of Articles  301<\/p>\n
and  304(b).  Since  serious  doubts  were  expressed  with<\/p>\n
respect to the propositions enunciated by the majority  and<\/p>\n
by  Shah,  J. in Atiabari Tea Co. (supra) the matters  were<\/p>\n
referred to a larger Constitution Bench of seven Judges. By<\/p>\n
a  majority 4:3 (S.K.Das, Kapur and Sarkaria, JJ. Joined by<\/p>\n
Subba   Rao,   J.),    the   Supreme   Court   upheld   the<\/p>\n
constitutionality of the Act on the ground that  the  taxes<\/p>\n
levied  by  it  are compensatory in nature and,  therefore,<\/p>\n
outside  the  purview  of Article  301.  Once  outside  the<\/p>\n
purview  of Article 301, it was held, Article 304 was  also<\/p>\n
not attracted. The Court observed in paragraph – 19 that:<\/p>\n
           “The  taxes  are  compensatory  taxes  which
\n     instead   of   hindering   trade,   commerce   and
\n     intercourse  facilitate them  by  providing  roads
\n     and maintaining the roads…….” (AIR page 1425)<\/p>\n
     Vide  para.  21  of the Report,  it  was  observed
\n     that:<\/p><\/blockquote>\n
     “If  a statue fixes a charge for a convenience  or
\n     service provided by the State or an agency of  the
\n     State,  and  imposes it upon those who  choose  to
\n     avail  themselves of the service  or  convenience,
\n     the  freedom  of trade and commerce  may  well  be
\n     considered unimpaired.” (AIR  page.1425)<\/p>\n
Thus,  the  concept  of “compensatory tax”  was  propounded.<\/p>\n
Therefore,  taxes which would otherwise interfere  with  the<\/p>\n
unfettered freedom under Article 301 will be protected  from<\/p>\n
the vice of unconstitutionality if they are compensatory.<\/p>\n
     17.  In  Automobile Transport it was  said,  vide  (AIR<\/p>\n
page.1425, para 19), that<\/p>\n
           “a  working test for deciding whether a  tax
\n     is  compensatory  or not is to enquire whether the
\n     trade is having the use of certain facilities  for
\n     the  better conduct of its business and paying not
\n     patently  much  more  than what  is  required  for
\n     providing the facilities.”\n<\/p>\n
       18.  In  Jindal Stripe Ltd. (1) Vs. State of Haryana,<\/p>\n
(2003) 8 SCC 60 a two-Judge Bench referred the matters to  a<\/p>\n
larger  Bench as the Bench hearing the matters  doubted  the<\/p>\n
correctness  of the views expressed inBhagatram  Rajeevkumar<\/p>\n
Vs.  CST,  1995 Supp. (1) SCC 73 which was relied  on  in  a<\/p>\n
subsequent  decision in State of Bihar Vs. Bihar Chamber  of<\/p>\n
Commerce, (1996) 9 SCC 136.  The matters were dealt with  by<\/p>\n
a Constitution Bench to decide with certitude the parameters<\/p>\n
of the judicially evolved concept of “compensatory tax” vis-<\/p>\n
a-vis Article 301 of the Constitution of India.<\/p>\n
      19.  The Constitution Bench in Jindal Stainless  Steel<\/p>\n
Ltd. Vs. State of Haryana (supra) concluded as follows: (SCC<\/p>\n
p.270, paras 52 & 53)<\/p>\n
                 “52.   In  our  opinion,  the   doubt
\n          expressed  by the referring Bench about  the
\n          correctness  of  the decision  in  Bhagatram
\n          case  followed  by  the  judgment  in  Bihar
\n          chamber of Commerce was well founded.\n<\/p>\n
                53. We reiterate that the doctrine  of
\n          “direct   and  immediate  effect”   of   the
\n          impugned  law  on trade and  commerce  under
\n          Article  301  as propounded in Atiabari  Tea
\n          Co.  Ltd. Vs. State of Assam and the working
\n          test   enunciated  in  Automobile  Transport
\n          (Rajasthan) Ltd. Vs. State of Rajasthan  for
\n          deciding  whether a tax is  compensatory  or
\n          not  vide para 19 of the report (AIR),  will
\n          continue  to  apply and the  test  of  “some
\n          connection” indicated in para 8 (of SCC)  of
\n          the  judgment  in Bhagatram Rajeevkumar  Vs.
\n          CST and followed in State of Bihar Vs. Bihar
\n          Chamber of Commerce is, in our opinion,  not
\n          good  law.  Accordingly, the  constitutional
\n          validity  of various local enactments  which
\n          are the subject  matters of pending appeals,
\n          special  leave petitions and writ  petitions
\n          will now be listed for being disposed of  in
\n          the light of this judgment.”\n<\/p>\n
       20.  It  is  thus,  seen that the Constitution  Bench<\/p>\n
decision  in Jindal’s case has re-affirmed the working  test<\/p>\n
laid  down  in Automobile Transport that for any tax  to  be<\/p>\n
compensatory, it is necessary to examine whether the  trades<\/p>\n
people  are  having  the use of certain facilities  for  the<\/p>\n
better  conduct  of  business and paying not  patently  much<\/p>\n
more than what is required for providing the facilities.<\/p>\n
      21. At this juncture, it is necessary to take note  of<\/p>\n
what has been stated about the scope of Articles 301, 302  &<\/p>\n
304 vis–vis compensatory tax by the Constitution Bench  in<\/p>\n
Jindal’s case which read as follows: (SCC pp.268 & 269)<\/p>\n
                “45.  To  sum up, the  basis  of
\n          every  levy is the controlling factor.\n<\/p>\n
          In the case of “a tax”, the levy is  a
\n          part  of  common burden based  on  the
\n          principle  of  ability or capacity  to
\n          pay. In the case of “a fee”, the basis
\n          is  the  special benefit to the  payer
\n          (individual  as  such)  based  on  the
\n          principle  of  equivalence.  When  the
\n          tax is imposed as a part of regulation
\n          or  as  a  part of regulatory measure,
\n          its  basis shifts from the concept  of
\n          “burden”    to    the    concept    of
\n          measurable\/quantifiable  benefit   and
\n          then  it becomes “a compensatory  tax”<\/p>\n
\n          and   its  payment  is  then  not  for\n          revenue             but             as\n          reimbursement\/recompense    to     the\n<\/pre>\n
          service\/facility provider. It is  then
\n          a  tax on recompense. Compensatory tax
\n          is  by  nature hybrid but it  is  more
\n          closer  to  fees than to tax  as  both
\n          fees  and compensatory taxes are based
\n          on the principle of equivalence and on
\n          the basis of reimbursement\/recompense.
\n          If   the   impugned  law  chooses   an
\n          activity  like trade and  commerce  as
\n          the criterion of its operation and  if
\n          the  effect  of the operation  of  the
\n          enactment  is  to  impede  trade   and
\n          commerce then Article 301 is violated.<\/p>\n
               46.     Applying    the     above
\n          tests\/parameters, whenever  a  law  is
\n          impugned  as violative of Article  301
\n          of  the Constitution, the Court has to
\n          see  whether  the  impugned  enactment
\n          facially    or   patently    indicates
\n          quantifiable  data  on  the  basis  of
\n          which  the compensatory tax is  sought
\n          to  be  levied. The Act must  facially
\n          indicate   the   benefit   which    is
\n          quantifiable  or measurable.  It  must
\n          broadly  indicate  proportionality  to
\n          the   quantifiable  benefit.  If   the
\n          provisions  are ambiguous or  even  if
\n          the Act does not indicate facially the
\n          quantifiable benefit, the burden  will
\n          be  on the State as a service\/facility
\n          provider   to  show  by  placing   the
\n          material  before the Court,  that  the
\n          payment  of  compensatory  tax  is   a
\n          reimbursement\/recompense    for    the
\n          quantifiable\/measurable        benefit
\n          provided  or  to  be provided  to  its
\n          payer(s). As soon as it is shown  that
\n          the Act invades freedom of trade it is
\n          necessary to enquire whether the State
\n          has  provided  that  the  restrictions
\n          imposed  by it by way of taxation  are
\n          reasonable  and  in  public   interest
\n          within  the meaning of Article  304(b)
\n          [see  para 35 (of AIR) of the decision
\n          in  Khyerbari Tea Co.Ltd. Vs. State of
\n          Assam].\n<\/p>\n
               47.  As stated above, taxing laws
\n          are not excluded from the operation of
\n          Article 301, which means that tax laws
\n          can  and do amount to restrictions  on
\n          the  freedom guaranteed to trade under
\n          Part  XIII  of the Constitution.  This
\n          principle is well settled in  Atiabari
\n          Tea  Co.  It  is equally important  to
\n          note  that  in Atiabari  Tea  Co.  the
\n          Supreme  Court propounded the doctrine
\n          of   “direct  and  immediate  effect”.\n<\/p>\n
          Therefore,   whenever   a    law    is
\n          challenged on the ground of  violation
\n          of Article 301, the Court has not only
\n          to  examine the pith and substance  of
\n          the  levy but in addition thereto, the
\n          Court  has to see the effect  and  the
\n          operation of the impugned law on inter-
\n          State  trade and commerce as  well  as
\n          intra-State trade and commerce.\n<\/p>\n
               48. When any legislation, whether
\n          it  would be a taxation law or a  non-\n<\/p>\n
          taxation law, is challenged before the
\n          Court  as  violating Article 301,  the
\n          first question to be asked is: what is
\n          the scope of the operation of the law?\n<\/p>\n
          Whether it has chosen an activity like
\n          movement   of   trade,  commerce   and
\n          intercourse throughout India,  as  the
\n          criterion  of its operation?  If  yes,
\n          the  next  question is:  what  is  the
\n          effect of operation of the law on  the
\n          freedom guaranteed under Article  301?
\n          If  the  effect is to facilitate  free
\n          flow of trade and commerce then it  is
\n          regulation and if it is to  impede  or
\n          burden the activity, then the law is a
\n          restraint. After finding the law to be
\n          a restraint\/restriction one has to see
\n          whether the impugned law is enacted by
\n          Parliament  or the State  Legislature.\n<\/p>\n
          Clause  (b) of Article 304  confers  a
\n          power   upon   the  State  Legislature
\n          similar   to   that   conferred   upon
\n          Parliament  by Article 302 subject  to
\n          the following differences:\n<\/p>\n
               (a) While the power of Parliament
\n          under  Article 302 is subject  to  the
\n          prohibition    of    preference    and
\n          discrimination  decreed   by   Article
\n          303(1)  unless  Parliament  makes  the
\n          declaration under Article 303(2),  the
\n          State   power  contained  in   Article
\n          304(b) is made expressly free from the
\n          prohibition   contained   in   Article
\n          303(1)  because the opening  words  of
\n          Article  304  contain a  non  obstante
\n          clause both to Article 301 and Article\n<\/p>\n
          303.\n<\/p>\n
                (b) While Parliament’s power  to
\n          impose  restriction under Article  302
\n          is  not subject to the requirement  of
\n          reasonableness, the power of the State
\n          to  impose restrictions under  Article
\n          304  is subject to the condition  that
\n          they are reasonable.<\/p>\n
                (c) An additional requisite  for
\n          the   exercise  of  the  power   under
\n          Article    304(b)   by    the    State
\n          Legislature    is    that     previous
\n          Presidential sanction is required  for
\n          such legislation.”\n<\/p>\n
     22.  In  the  light  of  the principles  laid  down  in<\/p>\n
Jindal’s  case we shall now proceed to examine  whether  the<\/p>\n
tax  levied under the impugned Act is compensatory  or  not?<\/p>\n
The  preamble  of the Act undoubtedly states  that  “Act  is<\/p>\n
necessary  to augment the revenue of the State to compensate<\/p>\n
the  expenditure  to  provide trading  facilities  including<\/p>\n
laying  and  maintenance of roads and provision  of  markets<\/p>\n
and  welfare measures”. But merely calling a particular  tax<\/p>\n
compensatory  does  not have the effect  or  consequence  of<\/p>\n
making  the levy a compensatory one. A levy can  in  law  be<\/p>\n
considered to be of a compensatory nature only if  the  levy<\/p>\n
is  charged  for the use of certain trading facilities,  and<\/p>\n
the  charge that is so made is not disproportionate  to  the<\/p>\n
value  of  the  use  of  such trading facilities.  The  mere<\/p>\n
declaration  in  the preamble or statement  of  objects  and<\/p>\n
reasons  of an enactment that it is compensatory  is  of  no<\/p>\n
consequence  at  all. As observed in Automobile  Transport’s<\/p>\n
case  (supra)  ”  Whether  the tax is  compensatory  or  not<\/p>\n
cannot  be  made  to depend on the preamble of  the  statute<\/p>\n
imposing  it…  It is obvious that if the preamble  decided<\/p>\n
the  matter, then the mercantile community would be helpless<\/p>\n
and  it  would  be the easiest thing for the legislature  to<\/p>\n
defeat the freedom assured by Article 301 by stating in  the<\/p>\n
preamble  that  it  is meant to provide  facilities  to  the<\/p>\n
tradesmen.  It seems to us that a working test for  deciding<\/p>\n
whether  the  tax  is  compensatory or  not  is  to  enquire<\/p>\n
whether  the  trades people are having the  use  of  certain<\/p>\n
facilities  for  the  better conduct of their  business  and<\/p>\n
paying  not  patently much more than what  is  required  for<\/p>\n
providing  the  facilities.” In  Jindal  Stripe  Limited  v.<\/p>\n
State  of  Harayana (supra) , the Supreme Court observed  in<\/p>\n
paragraph-16  at  pp.65  &  66 thereof  that  the  following<\/p>\n
propositions are deducible from the cases noticed therein:<\/p>\n
     \".....    ......    ......\n     .......   .......   .......\n     ......    .......   ........\n<\/pre>\n
      4. Tax imposed for augmenting general revenue of
\nthe  State  such  as   sales-tax is  not  compensatory
\n……..”\n<\/p>\n
      23.  In  the counter filed by the State, the test  of<\/p>\n
some  connection or the existence of an even indirect  link<\/p>\n
as propounded by the decisions in Bhagatram Rajeevkumar Vs.<\/p>\n
CST,  State of Bihar Vs. Bihar Chamber of Commerce  (supra)<\/p>\n
was  pressed  into  service. Both the decisions  have  been<\/p>\n
overruled  and hence, the reliance placed by the  State  on<\/p>\n
the aforesaid decisions is rather misplaced. In the wake of<\/p>\n
decision  of  the Constitution Bench in Jindal’s  case  the<\/p>\n
State has filed an additional counter whereby the State has<\/p>\n
sought  to project certain figures of expenditure  incurred<\/p>\n
from  the  year  2002 – 03 to 2005 – 06 in  the  matter  of<\/p>\n
laying   roads,  construction  of  bridges,   etc.,   which<\/p>\n
according to the State is said to be a quantifiable data to<\/p>\n
satisfy  the  parameters laid down in  Jindal’s  case.  The<\/p>\n
following are those two charts: –\n<\/p>\n
             EXPENDITURE INCURRED BY THE  STATE
\n\t\t ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~                              <\/p>\n
Year         Entry Tax  Expenditure     \tExpenditure\t\t    Total
\n             collected  on road         \ton Construction   \t\t \t on goods\tmaintenance\t    \tof bridges
\n                            (Rupees in Crores)
\n~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
\n2002-03         228.77           189.57           107.84         297.41
\n2003-04         249.02           322.02           880.89        1202.91
\n2004-05         288.56           442.65           488.41         931.06
\n2005-06         360.23           478.13          1388.30        1866.43
\nTotal          1126.58           1432.44         2865.44        4297.81
\n~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~<\/p>\n
       EXPENDITURE INCURRED BY THE HIGHWAYS DEPARTMENT
\n\t ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~<\/p>\n
Year        Roads     Expenditure  No. of     Expenditure     Total
\n          (Length in    (Rs. in    Bridges       (Rs. in    Expenditure
\n             Km.)        Lakhs)                 Lakhs)
\n~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
\n2002-03    1541.41      33767.81      185       9392.48     43160.29
\n2003-04    3425.66      48173.29      164      10398.38     58571.67
\n2004-05    3550.63      95343.17      177      13948.72     109291.89
\n2005-06    13577.65    161266.74      227      11589.16     172855.90
\n~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~<\/p>\n
     24.  It is, further, stated in the counter affidavit: –<\/p>\n
          ”  It  is  most respectfully  submitted
\n          that   as  per  the  preamble  to   the
\n          impugned   enactment  the  quantifiable
\n          data   on   the  basis  of  which   the
\n          compensatory tax is sought to be levied
\n          has    been   facially   and   patently
\n          indicated  in  the  manner.   That   is
\n          necessary to augment the revenue of the
\n          State to compensate the expenditure  to
\n          provide  trading  facilities  including
\n          layingand  maintenance  of  roads   and
\n          provision   of  markets   and   welfare
\n          measures    and  further that  for  the
\n          said    purposes   it   is   considered
\n          necessary  to levy and collect  tax  on
\n          the goods entering into the local areas
\n          of  the  State for consumption, use  or
\n          sale  therein, the compensatory  nature
\n          of  the  levy  stands demonstrated  and
\n          made  patent from the statistical  data
\n          furnished  above  in  relating  to  the
\n          expenditure  involved for the  purposes
\n          and  objects mentioned in the  impugned
\n          enactment  corresponding to the  actual
\n          amount   collected  by  way   of   tax.\n<\/p><\/blockquote>\n
          Therefore,   it  is  most  respectfully
\n          submitted that the principles laid down
\n          by the Constitutional Bench in the case
\n          of  Jindal  Stainless  Steel  Ltd.,  v.
\n          State of Harayana reported in 2006  (7)
\n          SCC 241 stands satisfied and the burden
\n          of   the   State   to   establish   the
\n          reimbursement\/recompense made by way of
\n          quantifiable  benefit  to  the  trading
\n          public from and out of the tax proceeds
\n          also stands discharged. Inasmuch as the
\n          impugned levy being a compensatory tax,
\n          there is no violation of Article 301 as
\n          such  and  consequently the requirement
\n          of  presidential sanction  contemplated
\n          under Article 304(b) does not arise.”\n<\/p><\/blockquote>\n
      25.  We are afraid the materials produced by the State<\/p>\n
are   hardly  relevant  to  establish  that  the   levy   is<\/p>\n
compensatory. In the first place, the above data  is  rather<\/p>\n
ambiguous,  as it does not provide details or even  examples<\/p>\n
of the specific areas where the alleged roads have been laid<\/p>\n
and  does  not  even  name the few bridges  that  have  been<\/p>\n
constructed  with  the amount collected  as  entry  tax.  In<\/p>\n
Jindal’s case, the Court has categorically ruled that for  a<\/p>\n
law  to  be  compensatory, there has to be a rational  nexus<\/p>\n
between  the  levy and the services provided.  The  decision<\/p>\n
proceeds to make a clear-cut distinction between the general<\/p>\n
taxing power of the State and the levy of compensatory  tax.<\/p>\n
The  essence  of  compensatory  tax  is  that  the  services<\/p>\n
rendered  or  facilities provided should  be  more  or  less<\/p>\n
commensurate  with  the tax levied. Services  provided  will<\/p>\n
have a direct co-relation with the trade. The main basis  of<\/p>\n
compensatory tax is the quantifiable and measurable  benefit<\/p>\n
represented   by   the  cost  incurred  in   procuring   the<\/p>\n
facilities\/services. The cost in turn becomes the  basis  of<\/p>\n
reimbursement\/recompense       for        provider        of<\/p>\n
services\/facilities.   As  held  in   Jindal’s   case,   the<\/p>\n
compensatory  tax is a charge for offering trade  facilities<\/p>\n
and  they  are  based  on  the  principles  of  equivalence.<\/p>\n
Applying  the above test, it cannot be said that maintaining<\/p>\n
of  roads, providing bridges etc., is compensatory in nature<\/p>\n
so as to constitute special advantage to trade, commerce and<\/p>\n
intercourse.  Even  otherwise, a welfare State  is  bestowed<\/p>\n
with  the  responsibilities  of  providing  good  roads  and<\/p>\n
bridges for the benefit of the tax paying citizens and hence<\/p>\n
to  contend that the impugned levy is being raised only  for<\/p>\n
the  said  purpose is not justified. Maintenance  of  roads,<\/p>\n
bridges  etc., are generally met from the general  funds  or<\/p>\n
revenue.  Whether goods are transported into  the  State  or<\/p>\n
outside State or abroad, the State has got a duty to provide<\/p>\n
facilities  like  roads, bridges,  etc.,   which  are  being<\/p>\n
enjoyed not only by the persons who bring the goods notified<\/p>\n
for levy of entry tax, but also by others.<\/p>\n
      26.  It  is necessary to bear in mind that the  roads,<\/p>\n
bridges   expenditure   test  was  applied   in   Automobile<\/p>\n
Transport’ case (supra) as the tax impugned therein was  the<\/p>\n
tax   on   motor   vehicles  which  use  the  roads\/bridges.<\/p>\n
Therefore,  there was a clear nexus between the  purpose  of<\/p>\n
the  levy  and the purpose for which the tax was  spent.  As<\/p>\n
observed in Jindal Stripe Ltd., Vs. State of Haryana (supra)<\/p>\n
(SCC para.14, pp.64 & 65): –\n<\/p>\n
            “Right  from  1962  upto  1995  this
\n     working test was applied by this Court only
\n     in  relation  to  motor vehicle  taxes  for
\n     deciding  whether  it was  compensatory  or
\n     not.   The  decisions  proceeded   on   the
\n     principle    adumbrated    in    Automobile
\n     Transport, which was paraphrased by Mathew,
\n     J.  speaking for the Bench of three  Judges
\n     in  G.K.Krishnan Vs. State of T.N. That the
\n     very  idea of a compensatory tax is service
\n     more  or  less  commensurate with  the  tax
\n     levied.  As the operation of motor vehicles
\n     has    direct   relation   the    use    of
\n     roads\/bridges, the statistics  relating  to
\n     receipts  and  expenditure for construction
\n     roads   and  bridge  for  some  years   was
\n     considered in each case in order  to  judge
\n     whether the tax was not patently more  than
\n     what  was  required provide  facility,  and
\n     therefore,   compensatory.   [Please    see
\n     Sk.Madarsaheb  Vs. State  of  A.P.,  Bolani
\n     Ores    Ltd.   Vs.   State   of     Orissa,
\n     G.K.Krishnan    Vs.    State    of    T.N.,
\n     International Tourist Corporation Vs. State
\n     of  Haryana, Malwa Bus Service (P) Ltd. Vs.
\n     State  of  Punjab, Meenakshi Vs.  State  of
\n     Karnataka, B.A.Jayaram Vs. Union  of  India
\n     and   State  of  Maharashtra  Vs.  Madhukar
\n     Balkrishna Badiya.”\n<\/p><\/blockquote>\n
                         (emphasis supplied)<\/p>\n<\/blockquote>\n
    27. If an entry tax levied under Entry 52 is at all  to<\/p>\n
be  substantiated as a compensatory tax, then it has to  be<\/p>\n
done  with reference to the nature of such tax i.e., a  tax<\/p>\n
payable  by a special class of dealers in a local area  who<\/p>\n
import only the specified goods from outside the State  and<\/p>\n
the special benefits\/facilities provided to such payers  of<\/p>\n
the  tax within the local area concerned. As to what  could<\/p>\n
satisfy such a test in the context of an entry tax could be<\/p>\n
gathered  from Para 28 in Hansa Corporation. (AIR  1981  SC<\/p>\n
463 at para.28 p.473) which is extracted below:\n<\/p><\/blockquote>\n
          “The State did not attempt in the High
\n    court   to  sustain  the  validity  of   the
\n    impugned tax law on the submission  that  it
\n    was  compensatory in character.  No  attempt
\n    was  made  to establish that the dealers  in
\n    scheduled  goods in a local  area  would  be
\n    availing    of   municipal   services    and
\n    municipal   services  can   be   efficiently
\n    rendered if the municipality charged with  a
\n    duty  to  render  services  has  enough  and
\n    adequate  funds  and that the  impugned  tax
\n    was   a   measure   for   compensating   the
\n    municipalities for the loss  of  revenue  or
\n    for  augmenting  its  finances.  As  such  a
\n    stand  was  not  taken, it is not  necessary
\n    for  us  to  examine  whether  the  tax   is
\n    compensatory      in      character.       “<\/p><\/blockquote>\n<\/blockquote>\n
    (emphasis supplied)<\/p>\n<\/blockquote>\n
      28.   As per the statement of objects appended to  the<\/p>\n
impugned legislation, the State is also bound to provide for<\/p>\n
trading   facilities  and  the  welfare   of   the   markets<\/p>\n
established,  but both the counters filed by the  State  are<\/p>\n
silent  on this aspect. The additional counter of the  State<\/p>\n
merely  gives  the statistics with regard to total  cost  of<\/p>\n
building  of  roads  and bridges and on the  maintenance  of<\/p>\n
roads that is incurred from year to year by the State.  This<\/p>\n
expenditure  merely represents the expenditure  incurred  by<\/p>\n
the  State  from its general total taxes revenue  and  other<\/p>\n
receipts including the World Bank grants and loans. The said<\/p>\n
roads  and  bridges which are constructed or  maintained  by<\/p>\n
incurring this expenditure cannot possibly be considered  to<\/p>\n
be  a facility or convenience of services, which is provided<\/p>\n
to  a  particular  importer who imports  the  goods  into  a<\/p>\n
particular  local area. Further, the State has  conveniently<\/p>\n
omitted  to  state that apart from the levy made  under  the<\/p>\n
impugned  legislation, taxes for the purpose of  maintenance<\/p>\n
of  roads  are  also  being levied on the  owners  of  motor<\/p>\n
vehicles under Tamil Nadu Motor Vehicles Taxation Act,  1974<\/p>\n
wherein the parameters of levy are based on the laden weight<\/p>\n
of  the  motor  vehicle. Different yardsticks  of  levy  are<\/p>\n
contemplated  under  the said Act such  as  stage  carriers,<\/p>\n
contract carriers, private vehicles, etc., which also add to<\/p>\n
the  coffers of the exchequer. The figures of revenue earned<\/p>\n
by  the  levy under the Motor Vehicles Taxation Act  or  the<\/p>\n
money  spent  out of the said levy have not been  disclosed.\n<\/p><\/blockquote>\n
We,  therefore,  find  substance in the  contention  of  the<\/p>\n
petitioners that the legislation has been enacted only  with<\/p>\n
an  eye of raising or augmenting general revenue and not  as<\/p>\n
reimbursement or recompense as held in Jindal’s case.<\/p>\n
      29.  In Indian Oil Corporation Ltd., v. State of  U.P,<\/p>\n
2004 Vol137 STC 399 (All.), the validity of U.P.Tax on Entry<\/p>\n
of  Goods  Act, 2000 was challenged as violative of Articles<\/p>\n
301  &  304 of the Constitution. The Division Bench  of  the<\/p>\n
Allahabad High Court allowing the petitions has held: –<\/p>\n
          “(i)  that  the term  `local  area’
\n          defined in Section 2(c) of the  Act
\n          includes    a   municipality    and
\n          municipal  corporation. Hence,  the
\n          crude   oil   had  certainly   been
\n          brought   into  a  local  area   as
\n          Mathura was a municipality. It  was
\n          wholly  immaterial from  where  the
\n          goods  had  been brought  into  the
\n          local area.\n<\/p><\/blockquote>\n
          (ii)  that the respondents had  not
\n          established  any broad  correlation
\n          between   the   entry   tax   being
\n          realized and the expenditure on the
\n          facilities  for facilitating  trade
\n          and  commerce.  The petitioner  had
\n          already   paid  more  than   Rs.758
\n          crores as entry tax. In none of the
\n          affidavits filed by the respondents
\n          had it been stated how much was the
\n          amount  of  the  total  entry   tax
\n          collected  under the  Act  and  how
\n          much   was   the   expenditure   on
\n          facilities  for facilitating  trade
\n          and commerce. The burden was on the
\n          respondents to establish this broad
\n          correlation but they had failed  to
\n          do  so.  There was nothing to  show
\n          that  the amount realized as  entry
\n          tax  could not be used or  had  not
\n          been  used for setting up  schools,
\n          housing,   payment  of  salary   to
\n          Government  employees,  payment  of
\n          salaries   to  ministers,  M.L.As.,
\n          constructing Government  buildings,
\n          acquiring  land, etc.  No  facility
\n          had    been   provided    by    the
\n          U.P.Government,     directly     or
\n          indirectly,  for transportation  of
\n          the   crude  oil.  The  underground
\n          pipes for transporting the oil were
\n          built by the petitioner and not  by
\n          the respondents.\n<\/p><\/blockquote>\n
          (iii)  that the fact that the State
\n          Government provides funds to  local
\n          self-Governments to enable them  to
\n          function  as institutions of  self-\n<\/p><\/blockquote>\n
          Government    with    respect    to
\n          preparation  of plans for  economic
\n          development and social justice  and
\n          to   implement   the   scheme   for
\n          economic  development  and   social
\n          justice as may be entrusted to them
\n          including those in relation to  the
\n          matters   listed  in  the  Eleventh
\n          Schedule  to  the  Constitution  of
\n          India  had no correlation with  the
\n          amounts realized as entry tax under
\n          the  Act. There was nothing in  the
\n          Act  which stated that the  revenue
\n          realized by the entry tax would  be
\n          utilize  d  for facilitating  trade
\n          and    commerce,    directly     or
\n          indirectly. The amount realized  as
\n          entry  tax  could be used  for  any
\n          purpose   and   not   merely    for
\n          facilitating trade and commerce.”<\/p><\/blockquote>\n
      30. It may be mentioned that a Division Bench of  the<\/p>\n
Kerala  High  Court  in  its recent  decision  rendered  on<\/p>\n
18.12.2006  in O.P.No.434 of 1996 (Thressiammal  L.Chirayil<\/p>\n
v.  State  of  Kerala, rep. by the Deputy  Commissioner  of<\/p>\n
Agricultural Income Tax and Sales Tax, Kottayam &  Another)<\/p>\n
has  held  that applying the principles of equivalence,  as<\/p>\n
set  forth by the Supreme Court in Jindal’s case, it cannot<\/p>\n
be said that maintaining of roads, providing bridges, etc.,<\/p>\n
is compensatory in nature so as to meet the outlay incurred<\/p>\n
for   some   special  advantage  to  trade,  commerce   and<\/p>\n
intercourse. Providing the above facilities and its use may<\/p>\n
incidentally  bring in net revenue to the  Government,  but<\/p>\n
that  circumstance  is  not  an  essential  ingredient   of<\/p>\n
compensatory tax.  It was held that there is absolutely  no<\/p>\n
connection  or nexus with the collection of entry  tax  and<\/p>\n
its  utilization  for  the benefit of traders\/manufacturers<\/p>\n
from  whom such tax is collected and consequently, the levy<\/p>\n
of  entry tax is unauthorized and violative of Article  301<\/p>\n
of the Constitution.\n<\/p>\n<\/p>\n
      31.  In yet another recent decision rendered  in  the<\/p>\n
aftermath  of  the Jindal’s case, a Division Bench  of  the<\/p>\n
Jharkhand  High Court in W.P (T) No.5354 of 2004 (The  Tata<\/p>\n
Iron  &  Steel  Company Ltd., Jamshedpur v.  The  State  of<\/p>\n
Jharkhand   and  Others)<\/a>  by  judgment  and   order   dated<\/p>\n
14.08.2006 held that the State of Jharkhand was  not  in  a<\/p>\n
position   to  furnish  any  relevant  data  of  facilities<\/p>\n
provided or to be provided to the assessees, and hence  the<\/p>\n
levy  on  entry tax under Bihar Tax on Entry of Goods  into<\/p>\n
Local Areas for Consumption, Use or Sale thereof Act,  1993<\/p>\n
was  not compensatory in nature and hit by Article  301  of<\/p>\n
the Constitution.\n<\/p>\n<\/p>\n
      32. In Eurotex Industries & Exports Lts., v. State of<\/p>\n
Maharashtra,  2004 Vol.135 STC 25 (Bom.), a Division  Bench<\/p>\n
of  the  Bombay High Court has held that for an Act  to  be<\/p>\n
compensatory in nature, there must be a clear nexus between<\/p>\n
the  tax  collected and benefits conferred upon the persons<\/p>\n
from whom such tax is collected. In the absence of any link<\/p>\n
between the entry tax on imported goods, and the facilities<\/p>\n
extended to the importers directly or indirectly, the  levy<\/p>\n
of  entry tax which is discriminatory cannot be said to  be<\/p>\n
compensatory in nature. In these circumstances,  subjecting<\/p>\n
the  goods  imported from outside the State  to  entry  tax<\/p>\n
becomes   unauthorized,   arbitrary,   discriminatory   and<\/p>\n
violative of Article 301 of the Constitution. It  was  held<\/p>\n
that Entry 13 of the Schedule to the Maharashtra Tax on the<\/p>\n
Entry  of  Goods into Local Areas Act, 2002 insofar  as  it<\/p>\n
purports  to levy entry tax on furnace oil and low  sulphur<\/p>\n
waxy residue oil is unauthorized and unconstitutional.<\/p>\n
      33.   In view   of the foregoing discussion, we  hold<\/p>\n
that  the impugned Act does not satisfy the test laid  down<\/p>\n
for compensatory tax and as no Presidential assent has been<\/p>\n
obtained  under  Article  304(b) of  the  Constitution  the<\/p>\n
provisions of the impugned Act are ultra vires Article  301<\/p>\n
of the Constitution.\n<\/p>\n
Re. Question (b): –\n<\/p>\n
      34. The validity of the Act is also challenged on  the<\/p>\n
ground  that the tax sought to be levied under  the  Act  is<\/p>\n
patently  discriminatory since entry tax is being levied  on<\/p>\n
import of specified goods from outside the State and not  on<\/p>\n
the  specified  goods if produced\/ manufactured  within  the<\/p>\n
State  even though they are brought into local area  of  the<\/p>\n
State for consumption, use or sale therein. According to the<\/p>\n
petitioner  the discrimination which is made  between  goods<\/p>\n
imported  into the State of Tamil Nadu and goods  which  are<\/p>\n
indigenously produced\/obtained within the State is violative<\/p>\n
of Articles 304(a) of the Constitution.<\/p>\n
     35.   Article   304(a)  categorically   prohibits   the<\/p>\n
legislature  of  a  State  from  making  any  discrimination<\/p>\n
between  itself  and  another State,  and  subjecting  goods<\/p>\n
imported from other States to any tax to which similar goods<\/p>\n
manufactured or produced in that State are not subjected. In<\/p>\n
Shree  Mahavir Oil Mills Vs. State of J & K, (1996)  11  SCC<\/p>\n
39,  the Supreme Court explained the implications of Article<\/p>\n
304(a)  in the following terms: –  (SCC pp.45 & 46 paragraph<\/p>\n
– 8)<\/p>\n
                           “Article 304 contains  two
\n          clauses.   Clause  (a)  states  that   “the
\n          legislature  of a State may by  law  –  (a)
\n          impose  on goods imported from other States
\n          or  the Union Territories any tax to  which
\n          similar  goods manufactured or produced  in
\n          that  State  are subject, `so, however,  as
\n          not   to  discriminate  between  goods   so
\n          imported  and  goods  so  manufactured   or
\n          produced'(emphasis supplied).  The  wording
\n          of  this clause is of crucial significance.
\n          The first half of the clause would make  it
\n          appear  at  the first blush that it  merely
\n          states the obvious: one may indeed say that
\n          the  power  to  levy tax on goods  imported
\n          from  other  States  or  Union  Territories
\n          flows  from Article 246 read with Lists  II
\n          and  III  in the Seventh Schedule  and  not
\n          from this clause. That is of course so, but
\n          then   there  is  a  meaning  and  a   very
\n          significant   principle   underlying    the
\n          clause,  if  one reads it in its  entirety.
\n          The  idea  was  not really to  empower  the
\n          State  Legislatures to levy  tax  on  goods
\n          imported   from  other  States  and   Union
\n          Territories  –  but  to declare  that  that
\n          power  shall  not  be so  exercised  as  to
\n          discriminate against the imported goods viz-
\n          a-vis   locally  manufactured  goods.   The
\n          clause,  though worded in positive language
\n          has  a negative aspect. It is, in truth,  a
\n          provision     prohibiting    discrimination
\n          against  the imported goods. In the  matter
\n          of  levy of tax – and this is important  to
\n          bear  in mind – the clause tells the  State
\n          Legislatures  –  `tax  you  may  the  goods
\n          imported     from    other     States\/Union
\n          Territories  but do not, in  that  process,
\n          discriminate  against them vis–vis  goods
\n          manufactured locally’. In short, the clause
\n          says:  levy of tax on both ought to  be  at
\n          the  same  rate. This was and is a  ringing
\n          declaration  against  the  States  creating
\n          what  may  be  called `tax barriers’  –  or
\n          `fiscal  barriers’ as they may be called  –
\n          at   or  along  their  boundaries  in   the
\n          interest of freedom of trade, commerce  and
\n          intercourse  throughout  the  territory  of
\n          India,  guaranteed by Article  301.  As  we
\n          shall presently point out, this clause does
\n          not  prevent in any manner the States  from
\n          encouraging   or   promoting   the    local
\n          industries in such manner as they think fit
\n          so  long  as they do not use the weapon  of
\n          taxation   to   discriminate  against   the
\n          imported   goods  viz-a-vis   the   locally
\n          manufactured goods. To repeat,  the  clause
\n          bars  the States from creating tax barriers\n<\/p>\n
          –  or fiscal barriers as they can be called\n<\/p>\n
          –   around   themselves   and\/or   insulate
\n          themselves  from the remaining  territories
\n          of  India by erecting such `tariff  walls’.
\n          Part  XIII  is  premised  of  other  States
\n          uniformly, there is no infringement of  the
\n          freedom guaranteed by Article 301; no State
\n          would  tax  its  people at a  higher  level
\n          merely  with  a view to tax the  people  of
\n          other States at that level.  .. … …  As
\n          a  matter of fact, it can well be said that
\n          clause (a) of Article 304 is not really  an
\n          exception  to  Article 301, notwithstanding
\n          the  non obstante clause in Article 304 and
\n          that it is but a restatement of a facet  of
\n          the very freedom guaranteed by Article 301,
\n          viz., power of taxation by the States.”<\/p>\n
               36.  In A.T.B.Mehtab Majid & Co. Vs. State of<\/p>\n
Madras,  AIR  1963 SC 928 the Supreme Court  considered  the<\/p>\n
effect  of  Section 3 of the Madras General Sates  Tax  Act,<\/p>\n
1939  read  with  Rule  16 whereby tanned  hides  and  skins<\/p>\n
imported  from outside the State of Madras and  sold  within<\/p>\n
the  State were subjected to a higher rate of tax  than  the<\/p>\n
tax  imposed  on hides or skins tanned and sold  within  the<\/p>\n
State.  Similarly, hides or skins imported from outside  the<\/p>\n
State  after purchase in their raw condition and then tanned<\/p>\n
inside  the State were also subjected to higher rate of  tax<\/p>\n
than  hides or skins purchased in raw condition in the State<\/p>\n
and  tanned within the State. This distinction was  attacked<\/p>\n
as violative of Articles 301 and 304(a) of the Constitution.<\/p>\n
Following  the law laid down in Atiabari Tea  Co.  Ltd.  and<\/p>\n
Automobile<\/p>\n
Transport (supra) the Constitution Bench held:<\/p>\n
                       “It   is  therefore  now  well
\n          settled   that   taxing   laws    can    be
\n          restrictions   on   trade,   commerce   and
\n          intercourse, if they are not  what  can  be
\n          termed   to   be  compensatory   taxes   or
\n          regulatory measures. Sales tax, of the kind
\n          under consideration here, cannot be said to
\n          be  a  measure regulating any  trade  or  a
\n          compensatory  tax levied  for  the  use  of
\n          trading  facilities. Sales tax,  which  has
\n          the  effect of discriminating between goods
\n          of  one  State  and goods of  another,  may
\n          affect  the free flow of trade and it  will
\n          then offend against Article 301 and will be
\n          valid only if it comes within the terms  of
\n          Article 304(a).\n<\/p><\/blockquote>\n
                     Article   304(a)   enables   the
\n          legislature  of  a  State  to   make   laws
\n          affecting  trade, commerce or  intercourse.
\n          It enables the imposition of taxes on goods
\n          from  other States if similar goods in  the
\n          State are subjected to similar taxes, so as
\n          not   to  discriminate  between  the  goods
\n          manufactured or produced in that State  and
\n          the  goods  which are imported  from  other
\n          States.  This means that if the  effect  of
\n          the  sales  tax  on tanned hides  or  skins
\n          imported  from outside is that  the  latter
\n          becomes  subject  to a higher  tax  by  the
\n          application  of the proviso to sub-rule  of
\n          Rule  16  of  the Rules, then  the  tax  is
\n          discriminatory  and  unconstitutional   and
\n          must be struck down.”<\/p><\/blockquote>\n
           37.   In H.Anraj Vs. Govt. of T.N., (1986) 1  SCC<\/p>\n
414   the  Government  of Tamil Nadu  exempted  the  lottery<\/p>\n
tickets  issued by it totally while levying tax  on  lottery<\/p>\n
tickets issued by other Governments and sold in Tamil  Nadu.<\/p>\n
The   Court  held  that laws imposing taxes  can  amount  to<\/p>\n
restriction  on  trade,  commerce and  intercourse  if  they<\/p>\n
hampered the free flow of trade unless they are compensatory<\/p>\n
in  nature  and that the sales tax which had the  effect  of<\/p>\n
discriminating  between goods of one State and  another  may<\/p>\n
affect  free flow of trade and would be offensive to Article<\/p>\n
301  unless  saved by Article 304(a). It was held  that  the<\/p>\n
direct  and  immediate  result of the  notification  was  to<\/p>\n
impose an unfavourable and discriminatory tax.<\/p>\n
            38. In India Cement Vs. State of A.P., (1988)  1<\/p>\n
SCC  743  the  Government of Andhra Pradesh has  issued  two<\/p>\n
notifications,  one  under Section 9(1) of  the  A.P.General<\/p>\n
State  Sales Tax Act, 1957 and the other under Section  8(5)<\/p>\n
of  the Central Sales Tax Act. Under the first notification,<\/p>\n
sales tax on sale of cement manufactured by cement factories<\/p>\n
situated  in  the State and sold to the manufacturing  units<\/p>\n
situated  within  the State was reduced from  13.5%  to  4%.<\/p>\n
Under  the  second notification, the central sales  tax  was<\/p>\n
reduced  to two per cent.  The Government of Karnataka  also<\/p>\n
issued  a similar notification reducing in similar situation<\/p>\n
central sales tax from 15 % to 2%. These were challenged  as<\/p>\n
violative  of  Articles 301 and 304 and  the  challenge  was<\/p>\n
upheld.  The  first ground upheld was that  the  `reasonable<\/p>\n
restrictions’ contemplated by Article 304(b) can be  imposed<\/p>\n
by a law made by the legislature of the State and not by the<\/p>\n
orders  of  the Government, i.e., by executive  action.  The<\/p>\n
second  ground given by the Bench is that (SCC  p.759,  para<\/p>\n
14)  “variation  of the rate of inter-State sales  tax  does<\/p>\n
affect   free  trade  and  commerce  and  creates  a   local<\/p>\n
preference which is contrary to the scheme of Part  XIII  of<\/p>\n
the   Constitution  and  hence  bad.”   In  the  course   of<\/p>\n
discussion, the Bench observed: (SCC pp.755-56, para – 12)<\/p>\n
                  “There  can  be  no  dispute   that
\n          taxation is a deterrent against free  flow.
\n          As  a  result of favourable or unfavourable
\n          treatment by way of taxation, the course of
\n          flow   of   trade  gets  regulated   either
\n          adversely  or  favourably.  If  the  scheme
\n          which  Part  XIII  guarantees  has  to   be
\n          preserved  in  national  interest,  it   is
\n          necessary  that  the  provisions   in   the
\n          article must be strictly complied with. One
\n          has  to  recall the farsighted observations
\n          of  Gajendragadkar, J. in Atiabari Tea  Co.
\n          case   and   the  observations  then   made
\n          obviously apply to cases to the type  which
\n          is now before us.”\n<\/p>\n
             39. In the case of Andhra Steel Corporation Vs.<\/p>\n
Commr. of Commercial Taxes, 1990 Suppl. SCC 617, a provision<\/p>\n
in Section 5(4) of the Karnataka Sales Tax Act which granted<\/p>\n
exemption  to  sale  of finished goods manufactured  out  of<\/p>\n
locally  produced raw material while denying it to the  sale<\/p>\n
of  finished goods manufactured out of imported raw material<\/p>\n
was  held  to  be unconstitutional and contrary  to  Article<\/p>\n
304(a)  of  the  Constitution. The Court  distinguished  its<\/p>\n
earlier  decisions  in  State  of  Madras  Vs.  N.K.Nataraja<\/p>\n
Mudaliar,  AIR 1969 SC 147 and Rattanlal & Co. Vs. Assessing<\/p>\n
Authority,  AIR 1970 SC 1742 and reaffirmed its decision  in<\/p>\n
A.T.B.Mahtab Majid & Co. case (supra).<\/p>\n
             40. The question was once again examined in the<\/p>\n
case  of Shree Mahavir Oil Mills Vs. State of J & K (supra).<\/p>\n
In  that  case,  with  a view to protect  local  edible  oil<\/p>\n
industry, Government of J & K issued an order exempting  the<\/p>\n
goods  manufactured by small-scale dealers within the  State<\/p>\n
from  payment of sales-tax for a specified period. The  rate<\/p>\n
of   sales-tax   payable   for  other   industry   including<\/p>\n
manufactures  of  adjoining  States  was  4%.  A  subsequent<\/p>\n
notification was issued on 10.12.1993 as a result of it  the<\/p>\n
general  rate of sale -tax payable on edible oil became  8%.<\/p>\n
The manufactures of edible oil from adjoining States claimed<\/p>\n
that  the exemption granted from payment of tax to the local<\/p>\n
industries  was discriminatory. The exemption given  by  the<\/p>\n
Government of J & K to the manufacturers of edible  oil  was<\/p>\n
total and the period of exemption was 5 years and which  was<\/p>\n
later  extended by another 5 years period. It was held  that<\/p>\n
the  unconditional  exemption  granted  to  the  edible  oil<\/p>\n
industry  within the State for a period of 10 years  and  at<\/p>\n
the  same  time  subjecting edible oil industry  from  other<\/p>\n
States  to  sales-tax at 8% was discriminatory and violative<\/p>\n
of  Article  304(a) of the Constitution. It was observed  in<\/p>\n
paragraph – 25 (SCC p.53) as follows:\n<\/p>\n
                 “25.  Now, what is the ratio of  the
\n          decisions  of this Court so far  as  clause\n<\/p><\/blockquote>\n
          (a)  of  Article 304 is concerned?  In  our
\n          opinion,   it  is  this:  the  States   are
\n          certainly  free to exercise  the  power  to
\n          levy  taxes  on goods imported  from  other
\n          States\/Union Territories but this  freedom,
\n          or  power, shall not be so exercised as  to
\n          bring  about  a discrimination between  the
\n          imported   goods  and  the  similar   goods
\n          manufactured or produced in that State. The
\n          clause  deals  only with discrimination  by
\n          means  of  taxation; it prohibits  it.  The
\n          prohibition cannot be extended  beyond  the
\n          power   of  taxation.  It  means   in   the
\n          immediate context that States are  free  to
\n          encourage and promote the establishment and
\n          growth of industries within their States by
\n          all  such  means as they think  proper  but
\n          they  cannot, in that process, subject  the
\n          goods  imported  from  other  States  to  a
\n          discriminatory  rate of taxation,  i.e.,  a
\n          higher  rate  of sales – tax  vis-  a-  vis
\n          similar goods manufactured\/produced  within
\n          the  State  and  sold  within  that  State.
\n          Prohibition   is   against   discriminatory
\n          taxation by the States. It matters not  how
\n          this  discrimination is  brought  about.  A
\n          limited exception has no doubt been  carved
\n          out  in Video Electronics but, as indicated
\n          hereinbefore,  that  exception  cannot   be
\n          enlarged lest it eat up the main provision.
\n          So far as the present case is concerned, it
\n          does  not fall within the limited exception
\n          aforesaid;  it falls within  the  ratio  of
\n          A.T.B.  Mehtab  Majid and the  other  cases
\n          following  it.  It must  be  held  that  by
\n          exempting  unconditionally the  edible  oil
\n          produced  within  the State  of  Jammu  and
\n          Kashmir altogether from sales  tax, even if
\n          it  is  for  a  period of ten years,  while
\n          subjecting the edible oil produced in other
\n          States to sales tax at eight per cent,  the
\n          State  of  Jammu  and Kashmir  has  brought
\n          about discrimination by taxation prohibited
\n          by Article 304(a) of the Constitution.”\n<\/p><\/blockquote>\n
              41.  In  State of U.P. Vs. Laxmi  Paper  Mart,<\/p>\n
(1997)  2 SCC 697 the Court held that exempting the exercise<\/p>\n
books  produced  in  the State and subjecting  the  exercise<\/p>\n
books  produced outside the State, but sold in U.P. to sales<\/p>\n
tax  at  the  rate  of 5% is discriminatory  and  therefore,<\/p>\n
offends  clause  (a)  of Article 304  of  the  Constitution.\n<\/p><\/blockquote>\n
Following the decision in A.T.B.Mehtab Majid’s case  (supra)<\/p>\n
the   Court  held  that  (SCC  p.699,  para  3)  “once   the<\/p>\n
discrimination is made out, the enquiry by court  ends.  The<\/p>\n
price  structure of the imported goods vis–vis the locally<\/p>\n
manufactured goods or the economics of the importer need not<\/p>\n
be gone into”. (emphasis supplied)<\/p>\n
                42.  In  Anand Commercial  Agencies Vs.  The<\/p>\n
Commercial  Tax Officer VI Circle, Hyderabad, (1998)  1  SCC<\/p>\n
101  the  case  of the appellant was that the oil  had  been<\/p>\n
extracted  out of groundnuts which had borne tax  under  the<\/p>\n
Karanataka  Sales  Tax  Act. The levy  of  tax  on  the  oil<\/p>\n
imported from Karnataka into Andhra pradesh at a rate higher<\/p>\n
than  the  rate  at  which  the oil manufactured  in  Andhra<\/p>\n
Pradesh  is  taxed  is discriminatory and violative  of  the<\/p>\n
appellant’s   right  to  freedom  of  trade   and   commerce<\/p>\n
throughout India.  Accepting the challenge the Court held as<\/p>\n
follows:-\n<\/p>\n
                                      “What has  been
\n          done  by Entry 24 of the First Schedule  is
\n          to impose a lower rate of duty on groundnut
\n          oil or refined oil obtained from groundnuts
\n          that  have been taxed under the A.P.Act.The
\n          contention  that groundnut oil manufactured
\n          in  Andhra  Pradesh has not generally  been
\n          charged at a lower rate of tax has not been
\n          substantiated by any fact or figure. It  is
\n          not the case of the State that only a small
\n          portion  of the oil manufactured  by  local
\n          manufacturers  is produced from  groundnuts
\n          purchased  in Andhra Pradesh.  Unless  that
\n          can  be established, it cannot be held that
\n          groundnut  oil  or refined oil  within  the
\n          State is generally charged at the same rate
\n          as the imported oil. The only justification
\n          that   has   been   made   out   for   this
\n          discrimination  is that  groundnut  out  of
\n          which  the oil is manufactured locally  has
\n          already    borne   tax.   The   appellant’s
\n          contention,  which has not been  denied  by
\n          the State, is that the oil manufactured  in
\n          Karnataka  which was imported  into  Andhra
\n          Pradesh  was manufactured out of groundnuts
\n          which   had   also  borne  tax  under   the
\n          Karnataka  Sales  Tax  Act.  Therefore,  it
\n          cannot  be  said that oil manufacturers  in
\n          Andhra  Pradesh  were in a  disadvantageous
\n          position  and  had to be compensated  by  a
\n          lower  rate  of  tax. The State  of  Andhra
\n          Pradesh  has not been able to make out  any
\n          special  case for imposing a lower rate  of
\n          tax  on  groundnut oil produced within  the
\n          State. … .. ..\n<\/p><\/blockquote>\n
                         Therefore,  Entry  24(a)  of
\n          Schedule I to A.P. General Sales Tax Act is
\n          violative  of Articles 301 and 304  insofar
\n          as  it  imposes  a higher rate  of  tax  on
\n          groundnut oil or refined oil which has been
\n          obtained  from groundnut that has not  been
\n          taxed  under  the Andhra Pradesh  Act.  The
\n          groundnut  oil  imported by  the  appellant
\n          from  Karnataka for sale in Andhra  Pradesh
\n          cannot  be taxed at a rate higher than  the
\n          rate prescribed in Entry 24(b).”\n<\/p><\/blockquote>\n
                  43.  Similar is the view taken  in  Weston<\/p>\n
Electroniks  Vs.  State  of  Gujarat,  (1998)  2  SCC   568;\n<\/p><\/blockquote>\n
W.B.Hoisery  Assn.  Vs. State of Bihar, (1983)  4  SCC  134;<\/p>\n
Lohara Steel Industries Ltd. Vs. State of A.P., (1997) 2 SCC<\/p>\n
37.<\/p>\n
                 44.  In  the  present  case,  the  impugned<\/p>\n
legislation levy entry tax only on goods which are  imported<\/p>\n
into  the  State  of Tamil Nadu from any place  outside  the<\/p>\n
State,  for  consumption, use or sale within the  State.  In<\/p>\n
other words, the goods which are produced or obtained within<\/p>\n
the  State of Tamil Nadu do not attract any entry tax at all<\/p>\n
on their entry into a local area within the State. According<\/p>\n
to  the  petitioners this has led to monopolizing the  local<\/p>\n
manufacturers  who  procure  materials  locally  as  against<\/p>\n
manufacturers  who  import  from  outside  the  State.   For<\/p>\n
example, before the impugned enactment the manufacturer  who<\/p>\n
imported  from outside the State could procure the materials<\/p>\n
simplicitor  as  against C- Declarations paying  4%  central<\/p>\n
sales  tax.   But after the enactment the same  manufacturer<\/p>\n
apart from 4% central sales tax is required to pay entry tax<\/p>\n
even  when  the material is being used in further processing<\/p>\n
or  manufacturing inside the State and further  sold  inside<\/p>\n
the State itself. This clearly offends clause (a) of Article<\/p>\n
304.   As  observed in G.K.Krishan Vs. State of  Tamil  Nadu<\/p>\n
(supra)  “a discriminatory tax imposed on outside  goods  is<\/p>\n
not  a  tax  simplicitor  but is  a  barrier  to  trade  and<\/p>\n
commerce”.  (AIR page.385 para.27)<\/p>\n
                45. Learned Advocate General sought to argue<\/p>\n
that the question of discrimination cannot be worked out  by<\/p>\n
merely referring only to entry tax levied under the impugned<\/p>\n
legislation. His submission is that the sum total  of  taxes<\/p>\n
levied on the goods will have to be taken into consideration<\/p>\n
especially  keeping in view the provisions of Section  4  of<\/p>\n
the  Act which contemplate reduction in tax liability.  This<\/p>\n
very  argument  was  rejected by a  Division  Bench  of  the<\/p>\n
Karnataka High Court in Avinyl Polymers Pvt. Ltd. Vs.  State<\/p>\n
of  Karnataka, 109 STC 27 Kar). The relevant portion of  the<\/p>\n
judgment has been extracted below: –\n<\/p>\n
                                                                                        “The
\n          next facet is as to how the discrimination pertaining to levy of any tax vis–vis
\n          similar goods needs to be worked out. The contention of the petitioners is that for
\n          working out the discrimination one is required to only see the rate of tax applied to
\n          imported goods as compared to locally manufactured or produced goods and whether it is
\n          the same or different and nothing more.\n<\/p><\/blockquote>\n
                          But  the contention of  the
\n          State  is that the discrimination envisaged
\n          under  Article 304(a) should be  viewed  by
\n          taking  at the forefront the constitutional
\n          scheme  under  Articles 301  to  303  which
\n          intends  to  ensure  trade,  commerce   and
\n          intercourse  throughout  the  territory  of
\n          India to be free and the economic unity  of
\n          India  may  not  be broken up  by  internal
\n          barriers  by creating the total tax  burden
\n          created by the taxing legislations  of  the
\n          State concerned as comparatively higher  on
\n          goods  imported  from  outside  the  State.
\n          According to Mr.D’Sa, the discrimination in
\n          question  cannot be worked  out  by  merely
\n          referring  to  an isolated  taxing  statute
\n          like  the  present one. His  submission  is
\n          that if the sum total of tax levied on  the
\n          goods produced in the State by taking  into
\n          account the levy of sales tax and the entry
\n          tax  is  found to be higher than the  entry
\n          tax  levied  on  imported  goods,  then  no
\n          discrimination can be alleged in  terms  of
\n          article 304(a).\n<\/p><\/blockquote>\n
                                         19.  In  our
\n          opinion, the argument advanced on behalf of
\n          the  State of Karnataka cannot be  accepted
\n          as  valid  and sustainable. This issue  has
\n          also  been  repeatedly attended to  by  the
\n          Supreme  Court by clearly pronouncing  that
\n          it  is  the  rate of tax under a particular
\n          taxing statute which should be taken as the
\n          determining  factor  for  ascertaining  the
\n          discrimination contemplated  under  Article
\n          304(a).  In the case of Rattan Lal and  Co.
\n          Vs.  Assessing Authority, (1970) 25 STC 136
\n          (SC)  at p.147; AIR 1970 SC 1742 (para 15),
\n          it  has been declared by the Supreme  Court
\n          `so  long  as the rate is the same  Article
\n          304   is  satisfied’.  The  Supreme   Court
\n          refused  to  adjudicate the  discrimination
\n          aspect  by  taking into account  any  other
\n          factor.”<\/p><\/blockquote>\n
          46. In Laxmi Paper Mart (supra), the Supreme Court<\/p>\n
has  emphatically said that once the discrimination is  made<\/p>\n
out,  the enquiry by court ends. The price structure of  the<\/p>\n
imported  goods vis–vis the locally manufactured goods  or<\/p>\n
the economics of the importer need not be gone into (supra).<\/p>\n
Even  otherwise,  the  submission of  the  learned  Advocate<\/p>\n
General is not factually correct. For example, there  is  no<\/p>\n
local  sales  tax  levied on cigarettes  and  other  tobacco<\/p>\n
products.  Therefore,  Section  4(2)  does  not   have   any<\/p>\n
application to cigarette and other tobacco products  and  it<\/p>\n
cannot  be  contended  that there is no  discrimination.  As<\/p>\n
regards,  any other scheduled goods, which a dealer  imports<\/p>\n
by way of purchase from another State, such importer suffers<\/p>\n
central  sales  tax  of  4% in the exporting  State  and  in<\/p>\n
addition thereto suffers the impugned entry tax. Thus,  over<\/p>\n
and  above the entry tax, the purchaser has suffered central<\/p>\n
sales  tax in the exporting State. Learned counsel appearing<\/p>\n
for the petitioners filed charts showing entry tax and sales<\/p>\n
tax  structure  and the effect of Section 4 of  the  Act  on<\/p>\n
entry  of goods into local areas. It is seen from the charts<\/p>\n
that the importer of goods from outside State is clearly put<\/p>\n
to  disadvantage  as  compared to a  local  manufacturer  or<\/p>\n
producer.  It  may  also be noted that  the  set  off  under<\/p>\n
Section 4 of the Act is not available for entry tax paid  on<\/p>\n
the goods used as input raw materials. We have therefore  no<\/p>\n
hesitation in holding that the levy of entry tax  under  the<\/p>\n
impugned  Act is violative of clause (a) of Art.304  of  the<\/p>\n
Constitution.\n<\/p>\n<\/p>\n
            47.  We  may  mention that the petitioners  also<\/p>\n
raised  the  issue of legislative competence  of  the  State<\/p>\n
Government  to levy entry tax under Entry 52 of List  II  on<\/p>\n
goods  imported from outside the State. But in view  of  our<\/p>\n
foregoing  conclusion that the levy is violative of  Article<\/p>\n
301  of  the  Constitution, it is not necessary  for  us  to<\/p>\n
express our opinion on this issue.\n<\/p>\n<\/p>\n
            48.   In  the result, we hold that the  levy  of<\/p>\n
entry  tax on goods imported from other States to the  State<\/p>\n
of Tamil Nadu and from abroad is not compensatory in nature,<\/p>\n
since the State Government could not discharge its burden by<\/p>\n
placing  materials before the Court that payment of levy  of<\/p>\n
entry    tax    is    reimbursement\/recompense    for    the<\/p>\n
quantifiable\/measurable benefit provided or to  be  provided<\/p>\n
to  the  tax  payers. The impugned levy imposing  entry  tax<\/p>\n
being discriminatory is also violative of Article 304(a)  of<\/p>\n
the  Constitution. We, therefore, hold that the  demand  and<\/p>\n
collection  of entry tax under Tamil Nadu Tax  on  Entry  of<\/p>\n
Goods  into  Local Areas Act, 2001 is illegal,  unauthorized<\/p>\n
and  violative of Article 301 of the Constitution. The  writ<\/p>\n
petitions  are  allowed as above and  the  levy  and  demand<\/p>\n
notices  issued  would  stand  quashed.  Consequently,  writ<\/p>\n
appeals  are disposed of. Connected miscellaneous  petitions<\/p>\n
are closed.\n<\/p>\n
sm\/pv<\/p>\n","protected":false},"excerpt":{"rendered":"
Madras High Court Itc Limited vs The State Of Tamil Nadu on 22 March, 2007 IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 22.03.2007 Coram: The Honourable Mr.A.P.SHAH, CHIEF JUSTICE and The Honourable Mr.Justice K.CHANDRU Writ Petition Nos. 12553 to 12555\/2002, 13457\/02, 14246\/02, 14247\/02, 14578 to 14580\/02, 14581\/02, 14593\/02, 15340\/02, 15667 to 15669\/02, 15809 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,13],"tags":[],"class_list":["post-26665","post","type-post","status-publish","format-standard","hentry","category-high-court","category-madras-high-court"],"yoast_head":"\nItc Limited vs The State Of Tamil Nadu on 22 March, 2007 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/itc-limited-vs-the-state-of-tamil-nadu-on-22-march-2007\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Itc Limited vs The State Of Tamil Nadu on 22 March, 2007 - 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