Bharti Airtel Ltd vs the State of West Bengal & Ors on 24 June, 2013

Calcutta High CourtBharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013Author: Indira Banerjee IN THE HIGH COURT AT CALCUTTA CONSTITUTIONAL WRIT JURISDICTION ORIGINAL SIDE

W.P. 464 of 2012 Bharti Airtel Ltd. Vs. The State of West Bengal & Ors.

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Bharti Airtel Ltd vs The State Of West Bengal & Ors on 24 June, 2013

Indian Kanoon - http://indiankanoon.org/doc/111274715/ 1

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BEFORE:The Hon'ble Justice INDIRA BANERJEE

Judgment on : 24.06.2013 INDIRA BANERJEE, J. : In these writ petitions the writ petitioners, who are

required, in connection with their business, to bring goods from all parts of

India or abroad, into various local areas in West Bengal for sale, use or

consumption therein, have challenged the validity of the West Bengal Tax on

Entry of Goods into Local Areas Act, 2012 (hereinafter referred to as the

'impugned Entry Tax Act'). As all these writ petitioners involve a common

question of law, they were heard together along with similar writ applications

in the Appellate Side and are now being disposed of by this common judgment

and order. One of the Writ Petitioners is an export oriented unit, having its

factory at the Falta Special Economic Zone.

The object of the impugned Act, as stated in its preamble is to provide

for the levy and collection of taxes on the entry of certain goods into local

areas of the State of West Bengal for consumption, use or sale therein and to

provide for matters connected therewith or incidental thereto for the purpose



of creating a compensatory Entry Tax Fund.

Some of the definitions in Section 2 of the impugned Act, relevant for

the purpose of this writ application are as follows:-

"Section 2(1) (g) "dealer" means a dealer under the West Bengal Value Added Tax Act, 2003, or under the West Bengal Sales Tax Act 1994, as the case may be, and includes-- West Ben. Act XLIX of 1994.

(i) a handling or delivery agent or an agent acting in any manner on behalf of the principal, or any other person who takes delivery or is entitled to take delivery of goods on behalf of a dealer on its entry into a local area,

(ii) Where specified goods entering any local area have been dispatched to such local area by rail, road, water, air or post, and the consignee of such specified goods does not take delivery of such goods upon entry and such specified goods are sold under the provisions of any other law, the purchaser or any other person who takes livery of such goods on his behalf;

Section 2(1) (h) "entry of goods", with all its grammatical variations andcognate expressions, means bringing of goods into a local area from any placeoutside that local area or any place outside the State or from outside India, forconsumption, use or sale therein, whether by a dealer or an importer otherthan a dealer himself or by any other person;

Section 2(1) (i) "Fund" means thÃ§ West Bengal Compensatory Entry TaxFund established under sub-section (1) of section 15;

Section 2(1) (j) "goods" includes all kinds of movable property other thanactionable claims, stocks, shares or securities;

Section 2(1) (k) "importer' includes a person who in any capacity brings, orcauses entry of, any specified goods into a local area for consumption or usetherein /and a dealer;

Section 2(1) (1) "import value", in respect of a consignment of specifiedgoods upon entry of such goods in a local area by or on behalf of a dealer oran importer other than a dealer, means--

(a) the price or cost at which the dealer or importer other than a dealer has purchased or procured or acquired or obtained the specified goods, as shown in the original tax invoice, invoice or bill or stock transfer advice or document of like nature; or

(b) where the tax invoice, invoice or bill or stock transfer advice or



document of like nature is not available or is not produced, or where the price or cost of such specified goods is not separately mentioned therein, or where the tax invoice, invoice or bill or stock transfer advice or document of like nature produced is proved to be false or the information furnished therein is found to be incorrect, the prevailing market price of such specified "goods in the local area;

Section 2(1) (m) "local area" means the areas within the limits of aMunicipal Corporation or any municipality or Gram Panchayat or Notified AreaCouncil or any other local authority, by whatever name called, constituted orcontinued in the State of West Bengal by any law for the time being in force;

Section 2(1) (o) "person" includes any company or association or body ofindividuals whether incorporated or not and also a Hindu undivided family, afirm, a local authority, Government of India, the Government of any State orUnion Territory, a statutory body, a trust or other body corporatre, asociety including a co-operative society, a factor, a broker, a commission agent,a del credere agent, an auctioneer, an agent for handling or transporting ofgoods or handling of document of title to goods, or any other mercantile agent,by whatever name called, an educational institution, any bank, any hospital ornursing home or diagnostic centre, a joint-venture company, and a limitedliability partnership or other juristic person;

Section 2(1) (y) "turnover of imports", used in relation to any registereddealer with reference to a period of time, means the aggregate of the importvalue of specified goods which the dealer brings or receives in any local areaduring the period for consumption, use or sale therein, and used in relation toan unregistered dealer or importer other than a dealer, means the import value of a consignment of specified goods brought or received in any local area for consumption, use or sale therein, whether by the dealer or the importer other than a dealer himself or by any other person;"

Section 2(2) of the impugned Act interalia provides that words and

expressions used but not defined in the impugned Act but defined in the West

Bengal Sales Tax Act, 1994 or the West Bengal Value Added Tax, 2003 would

have the same meanings as assigned to them in those Acts to the extent they

are not inconsistent with the impugned Act and the Rules made thereunder.

The relevant Sections of the impugned Act are set out hereinbelow for

convenience.

"Section 4. Incidence and levy of tax-- (1) Subject to the-provisions of this Act, there shall be levied a tax under this Act which shall be payable by a dealer or an importer other than a dealer, on the entry of all or any



specified goods into a local area for consumption, use or sale therein, on his taxable turnover of imports or on the quantity or weight of any specific goods as may be notified by the State Government at such rate or rates as may be specified under sub-section (2).

Explanation.-- Where any specified goods are consumed, used or sold in a local area by a dealer or an importer other than a dealer, it shall be presumed, unless the contrary is proved by him, that such goods had entered into that local area for consumption, use or sale therein. (2) The State Government may, by notification, specify the rate of tax levied under this Act, which shall not exceed five per centurm when such tax is levied on taxable turnover of imports, and. different rate or rates of tax may be specified in respect of different specified goods, or for the different categories of consumption or use or sale of such specifiedgoods, or for different local areas.

(3) The State Government shall have regard to financial needs fordevelopment and facilitation of trade, commerce and industry in the localareas of the State while specifying the rate or rates of tax under sub-section (2).

(4) Subject to such restrictions and conditions as may be prescribed,no tax. under this Act shall be levied, and accordingly the import valueof goods shall not be included in turnover of imports of a dealer or animporter other than a dealer, in respect of-

(a) entry of specified goods dispatched, at the time of entry into a local area, directly to a place for immediate export of such goods out of the territory of India within the meaning of sub-section (1) of section 5 of the Central Sales Tax Act. 1956. from such place in the same form in which such goods have been entered into the local area; 74 of 1956.

(b) entry of specified goods dispatched at the time of entry into a local area directly to a place outside the State in the same form in which such goods have been entered into the local area; and

(c) such other entry of goods, either in full or in part, as may be prescribed.

(5) The expression "taxable turnover of imports" as stated in sub-section (1) shall mean, in respect of a dealer or an importer other than adealer liable to pay tax on the entry of specified goods into a local areafor consumption, use or sale therein, that part of his turnover of importswhich remains after deducting therefrom-- (a) turnover of imports relating to entry of specified goods into a local area, if it is proved to the satisfaction of the Commissioner that such goods have already been subjected to tax under this Act



in the same form;

(b) turnover of imports relating to entry of specified goods into a local area, if it is proved to the satisfaction of the Commissioner that such goods have been purchased in the same form against a tax invoice, or invoice, or bill issued under the West Bengal Value Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, by a dealer registered under the West of Bengal Value Added Tax Act, 2003, or the West Bengal Sales Tax Act, 1994, as the case may be; (West Ben. Act XXXVII of 2003 West Ben. Act XLIX of 1994)

(c) turnover of imports relating to entry of specified goods into a local area where it is proved to the satisfaction of the Commissioner that such goods have been transported from within West Bengal from another place of business of such dealer or importer other than a dealer; (d) such other turnover of imports, either in full or in part, as may be prescribed."

"Section 5. Power of State Government to amend Schedule - TheState Government, after giving by notification not less than fourteendays' notice of its intention so to do, may, by like notification, withprospective or retrospective effect, add to, amend, or alter any Scheduleto this Act."

"Section 6. Power to exempt tax - (1) The State Government may, if itis necessary so to do in public interest, by notification, exempt, either in full or in part, the tax payable under this Act by any specified class ofdealers or importers other than a dealer or on any class of specifiedgoods.

(2) Any exemption notified under sub-section (1) may be subject to suchrestrictions and conditions as may be specified in the notification.

(3) The State Government may, by notifiation, withdraw, cancel or varyany notification issued under sub-section (1), with prospective orretrospective effect."

"Section 8. Declaration to be made by a dealer or an importerother than a dealer for entry of goods - (1) In respect of entry of anyconsignment of specified goods into a local area by or on behalf of adealer or an importer other than a dealer for consumption, use or saletherein, the dealer or the importer other than a dealer shall make adeclaration in such form, in such manner and containing suchparticulars relating to entry of such goods, as may be prescribed andsuch a declaration shall be carried along with the specified goods till



such goods reach the destination within the local area.

(2) The declaration referred to in sub-section (1) shall be produced undersuch circumstances, and in such manner, as may be prescribed, upondemand by the Commissioner or by such other person authorized by theCommissioner in this behalf, at any place within a local area."

"Section 9. Return and payment of tax by registered dealers - (1)Every registered dealer shall, either electronically or manually, submit areturn in such form containing such particulars, to such authority, withinsuch period, in such manner and along with such documents, as may beprescribed. (2) A registered dealer shall pay into the appropriate GovernmentTreasury in the prescribed manner and within the prescribed date thefull amount of tax payable by him under this Act on the basis of thereturn to be submitted under sub-section (1) and shall furnish along withsuch return satisfactory proof of the payment of such tax.

(3) Where the Commissioner is satisfied that a registered dealer hasdefaulted in, or has attempted to evade, payment of tax under this Act,he may, for reasons to be recorded in writing, demand from suchregistered dealer an amount towards security for safeguarding revenuein respect of the tax payable under this Act, either for a singleconsignment or for tax payable for a particular period, and such securityshall be adjusted against the tax payable under this Act for thatconsignment or that period, as the case may be."

"Section 15. Establishment of fund - (1) There shall beestablished for the purposes of this Act, a fund to be called the WestBengal Compensatory Entry Tax Fund.

(2) The fund shall be under the control of the State Government andthere shall be credited thereto - (a) any sum of money credited under section 16; (b) any sum of money credited under section 17; (c) any sum realised by the State Government in carrying out its function under this Act or in the administration of this Act; (d) any fund provided by the Central Government for the development or facilitating the trade, commerce and industry in the State as mentioned in section 18. (3) The balance to the credit of the Fund shall not lapse at the end ofthe financial year."

"Section 16. Crediting of proceeds to the Fund - The proceeds of



the levy under this Act shall first be credited to the Consolidated Fund ofWest Bengal, and the State Government may, if the State Legislature byappropriation made by law in this behalf so provides, credit suchproceeds to the Fund from time to time, after deducting the expenses ofcollection for being utilized exclusively for the purposes of this Act."

"Section 17. Grants and loans by state Government - The StateGovernment may, after due appropriation made by the State Legislatureby law in this fore, credit in the Fund, by way of grants or loans, suchsums or money as the State Government may consider necessary."

"Section 18. Utilization of proceeds of levy - (1) The proceeds ofthe levy under this Act, net of the cost of collection and incidentalexpenses, shall be utilized for the development or facilitating the trade,commerce and industry in the State which shall include the following:-

(a) construction, development and maintenance of roads and bridges for linking the market and industrial areas;

(b) construction, development and maintenance of transport hubs and cold storage facilities wherever possible;

(c) construction, development and maintenance of linking the markets and industrial areas to railway stations, ports, waterways and airports, wherever possible; (d) construction, development and maintenance of railway over- bridges and sub-ways;

(e) creating infrastructure for supply of electricity and water to industries and other commercial complexes;

(f) creating, development and maintenance of other infrastructure for the furtherance of trade, commerce and industry in general;

(g) providing finance, aids, grants and subsidies for creating, developing and maintaining pollution free environment in the concerned areas;

(h) any other purpose connected with the development of trade, commerce and industry or for facilities relating thereto;

(i) providing finance, aids, grants and subsidies to local bodies



and State Government agencies for the purposes specified above.

(2) The State Government shall - (a) ensure that the proceeds of tax collected under this Act, net of the cost of collection and incidental expenses, are utilized for facilitating trade, commerce and industry in the State;

(b) identify the areas which require immediate development or maintenance of infrastructure and other facilities and allot proceeds of tax under this Act for the purposes specified in sub- section (1); (c) ensure that the proceeds of tax collected under this Act, net of the cost of collection and incidental expenses, are not-much more than the amount actually required for development of local areas for facilitating trade, commerce and industry in the State."

"Section 19. Maintenance of accounts - The State Governmentshall maintain proper accounts and other records, such forms in and insuch manner, as may be prescribed."

"Section 20. Administration of Fund - The State Government shalladminister the Fund and take such decisions regarding investment inthe development or facilitating the trade, commerce and industry in theState."

"Section 22. Power of State Government to make rules - (1) TheState Government may, by notification, make rules, with prospective orretrospective effect, for carrying out the purposes of this Act.

(2) In particular and without prejudice to the generality of theforegoing power, such rules may provide for all or any of the matterswhich under any provision of this Act are required to be prescribed, or tobe provided for, by rules.

(3) In making any rules under this section the State Government maydirect that a breach thereof shall be punishable with fine not exceedingone thousand rupees and, when the offence is a continuing one, with adaily fine not exceeding one hundred rupees during the continuance ofsuch offence." Mr. Binod Poddar, Senior Advocate appearing with Mr. Sumeet Gadodia

and Mr. Somak Basu, on behalf of the petitioners, in W.P. No.11407 (W) of

2012, Tata Steel Ltd. Vs. State of West Bengal, Mr. S.K. Kapur, Senior



Advocate appearing on behalf of the petitioners in W.P. 464 of 2012, Bharti

Airtel Vs. State of West Bengal and three other writ petitioners. Mr. J.P.

Khaitan appearing on behalf of the writ petitioners in W.P. 509 of 2012, ACC

Ltd. & Anr. Vs. State of West Bengal & Ors. and five other writ petitioners

along with Mr. Somak Basu, Mr. Sourabh Bagaria and Ms. Sutapa Roy

Chowdhury, Mr. Samit Talukdar appearing on behalf of the Writ Petition in

W.P. No.18582 (W) of 2012 Camco Multi Metal Ltd. & Anr. Vs. The State of

West Bengal & Ors. and Mr. Mainak Bose appearing on behalf of the writ

petitioner No. W.P. 562 of 2012 Godrej Consumer Products Ltd. Vs. The State

of West Bengal & Ors. and six other writ petitions, strenuously argued that

the impugned Entry Tax Act is violative of Article 301 read with Article 304 (a)

and (b) of the Constitution of India.

Mr. Poddar submitted that the impugned Entry Tax Act is violative of

Article 301 of the Constitution of India, which guarantees free trade,

commerce and intercourse throughout the territory of India, read with Article

304 of the Constitution of India which enables the state to impose on goods

imported from other States or Union Territories, any tax to which similar

goods manufactured or produced in that State are subject, so that there is no

discrimination between goods so manufactured or produced in the State and those brought from outside the State and also to impose restrictions on

freedom of trade or commerce in public interest.

Mr. Poddar submitted and rightly that the impugned Entry Tax does not

seek to impose tax to which similar goods manufactured or produced in the

State of West Bengal are subject, to place goods manufactured or produced in

the State at the same level with goods brought from outside the State.



Mr. Poddar argued that in the absence of prior sanction of the President

of India, the impugned Entry Tax Act was hit by Article 304(b) of the

Constitution of India, since no Bill for enactment or amendment in law to

impose restrictions on freedom of trade, commerce or intercourse with or

within the State could be introduced or moved without the previous sanction

of the President, if such enactment or amendment was proposed in public

interest.

Mr. Poddar submitted that taxing laws are not excluded from the

operation of Article 301 of the Constitution of India. Mr. Poddar submitted

that a taxing law which purports to impose a tax on inter-State or inter-

regional trade, commerce and intercourse can interfere with the right of

freedom of trade, commerce and intercourse throughout the territory of India

guaranteed under Article 301 of the Constitution of India. In support of his submission that taxing laws amount to restrictions on

the freedom of trade, commerce and intercourse throughout the territory of

India. Mr. Poddar cited the judgement of Constitutional Bench of the Supreme

Court in Atia Bari Tea Company Limited Vs. State of Assam reported in

AIR 1961 SC 232.

Mr. Poddar submitted that the freedom of trade, commerce and

intercourse guaranteed under Article 301 is subject to the restrictions of

Article 304 of the Constitution of India. Thus, notwithstanding anything in

Article 301 or 303, the legislature of a State may by law impose on goods

imported from other States or Union Territories, any tax to which similar

goods manufactured or produced in that State are subject, so as not to



discriminate between goods so imported and goods manufactured or produced

within the State.

The State Legislature is also empowered, notwithstanding anything in

Article 301 or 303, to impose reasonable restrictions on freedom of trade,

commerce or intercourse within that State as may be required in the public

interest. However, reasonable restrictions, as may be required in public

interest, cannot be introduced unless the Bill or amendment for the purpose

is introduced or moved in the legislature with the previous sanction of the

President of India. Citing the judgment of a Seven Judge Bench of the Supreme Court in

Automobile Transport (Rajasthan) Limited Vs. State of Rajasthan

reported in AIR 1962 SC 1402, Mr. Poddar argued that a taxing law may not

be hit by Article 301 read with Article 304 if the tax sought to be imposed is

compensatory in nature. Mr. Poddar argued that the Supreme Court had

judicially crafted an exception to the provisions of Article 301 in Automobile

Transport (Rajasthan Limited) Vs. State of Rajasthan (Supra). The

Supreme Court held that a taxing statute can be protected from the vice of

unconstitutionality, if the tax is compensatory in nature.

Mr. Poddar submitted that, in Bhagatram Rajiv Kumar Vs.

Commissioner of Sales Tax, Madhya Pradesh reported in (1995) Supp. 1

SCC 673 the Supreme Court held that if there was substantial or even some

link between a tax imposed and the facilities intended to dealers, directly or

indirectly, the levy could not be impugned as invalid.

The Supreme Court reiterated this view in State of Bihar Vs. Bihar



Chamber of Commerce reported in (1996) 9 SCC 136. In the aforesaid case

the Supreme Court held that "Some Connection" between the tax and the

trading facilities extended to dealers directly or indirectly, would be sufficient

to characterize it as compensatory tax. In Jindal Strips Ltd. (1) Vs. State of

Haryana reported in (2003) 8 SCC 136 a Bench of the Supreme Court

doubted the correctness of the law enunciated in Bhagatram Rajeev Kumar (supra) and Bihar Chamber of Commerce (supra) and referred to the

Constitutional Bench, the specific question of whether the theory of some

connection, as propounded in Bhagat Ram's case, and applied in Bihar

Chamber of Commerce case, was contrary to law and the working test laid

down in the case of Automobile Transport Ltd. (supra).

Mr. Poddar also cited the decision of the Constitution Bench of the

Supreme Court in Jindal Stainless Ltd. (2) & Ors. Vs. State of Haryana &

Ors. reported in (2006) 7 SCC 241 where the aforesaid question was

answered. The Constitutional Bench of the Supreme Court disapproved the

view taken in the earlier judgements of the Supreme Court in Bhagatram

Rajiv Kumar (Supra) and Bihar Chamber of Commerce (Supra) and held

that the working test for deciding whether a tax is compensatory or not is to

enquire whether the trade is having the use of certain facilities for the better

conduct of its business and paying not patently much more than what is

required for providing the facilities.

The Constitution Bench of the Supreme Court answered the question

referred to it in the following words:

"16. To sum up the pre-1995 decisions held that an



exaction to reimburse/recompense the State the cost of an existing facility made available to the traders or the cost of a specific facility planned to be provided to the traders is compensatory tax and that it is implicit in such a levy that it is must, more or less, be commensurate with the cost of the service or facility. Those decisions emphasized that the imposition of tax must be with the definite purpose of meeting the expenses on account of providing or adding to the trading facilities either immediately or in future, provided the quantum of tax is based on a reasonable relation to the actual or projected expenditure on the cost of the service or facility. However, the post - 1995 decisions in Bhagatram case and in Bihar Chamber of Commerce now say that even if the purpose of imposition of the tax is not merely to confer a special advantage on the traders but to benefit the public in general including the traders, that levy can still be considered to be compensatory. According to this view, an indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be brought within the concept of compensatory tax, the nexus between the tax known as compensatory tax and the trading facilities not being necessarily either direct or specific."

The Supreme Court specifically overruled the theory as propounded in

Bhagat Ram's case (Supra) and in Bihar Chamber of Commerce case

(Supra) that some connection would make a levy compensatory.

Mr. Poddar submitted that the Constitution Bench of the Supreme

Court has, in Jindal Stainless Ltd. (2) (supra) pronounced the law relating

to imposition of entry tax by State Legislature and the validity of the

impugned Entry Tax Act has to be adjudicated in view the law laid down by

the Supreme Court in Jindal Stainless Ltd. (2) (supra). Mr. Poddar strenuously contended that the impugned Entry Tax Act is

not compensatory in nature. Mr. Poddar argued that the amount of Entry Tax

collected is credited to the Consolidated Fund of West Bengal under Section

16 of the Act and the same is to be appropriated by the State Legislature.

Thus the Act is for augmenting the general revenue and cannot be treated to

be compensatory.



Mr. Poddar submitted that the basic difference between a tax and a fee

or a compensatory tax was, that the former was based on the concept of

burden, whereas the latter was based on the concept of recompense and/or

reimbursement. For a tax to be compensatory, there had to be some link

between the quantum of tax and the facilities or services for which the tax

was being imposed.

Mr. Poddar submitted that whenever a law is impugned as violative of

Article 301 of the Constitution of India, the Court has to see whether the

impugned enactment facially or patently indicates quantifiable data on the

basis of which the compensatory tax is sought to be levied. The Act must

facially indicate the benefit which is quantifiable or measurable. It must

broadly indicate the proportionality of the tax imposed, with the quantifiable

benefit. Mr. Poddar further argued that Entry Tax levied in respect of a

particular area is not identified for being spent in that local area itself and

thus, the theory of "principle of equivalence", "measurable/quantifiable

benefit" and "direct and immediate effect" are not applicable. The Act is thus

not compensatory.

Mr. Poddar submitted that Section 18 of the impugned Entry Tax Act

prescribes the purposes for which proceeds of levy under the impugned Entry

Tax Act might be utilized. According to Mr. Poddar a perusal of the aforesaid

provision would demonstrate that the State, while creating the fund and

providing the purposes for which the proceeds of the fund would be spent,

has completely ignored the principle of compensatory tax by way of



'recompense and reimbursement".

Mr. Poddar argued that the creation of a fund and the purpose for

which the proceeds would be utilized, could not be said to be for the benefit

and/or interest of the trading people of the local area in which the Entry Tax

was sought to be levied. Mr. Poddar argued that the construction,

development and maintenance of roads, as contemplated under Section 18 of

the impugned Entry Tax Act could not be treated to be compensatory in

nature, so as to construe any special advantage to trade, commerce and

intercourse. Mr. Poddar submitted that the State is bestowed with the responsibility

of providing good roads and bridges for tax paying citizens. The providing of

roads and bridges as contemplated in Section 18 of the Entry Tax Act cannot

be said to be for the benefit of the trading people of the local area who are

subjected to the levy. The maintenance and construction of roads and bridges

are met from the general revenue of the State. Irrespective of whether the

goods are transported into the State from some other State or abroad, the

State has the duty to provide facilities such as roads, bridges etc., which are

not enjoyed just by persons who bring the notified goods, but by the public in

general. No exclusive or special advantage is provided to the trading people.

Mr. Poddar next argued that the provision in Section 18(1)(i) of the

Entry Tax Act for providing financial aid, grants and subsidies to local bodies

and State Government agencies is totally vague and devoid of any particulars.

Mr. Poddar submitted that creation development and maintenance of

infrastructure for supply of electrical energy and water to industries,



contemplated in Section 18(1) (c) of the Entry Tax Act is also a common

burden and responsibility of a welfare State and cannot be held to be

compensatory for meeting the expenses incurred for the outlay for providing

any special advantage to trade, commerce and intercourse. Mr. Poddar argued that in Jindal Stainless Ltd. (2) (supra) the

Constitution Bench of the Supreme Court categorically held that exaction to

reimburse and/or recompense the State, the cost of an existing facility made

available to the traders or the cost of a specific facility planned to be provided

to the traders, would be compensatory tax and that it was implicit in such a

levy that the tax must be more or less commensurate to the cost of the service

or the facility.

Mr. Poddar emphatically argued that the proposition of law enunciated

in Bhagatram Rajiv Kumar's case (Supra) and in State of Bihar Vs. Bihar

Chamber of Commerce that indirect or incidental benefit to traders would

suffice, has specifically been overruled in Jindal Stainless Steel Ltd.

(supra).

Mr. Poddar, thus, argued that the purpose for which the proceeds of

Entry Tax was sought to be spent could not be treated as compensatory in

nature. Mr. Poddar reiterated that the Entry Tax Act does not patently

indicate the quantifiable data, on the basis of which Entry Tax is sought to be

levied. In the circumstances, the burden was on the State, as the

service/facility provider to show by placing materials before the Court, that

the payment of compensatory tax is reimbursement and/or recompense for

the quantifiable/measurable benefit provided or to be provided to its payers.

Mr. Poddar argued that the State of West Bengal has miserably failed to discharge its burden. No data has been provided. No attempt has been made



by the State to demonstrate, by placing cogent materials, or even facts and

figures to show any quantifiable and measurable benefit to the trading people.

Mr. Poddar argued that no attempt has been made by the State to produce

data on the proposed expenditure to demonstrate that the tax levied is a

measure of reimbursement/recompense for quantifiable and measurable

benefits to be provided to the trading people.

Mr. Poddar pointed out that there is no whisper of the proposed

expenditure, in the affidavit-in-opposition filed on behalf of the State. Mr.

Poddar argued that the contention of learned counsel appearing for the State,

Mr. Avratosh Mazumdar, that it was not possible for the State to produce

data, since the West Bengal Entry Tax Act, was a new enactment and no

Entry Tax had been collected and the State would be able to justify the Entry

Tax Act after its implementation, by showing that the State had, in fact,

utilized the fund for development of trade and commerce for the benefit of

others, was wholly fallacous.

Mr. Poddar argued that it was not material that the Entry Tax Act was a

new Act. It was open for the State to place data which could have been in the

form of field project report, for levy of tax and utilization of its fund upon

assessment of collection of tax. Mr. Poddar submitted that the State has not

furnished particulars of even a single proposed project report or conceived idea where the amount of Entry Tax collected would be spent. The State had,

thus, failed to discharge its burden as enunciated in the judgement of the

Constitution Bench of the Supreme Court in Jindal Stainless Steel Ltd.

(supra), as it had not placed any material before the Court to demonstrate

that payment of Entry Tax was for the reimbursement/recompense for the



quantifiable, measurable benefit that "provided ought to be provided" to its

tax payers.

Mr. Poddar strenuously contended that the Entry Tax Act not being

compensatory in nature was violative of Article 301 of the Constitution of

India and liable to be struck down. Admittedly the Act had not been

introduced after obtaining prior approval of the President of India. In support

of his submission that the impugned Entry Tax Act was not compensatory in

nature, Mr. Poddar cited the following judgements:-

(i) R. Gandhi Vs. State of Tamilnadu reported in (2008) 13 VST

390;

(ii) Thressiamma L. Chirayil Vs. State of Kerala & Anr. reported

in (2007) 7 VST 293;

(iii) ITC Limited Vs. State of Tamil Nadu & Ors. reported in (2007)

7 VST 367 (Mad);

(iv) Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors.

reported in (2008) 12 VST 149; (v) Bharat Earth Movers Ltd. Vs. State of Karnataka reported in

(2007) 8 VST 60 (Karn).

(vi) Unreported judgement of the Jharkhand High Court in Tata

Steel Limited Vs. State of Jharkhand & Ors. dated 3rd April, 2012.

Mr. Poddar further argued that under Section 16 of the Entry Tax Act

the proceeds of the levy under the Entry Tax Act are to be credited to the

consolidated fund of the State of West Bengal.



Referring to Section 16 of the Entry Tax Act, Mr. Poddar submitted that

the Entry Tax credited to the consolidated fund of the State of West Bengal

could only be credited to the Compensatory Entry Tax fund created under

Section 16 of the Entry Tax Act, only if the State Legislature by appropriation

made by law in that behalf, so provides.

Mr. Poddar submitted that Article 266 of the Constitution of India

provides for the Consolidated Fund of the State. Referring to Article 266, Mr.

Poddar submitted that the amount collected under the following heads shall

form the Consolidated Fund of the State

(i) all revenue received by the State Government;

(ii) all loans raised by the State Government by issue of treasury

bills/loans or any other ways or means; (iii) all money received by the Government in repayment of loans.

Mr. Poddar argued that the provision of Article 266 of the Constitution

of India, read with Section 16 of the Entry Tax Act makes it amply clear that

the proceeds under the Entry Tax Act are to be treated by the State

Government as revenue received by it. This fact is sufficient to declare the levy

as not compensatory in nature, as it loses the character of 'fee' and assumes

the character of 'tax'.

Mr. Poddar submitted that the proceeds of Entry Tax could be

appropriated to the West Bengal Compensatory Entry Tax Fund only if the

State Legislature enacted any law for such appropriation. Under Article

199(1)(d) of the Constitution of India, any appropriation of money out of the



Consolidated Fund of the State had to be done by way of Money Bill. Thus,

the Entry Tax collected by the State is to be treated as general revenue at the

hand of the State, at the first instance, and is to be credited into the State

Consolidated Fund. Its utilisation would directly be dependent upon

budgetary allocation to be made by the State Legislature by way of 'Money

Bill".

Mr. Poddar submitted that the State Legislature cannot be compelled to

make the budgetary allocation of the proceeds of the Entry Tax for any

specific purpose as the independence of the State Legislature in passing a 'Money Bill' cannot be restricted by virtue of any provision in the Entry Tax

Act. Thus the theory of "quid pro quo" as enunciated in the judgement in

Jindal Stainless Steel Ltd. (supra) for determining the levy to be

compensatory in nature is completely absent.

Mr. Poddar submitted that the notification issued by Government of

West Bengal, Finance Department, Budget Branch, for constitution of a

committee consisting of the Heads of various departments of the Government

of West Bengal, inter alia provides that the provisions for the expenses from

the Fund shall be made under the budgets of the respective departments as

per the decision of the Committee.

Mr. Poddar argued that the notification was completely contrary to

Section 16 of the Entry Tax Act and also contrary to the Constitution of India,

particularly Articles 266(3) and 199(1)(d) thereof. Mr. Poddar submitted that it

was unimaginable how the committee comprising of secretaries of the

Government of West Bengal could determine the budget provision and usurp



jurisdiction of appropriation of money from the Consolidated Fund of the

State which is exclusively reserved to the State Legislature.

Mr. Poddar submitted that apart from Clause 5.3 two other Clauses i.e.

5.1 and 5.2 would demonstrate that the amount of Entry Tax collected under the Entry Tax Act was to be mixed with the general tax collected and forming

part of the Consolidated Fund of the State.

Mr. Poddar submitted that the notification further demonstrates that

the Entry Tax collected is to be spent for general development and welfare

activities. The Entry Tax Act read with the notification dated 24th July, 2012

cannot be said to be compensatory in nature. Mr. Poddar emphasized that

compensatory tax is equivalent to fee based on the principle of 'equivalence'.

Mr. Poddar submitted that for determining whether tax was

compensatory or not, the "principle of direct and immediate effect" was to be

considered. The court would have to examine what were the facilities for

which tax was being imposed and whether the trading people were not being

made to pay patently more for the cost of the facility/service provided and/or

to be provided.

Mr. Poddar submitted that applying the aforesaid principle in the

context of the power of the State Legislature to impose Entry Tax under Entry

52 of List II of the Seventh Schedule, it would be evident that Entry Tax levied

and collected from one local area had to be spent for the benefit of the trading

people of the said local area itself in order to make the levy compensatory. Mr. Poddar argued that the Government is entitled to enact a law



levying Tax on entry of Goods into a local area. The power of the State

Legislature to charge under Entry 52 of List II was in case of entry of goods

into a local area. The court is, thus, required to examine the effect of the

charging provision vis-Ã -vis the utilisation of Fund. Entry Tax can be treated

to be compensatory only and only if the Entry Tax collected is spent only for

the benefit of the trading people of the said local area.

By way of illustrative example, Mr. Poddar submitted that if Entry Tax

amounting to Rs.10 crore was collected from a particular local area which is

the local area under the Kolkata Municipal Corporation, the amount of Rs.10

crore would have to be spent for the benefit of trading people within the area

of Kolkata Municipal Corporation. However, if out of Rs. 10 crore collected

from the Kolkata Municipal Corporation area Rs. 5 crore was spent for

providing trading facilities to the traders of other local areas the principle of

equivalence and direct and immediate benefit to payers of Entry Tax of

Kolkata Municipal Corporation area cannot be achieved and thus the

provision cannot be termed as compensatory in nature. Mr. Poddar pointed

out that it had been admitted by the State that it would be open for the State

Government to spend the amount collected from one local area for another

local area. Mr. Poddar finally submitted that the provisions of the Entry Tax Act

also violated Article 304(A) of the Constitution of India in as much in the

matter of levy of Entry Tax as the Entry Tax Act discriminates between goods

brought into a local area from outside the State or outside the country and

goods brought into a local area from with the State. If goods enter one local

area of the State from another local area, there is no tax payable.



Mr. Poddar finally argued that if goods have been subjected to tax

under the West Bengal Value Added Tax Act 2003 or the Bengal Sales Tax

Act, 1994, such goods, on their entry into a local area, would not be liable to

Entry Tax. The Section, thus, patently discriminates between goods imported

from outside the State and goods manufactured within the State. In the

matter of levy of Entry Tax, for example, if any of the writ petitioners bring

raw materials to West Bengal from outside the State, they will be liable to pay

Entry Tax. However, if they produce the same raw materials within the State

they would not be required to pay Entry Tax. Such discrimination is also

patent in Sub-section (c) of Section 4 which provides that if goods are

transported from one place of business of a dealer to another place of

business then no Entry Tax would be payable on such transfer.

According to Mr. Poddar, this Sub-section also patently discriminates

between the imported goods from outside the State vis-Ã -vis goods

manufactured within the State, of West Bengal. For example, in case of stock transfers from outside the State liability to pay Entry Tax would accrue but

Stock transfers in case of goods manufactured in West Bengal to another

place would not attract Entry Tax. In support of his submission that Entry

Tax Act was discriminatory Mr. Poddar cited following judgements:-

(i) ITC Limited Vs. State of Tamil Nadu & Anr. reported in (2007)

7 VST 367 (Mad.);

(ii) Bharat Earth Movers Ltd. Vs. State of Karnataka & Ors.

reported in (2007) 8 VST 60 (Karn.);

(iii) West Bengal Hosiery Association & Ors. Vs. State of Bihar

& Ors. reported in (1988) 4 SCC 134;



(iv) Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & kashmir

reported in (1996) 11 SCC 39.

Mr. Poddar finally argued that under Section 2 (h) of the Entry Tax Act,

the term entry of goods has been defined. The Entry Tax Act provides for levy

of tax on entry of goods from outside the country into any local area within

the State of West Bengal. By providing for levy of Entry Tax on entry of goods

from outside the country, the State Legislature has acted beyond its legislative

competence and has transgressed the power of the Parliament. In the context

of his argument, Mr. Poddar referred to Article 286 of the Constitution of India

which prevents the State Legislature from imposing tax on sale or purchase of goods, when such sale or purchase takes place in course of the import of

goods into or export of goods out of the territory of India.

Mr. Poddar also referred to Entries 41 and 83 of List I in the Seventh

Schedule in terms whereof the Union legislature is empowered to legislate in

relation to trade and commerce with foreign countries, import and export

across customs frontiers and definition of customs frontiers and also in

connection with duties of customs including export duties.

Mr. Poddar argued that it was evident from the aforesaid entries that

Parliament had exclusive jurisdiction in the matter of levy of duties on the

export and import and to frame laws in respect of trade and commerce with

foreign countries including import and export across, customs frontiers.

Mr. Poddar submitted that if an importer imported any goods from

outside, the importer would required to pay import duty and again Entry Tax



under the impugned Entry Tax Act, Entry Tax for delivery of such imported

goods in factories, godowns etc. in the State of West Bengal. Thus, in a

transaction which was in course of import the importer would have to pay

Entry Tax over and above import duty.

In support of his argument Entry Tax transgressed Article 286 of the

Constitution of India. Mr. Poddar cited the following judgements:- (i) Re Sea Customs Act reported in (1964) 3 SCR 787;

(ii) Godfrey Phillips India Ltd. Vs. State of U.P. reported in (2005)

2 SCC 515;

Mr. Poddar submitted that, in enacting the impugned Entry Tax Act,

the State Legislature had nullified the effect of the judgement dated 22nd

November, 2007 of the West Bengal Taxation Tribunal in case of National

Hydro Power Corporation Limited Vs. ACCT Siliguri Circle reported in

2008 (15) VST 158 (WBTT) whereby the West Bengal Taxation Tribunal had

struck down the West Bengal State Taxes on Consumption or Use of Goods

Act 2001. Without removing the defects pointed out by the West Bengal

Taxation Tribunal, in the said Act of 2001, the legislature re-enacted the law

which was not permissible. Poddar cited the judgement of Supreme Court in

State of Tamil Nadu Vs. K. Shyam Sunder reported in (2011) 8 SCC 737

where the Supreme Court relying on its earlier judgements in Shri Prithvi

Cotton Mills Ltd. Vs. Broach Borough Municipality reported in (1969) 2

SCC 283; S.R. Bhagwat Vs. State of Mysore reported in (1995) 6 SCC 16;

Cauvery Water Disputes Tribunal reported in AIR 1992 SC 522; G.C.

Kanungo Vs. State of Orissa reported in (1995) 5 SCC 96; Madan Mohan

Pathak Vs. Union of India reported in (1978) 2 SCC 50 and K. Sankaran



Nair Vs. Devaki Amma Malathy Amma reported in (1996) 11 SCC 428

held as follows:- "65. In view of the above, the law on the issue can be summarised to the effect that a judicial pronouncement of a competent court cannot be annulled by the legislature in exercise of its legislative powers for any reason whatsoever. The legislature, in order to revalidate the law, can reframe the conditions existing prior to the judgment on the basis of which certain statutory provisions had been declared ultra vires and unconstitutional."

Mr. S.K. Kapur, Senior Advocate appeared with Mr. Ananda Sen on

behalf of the Writ Petitioners W.P. No.464 of 2012 Bharti Bharti Airtel Limited

vs. State of West Bengal & Ors., W.P. No.465 of 2012 Bharti Telemedia

Limited Vs. State of West Bengal and W.P. 615 of 2012 Tata Teleservices

Ltd. Vs. State of West Bengal & Ors. in the Original Side adopted the

arguments advanced by Mr. Poddar and also made further arguments at

length.

Mr. Kapur reiterated that whenever a law was impugned it was the

burden of State to prove and the duty of the Court to see whether the

impugned enactment "facially or patently" indicates quantifiable data on the

basis of the which compensatory tax is to be levied and the Act must facially

indicated the benefit which is quantifiable or measurable. In Jindal

Stainless Steel Ltd. (supra) the Supreme Court held that the

abovementioned principles would apply to "any legislation under challenge

whether it be a taxation law or non-taxation law violating Article 301". Mr. Kapur submitted that it was well-settled that State legislature had

the power to introduce a compensatory tax because this was a judicially

designed exception to the legislation normally applicable under Section 301 of

the Constitution of India. However, Jindal Stainless Steel Ltd. (supra)

provided that any compensatory tax would have to meet certain parameters



and fulfil certain mandatory requirements. Briefly summarized these

parameters are:-

(i) the payment of compensatory tax is not for revenue but as

reimbursement/re-compense for the special services/facility provided by the

State;

(ii) the Act must facially indicate the benefits to the payers which

should be quantifiable and measurable;

(iii) the Act must facially or patently indicate quantifiable data on the

basis of which the compensatory taxes ought to be levied;

(iv) the Act must indicate proportionality between the levied tax and

the benefit;

(v) if the Act does not indicate the above features facially then the

burden is on the State to establish by placing full data and material before the

Court that the levy of the tax is a reimbursement or recompense for the

quantifiable/measurable benefit provided to is payers;

(vi) the Court has to examine the pith and substance of the levy to

see its effect and operation. In other words, the Court has to see, what is the

scope of the operation of law; (vii) it is not enough to say that the levy can be shown to have "some

connection" with the facilities provided to the payers;

(viii) the rule is that "direct and immediate effect" has to be established

in respect of the levy, otherwise it will fail on the question of constitutional

validity.

In support of his submissions Mr. Kapur cited following judgements:-

(i) R. Gandhi Vs. State of Tamil Nadu reported in 13 VST 390 at

pg 401;



(ii) National Aluminium Co. Ltd. Vs. State of Orissa & Ors.

reported in 15 VST 296;

(iii) Dinesh Pouches Ltd. Vs. State of Rajasthan reported in 16

VST 387 ;

(iv) Jindal Strips vs. State of Haryana reported in 12 VST 149 ;

(v) Indian Oil Corporation Ltd. Vs. State of U.P. reported in 10

VST 282.

Mr. Kapur reiterated the submission of Mr. Poddar that no data had

been produced by the State. Mr. Kapur also argued that Section 16 provides

that proceeds of the levy under the Act would firstly be credited to the

Consolidated Fund of West Bengal. This means that from the beginning the

entry tax proceeds will be mixed up with the other funds of the State.

According to Mr. Poddar as well as Mr. Kapur this provision contravenes the settled rule that no entry tax can be levied to augment the revenue of the

State. By making a provision that the tax realized under the Entry Tax Act

would be credited to the Consolidated Fund of West Bengal clearly offends the

rule that such a tax ought not to be levied as a means of increasing the

revenue of the State.

Mr. Kapur argued that there were grammatical errors in Section 17,

which render it unintelligible and meaningless. If the Act contains mistakes it

is not for the Court to supply the omissions. But, even leaving the

unintelligible parts aside, the use of the word 'may' in express terms confers

an option upon the State to direct that levy of Entry Tax may be credited to

the compensatory fund.



Mr. Kapur further submitted that the legislature had neither legislative

authoirity nor any legislative power to reserve to itself a choice or right to elect

whether it would make a credit to the fund or not. Since the fund had to be

utilized only to provide a service/facility to the payers thereof, the mandate of

the Act should have been that all and any realizations of Entry Tax - would all

necessarily be required to be transferred to the Compensatory Fund in full.

Mr. Kapur submitted that by giving an option or right to elect to the

State Government whether or not to send the levy to the compensatory fund

and, if so, the time, the amount or the proportion clearly demonstrates that the levy would be unrecognizably mixed up with the consolidated fund of the

State and thereafter would cease to be identifiable or available or used to

provide the service/facility to the payers, which is a mandatory requirement.

Mr. Kapur submitted that the Act ought not to have left any choice to

the Government to transfer the full amount of the levy to the compensatory

fund. Rather, the Act should have facially provided/mandate and

unquestionably shown that such disbursement was to be done on the face of

the statute.

Mr. Kapur submitted that the very terms of Section 18 of the Act make

it clear that the proceeds of the levy are not intended to be used to directly

provide service/facilities to the payers, which is the fundamental basis for

realization of compensatory taxes. Sub-section 1 clearly indicates by use of

the word 'may' in two places that the State has again reserved to itself

alternatives or preferences to do whatever it may choose to do with the levy at

its absolute discretion.



Mr. Kapur emphatically argued that entry tax realized could not

generally be utilized for development or facilitating trade, commerce and

industry in the State. The application of funds had to be for the benefit of the

payers in the local areas. Mr. Kapur finally argued that the broad objects stay out in Sub-section 9 of Section 18. There was no regard for the requirement of

proportionality or quantifiable benefit to the payers.

Mr. Kapur argued that the purposes mentioned in Section 18 are

inextricably associated with one and another. It is noteworthy that these

purposes are expressly stated to be "inclusive in nature and not exclusive". In

other words, the State might change the purposes to which the tax realized

might be applied including even discarding these provisions altogether.

Referring to the West Bengal Compensatory Entry Tax Fund Rules 2012

produced at the time of hearing, Mr. Kapur submitted that it was settled law

that the provisions of the parent Act must prevail and the Rules cannot

supplant or replace the provisions of the Act. In any case rules only reiterated

that utilization of the proceeds shall be in accordance with Section 18 which

is otiose and unnecessary. Rule 4 evidences that the parameters will not be

followed because it envisages that "the criteria as well as the amounts for

allocation among concerned departments of the State Government" shall be

determined by a Committee.

Mr. Kapur further submitted that the details and what should be

facially apparent from the Act is not even to be found in the purported Rules

which are redundant and do not advance the State's argument at all.



Mr. J.P. Khaitan appearing on behalf of the petitioners in W.P. No.509

of 2012 ACCT Ltd. & Anr. Vs. the State of West Bengal and several other writ

petitioners in the Original Side, adopted the submissions made by Mr. Poddar

and Mr. Kapur, emphasized that unlike the impugned Entry Tax Act earlier

entry tax laws such as Tax on Entry of Goods into Local Areas Act, 1962 and

Taxes on Entry of Goods into Calcutta Metropolitant Area, 1972 were enacted

after obtaining previous sanction of the President of India.

Mr. Khaitan argued that the Entry Tax Act is not compliant with clause

(a) of Article 304 since similar similar goods manufactured or produced in the

State of West Bengal are not subject to Entry Tax.

In terms of clause (b) of Section 4(5) of the impugned Entry Tax Act,

goods purchased from a registered dealer, against a tax invoice or invoice or

bill, issued under the West Bengal Value Added Tax Act, 2003, or the West

Bengal Sales Tax Act, 1994, are not liable to pay Entry Tax under the

impugned Entry Tax Act.

Mr. Khaitan further submitted that under the Value Added Tax Act, an

importer-dealer is compulsorily liable to obtain registration and pay tax in

respect of all his sales. A manufacturer/producer or a re-seller has to

compulsorily obtain registration and pay tax as soon as his turnover exceeds

Rs.5 lakhs, a petty amount, in the present day and age. A manufacturer/producer or re-seller also has the option to obtain voluntary

registration even before he becomes liable to pay tax. Thus every dealer,

unless he is a petty trader, is required to be registered under the Value Added

Tax Act or the Sales Tax Act, as applicable.



Mr. Khaitan submitted that the goods manufactured or produced in the

State of West Bengal sold by a dealer registered under the VAT Act or the

Sales Tax Act on a tax invoice or invoice or bill are not liable for entry tax

upon entry into any local area, within the State of West Bengal.

Mr. Khaitan submitted that in terms of clause (b) of rule 6(1) of the

West Bengal Tax on Entry of Goods into Local Areas Rules 2012, hereinafter

referred to as the Entry Tax Rules, goods manufactured in a local area of West

Bengal, using goods on which tax is paid or payable under the Act, are not

liable for tax on entry into another local area in the State. In other words,

goods manufactured in the State of West Bengal using any raw material,

plant, machinery, equipment, etc. on which entry tax is paid/payable are not

subject to entry tax upon entry into any local area in the State.

Mr. Khaitan submitted that the effect of Rule 6(1)(b) of the Entry Tax

Rules is that goods manufactured or produced in the State of West Bengal are

not subject to Entry Tax. Such manufactured goods would invariably be a

new commercial commodity distinct and different from the imported raw material, plant, machinery, equipment, etc. on which entry tax is paid.

Payment of Entry Tax on raw materials, etc. is not payment of tax on

manufactured goods.

Mr. Khaitan submitted that it is thus evident that the provisions of the

impugned Entry Tax Act clearly discriminate between imported goods and

goods manufactured or produced in the State of West Bengal. The former are

subject to tax whereas the latter are not. The provisions of the Act are not



saved by clause (a) of Article 304.

Mr. Khaitan further submitted that that Rule 5(u) of the West Bengal

Compensatory Entry Tax Fund Rules, 2012 is ultra vires the Entry Tax Act

and the constitution of India.

Mr. Khaitan submitted that in terms of section 16 of the Act, the

proceeds of the levy shall first be credited to the Consolidated Fund of West

Bengal and the State Government may, "if the State Legislature by

appropriation made by law in this behalf so provides', credit such proceeds to

the West Bengal Compensatory Entry Tax Fund ("the Entry Tax Fund") from

time to time after deducting the expenses of collection, for being utilised exclusively

for the purposes of the Act. Mr. Khaitan submitted that in exercise of the rule making power

conferred by section 22 of the Entry Tax Act, by a Notification bearing No.

766-F.B. dated July 24, 2012, the Governor of the State made the West

Bengal Compensatory Entry Tax Fund Rules, 2012 ('the Entry Tax Fund

Rules"). Rule 5(1 1) provides that the total annual receipt of Entry Tax in the

Consolidated Fund of the State shall be appropriated to the Entry Tax Fund

in the Public Account.

Mr. Khaitan submitted that Section 22 of the Entry Tax Act enables the

making of rules for carrying out the purposes of the said Act. When the Act

provides that appropriation out of the Consolidated Fund shall be made by

the State Legislature by law for credit to the Entry Tax Fund, any rule made

in exercise of the power under section 22 of the Act cannot provide for such

appropriation. Rule 5(u) of the Entry Tax Fund Rules is ultra vires the



provisions of the Entry Tax Act and also ultra vires the provisions of the

Constitution.

Mr. Khaitan further submitted that Chapter III of Part VI of the

Constitution contains provisions relating to State Legislature. Articles 196 to

200 in the said Chapter contain provisions relating to "Legislative Procedure"

and Articles 202 to 207 contain provisions relating to Procedure in Financial

Matters. Mr. Khaitan submitted that Article 196 contains provisions as to

introduction and passing of Bills. Article 197 provides for restriction on

powers of Legislative Council as to Bills other than Money Bills. Sub-article (3)

of Article 197 provides that nothing in Article 197 shall apply to a Money Bill.

Article 198 provides for the special procedure in respect of Money Bills. Article

199 defines Money Bills. In terms of clause (d) of sub-article (1) of Article 199,

a Bill containing only provisions dealing with the appropriation of moneys out

of the Consolidated Fund of the State shall be deemed to be a Money Bill.

Article 204 deals with Appropriation Bills. Sub-article (3) of Article 204 reads

as follows:-

"(3) Subject to the provisions of articles 205 and 206, no money shall be withdrawn from the Consolidated Fund of the State except under appropriation made by law passed in accordance with the provisions of this article."

Mr. Khaitan submitted that Article 266 contains provisions in respect of

Consolidated Funds and public accounts of India and of the States. Sub-

article (3) of Article 266 reads as follows :-

"(3) No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution." Mr. Khaitan submitted that Article 283 is a miscellaneous financial



provision and deals with custody, etc. of Consolidated Funds, Contingency

Funds and moneys credited to the public accounts. Sub-article (2) of Article

283 reads as under: -

"(2) The custody of the Consolidated Fund of the State and the Contingency Fund of a State, the payment of moneys into such Funds, the withdrawal of moneys therefrom, the custody of public moneys other than those credited to such Funds received by or on behalf of the Government of the State, their payment into the public account of the State and withdrawal of moneys from such account and all other matters connected with or ancillary to matters aforesaid shall be regulated by law made by the Legislature of the State, and, until provision in that behalf is so made, shall be regulated by rules made by the Governor of the State."

Mr. Khaitan submitted that Article 283 does not deal with appropriation

of moneys out of the Consolidated Fund of the State. Detailed provisions in

respect of appropriation are contained in Chapter III of Part VI of the

Constitution adverted to hereinbefore. Article 283 deals with custody of the

Consolidated Fund, payment of moneys into and withdrawal of moneys

therefrom, which is to be regulated by law made by the State Legislature.

Until the State Legislature makes such law, the Governor of the State can

make rules for such regulation. Mr. Khaitan submitted that "withdrawal is not the same as

'appropriation'. It is only after appropriation by the State Legislature by law

that withdrawal of money can take place. This is evident from the provisions

of sub-article (3) of Article 204 extracted hereinabove.

Mr. Khaitan submitted that Article 283 dealing with regulation of

custody of the Consolidated Fund and payment of moneys into and

withdrawal of moneys therefrom is clearly not meant to give a go by to the

entire legislative procedure relating to appropriation contained in the



Constitution. The Governor of the State is not empowered by Article 283 to

appropriate any moneys out of the Consolidated Fund of the State by making

rules. Further, the Entry Tax Fund Rules are not stated to have been made in

terms of Article 283 but only in exercise of the rule making power granted by

section 22 of the Act.

Mr. Khaitan submitted that the act does not provide for compulsory!

mandatory appropriation of the proceeds of the levy to the Entry Tax fund.

Mr. Khaitan submitted that the scheme of the Act is that the proceeds of the

levy will first be credited to the Consolidated Fund. Then the State Legislature

has to appropriate moneys out of the Consolidated Fund for credit to the

Entry Tax Fund and thereafter the moneys credited to the Entry Tax Fund

shall be utilised for the purposes specified under section 18 of the Act. The

utilisation cannot take place if the State Legislature does not appropriate by law any money for credit to the Entry Tax Fund. Whether or not the proceeds

of the levy under the Act shall be credited to the Entry Tax Fund is dependent

entirely on the State Legislature. The State Legislature which has made the

Act, has reserved to itself the power to decide whether the proceeds of the levy

under the Act or any part thereof shall be appropriated out of the

Consolidated Fund for credit to the Entry Tax Fund.

Mr. Khaitan submitted that Credit to the Entry Tax Fund and therefore,

utilisation is entirely dependent on appropriation by law by the State

Legislature. It is settled law that there is no estoppel against the Legislature.

It is clear that the Act does not contain any compulsory/ mandatory provision

for credit of the proceeds of the levy to the Entry Tax. Fund to ensure its

utilisation for the purposes enumerated in section 18. The levy under the Act



is not compensatory.

Mr. Khaitan also submitted that in order to qualify as a compensatory

tax, it must be shown by the State that payment of entry tax is a

reimbursement/ recompense for a quantifiable/ measurable benefit provided

or to be provided to its payers. The State has not furnished any data or details

whatsoever. States plea is that the levy is a new imposition is no answer. The

State has not even come up with any projection of any kind. Mr. Khaitan submitted that the burden of the levy falls entirely on

goods imported from outside the State. Goods manufactured or produced in

the State are not subject to the levy. Assuming for the sake of argument that

the proceeds of the levy shall be utilised for the development or facilitating the

trade, commerce and industry in the State, the entire burden thereof has to

be borne by the persons who import the goods into the State of West Bengal.

However, the benefit of any development or facilitation shall be enjoyed

equally by manufacturers/ producers in the State who do not have to make

any imports. The assumption of the State that every manufacturer/ producer

in the State makes imports is unfounded. It is submitted that in the said

scheme of things, where the entire burden of the levy falls upon the importers,

the tax is clearly discriminatory and cannot be said to be compensatory by

way of reimbursement/ recompense in so far as the importers are concerned.

Mr. Khaitant submitted that the impugned levy also constitutes an

unreasonable restriction on the right to carry on business guaranteed by

Article 19(1)(g) of the Constitution, and is violative of the said Article.

Mr. Khaitan submitted that Goods manufactured in the State are sold

not only within the State but also in the other States and are also exported



outside the country.

Mr. Khaitan submitted that all the States do not impose entry tax. If the

burden of the levy is taken into account, the cost of goods manufactured in West Bengal by using raw materials, plant, machinery, equipment, etc.

imported from outside the State would obviously be higher as compared to the

cost incurred by a similarly placed manufacturer/ producer in a State which

does not impose any entry tax. Thus, if the manufacturer/ producer in the

State of West Bengal were to pass on the burden of the levy as part of the

price Of his finished goods, his goods would become costlier aid

uncompetitive. Such a manufacturer/ producer faces the prospect of losing

his market outside the State.

Mr. Khaitan submitted that an importer-manufacturer in West Bengal

also stands to lose his market in other States which do not impose any entry

tax because buyers in such States would prefer to import their requirements

from outside the country without the burden of entry tax rather than buy

costlier goods manufactured/ produced in the State of West Bengal.

Mr. Khaitan submitted that Similar prospect of loss of market is faced

by a manufacturer/producer in the State who imports raw materials, plant,

machinery equipment, etc. and exports outside the country final products

manufactured by using the same. It has been the policy of the Government of

India to promote exports and towards that end, provisions have been made in

the tax laws and export promotion schemes have been formulated so that

export goods manufactured/ produced in the country are not burdened with

any tax levy. For example, advance import licences are issued so that raw



materials required for export production can be imported duty free. Even

indigenous raw materials can be procured duty-free. There are also special

schemes granting export benefits for exports to South East Asian countries.

Again, units located in Special Economic and/or Export Zones and/or 100%

Export Oriented Undertakings are not liable to pay any entry tax and enjoy a

distinct cost advantage. The object of all such provisions/ schemes made by

the Government of India is to ensure that Indian goods are competitively

priced and can stand in competition in the international market. It is

submitted that the levy under the Act is entirely counter-productive since it

makes the goods manufactured/ produced in the State of West Bengal by an

importer-manufacturer costlier and uncompetitive.

Mr. Khaitan submitted that thus, manufacturers/ producers in the

State of West Bengal who import raw materials, plant, machinery, equipment,

etc. from outside the State for their manufacture/ production activity face the

prospect of losing their business outside the State as also in the international

market and would ultimately have to shut down their manufacture/

production facilities in the State.

Counsel appearing for some of the other writ petitioners namely Mr.

Samit Talukdar and Mr. Moinak Bose adopted and elaborated on the

submissions made by Mr. Poddar, Mr. Kapur and Mr. Khaitan, and as such

their arguments are not separately recorded, to avoid repetition and prolixity. Mr. Bose cited International Tourist Corporation Vs. State of

Haryana reported in (1981) 2 SCC 318 and the judgement of the Division

Bench in Central Coalfields Ltd. Vs. the State of Jharkhand. Mr. Bose

further argued that a fee is compensatory if that particular fee improves the



flow of trade, and if so, it would be outside the purview of Article 301.

Mr. Abhratosh Mazumdar appearing on behalf of the State traced the

historical background leading to the incorporation of the Part XIII of the

Constitution of India. Mr. Mazumdar submitted that after India achieved

freedom in 1947, and before the Constitution was adopted, the process of

merger and integration of the Indian States with the rest of the country had

been accomplished, so that when the Constitution was first passed the

territory of India consisted of 'Part A' States, which broadly stated,

represented the provinces in British India, and 'Part B' States which were

made up of Indian States.

Mr. Mazumdar submitted that there were trade barriers raised by the

Indian States in exercise of their legislative powers and the Constitution-

makers had to make provisions with regard to those trade barriers as well.

The evolution of a federal structure or a quasi-federal structure necessitated

distribution of powers and basic part of our Constitution relates to that

distribution with the three legislative lists in the Seventh Schedule as noticed in Automobile Transport (Rajasthan) Ltd. Vs. State of Rajasthan reported

in (1963) 1 SCR 491.

The object of Part XIII was to maintain the economic unity of the nation.

Part XIII of the Constitution, which contains the provisions relating to trade,

commerce and intercourse within the territory of India. Article 301 of the

Constitution guarantees the freedom of trade, commerce and intercourse

embodies the Constitutional philosophy that the economic unity of the

country will provide the main sustaining force for the stability and progress of



the political and cultural unity of the country.

As observed by the Supreme Court in Atiabari (supra) the makers of

the Constitution had the occasion to consider the plinth and amplitude of

Section 297 of the Government of India Act, 1935, which read as follows:-

"297.(1) No Provincial Legislature or Government shall - (a) by virtue of the entry in the Provincial Legislative List relating to trade and commerce within the Province, or the entry in that List relating to the production, supply, and distribution of commodities, have power to pass any law or take any executive action prohibiting or restricting the entry into, or export from the Province of goods of any class or description; or

(b) by virtue of anything in this Act have power to impose any tax, cess, toll, or due which, as between goods manufactured or produced in the Province and similar goods not so manufactured or produced, discriminates in favour of the former, or which, in the case of goods manufactured or produced outside the Province, discriminates between goods manufactured or produced in one locality and similar goods manufactured or produced in another locality.

(2) Any law passed in contravention of this section shall, to the extent of the contravention, be invalid."

Mr. Mazumdar pointed out that the founding fathers of the Constitution

while incorporating commerce clause in Part XIII of the Constitution were also

inspired by commerce clause contained in Section 92 of the Australian

Constitution, which reads thus:-

"On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free."

In this historical milieu the makers of the Constitution having regard to

the economic unity and stability of the nation incorporated Part XIII in the

Constitution. Mr. Mazumdar referred to Articles 301, 302, 303 and 304 of the



Constitution of India.

In Atiabari (supra) the constitutionality of the Assam Taxation (on

Goods Carried by Roads or Indian Watherways) Act, (Assam Act 13 of 1954)

was the subject matter of challenge. The purpose of the Act was to levy taxes on certain goods carried by road or inland waterways in the State of Assam

including goods in transit.

The Supreme Court, inter alia held that the content of freedom provided

by Article 301 is larger than the freedom contemplated by Section 297 of the

Constitution Act of 1935. If the transport or the movement of goods is taxed

solely on the basis that the goods are thus carried or transported that directly

affects the freedom of trade as contemplated by Article 301.

The Supreme Court held in Atiabari (supra) that taxing laws are not

excluded from the operation of Article 301, which means that tax laws can

and do amount to restrictions freedom from which is guaranteed to trade

under Part XIII of the Constitution of India. The Supreme Court, however,

clarified that only taxes which directly and immediately restricted trade would

fall within the purview of Article 301. The Constitution Bench of the Supreme

Court followed the ratio laid down by Privy Council in Commonwealth of

Australia Vs. Bank of New South Wales wherein it was held in the context

of Section 92 of the Australian Constitution that regulation of trade,

commerce and intercourse among the State is compatible with its absolute

freedom, and that Section 92 is violated only when a legislative or executive

act operates to restrict such trade, commerce and intercourse directly and

immediately as distinct from creating some indirect or consequential



impediment which may fairly be regarded as remote. Mr. Mazumdar submitted that in Cole v Whitfield ("Tasmanian

Lobster case") [1988] HCA 18; (1988) 165 CLR 360; (1988) 78 ALR 42;

(1988) 62 ALJR 303, the Full Bench of the High Court of Australia revisited

the law laid down in Commonwealth of Australia -v- Bank of New South

Wales (Banking case), which propounded the theory of direct and immediate

restriction on trade and commerce and formed the sheet anchor of the

judgement in Atiabari (supra) and held that the doctrine of "direct and

immediate effect" is highly artificial.

It appears that the judgement in Atiabari (supra) has been referred for

reconstruction to a Larger Bench. However, no decision has yet been taken by

the Larger Bench. The law laid down in Atiabari (supra) is binding on this

Court and this Court cannot take any contrary view only because a foreign

judgement relied upon in Atiabari (supra) has been reversed.

Mr. Mazumdar argued that the ration laid down in Atiabari (supra)

was revisited by Seven Judges Constitution Bench in Automobile Transport

(supra). The Constitution Bench judicially evolved the concept of

compensatory and/or regulatory taxes as exception to Article 301. Mr.

Mazumdar submitted that the ratio laid down in Automobile Transport

(supra) can be culled out as follows:- "(a.) The conception of freedom of trade, commerce andintercourse in a community regulated by law presupposes somedegree of restriction upon the individual, that freedom mustnecessarily be delimited by considerations of social orderliness.

(b) The collection of a toll or a tax for the use of a road or for theuse of a bridge or for the use of aerodrome is no barrier or burdenor deterrent to traders who, in their absence, may have to take a



longer or less convenient or more expensive route. Suchcompensatory taxes are no hindrance to anybody's freedom solong as they remain reasonable.

(c) For the tax to become a prohibited tax it has to be a directtax the effect of which is to hinder the movement part of trade. Solong as a tax remains compensatory or regulatory it cannotoperate as hindrance.

(d) Regulatory measures which do not impede the freedom oftrade, commerce and intercourse and compensatory taxes for theuse of trading facilities are not hit by the freedom declared byArticle 301. They are excluded from the purview of the provisionsof Part XIII of the Constitution for the simple reason that they donot hamper trade, commerce and intercourse but rather facilitatethem.

(e) Regulatory measures or measures imposing compensatorytaxes for the use of trading facilities do not come within thepurview of the restrictions contemplated by Article 301 and suchmeasures need not comply with the requirements of the proviso toArticle 304(b) of the Constitution. (f) The taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in a good state of repairs. Whether a tax is compensatory or not cannot be made to depend on the preamble of the statute imposing it. it would not be right to say that a tax is not compensatory because the precise or specific amount collected is not actually used in providing any facilities.

(g) A working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of a tax by a meticulous test, and in the nature of things that cannot be done.

(h) Creation of separate fund would not be necessary. The Constitution Bench held that-

"Nor do we think that it will make any difference that the money collected from the tax is not put into a separate fund so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may be."



The issue of compensatory tax is a judicially crafted exception to Article

301 came up for consideration before the Hon'ble Supreme Court in the

matter of Jindal Strips Vs. State of Haryana reported in (2003) 8 SCC 60 (Jindal 1). The Supreme Court referred the matter to a Constitution Bench

with the following observations:-

"Since the concept of compensatory tax has been judicially evolved as any exception to the provisions of Article 301 and as the parameters of this judicial concept are blurred particularly by reason of the decisions in Bhagat Ram (supra) and Bihar Chamber of Commerce (supra), we are of the view that the interpretation of Article 301 vis-Ã -vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench under Article 145."

In Jindal Stainless Vs. State of Haryana reported in (2006) 7 SCC

241 (Jindal) the Supreme Court enunciated the following judicial principles

with regard to the interpretation of Article 301 vis-Ã -vis the concept of

compensatory tax:-

"(i) Taxing laws are not excluded from the operation of Article 301, which means tax laws do amount to restriction as held in Atiabari (supra). It has to be examined whether such tax laws directly and immediately restricts trade and commerce. (paragraphs 6 & 47).

(ii) Compensatory taxes constitute an exception to Article 301. It is a judicially evolved concept in Automobile Transport case as a part of regulatory charge. (paragraphs 31). (iii) Whenever any law is impugned as violative of Article 301,the Courts will have to examine the effect of the operation of theimpugned law on the inter-State and the intra-State movement ofgoods, which movement constitutes an integral part of trade.(paragraphs 47).

(iv) For a tax to be compensatory, there must be some link



between the quantum of tax and the facility/services. (paragraphs42).

(v) In the context of Article 301, therefore, compensatory tax isa compulsory contribution levied broadly in proportion to thespecial benefits derived to defray the costs of regulation or to meetthe outlay incurred for some special advantage to trade, commerceand intercourse. (paragraphs 43).

(vi) Such compensatory tax may incidentally bring in net-revenue to the government but that circumstance is not anessential ingredient of compensatory tax. (paragraphs 43).

(vii) The act, impugned as being violative of Article 301 of theConstitution of India, must facially indicate the benefit which isquantifiable or measurable. It must broadly indicateproportionality to the quantifiable benefit. (paragraphs 46).

(viii) If the provisions are ambiguous or even if the Act does notindicate facially the quantifiable benefit, the burden will be on theState as a service/facility provider to show by placing the materialbefore the Court, that the payment of compensatory tax is areimbursement/recompense for the quantifiable/measurablebenefit provided or to be provided to its payer. (paragraphs 46). (ix) The working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities as held by the Constitution Bench in Automobile Transport case. (paragraphs 49).

(x) The doctrine of 'direct and immediate effect' of a law on trade and commerce under Article 301 as propounded in Atiabari (supra) and the working test enunciated in Automobile Transport (supra) for deciding whether a tax is compensatory or not vide paragraph 19 of the Report (AIR), would continue to apply and the test of 'some connection' indicated in paragraph 8 (of SCC) of the judgment in Bhagatram Rajeevkumar (surpa) and followed in

State of Bihar v. Bihar Chamber of Commerce (supra) was in the opinion of the Constitution Bench not good law. (paragraphs 53).

(xi) The constitutional validity of various local enactments, which were the subject matters of pending appeals, special leave petitions and writ petitions, were directed to be disposed of in the light of this judgement. (paragraphs 53)."



Mr. Mazumdar appearing on behalf of the State submitted that there

could be no doubt that Article 301 guaranteed free trade, commerce and

intercourse throughout the territory of India. Mr. Mazumdar also agreed that

the question of whether a tax on movement of goods would amount to

restriction of free trade, commerce and intercourse guaranteed by Article 301 is no longer open in view of the judgements of the Supreme Court in Atia

Bari Tea Company Limited Vs. State of Assam (supra), Automobile

Transport (Rajasthan) Limited Vs. State of Rajasthan (supra), Jindal

Stainless Steel Ltd. (supra) and numerous other judgements of the

Supreme Court and different High Courts many of which have been cited on

behalf of the respective writ petitions.

Mr. Mazumdar could not dispute that a tax of any kind that related to

movement of goods from one part of the territory of India to another would

amount to a restriction on the right to free trade, commerce and intercourse

throughout the territory of India guaranteed by Article 301. Mr. Mazumdar,

however, argued that the tax imposed by the impugned Entry Tax Act being a

compensatory tax, it was outside the purview of Article 301 of the

Constitution of India. Mr. Mazumdar emphatically argued that the proposition

that a compensatory tax would not impede free flow of trade, commerce and

intercourse and would not offend Article 301 of the Constitution of India, as

evolved in Automobile Transport (Rajasthan) Ltd. and confirmed in Jindal

Stainless Steel Ltd. (supra) was well established. There was, thus, no

requirement for prior Presidential sanction before passing of the impugned

Entry Tax Act.



Mr. Mazumdar argued that impugned Entry Tax Act itself provides for

creation of a compensatory Entry Tax Fund for deposit and utilization of the proceeds of Entry Tax realized under the impugned Entry Tax Act for

facilitating trade and commerce. Mr. Mazumdar referred to the various Sub-

sections of Section 18 where the purposes for which the proceeds of Entry Tax

are to be utilized have been enumerated. Mr. Mazumdar emphatically argued

that the services and/or facilitate set forth in Section 18 of the impugned

Entry Tax Act facilitate trade and commerce. The purposes stipulated are only

illustrative and not exhaustive.

Mr. Mazumdar argued that the purposes specified in Section 18 of the

impugned Entry Tax Act are intrinsically linked with the development of trade

and commerce. The residuary purpose in Section 18(1)(h) has to be read in

the light of the other specific purposes, by applying the principle of an

ejusdemgeneris. Mr. Mazumdar argued that Sections 9 and 20 of the

impugned Entry Tax Act read with the West Bengal Compensatory Entry Tax

Fund Rules, 2012, hereinafter referred to as the 'Compensatory Fund Rules',

notified on 24th July, 2012 vests the Accountant General of West Bengal with

the authority to manage the Compensatory Fund.

Mr. Mazumdar submitted that the proceeds of the levy of Entry Tax

under the impugned Entry Tax Act are wholly to be utilized for the purposes

of adumbrated in Section 18 of the impugned Entry Tax Act. Thus, the

impugned Entry Tax Act satisfies the working test of a compensatory tax as

enunciated in Automobile Transport (Rajasthan) Limited (Supra). Mr. Mazumdar pointed out that in Jindal Stainless Steel Ltd. 2

(supra) the Constitutional Bench decided the questions of law referred to it.

The various pending appeals were, however directed to be remanded to the



respective High Courts for hearing and adjudication in the light of the

principles enunciated in Jindal Stainless Ltd. 2 (supra) by an order

reported in 2006 (7) SCC 271.

Mr. Mazumdar pointed out that pursuant to the directions of the

Supreme Court in Jindal (3) various appeals pending in the Supreme Court

were remanded to the High Courts for adjudication in the light of the law as

enunciated in Jindal Stainless Steel Ltd. (Supra). Unlike in the instant

case, where the impugned Entry Tax Act specifies the purposes for which the

proceeds of the levy of entry tax might be utilized the encasements which were

struck down as ultra vires could not show that the proceeds would be utilized

for facilitating trade development. After the judgement of the Supreme Court

in Jindal Stainless Steel Ltd. (Supra) the various states enacted statues,

enacted validation Act and effected amendments to existing Acts to bring

similar compliance with the law as enunciated in Jindal Stainless Steel Ltd.

(Supra). Most of these Enactments /Validation Acts/Amendments have been

upheld by different High Courts. Mr. Mazumdar submitted that no data was required to be submitted in

the instant case since, the impugned Entry Tax is facially and patently

compensatory as earlier argued. In terms of the judgement of the Supreme

Court in Jindal (3) only those states in which the impugned encactments

were in operation for more than one financial year were required to furnish

data. The impugned Entry Tax being in a nascent stage it was not possible to

furnish data until and unless the tax was realized.

Referring to Automobile Transport (Rajasthan) Limited (supra) Mr.

Mazumdar submitted that it was immaterial that the proceeds of the tax



would be deposed in the Consolidated Fund of the State. In Automobile

Transport (Rajasthan) Limited (supra) the Supreme Court, in fact, held that

the creation of separate fund was not necessary and deposit of proceeds in the

Consolidated Fund would not vitiate the levy. Mr. Mazumdar submitted that

the levy was not discriminatory.

Mr. Mazumdar further argued that the impugned Entry Tax Act

provides for uniform, non-discriminatory rate of taxation in respect of all

goods brought from outside the State and goods manufactured/produced

locally and therefor in compliance with Article 304(a) of the Constitution of

India. In support of his submission Mr. Mazumdar cited the following

judgements:- (i) State of Madras Vs. Nataraja Mudaliar reported in AIR 1969 SC 147;

(ii) Rattan Lal & Co. Vs. Assessing Authority, Patiala reported in AIR 1970 SC 1742;

(iii) M/s Associated Tanners. Vizianagaram, Andhra Pradesh Vs. Commercial Tax Officer, Vizianagaram, Andhra Pradesh And Ors. reported in (1986) 2 SCC 479;

The aforesaid judgements cited by Mr. Mazumdar are not, however,

relevant since those judgements pertain to sales tax and other taxes which do

not directly affect movement of goods and, therefore, did not hit Article 301 of

the Constitution of India. It is immaterial that the rate of tax which is 1%, is

reasonable, as submitted by Mr. Mazumdar. It is also immaterial that the

goods are subjected to Entry Tax only once and that finished products cannot

be subjected to Entry Tax if Entry Tax has been paid on raw materials.



Mr. Mazumdar finally argued that Article 286 is not applicable to the

impugned tax on entry of goods into local Areas for consumption or use

therein under Entry 52, List II of the Seventh Schedule. Only the power to tax,

sales are subject to the restrictions of Article 286. Imposition of Entry Tax

under the impugned Act does not tantamount to tax on sale. Mr. Mazumdar

submitted once the goods are cleared from warehouse the importation is

complete. Applying the principles of law enunciated by the Supreme Court in Automobile

Transport (Rajasthan) Ltd. (supra) as reiterated in Jindal Stainless Steel Ltd. (supra).

Distinguishing the judgments of the various High Court in R. Gandhi

Vs. State of Tamilnadu (supra); Thressiamma L. Chirayil Vs. State of

Kerala & Anr. (supra); ITC Limited Vs. State of Tamil Nadu & Ors.

(supra); Jindal Strips Ltd. & Anr. Vs. State of Haryana & Ors. (supra);

Bharat Earth Movers Ltd. Vs. State of Karnataka (supra); Tata Steel

Limited Vs. State of Jharkhand & Ors. (supra); National Aluminium Co.

Ltd. Vs. State of Orissa & Ors. (supra); Dinesh Pouches Ltd. Vs. State of

Rajasthan (supra); Indian Oil Corporation Ltd. Vs. State of U.P. (supra);

cited by Mr. Poddar and Mr. Kapur, Mr. Mazumdar argued that the

enactments impugned in the aforesaid cases, did not facially indicate that the

tax imposed was 'compensatory', as in the case of the impugned Entry Tax

Act. Unlike the impugned Entry, the enactments impugned in those cases did

not spell out the purposes for which the proceeds of the levy could be utilized.

Mr. Mazumdar argued that the trend of the decisions of the various

High Courts, after pronouncement of the judgement in Jindal Stainless Ltd.



(supra) show that existing enactments for imposition of taxes on movement of

goods, which did not facially indicate the corresponding advantages to the

taxpayers, as a class, were mostly set aside but post Jindal Stainless Ltd. (2) enactments and/or amendments where the purposes for which the

proceeds of the levy could be utilized were mostly upheld.

Mr. Mazumdar submitted that the impugned Entry Tax Act provided for

the imposition of a levy which is compensatory, to be used for purposes

specified therein, by creation of a compensatory Entry Tax Fund, which would

facilitate trade and commerce in the State.

In support of his submission that the impugned Entry Tax Act should

be construed as compensatory, Mr. Mazumdar cited the following judgements.

10 VST 140; Godfrey Philips India Ltd. Vs. State of Madhya Pradesh &

Ors. reported in (2008) 17 VST 467 (M.P.), 21 VST 76; Steel Authority of

India Ltd. Vs. The State of Chhattisgarh reported in 45 VST 483;

Municipal Academy of Higher Education Vs. State of Karnataka reported

in (2008) 13 VST 377 (Karnataka); 48 VST 28.

The parliament and the State Legislatures derive their power to legislate

from inter alia the provisions of Part XI of the Constitution of India, and in

particular Article 246 contained in the said part, which provides as follows:-

"246. Subject-matter of laws made by Parliament and by the Legislatures of States. - (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the "Union List"). (2) Notwithstanding anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated



in List III in the Seventh Schedule (in this Constitution referred to as the "Concurrent List"). (3) Subject to clause (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the 'State List'). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included [in a State] notwithstanding that such matter is a matter enumerated in the State List."

Article 246 demarcates the legislative fields of Parliament and the

Legislatures of States. While the Parliament has exclusive power to make laws

in respect of any of the matters enumerated in List I of the Seventh Schedule

of the Constitution, the State Legislatures have exclusive power to make laws

in respect of any of the matters enumerated in List II of the Seventh Schedule.

In respect of matters enumerated in List III of the Seventh Schedule, which is

the Concurrent List, both Parliament and the Legislatures of States have

power to legislate. Entry 52 of List II in the Seventh Schedule empowers the State

Legislature to enact laws with regard to taxes on entry of goods into a local

area for consumption, use or sale therein. The power to enact a law imposing

a tax on the entry of goods into local areas, for consumption or for sale or for

use in those areas, can only be exercised by the State Legislature.

The power of Parliament and Legislatures to enact laws is subject to the

other provisions of the Constitution of India including in particular Chapter III

of the Constitution of India relating to fundamental rights and Part XIII of the

Constitution of India which guarantees freedom of trade, commerce and

intercourse anywhere within the territory of India.



Articles 286(1) and (2) of the Constitution provide as follows:-

"286. Restrictions as to imposition of tax on the sale or purchase of goods.- (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). Parliament alone has the power to enact laws in respect of trade and

commerce with foreign countries, Inter-State trade and commerce and duties

of customs on import and export. The relevant entries in this regard are

Entries 41, 42 and 83 of List I. Entry 41 of List I relates to "trade and

commerce with foreign countries; import and export across customs frontiers;

definition of customs frontiers". Entry 42 of List I relates to Inter-State trade

and Commerce" and Entry 83 of List I relates to "duties of customs including

export duties".

Article 286(1)(b) of the Constitution clearly provides that no law of a

State shall impose or authorise the imposition of a tax on the sale or purchase

of goods where such sale or purchase takes place outside the State, or in the

course of import of goods into or export of goods out of the territory of India."

There can, therefore, be no doubt that no State tax can be imposed on

'sale' or 'purchase' of goods, where sale or purchase takes place in course of

import of goods into or export of goods out of India. However, the question is

whether the impugned Entry Tax Act in so far as the same purports to impose

a tax on entry of goods imported from abroad into local areas, for

consumption use or sale therein is violative of Article 286(1)(b) of the



Constitution of India as emphatically argued by Mr. Kapur. 'Tax on the sale or purchase of goods' has been defined in Article 366

(29-A) of the Constitution of India, set out hereinbelow:-

"366(29A) Tax on the sale or purchase of goods" includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in the some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or othervaluable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;"

The definition of 'tax on the sale or purchase of goods' in Article

366(29A) of the Constiuttion is indeed extermely wide, as argued by Mr. Kapur, but in my view, not wide enough to include tax on entry of goods into

a local area, which is covered by Entry 52 of List II.

In Godfrey Phillips India Ltd. (supra), cited by Mr. Kapur, the

Constitution Bench of the Supreme Court held:-

67. However, while widening the scope of Entry 54 of List II, the powers of the States to levy such tax are subjected to a corresponding restriction as a consequence of the constitutional curbs imposed on sales tax under Article 286 read with Sections 14 and 15 of the Central Sales Tax Act, 1956 and the ADE Act, 1957. The tax leviable by virtue of sub-clause (a) of clause (29-A) of Article 366 of the Constitution thus becomes subject to the same discipline to .which any levy under Entry 54 of the State List is made subject to under the Constitution. The Position is the same when we look at Article 286 of the Constitution. If any declared goods which are



referred to in Section 14 of the Central Sales Tax Act, 1956 are involved in such transfer, supply or delivery, which is referred to in clause (29-A) of Article 366, the sales tax law of a State which provides for levy of sales tax thereon will have to comply with the restrictions mentioned in Section 15 of the Central Sales Tax Act, 1956.

68. No State can therefore by describing an item as a luxury, seek to levy tax on its supply. It cannot be disputed that as far as U.P. and A.P. are concerned, were it not for their interpretation of Entry 62 of List II, the tax would be referable only to Entry 54 List II. If Entry 62 List II does not allow the taxation of goods, the levy would not be constitutionally sustainable. 69. In our opinion, to read Entry 62 List II as including articles of luxury cannot allow all these constitutional restrictions to be bypassed allowing States to levy tax on the supply of goods by describing them as luxury goods. As has been rightly contended by Mr Parasaran appearing for the Union of India, the supply of luxury is nothing but the supply of goods since the goods themselves constitute the luxury"

"93. Given the language of Entry 62 and the legislative history we hold that Entry 62 of the List II does not permit the levy of tax on goods or articles. In our judgment, the word "luxuries" in the entry refers to activities of indulgence, enjoyment or pleasure. Inasmuch as none of the impugned statues seek to tax any activity and admittedly seek to tax goods described as luxury goods, they must be and are declared to be legislatively incompetent."

In Godfrey Phillips India Ltd. (supra) the Constitution Bench of the

Supreme Court was not concerned with imposition of any tax on entry of

goods into local areas, in exercise of legislative power under Entry 52 of List II

but with legislative power under Entries 54 and 62 of List II of the Seventh

Schedule to the constitution, which respectively dealt with taxes on sale and

purchase of goods and taxes on luxuries including entertainment amusement

etc. The Supreme Court found that the word 'luxuries' in Entry 62 of List II

referred to activities of indulgence, enjoyment or pleasure, and did not permit

levy of tax on goods or articles by describing the same as luxury goods, as had

been done by the State of Uttar Pradesh. The tax on luxury articles was held



to be referable to Entry 54 of List II, which empowered the State to enact law on sale of goods subject to the provisions of Entry 92A of List I of the Seventh

Schedule, and thus violative of Article 286(a)(b) of the Constiuttion.

In Godfrey Phillips India Ltd. (supra), the Supreme Court held that

"taxing entries must be construed with clarity and precision so as to maintain

exclusivity, and a construction of a taxation entry which may lead to

overlapping must be eschewed". Thus, where an entry describes the object of

a tax, "all taxable funds pertaining to the object are within that field of

legislation unless the fund is specifically provided for elsewhere under a

different head".

Mr. Avrotosh Mazumdar appearing on behalf of the State cited the

judgement of the Supreme Court in J.V. Gokal & Co. Pvt. Ltd. Vs. Assistant

Collector of Sales Tax (Inspection), reported in (1960) 11 STC 186 (SC)

where the Supreme Court held :-

"What does the phrase "in the course of the import of the goods into the territory of India" convey? The crucial words of the phrase are "import" and "in the course of". To import goods into the territory of India Therefore means to bring into the territory of India goods from abroad. The words 'course' means "progress from one point to point". The course of import, therefore, starts from one point and ends at another. It starts when the goods cross the customs barrier in a foreign country and ends when they cross the customs barrier in the importing Country." In Kiran Spinning Mills Vs. Collector of Customs reported in 1999

(113) ELT 753 (SC) cited by Mr. Mazumdar the Supreme Court held:-

"Attractive, as the argument is, we are afraid that we do not find any merit in the same. It has now been held by this court in

Hyderabad Industries Ltd. and Anr. v. Union of India and Others [1999 (108) E.L.T. 321 (SC) = JT 1999 (4) SC 95] that for the purpose of levy of additional duty Section 3 of the Tariff Act is a charging section. Section 3 sub-section 96) makes the provision of the Customs Act applicable. This would bring into play the provisions of Section 15 of the Customs Act which, inter alia, provides that the rate of duty which will be payable would be on the day when the



goods are removed from the bonded warehouse. That apart, this Court has held in Sea Customs Act, SCR at p. 803 that in the case of duty of customs the taxable event is the import of goods within the customs barriers. In other words, the taxable event occurs when the customs barriers is crossed. In the case of goods which are in the warehouse the customs barriers would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country...."

Mr. Mazumdar referred to recent judgement of the Division Bench of

Orissa High Court in the case of Tata Steel Ltd. [W.P.(C) 15519 of 2010]

reported in 58 VST 484 heard along with various other writ petitions. The

question in issue in the aforesaid writ applications was, whether Entry Tax

under the Orissa Entry Tax Act, 1999 could be levied on goods imported by

the petitioners from outside the country. The High Court held that the

enactment of law, in exercise of the power of the State Legislature under Entry 52 of the List II of the Seventh Schedule for imposition of entry tax on goods

purchased from outside the country, would not violate Article 286 of the

Constitution.

The Orissa High Court distinguishing the judgement of the

Supreme Court in Godfrey Phillips India Ltd. Vs. State of Uttar

Pradesh (supra) held that in case of entry tax the taxable event was

entry of goods into the local area whereas in case of customs duty the

taxable event was on import of the goods into territory of India.

In Primus Imaging Pvt. Ltd. Vs. State of Assam cited by Mr.

Mazumdar reported in (2007) 9 VST 528 the Gauhati High Court held:-

"From a reading of Article 286 of the Constitution, it becomes clear that this article does not permit States to levy tax on the sale or purchase of goods, which takes place in the course of import into, or export out of the territory of India. The restriction, imposed on the State, is, thus, in respect of levy of tax on the sale or purchase of



goods, which takes place in the course of import into, or export out of, the territory of India. The power to levy sales tax is derived from entry 54 of List II of the Seventh Schedule to the Constitution of India; whereas the power to levy entry tax is derived by entry 52 of the List II of the Seventh Schedule to the Constitution. Under entry 54, the point of levy is purchase or sale, but under entry 52, the point of levy is the point of entry into a local area. Therefore, taxable event under the Entry Tax Act is entry of specific goods into a local area for consumption, use or sale therein. Viewed thus, it is clear that levy of tax on sale or purchase, on the one hand, and the levy of tax on entry of goods into a local area, on the other, are covered by different entries in the Constitution and the incidence of taxation in both the cases is different. The restriction, imposed by article 286(1)(b) of the Constitution, is in respect of the levy of tax on sale or purchase of goods and not as regards entry of the goods into a local area for consumption, use or sale therein and, hence, the contention of the petitioners that levy of entry tax on goods imported from outside the State is hit by article 286(1)(b) of the Constitution of India has no force and is misconceived......"

In Gulabdas Jagannath Vs. The State of Rajasthan reported in

AIR 1995 Rajasthan 225 cited by Mr. Mazumdar the imposition of

Octroi Duty levied under Entry 52 of List II of the Seventh Schedule to

the Constitution on goods imported from outside the country, was held

to be valid.

In William Fernandez Vs. State of Kerala reported in (1999) 115

STC 591 (Ker) cited by Mr. Kapur the Kerala High Court found that the

impugned Act did not impose any tax on goods imported from outside the

country. The High Court, thus, held that the limitations in Article 286 had not

been surmounted and as such the Act was inapplicable to the appellants, who

had imported vehicles from abroad. The judgment has no relevance to the

issue of whether imposition of a tax on entry of imported goods into a local area for consumption use, or sale therein, contravenes Article 286 of the

Constitution.



Entry 52 of List II relating to taxes on the entry of goods into a local

area for consumption, use or sale therein, is distinct from Entry 26 of the said

list relating to trade and commerce within the State, subject to Entry 33 of

List III, Entry 27 relating to production, supply and distribution of goods and

Entry 54 relating to sale and purchase of goods.

Tax on entry of goods into local areas for consumption use or sale

therein, imposed in exercise of legislative power under Entry 52 of List II, is

distinct from tax on trade and commerce with foreign countries, import and

export across customs frontiers, inter-state trade and commerce, taxes on

sale or purchase goods or taxes on consignment of goods etc in course of

inter-state trade or commerce and sale or purchase of newspapers etc.

covered by Entries 41, 42, 92, 92A, 92B of List I of the Seventh Schedule to

the Constitution of India. While import takes place as soon as the goods cross

into the Indian customs territory, in case of Entry Tax, the taxable event is

the entry into the local area after coming out of the customs area. Tax on

entry of goods cannot be equated to tax on sale or purchase and is, therefore,

not hit by Article 286(1)(b) of the Constitution. Articles 301, 302, 303 and 304 of the Constitution of India, relevant in

the context of the challenge to the impugned Entry Tax Act, are set out

hereinbelow for convenience:-

"301. Freedom of trade, commerce and intercourse. - Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.

302. Power of Parliament to impose restrictions on trade, commerce and intercourse.- Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest.



303. Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce.- (1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. (2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. 304. Restrictions on trade, commerce and intercourse among States.- Notwithstanding anything in article 301, the Legislature of a State may by law- (a) impose on goods imported from other States [or the Union territories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President."

Article 301 in Part XIII of the Constitution guarantees free trade,

commerce and intercourse, throughout the territory of India, subject,

however, to the other provisions of Part XIII of the Constitution. The

Constitution makers have, in their wisdom, made the absolute freedom of

trade, commerce and intercourse throughout the territory of India,

guaranteed under Article 301, subject only to the other provisions of Part XIII,

that is, subject to Articles 302 to 307 of the Constitution, but not any other

provision of the Constitution of India.

Article 302 enables the Parliament to impose by law, such restrictions

on the freedom of trade commerce or intercourse between one state and



another, or within any part of the territory of India, as may be required in public interest. Thus, Parliament might enact law imposing such restrictions

on the freedom of trade, commerce or intercourse between one State and

another, or within any part of the territory of India, as may be required in

public interest. However, the power under Article 302 of the Constitution to

impose restrictions is conditional, the condition precedent for exercise of such

power being the requirement to impose the restrictions, in public interest and

this power can only be exercised by Parliament and not the State Legislatures.

The power of Parliament under Article 302, to impose by law, restrictions on

free trade, commerce and intercourse in public interest, is subject to the other

provisions of the Constitution including in particular Article 303 thereof.

Article 303 of the Constitution imposes a complete embargo on the

enactment of any law, either by the Parliament or by any State Legislature,

that either gives, or authorizes the giving of any preference to one State over

another, or makes or authorizes discrimination between one State and

another, by virtue of any entry relating to trade and commerce, in any of the

Lists in the Seventh Schedule. Any law which either gives or allows preference

to or discrimination against a State in matters relating to trade, commerce

and intercourse is liable to be struck down as violative of Article 303 of the

Constitution. However, in exceptional circumstances, for the sole purpose of

preventing the scarcity of goods in any part of the territory of India,

Parliament might by law give preference to or authorize discrimination against

any State, provided the law declares that such preference and/or discrimination is necessary for dealing with a situation, arising from the

scarcity of goods in some part of India.

The impugned Entry Tax Act has also been attacked as violative of



Article 303 and 304(a) of the Constitution of India, on the ground of

discrimination between States and discrimination between goods which enter

into a local area from another area within the State and those which enter the

local area from outside the State which are liable to tax.

In ITC Limited Vs. State of Tamil Nadu & Ors (supra) the Division

Bench of Madras High Court found that the impugned legislation was

discriminatory, since Entry Tax was only levied on goods imported into the

State of Tamil Nadu from outside the State, for consumption, use or sale

within the State. The Division Bench found that goods which were produced

or obtained within the State did not attract any Entry Tax at all, on their entry

into a local area within the State. The Division Bench, thus, held that the

impugned legislation was violative of Article 303(1) of the Constitution of India

in that it discriminated against States and/or gave preference to the State of

Tamil Nadu.

In Bharat Earth Movers Ltd. Vs. State of Karnataka (supra) the validity

of the Karnataka Special Tax on Entry of Certain Goods Act, 2004 was challenged before the Karanataka High Court. The Karnataka High Court

observed:-

"......We also notice, the State is also discriminating between traders who bring goods from outside the State or country to a local area as defined under section 2(1)(h) read with section 2(1)(d) and person who brings goods from an area within the State to a local area in the State. Facts

would indicate that on the introduction of entry tax, manufacturers have opted to purchase rawmaterials from within the State because they are less costlier since the levy of entry tax has definitelycreated a tax barrier affecting the free-flow of trade, commerce and intercourse, such a tax violatesarticle 301 of the Constitution and therefore liable to be declared as unconstitutional. The apex courtin Vijayalashmi Rice Mill's case [2006] 147 STC 609; [2006] 6 SCC 763 held that even in the case ofimposing cess for providing facilities like roads, bridges and storage facilities in rural areas, there



must be a broad correlation between the fee being realised and the services rendered, even fortraders who do their business in the State of Andhra Pradesh. Entry tax in Kerala, it may be noticed,is being collected only from persons who bring goods from outside the State while persons withinthe State are not burdened with the levy which is discriminatory and violative of article 14 of theConstitution of India. The decision in Rajan's case [2003] 133 STC 598 (Ker); [1995] 2 KLT 369, inour view, is contrary to the principle laid down by the apex court in Jindal's case [2006] 145 STC544 (SC); [2006] 7 SCC 241 and Vijayalashmi Rice Mill's case [2006] 147 STC 609; [2006] 6 SCC763 and is no longer good law."

In West Bengal Hosiery Association & Ors. Vs. State of Bihar & Ors. reported in (1988) 4 SCC 134,cited by Mr. Poddar, the Supreme Court held that Notification No.SO934 dated 1st August, 1984exempting hosiery industries in Bihar from the levy of sales tax was discriminatory and violative ofArticle 301 read with Article 304(a) of the Constitution of India.

In Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & Kashmir reported in (1996) 11 SCC 39, cited byMr. Poddar, the Supreme Court held that the power of the States to levy sales tax on goods importedfrom other States/union territories cannot be exercised to effect discrimination between importedgoods and similar goods manufactured or produced locally.

Article 303 provides that neither the Parliament nor the Legislature of a State shall have the powerto make any law giving or authorising the giving of any preference to one State over another, ormaking or authorising the making of any discrimination between State and another, by virtue of anyentry relating to trade and commerce in any of the Lists in the Seventh Schedule.

Entry Tax is not levied under any entry relating to trade or commerce in any of the List in theSeventh Schedule. There is a distinct entry relating to Entry Tax i.e. Entry 52 of List II as observedhereinabove. The judgements of the Supreme Court in West Bengal Hosiery Association & Ors. Vs.State of Bihar & Ors. (supra) and Sri Mahavir Oil Mills & Ors. Vs. State of Jammu & Kashmir(supra) relate to entries regarding sale or purchase and/or trade or commerce.

Article 304(a) enables the legislature of a State to impose on goods imported from other State orUnion Territories, any tax to which similar goods manufactured or produced in that State aresubject, so that there is no discrimination between goods so manufactured or produced in the Stateand those brought from outside the State.

The condition precedent for exercise of power by the State Legislature, to enact a law under Article304(a) of the Constitution of India is (i) similar goods manufactured or produced in the State shouldbe subject to tax; (ii) there should be no such tax and/or tax at lower rate on the goods in theState/Union territory from which the goods are imported; and (iii) the object of the impositionshould be to prevent discrimination between imported goods and similar goods manufactured orproduced within the State.

To cite an example, if the Excise Duty on wines liqueurs and other alcoholic beverages is lower in theneighbouring State of Sikkim, than in the State of West Bengal, or if there is no excise duty at all in



Sikkim on wines, liqueurs and other alcoholic beverages, it would be permissible for the WestBengal State Legislature to impose a tax that covers the difference in the excise duty, in exercise ofpower under Article 304(a) of the Constitution, to prevent discrimination in the State of WestBengal between wines liqueurs and other alcoholic beverages produced in West Bengal and those ofsimilar quality imported from Sikkim, which would sell cheaper and thus affect adversely the marketfor locally produced wines, liqueurs and other alcoholic beverages.

The object of the Entry Tax Act, as stated in its preamble is to provide for levy and collection of taxeson the entry of certain goods into a local area of the State of West Bengal, for consumption use orsale therein and to provide for matters connected therewith, or incidental thereto, for the purpose ofcreating a Compensatory Entry Tax Fund.

From the preamble to the impugned Entry Tax Act, as well as its recital, which is almost a verbatimreproduction of the preamble, it is patently clear that the Entry Tax Act has not been enacted inexercise of power under Article 304(a) of the Constitution. This is also evident from the otherprovisions of the impugned Entry Tax Act, apart from its preamble and recital, particularly, thecharging Section, that is, Section 4, in terms whereof a uniform tax is leviable on goods entering intolocal areas, irrespective of the State or Union Territory from which the goods originate, andirrespective of the prevalent duties and taxes on similar goods at the place from which the goodsoriginate.

Section 4(2) of the impugned Entry Tax Act empowers the State Government, by notification, tospecify the rate of tax to be levied under the impugned Entry Tax Act, which is not to exceed 5%when such tax is levied on the taxable turnover of imports, and different rate or rates of tax may bespecified, in respect of different specified goods, or for the different categories of consumption oruse or sale of such specified goods, or for different local areas. The State Government is notauthorized to fix different rates depending on the place of origin of the goods, taking into accountthe prevalent rates of various applicable taxes in that place. The impugned Entry Tax Act is notprotected by Article 304(a) of the Constitution.

Under Article 304(b), a State Legislature may impose such reasonable restrictions on the freedom oftrade, commerce or intercourse with or within that State, as may be required in public interest.However, no Bill or amendment to impose restrictions on the freedom of trade, commerce orintercourse, with or within the State, is to be introduced or moved in the Legislature of a State,without the previous sanction of the President of India, even though the same may be in publicinterest. In this case admittedly the Bill was introduced without the previous sanction of thePresident of India.

It is true, that a Five Judge Bench of the Supreme Court has referred the issue of whether Article304(a) and 304(b) of the Constitution are conjunctive or disjunctive, to a larger Bench, as pointedout by Mr. Mazumdar. However, there is no order of the Supreme Court, of stay of proceedings, inwhich the aforesaid issue may be of relevance.



There is no authoritative pronouncement of the larger Bench of the Supreme Court, on the issue ofwhether Clause (a) and Clause (b) of the impugned Entry Tax Act are disjunctive or conjunctive.Having regard to the language and tenor of the proviso to Article 301(b), which provides that no Billor amendment for the purposes of Clause (b) shall be introduced or moved in the Legislature of aState, without previous sanction of the President, this Court is of the view that clauses (a) and (b) ofArticle 304 of the Constitution, are to be construed as disjunctive.

Had Clauses (a) and (b) of Article 304 been intended to be conjunctive, legislation in relation to thepurposes of Clause (b) alone, would not have been subject to the specific restriction of previoussanction of the President. The Constitution makers have, in their wisdom, consciously not includedClause

(a) in the proviso.

It is well settled that the word 'and' may be construed disjunctively and read as 'or' to carry out theintention of the Legislature, as held by the Supreme Court in S. Krishnan Vs. State of Madrasreported in AIR 1951 SC 301 and in Ishwar Singh Bindra Vs. The State of Uttar Pradesh reported inAIR 1968 SC 1450, and certainly, when there is compelling reason to do so.

None of the counsel appearing on behalf of the writ petitioners have seriously argued that Clauses(a) and (b) of Article 304 are conjunctive and not disjunctive. If this Court were to take a contraryview, any statute enacted in public interest, imposing the most reasonable restrictions on freemovement of trade and commerce, with the previous sanction of the President, would be exposed toattack on the ground of non-conformity with Article 304(a). In this case too, this Court has foundthat the impugned Entry Tax Act is not in furtherance of Article 304(b).

In Atiabari Tea Company Ltd. Vs. State of Assam reported in AIR 1961 SC 232 the majority of theConstitution Bench of the Supreme Court held as follows:-

"50. ...On a careful examination of the relevant provision of Part XIII as a whole aswell as the principle of economic unity which it is intended to safeguard by makingthe said provisions the conclusion appears to us to be inevitable that the content offreedom provided for by Art. 301 was larger than the freedom contemplated by S.297of the Constitution Act of 1935, and whatever else it may or may not include, itcertainly includes movement of trade which is of the very essence of all trade and isits integral part. If the transport or the movement of goods is taxed solely on the basisthat the goods are thus carried or transported that, in our opinion, directly affects thefreedom of trade as contemplated by Art. 301. If the movement, transport or thecarrying of goods is allowed to be impeded, obstructed or hampered by taxationwithout satisfying the requirements of Part XIII the freedom of trade on which somuch emphasis is laid by Art. 301 would turn to be illusory. When Art. 301 providesthat trade shall be free throughout the territory of India primarily it is the movementpart of the trade that it has in mind and the movement or the transport part of trademust be free subject of course to the limitations and exceptions provided by the other



Articles of Part XIII...."

"54. ...We are dealing in the present case with an Act passed by the State Legislaturewhich imposes a restriction in the form of taxation on the carriage or movement ofgoods, and we hold that such a restriction can be imposed by the State Legislatureonly if the relevant Act is passed in the manner prescribed by Art. 304(b)."

As per the law pronounced by the Supreme Court in Atiabari Tea Company Ltd. (supra), a tax whichaffects movement of goods from one part of the territory of India, to another, directly affects freetrade, commerce and intercourse, throughout the territory of India, guaranteed by Article 301 of theConstitution of India.

Under Entry 52 of List II, the State Legislature has the exclusive legislative competence to enact lawimposing taxes on the entry of goods into local areas, for consumption, use or sale therein. A tax onentry of goods into a local area, however, restricts free trade, commerce and intercourse, eventhough the same may be in public interest. Thus, a State law imposing tax on entry of goods intolocal areas, can only be enacted by the State Legislature, in compliance with the requirement of theproviso to Article 304(b) of the Constitution, of previous sanction of the President of India, unlesssuch tax falls within the judicially evolved exception of 'compensatory tax' enunciated in AutomobileTransport (Rajasthan) Ltd. (supra) and reiterated and explained in Jindal Stainless Ltd. (2) (supra).

In Automobile Transport (Rajasthan) Ltd. (supra) a Seven Judge Constitution Bench of the SupremeCourt decided the question of validity of the Rajasthan Motor Vehicles Taxation Act, 1951, Section 4whereof provided as follows:-

"4. Imposition of tax. - (I) Save as otherwise provided by this Act or by rules madethereunder or by any other law for the time being in force, no motor vehicle shall beused in any public place or kept for use in Rajasthan unless the owner thereof haspaid in respect of it, a tax at the appropriate rate specified in the Schedules to this Actwithin the time allowed by Section 5 and, save as hereinafter specified, such tax shallbe payable annually notwithstanding that the motor vehicle may from time to timecease to be used."

The question before the Supreme Court was, whether Section 4 constituted a direct and immediaterestriction on the movement of trade and commerce with and within the State of Rajasthan. TheSupreme Court held:-

"...The interpretation which was accepted by the majority in the Atiabari Tea Co. case,(1961) 1 SCR 809; (AIR 1961 SC 232) is correct, but subject to this clarification.Regulatory measures or measures imposing compensatory taxes for the use oftrading facilities do not come within the purview of the restrictions contemplated byArt. 301 and such measures need not comply with the requirements of the proviso toArt. 304(b) of the Constitution."



"...Whether a tax is compensatory or not cannot be made to depend on the preambleof the statute imposing it. Nor do we think that it would be right to say that a tax isnot compensatory because the precise or specific amount collected is not actuallyused in providing any facilities. It is obvious that if the preamble decided the matterthen the mercantile community would be helpless and it would be the easiest thingfor the Legislature to defeat the freedom assured by Art 301 by stating in thepreamble that it is meant to provide facilities to the tradesmen. Likewise actual userwould often be unknown to tradesmen and such user may at some time becompensatory and at others not so. It seems to us that a working test for decidingwhether a tax is compensatory or not is to enquire whether the trades people arehaving the use of certain facilities for the better conduct of their business and payingnot patently much more than what is required for providing the facilities. It would beimpossible to judge the compensatory nature of a tax by a meticulous test and in thenature of things that cannot be done."

The parameters laid down in Automobile Transport (Rajasthan) Ltd.

(supra) for determining whether any tax was compensatory or not, were broadened in BhagatramRajiv Kumar (supra) where the Supreme Court held that if there was substantial or even some linkbetween tax and the facilities extended to dealers directly or indirectly, the levy could not beimpugned as invalid.

In State of Bihar Vs. Bihar Chamber of Commerce (supra), the Supreme Court followed its earlierjudgement in Bhagatram Rajiv Kumar (supra) and reiterated that some connection between the taxand the trading facilities extended to dealers directly or indirectly, would be sufficient tocharacterize the tax as a compensatory tax.

However, as observed above, in Jindal Strips Ltd. (1) (supra) a two judge Bench of the SupremeCourt doubted the correctness of the proposition of some connection laid down in Bhagatram RajivKumar (supra) and State of Bihar Vs. Bihar Chamber of Commerce (supra) and referred to aConstitutional Bench the question of whether the theory of 'some connection' enunciated in theaforesaid judgments was correct or not.

The judgements in Bhagatram Rajiv Kumar (supra) and State of Bihar Vs. Bihar Chamber ofCommerce (supra) were overruled by the Five Judge Constitution Bench in Jindal Stainless Ltd. (2)(supra), to the extent those judgements propounded the proposition that some connection betweenthe tax and the trading facilities, whether direct or indirect would be sufficient to characterize thetax as compensatory.

In Jindal Stainless Ltd. (2) (supra), the Five Judge Constitution Bench inter alia, held :-

"34. Article 301 is binding upon the Union Legislature and the Legislature, butParliament can get rid of the limitation imposed by Article 301 by enacting a lawunder Article



302. Similarly, a law made by the State Legislature in compliance with the conditionsimposed by Article 304 shall not be hit by Article 301. Article 301 thus provides forfreedom of inter-State as well as intra-State trade and commerce subject to otherprovisions of Part XIII...."

"38. In the generic sense, tax, toll, subsidies, etc. are manifestations of the exercise of the taxingpower. The primary purpose of a taxing statute is the collection of revenue. On the other hand,regulation extends to administrative acts which produces regulative effects on trade and commerce.The difficulty arises because taxation is also used as a measure of regulation. There is a working testto decide whether the law impugned is the result of the exercise of regulatory power or whether it isthe product of the exercise of the taxing power. If the impugned law seeks to control the conditionsunder which an activity like trade is to take place then such law is regulatory. Payment for regulationis different from payment for revenue. If the impugned taxing or non- taxing law chooses an activity,say, movement of trade and commerce as the criterion of its operation and if the effect of theoperation of such a law is to impede the activity, then the law is a restriction under Article 301.However, if the law enacted is to enforce discipline or conduct under which the trade has to performor if the payment is for regulation of conditions or incidents of trade or manufacture then the levy isregulatory. This is the way of reconciling the concept of compensatory tax with the scheme ofArticles 301, 302 and 304. For example, for installation of pipeline carrying gas from Gujarat toRajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come inthe category of manifestation of regulatory power. However, a tax levied on sale or purchase of gaswhich flows from that very pipe is a manifestation of exercise of the taxing power. This exampleindicates the difference between taxing and regulatory. powers (see Essays in TaxationbySeligman)." "41. On the other hand, a fee is based on the "principle of equivalence". This principle isthe converse of the "principle of ability" to pay. In the case of a fee or compensatory tax, the"principle of equivalence" applies. The basis of a fee or a compensatory tax is the same. The mainbasis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax,even if there is any benefit, the same is incidental to the government action and even if such benefitresults from the government action, the same is not measurable. Under the principle of equivalence,as applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a.benefit which is measurable."

"42. ....In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee,the value of the questionable benefit is represented by the costs incurred in procuring thefacilities/services which costs in turn become the basis of reimbursement/recompense for theprovider of the services/facilities. Compensatory tax is based on the principle of "pay for thevalue"....From the point of view of the Government, a compensatory tax is a charge for offeringtrading facilities.........Compensatory taxes, like fees, are always proportional to benefits. They arebased on the principle of equivalence. ......... For a tax to be compensatory, there must be some linkbetween the quantum of tax and the facility/services. Every benefit is measured in terms of costwhich has to be reimbursed by compensatory tax or in the form of compensatory tax. In otherwords, compensatory tax is a recompense/reimbursement."



"43. In the context of Article 301, therefore, compensatory tax is a compulsory contribution leviedbroadly in proportion to the special benefits derived to defray the cost of regulation or to meet theoutlay incurred for some special advantage to trade, commerce, and intercourse. It may incidentallybring in net revenue to the Government but that circumstance is not an essential ingredient ofcompensatory tax."

"46. ......whenever a law is impugned as violative of Article 301 of the Constitution, the Court has tosee whether the impugned enactment facially or patently indicates quantifiable data on the basis ofwhich the compensatory tax is sought to be levied. The Act must facially indicate the benefit which isquantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. ifthe provisions are ambiguous' or 'even if the Act does not indicate facially the quantifiable benefit,the burden will be on the State as a service/facility provider to show by placing the material beforethe Court, that the payment of compensatory tax is a reimbursement/recompense for thequantifiable/measurable benefit provided or to be provided to its payer(s)"

After the judgement of the Constitution Bench was pronounced in Jindal Stainless Ltd. (2) (supra)the pending appeals were listed before a two judge Bench of the Supreme Court for adjudication inthe light of the law as enunciated by the Constitution Bench. In Jindal Stainles Ltd. (3) Vs. The Stateof Haryana reported in (2006) 7 SCC 271. The Supreme Court found that data had not been placedbefore the High Courts to determine whether the impugned levies were 'compensatory' as per therequirements laid down in Jindal Stainless Ltd. (2) (supra), and accordingly remitted the respectivewrit petitions to the concerned High Courts for adjudication. The parties were permitted to bringrelevant facts on record in the writ petition in the High Court.

In Jaiprakash Associates Limited Vs. State of Madhya Pradesh & Ors. reported in (2009) 7 SupremeCourt Cases 339 Dr. Arijit Pasayat and S.H. Kapadia, JJ., considering the importance of the issuesrelating to Article 301 and 304 and Part XIII of the Constitution, referred the following questions toa larger bench in terms of Article 345(3) of the Constitution:-

"(1) Whether the State enactments relating to levy of entry tax have to be tested withreference to both clauses (a) and (b) of Article 304 of the Constitution fordetermining their validity and whether clause (a) of Article 304 is conjunctive with orseparate from clause

(b) of Article 304?

(2) Whether imposition of entry tax levied in terms of Entry 52 List 11 of the ScheduleVII is violative of Article 301 of the Constitution? If the answer is in the affirmativewhether such levy can be protected if entry tax is compensatory in character and ifthe answer to the aforesaid question is in the affirmative what are the yardsticks to beapplied to determine the compensatory character of the entry tax?

.............



(8) Whether the non-discriminatory indirect State tax which is capable of beingpassed on and has been passed on by traders to the consumers infringes Article 301of the Constitution? .............

(10) Whether a levy under Entry 52 List II, even if held to be in the nature of acompensatory levy, must, on the principle of equivalence demonstrate that the valueof the quantifiable benefit is represented by the costs incurred in procuring thefacility/services (which costs in turn become the basis of reimbursement/recompensefor the provider of the services/facilities) to be provided in the "local area" concernedand Whether the entire State or a part thereof can be comprehended as local area forthe purpose of entry tax?

In Jindal Stainless Ltd. and Anr. (4) Vs. State of Haryana reported in (2010) 4 SCC 595, the Stateswhose Entry Tax Laws had been challenged, contended that the tests propounded in Atia Bari TeaCompany Limited (supra) and Automobile Transport (Rajasthan) Limited (supra) had failed tostrike a balance between the freedom of trade and commerce under Article 301 of the Constitutionof India, and the authority of the States to levy taxes under Article 245 and 246 of the Constitution,read with the appropriate legislative entries in the Seventh Schedule to the Constitution of India.The States sought reconsideration of the decisions of the Supreme Court in Atia Bari Tea CompanyLimited (supra) and Automobile Transport (Rajasthan) Limited (supra) by a larger bench.

The Supreme Court was of the view that certain aspects which needed the consideration of a largerBench of the Supreme Court were interplay and interrelationship between Article 304(a) and304(b); the significance of the non obstante clause in Article 304; the balancing of freedom of tradeand commerce under Article 301 vis a vis the authority of the State Legislature to levy taxes underArticle 245 and 246 of the Constitution of India, read with the appropriate legislative entries in theSeventh Schedule, particularly in the context of movement of trade and commerce. The Five JudgeBench directed that the batch of cases be placed before the Chief Justice of India for constituting alarger bench for reconsideration of the judgements of the Supreme Court in Atia Bari Tea CompanyLimited (supra) and Automobile Transport (Rajasthan) Limited (supra).

The questions referred to the larger bench of the Supreme Court are yet to be answered. Eventhough there is no authoritative decision of the Supreme Court directly dealing with the issue ofapplicability of Articles 301 and 304 of the Constitution of India to a State law imposing areasonable Entry Tax in exercise of its legislative power under Entry 52 of List II of the SeventhSchedule to the Constitution, the law laid down inter alia in Atiabari Tea Company Ltd. (supra),Automobile Trnasport (Rajasthan) Ltd. (supra) and Jindal Stainless Ltd. (2) (supra) relating to taxeswhich affect movement of goods still prevail.

The validity of the impugned Entry Tax Act, therefore, has to be decided on the basis of the lawpronounced by the Supreme Court in Jindal Stainless Steel Ltd. (supra), and the other importantjudgments of the Supreme Court, including the judgement of the Supreme Court in Atia Bari TeaCompany Limited (supra) and Automobile Transport (Rajasthan) Limited (supra).



Mr. Avrotosh Mazudar submitted that the writ petitions were sketchily drafted. In the absence ofdetailed pleadings, the writ petitions were liable to be dismissed, since presumption is in favour ofthe constitutionality of a Statute and the burden is on those questioning the Act, to show that the Actis ultra vires and invalid.

In support of his aforesaid submission, Mr. Mazumdar cited R. Samthil Babu Vs. State of Tamilnadureported (2009) 2 SCC 309, where the Constitutional validity of the Tamilnadu Motor VehiclesTaxation (Amendment) Act, 1998, increasing the rate of tax in respect of contract carriage fromRs.1,500/- per seat per quarter to Rs.2,000/- per seat per quarter and later to Rs.3,000/- per seatper quarter, was under challenge.

In R. Samthil Babu Vs. State of Tamilnadu (supra) the challenge rested on the ground that tax hadbeen imposed indiscriminately, to cross subsidise stage carriage, and uneven burden had beenplaced on the owners of contract carriage, which had no nexus with the services or amenitiesprovided. The levy was impugned as discriminatory and violative of Article 14 of the Constitution ofIndia. The Supreme Court held that in a matter of that nature, quantifiable data formed the basis ofthe challenge, as otherwise, the challenge to the impugned levy, on the ground of irrationality of thelevy, could not be decided. The Supreme Court found that the appellants had not been able todischarge the initial burden, as the writ petitions were sketchy and lacking in material particularsand accordingly, allowed the writ petitions to be withdrawn, with liberty to file a proper writpetition, if so advised.

Where the challenge to an action is required to be adjudicated on the basis of factual data theburden would be on those attacking the action to disclose sufficient facts to substantiate their case.For example, where an action is challenged as violative of Article 19(1)(g) of the Constitution ofIndia, the burden would be on the writ petitioner to establish that the Act would constitute aninfringement on the fundamental right guaranteed under Article 19(1)(g) of the Constitution ofIndia. Similarly, when an action is challenged as discriminatory, a case of discrimination will have tobe made out.

However, when a statute is challenged on the ground of lack of legislative competence or on theground of an apparent infringement of a constitutional provision, as in this case, factual details maynot be necessary. A tax on movement of goods, having judicially been construed as a restriction onthe right to free trade, commerce and intercourse, if any Statute imposing such tax is challenged onthe ground of non-compliance of the requisites of Section 304(b), the State would have to disclosedata to establish that the tax was compensatory and hence beyond the net of Articles 301 to 304 ofthe Constitution of India. The State would have to disclose quantifiable data, to establish that the taxsought to be raised is more or less commensurate with the benefits provided and/or to be providedto the tax payers as a class.

In Saghir Ahmad Vs. The State of U.P. reported in AIR 1954 SC 728 the Supreme Court observedthat, when an enactment, on the face of it was found to violate a fundamental right guaranteedunder Article 19(1)(g), it must be held to be invalid, unless those who support the legislation canbring it within the purview of the exception laid down in Clause (6) of Article 19.



In Khyerbari Tea Company Vs. State of Assam reported in AIR 1964 SC 925, the Supreme Courtrelying on Saghir Ahmad (supra), held that once infringement of a fundamental right under Article19(1) was proved, the State would have to justify its case under Clause (6) which is in the nature ofan exception to the main provisions contained in Article 19(1). The position with regard to the onuswould be the same in dealing with law passed under Article 304(b). The Supreme Court observedthat in the case of such a law, the position is somewhat stronger in favour of the citizen, because thevery fact that a law is passed under Article 304(b) means that it purports to restrict the freedom oftrade. That being so, the Supreme Court was of the view that as soon as it was shown that the Actinvaded the right of freedom of trade, it would be necessary to enquire whether the State had provedthat the restrictions imposed by it by way of taxation were reasonable and in the public interestwithin the meaning of Article 304(b).

As submitted by Mr. Khaitan, the entire burden of the levy under the impugned Entry Tax Act, hasto be borne by persons, who import goods including raw materials into the State. May be, the cost ofgoods manufactured in West Bengal, using raw materials imported from other States or fromabroad, would be higher in comparison to the costs of similar goods manufacture in a State, whichdoes not impose any Entry Tax, and thereby adversely affect sales of such goods, as argued by Mr.Khaitan. Some of the writ petitioners might also rightly be aggrieved by imposition of the levy, onlyon goods imported from outside the State, since the benefit of the development, if any, would beenjoyed equally by manufacturers/producers in the State who do not have to make any imports.However, hardship, inconvenience or irrationality are no grounds to sustain a challenge to a Statuteenacted by legislature, in exercise of power conferred by the Constitution, unless the Statuteinfringes some provision of the Constitution itself.

In Khyerbari Tea Company (supra) the Supreme Court has said that a principle which has to beborne in mind, in examining the constitutionality of a statute is, that it must be assumed that thelegislature understands and appreciates the needs of the people, and the laws it enacts are directedto problems which are made manifest by experience, and that the elected representatives assembledin a legislature enact laws which they consider to be reasonable for the purpose for which they areenacted.

As pointed out by Mr. Khaitan, earlier Entry Tax Laws enacted in the State of West Bengal, such asTax on Entry of Goods into Local Areas Act, 1962 and Tax on Entry of Goods into CalcuttaMetropolitan Area Act, 1972 were enacted with the previous sanction of the President of India.

The West Bengal State Taxes on Consumption or Use of Goods Act, 2001, which had not beenenacted with previous sanction of the President of India, had been struck down by the West BengalTaxation Tribunal in the case of National Hydro Power Corporation Limited Vs. ACTT Siligurireported in 2008 (15) VST 158.

It is immaterial that the State Legislature might have earlier, in exercise of legislative powerconferred under Entry 52 of List II of the Seventh Schedule to the Constitution, enacted law with theprevious sanction of the President of India, in conformity with Article 304(b) of the Constitution ofIndia.



There can be no estoppel against exercise of legislative power conferred by the Constitution. TheWest Bengal Legislature has legislative power to enact law imposing Entry Tax. A CompensatoryEntry Tax does not infringe Article 301 and is, therefore, not vitiated or invalidated for want of theprevious sanction of the President of India, in view of the law laid down by the Supreme Court inAutomobile Transport (Rajasthan) Limited (supra), and reiterated in Jindal Stainless Ltd. (2)(supra).

Th the proposition of law propounded in the judgements of the Supreme Court in State of TamilNadu Vs. K. Shyam Sunder (supra), Shri Prithvi Cotton Mills Ltd. (supra), S.R. Bhagwat Vs. State ofMysore (supra), Cauvery Water Disputes Tribunal (supra), G.C. Kanungo Vs. State of Orissa (supra),Madan Mohan Pathak Vs. Union of India (supra), K. Sankaran Nair Vs. Devaki Amma MalathyAmma (supra) cited by Mr. Poddar, that the effect of a judicial pronouncement of a competent Courtcannot be nullified by the legislature in exercise of its legislative powers, for any reason whatsoever,is unexceptionable. The Legislature can, however, validate any law, that has been declared ultravires, by re-framing it, removing the infirmities, which led to the law being declared ultra vires.

In enacting the impugned Entry Tax Act, the West Bengal State Legislature has not nullified anyjudicial pronouncement. The State Legislature has not merely re-enacted a new law retainingunaltered the provisions of the Act of 2001, which had been struck down by the West BengalTaxation Tribunal. An attempt has been made by the State Legislature to reframe the law and curethe defects in the Act of 2001, that existed prior to the judgement of the West Bengal TaxationTribunal in National Hydro Power Corporation Limited (supra) that rendered the Act of 2001unconstitutional.

As observed above, the object of the impugned Entry Tax Act, as declared in its preamble, is to setup a Compensatory Entry Tax Fund. The recital of the impugned Entry Tax Act also states that thelevy and collection of Taxes on entry of certain goods, for consumption, use or sale in the local areaand matters connected therewith and incidental thereto, is for the purpose of creating aCompensatory Entry Tax Fund.

Section 4(3) casts an obligation on the State Government to specify the rates of tax underSub-section (2) of Section 4, having regard to the financial needs for development and facilitation oftrade, commerce and industry in the local areas of the State. Section 15 provides for establishment ofthe West Bengal Compensatory Entry Tax Fund. Section 16 provides for the manner in which theproceeds of Entry Tax are first to be credited to the West Bengal State Consolidated Fund, andthereafter, by appropriation, if law enacted by the State Legislature so provides, be credited to theCompensatory Entry Tax Fund, after deduction of expenses. Section 18 restricts the purposes forwhich the proceeds of the levy under the impugned Entry Tax Act might be utilised. The question iswhether the impugned Entry Tax Act as enacted is in effect and substance a compensatory tax,applying the tests laid down in Jindal Stainless Ltd. (2) (supra).

In view of the law laid down by the Constitution Bench of the Supreme Court in Jindal Stainless Ltd.(2) (supra), whenever a law is impugned as violative of Article 301, in that it restricts free movementof goods, by imposing a tax on entry of goods into any particular area or areas, the Court would have



to examine whether the law complies with the requisites of Article 304, and if not, whether the tax isa compensatory tax.

Since the concept of compensatory has judicially been evolved, in deciding whether a tax iscompensatory, the Court would have to carefully apply the tests laid down in Jindal Stainless Ltd.(2) (supra) and satisfy itself that facially and patently, there is sufficient indication in the impugnedenactment, of the quantifiable and measurable benefit provided and/or to be provided in lieu of thelevy, to the class of persons on whom the levy is imposed, and that the amount expected to be raisedby imposition is more or less equivalent to the value of the quantifiable measurable benefit.

As held in Jindal Stainless Ltd. (supra), for a tax to be compensatory there must be a link betweenthe quantum of tax and the cost of the facility and/or facilities for which the tax is imposed, whichmust be indicated in the enactment impugned. If the impugned enactment does not facially disclosesufficient data to establish the proportionality of the levy to the quantifiable benefit, or if theprovisions are ambiguous or vague, it would still be open to the State, as service provider, to show,by placing materials before the Court, that payment of compensatory tax is a recompense and/orreimbursement for the specific, tangible, measurable, quantifiable benefits provided or to beprovided to its payers.

In Kamaljeet Singh & Ors. Vs. Municipal Board Pilkhwa and Ors. reported in (1986) 4 SCC 174, thevaldidity of imposition of a toll tax imposed by the Municipal Board Pilkhwa, on vehicles and otherconveyances, animals and laden collies entering the Pilkhwa Municipal area, under Section128(1)(viii) of the U.P. Municipalities Act, 1916, upheld by the High Court was questioned before theSupreme Court.

The Supreme Court held:-

"......The High Court has upheld the levy of the toll tax relying upon the decision of this Court inAutomobile Transport (Rajasthan) Ltd. v. State of Rajasthan as being compensatory in nature. InAutomobile Transport case, the majority held that regulatory measures imposing compensatorytaxes for the use of trading facilities do not hamper trade, commerce or intercourse, but ratherfacilitate them and therefore are not hit by freedom of trade and commerce guaranteed by Article301 of the Constitution. The toll tax in question however cannot be treated to be a compensatory taxfor the use of trading facilties. The Municipal Board provides no facilities whatever to the owners ofvehicles like stage carriages making use of National Highway No. 24. The township of Pilkhwa is offthe national highway and is quite at some distance. It is connected by a road and a part of thenational highway has been included within the municipal limits. Merely because stage carriageoperators like the appellant play their stage carriages on permits issued on the inter-statal routeDelhi-Garhmukteshwar which falls on the national highway and stop their buses for the facility ofpassengers going to and coming from Pilkhwa, or that the Municipal Board has set out two electricpoles at the toll barriers for facility of collection of the toll tax, does not justify the imposition of atoll tax. Usually, the consideration for a toll is some amenity, service, benefit or advantage which theperson entitled to the toll undertakes to provide for the public in general, or the persons liable to paythe toll. The national highway is being maintained by the government and the approach road built



by the Public Works Department. There is a nallah constructed by the Municipal Board for flow ofthe sewage water from the town of Pilkhwa, but that does not entitle the Board to levy a toll tax onstage carriage operators like the appellants as a compensatory tax. Even assuming that theMunicipal Board has to incur expenditure on maintenance of the connecting road and the nallah,but they are facilities provided for the residents of the town for which it recovers various taxes.Furthermore, maintenance of roads, bridges etc. are statutory duties of the Municipal Board underSection 7 of the Act. The levy of the toll tax by the Municipal Board must therefore be struck down asultra vires."

In R. Gandhi Vs. State of Tamil Nadu & Ors. (supra) cited by Mr. Poddar the constitutional validityof the Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act, 1990, was under challengemainly on the ground of infringement of Articles 301 and 304 of the Constitution. The questionbefore the Division Bench was, whether the levy of Entry Tax under the said Tamil Nadu Tax onEntry of Motor Vehicles into Local Areas Act, 1990 could be justified as a compensatory tax. Theaforesaid question was answered in the negative. The Division Bench held that there was noconnection or nexus between the collection of Entry Tax, and its utilization for the benefit oftraders/manufacturers from whom such tax was collected and consequently the levy of Entry Taxwas unauthorized and violative of Article 301 of the Constitution.

The Division Bench observed as follows:-

"The essence of compensatory tax is that the services rendered or facilities provided should be moreor less commensurate with the tax levied. Services provided will have a direct co-relation with thetrade. The main basis of compensatory tax is the quantifiable and measurable benefit represented bythe cost incurred in procuring the facilities/services. The cost in turn becomes the basis ofreimbursement/recompense for provider of services/facilities. As held in Jindal's case [2006] 145STC 544 (SC); [2006] 7 SCC 241, the compensatory tax is a charge for offering trade facilities andthey are based on the principle of equivalence. Applying the above test, we are of the opinion thatmaintaining of roads, providing bridges, etc., cannot be said to be compensatory in nature so as toconstitute special advantage to trade, commerce and intercourse. Even otherwise, a welfare State isbestowed with the responsibilities of providing good roads and bridges for the benefit of thetax-paying citizens and hence to contend that the impugned levy is being raised only for the saidpurpose is not justified. Maintenance of roads, bridges, etc., are generally met from the generalfunds or revenue. Whether goods are transported into the State from outside the State or abroad,the State has got a duty to provide facilities like roads, bridges, etc., which are being enjoyed notonly by the persons who bring the goods notified for levy of entry tax, but also by others." InThressiamma L. Chirayil Vs. State of Kerala & Anr. (supra) cited by Mr. Poddar, a Division Bench ofKerala High Court considered the Constitutional Validity of Kerala Tax on Entry of Goods into LocalAreas Act, 1994. Applying the principle of equivalence laid down by the Supreme Court in JindalStainless Steel Ltd. (supra), the Division Bench found that there was no connection or nexus withthe collection of Entry Tax under the Kerala Entry Tax Act, 1990 and its utilization for the benefit oftraders/manufacturers from whom such tax was collected and consequently the levy of Entry Taxwas unauthorized and violative of Article 301 of the Constitution of India. The Division Bench held:-



"...If the provision of the Act does not indicate facially the quantifiable benefit,burden is on the State as a service/facility provider to show by placing the materialsbefore the court that the payment of compensatory tax is areimbursement/recompense for the quantifiable/measurable benefit provided or tobe provided to the payer. We have already found that the compensatory character oftax is not self-evident from the Kerala Entry Tax Act...."

".......Essence of compensatory tax is that the services rendered or facilities providedshould be more or less commensurate with the tax levied. Services provided will havea direct co-relation with the trade. The main basis of a compensatory tax is thequantifiable and measurable benefit, represented by the costs incurred in procuringthe facility/service. The cost, in turn, became the basis ofreimbursement/recompense for the provider of services/facilities. From the point ofview of Government, as stated by the apex court in Jindal Stainless Ltd.'s case [2006]145 STC 544 (SC); [2006] 7 SCC 241, a compensatory tax is a charge for offeringtrading facilities and they are based on the principles of equivalence. Applying theabove test, it cannot be said that maintaining of roads, providing bridges, etc., iscompensatory in nature so as to meet the outlay incurred for some special advantageto trade, commerce and intercourse. Providing the above facilities and its use mayincidentally bring in net revenue to the Government, but that circumstance is not anessential ingredient of compensatory tax......"

"...... Some indirect connection or some connection, more or less commensurate, etc.,are not the tests, but the direct and immediate effect is the test. Maintaining of roads,bridges, etc., and promotion of SSI units, etc., are generally met from the generalfunds or revenue. Whether goods are transported into the State from outside theState or abroad the State has got a duty to provide those facilities, like roads, bridges,etc., which is being enjoyed not only by persons who bring goods notified for levy ofentry tax but also others...."

In ITC Limited Vs. State of Tamil Nadu & Ors (supra) cited by Mr. Poddar a Division Bench ofMadras High held that the Tamil Nadu Tax of Goods into Local Areas Act, 2001 did not satisfy thetest laid down for compensatory tax, inter alia observing that the pleadings filed on behalf of theState merely gave statistics with regard to total costs of building roads and bridges and onmaintenance of roads that had been incurred by the State from year to year.

The Madras High Court was of the view that irrespective of whether any goods were transported intothe State from other States, or abroad, the State had a duty to provide facilities such as roads andbridges and in any case there were taxes for maintenance of roads, realized from owners of motorvehicles, on the basis of the laden weight of the vehicles, which had not been disclosed by the Statein its affidavit. In West Bengal too, there are taxes levied on motor vehicles, on the basis of ladenweight, which are utilized to meet inter alia the costs of construction and maintenance of roads.



In Jindal Strips Limited & Anr. Vs. State of Haryana & Ors. reported in [2008] 12 VST 149 (P&H)(supra) cited by Mr. Poddar, the Division Bench of the Punjab and Haryana High Court held that theimpugned levy under the Haryana Local Area Development Act (13 of 2000) as amended by theHaryana Local Area Development Tax (Amendment) Ordinance (1 of 2007), was not compensatory,tested in the light of the judgement of the Supreme Court in Jindal Stainless Ltd. (supra) as the levywas not to meet the cost of any specific facilities for trade, commerce and intercourse alreadyprovided or planned to be provided and therefore, hit by Article 301 of the Constitution. The Courtheld that the impugned levy was meant to be for assistance to local areas for their developmentgenerally and the amendment by the Haryana Local Area Development Tax (Amendment)Ordinance, 2007 only brought about a superficial change in the language while retaining the basiccharacter of the levy as a source for general development.

In Bharat Earth Movers Ltd. Vs. State of Karnataka (supra) cited by Mr. Poddar, D.V. ShylendraKumar, J., held that the Karnataka Special Tax on Entry of Certain Goods Act, 2004 was not acompensatory levy as the State had not been able to demonstrate any exclusive or special serviceprovided to the class of taxpayers who bore the tax under the Karnataka Special Tax on Entry ofCertain Goods Act, 2004. The Court also held that imposition of tax only in respect of the goodsbrought into a local area by an importer from outside the State and not on other persons whobrought similar goods to the same local area from other parts of the State was discriminatory andviolative of Article 304(A) of the Constitution. The Court also observed as follows:-

"The concept of a compensatory tax being outside the purview of Part XIII itself aspropounded in the case of Automobile Transport (Rajasthan) Ltd. AIR 1962 SC 1406and as explained in Jindal Stainless Ltd.'s case [2006] 145 STC 544, is that a levywhich is exclusively for meeting a special service or benefit to the taxpayer is not evenin the nature of a tax or a general levy and is more akin to the taxpayer receiving theservice from the State and paying for it. Such is not the situation in the present casesand under the enactment under challenge."

In National Aluminum Company Limited & Ors. Vs. State of Orissa & Ors. reported in [2008] 15VST 296 (Orissa) cited by Mr. Kapur the Constitutional vires of the Orissa Entry Tax Act 1999 waschallenged as violative of Article 301 and 304 of the Constitution of India and also on the groundthat the State Legislature lacked legislative competence to enact the said Act.

The Division Bench of Orissa High Court found that the levy under the impugned enactment wasnot compensatory, since the revenue received by way of Entry Tax was deposited in theConsolidated Fund of the State, and expenditure therefrom, incurred for development work was notspecifically identifiable. The Court held that tax to meet expenditure in general, for infrastructuredevelopment, for the welfare of the general public, could not be considered compensatory tax.

In Dinesh Pouches Ltd. Vs. State of Rajasthan (supra) cited by Mr. Kapur a Division Bench ofRajasthan High Court held that the Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 wasultra vires Article 301 of the Constitution of India, observing that the said Act "has not been imposedfor providing specific benefits/facilities to trade or commerce in quantifiable measure".



The Division Bench of Rajasthan High Court further held:-

"....When admittedly in the present case requirement of article 304(b) before enacting a law fallingwithin the domain of article 301 has not been followed, the impugned Act must be held to be ultravires to Chapter XIII of the Constitution in consonance with Atibari's case AIR 1961 SC 232."

In Indian Oil Cooperation Limited Vs. State of Uttar Pradesh and Ors. cited by Mr. Kapur, a DivisionBench of Allahabad High Court found that tax imposed by the Uttar Pradesh Tax on Entry of GoodsAct, 2000 was not compensatory tax, there being no evidence and/or material on record givingrequired data/statistics with regard to the amount of tax calculated or the expenditure on providingfacilities. In the instant case too neither the impugned Entry Tax Act nor the Affidavit-in-Oppositionof the State gives any indication of the amount expected to be collected, the amount expected to beexpended on providing facilities or the specific facilities to be provided.

In Central Coalfields Vs. State of Jharkhand reported in (2007) 6 VST 614 (Jharkh) cited by Mr.Mainak Bose a Division Bench of Jharkhand High Court held "...the Bihar Tax on Entry of Goodsinto Local Areas for Consumption, Use or Sale thereof Act, 1993, as adopted by the State ofJharkhand and amended vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption,Use or Sale thereof (Amendment) Ordinance, 2001" was ultra vires Articles 301 and 304 of theConstitution.

In Indian Oil Corporation Limited Vs. State of Assam reported in (2009) 21 VST 76, cited by Mr.Mazumdar, the validity of the Assam Entry Tax Act 2008 and the Rules framed thereunder, alongwith the provisions of the Entry Tax (Amendment) Act, 2008, were in question. The Division Benchof Assam High Court, on considering the relevant provisions of the Act, the rules and in particularthe affidavits filed on behalf of the State of Assam, found that the tax sought to be imposed wascompensatory in nature. A perusal of the judgement reveals that quantifiable data had beenproduced to satisfy the Court that the levy was in fact compensatory.

The Assam High Court noted that part of the tax was spent for providing security to the pipelines ofONGC, which were used by the writ petitioners to import oil into the State of Assam. The Tax wasthus in the nature of quid pro quo for utilisation of pile lines. The Assam High Court observed:-

"Additionally, the provisions of section 10(2) which impose an embargo of use of anyamount of entry tax collected for any other purpose; the transfer of the amountcollected under the Act of 2001 to the special fund; the provisions of rule 11 providingfor deposit of the amount of entry tax collected under an exclusive head of account,are sufficient facial indications that the levy under the Act is intended to providecertain identifiable benefits to trade. The provision in the Budget of 2008-09 forcredit of Rs. 250 crores to the special fund created, the funds earmarked forinfrastructure development and provisions for amenities to different departmentsand the constitution of a committee to examine the developmental schemes and tosanction and allocate funds, which materials have been placed in the affidavit datedAugust 8, 2008, are further pointers that should enable the levy to partake of the



character of being compensatory in nature. While it is correct that the developmentof infrastructure and provision of amenities may also benefit persons other than theprayers of entry tax, the said fact, by itself, will not affect the compensatory nature ofthe levy, inasmuch as, it is not a requirement, such a situation being impossible, thatthe levy of entry tax should bring benefit only to those from whom the tax iscollected."

In Indian Oil Corporation Limited and Anr. Vs. State of Bihar and Ors. reported in (2007) 10 VST140 (Patna) the Division Bench of Patna High held that the Bihar Tax on Entry of Goods into LocalAreas for Consumption or Sale Therein Act (16 of 1993) initially had the previous sanction of thePresident. Subsequent amendments were, however, bad for want of previous sanction of thePresident, and violative of Article 301 of the Constitution of India. After the amendment of the Actin 2006, the tax impugned assumed the nature of compensatory tax, and therefore did not violateArticle 301. The writ petitions pertaining to the period from 2001- to 2006 were held fit to beallowed.

In Manipal Academy of Higher Education, Monipali Vs. State of Karnataka & Ors. reported in(2008) 13 VST 377 (Karnataka) cited by Mr. Mazumdar the Division Bench of Karnataka High Courtwas satisfied that collection of Entry Tax was a compensatory tax which had been diverted to UrbanLocal Bodies to provide various services and infrastructural facilities to the trader community tocarry on their business activities.

In Godfrey Phillips India Ltd. Vs. State of Madhya Pradesh & Ors. reported in (2008) 17 VST 467(MP) cited by Mr. Mazumdar, a Division Bench of Madhya Pradesh High Court upheld the MadhyaPradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 inter alia holding that levyunder the said Act was compensatory in nature.

Mr. Mazumdar submitted that the trend of the decisions of different High Courts rendered after thejudgement of the Constitution Bench of the Supreme Court in Jindal Stainless Ltd. (2) (supra) showthat statutes enacted after the said judgement, declaring that the taxes imposed were compensatory,for benefits to traders as specified in those Acts, were upheld. However, Statutes enacted beforepronouncement of the aforesaid judgement which did not indicate that the taxes levied by theStatues were compensatory, were struck down as ultra vires the Constitution.

It however appears that in the cases of those Statutes which were upheld, the High Courts not onlyconsidered the provisions of the Statutes, but also data and other materials disclosed in theaffidavits and were satisfied that the levies against those statutes were to provide specific,measurable benefits to the class of tax payers, on the principle of approximate equivalence.

The question of validity of the Jharkhand Entry Tax on Consumption or Use of Goods Act, 2011, theprovisions of which are almost identical to the impugned Entry Tax Act, was considered by aDivision Bench of the Jharkhand High Court in W.P. 5696 of 2011 Tatal Steel Ltd. Vs. State ofJharkhand & Ors. along with a batch of other writ petitions.



By a judgement and order pronounced on 3rd April, 2012, the Division Bench of Jharkhand HighCourt held that Section 3 of the impugned Act of Jharkhand, that is, the charging section, was ultravires the Constitution of India and consequently none of the provisions of the impugned Act couldbe enforced.

The Court held "the State further failed to discharge its burden by placing material or evencalculation or data before this Court that payment of compensatory tax is reimbursement for thequantifiable or measurable benefits provided or to be provided to its tax payers. The creation of thefund under clause (a) to (d) of section 4(3) in the name of the Jharkhand State Trade Developmentfund and utilization of the tax amount for the purposes as given in clauses (a) to (d) undersub-section (3) of section 4 do not indicate and prove reimbursement/recompense of the taxamount to the tax payers. The purposes shown in clauses (a) to (d) of sub-section (3) of section 4 ofthe Act of 2011 are general nature and not specific benefits to the tax payers."

Whether a tax is a compensatory tax or not, would not just depend on the statement of objects andreasons for the enactment of the statute imposing the tax, the preamble to that statute, any recital inthe statute declaring the tax to be compensatory, or any provisions stating the purposes for whichthe proceeds of the tax could be used.

If a specious declaration and some vague ambiguous illustrative provisions, setting forth thepurposes of the levy, could in themselves make the levy compensatory, the easiest thing for all StateLegislatures to do, to get rid of the hurdle of Articles 301 and 304 of the Constitution, would be tomake such a declaration in the Statute, and incorporate some apparently beneficial purposes of ageneral nature. After all the revenue earned by the State from various taxing Statutes is also spent,to a large extent on general development and welfare activities.

A tax can be said to be compensatory, only if the impugned enactment under which the tax isimposed, facially and patently indicates that the tax is a recompense for specific, tangible andmeasurable benefits for the tax payers as a class, for facilitating trade, commerce and intercourse.The impugned enactment would facially have to indicate that the benefit, which was quantifiable ormeasurable, was also more or less commensurate with the levy.

In case the Act impugned does not disclose the corresponding measurable or quantifiable benefitsand other relevant data, or if the provisions of the Act impugned are ambiguous, vague or too wide,it would still be open to the State to disclose particulars of completed projects, projects in progressand projects in contemplation, approximate/estimated costs thereof, project reports and plans andestimates of the amount proposed to be realized from the levy impugned, to show a discernible linkbetween the levy and the corresponding benefits.

An estimate of costs of proposed projects to facilitate trade and commerce, or of taxes expected to berealized, can never be exact. Realization of taxes, which varies according to the volume of trade andcommerce, could well be in excess of target, in case of unexpected increase in the volume of tradeand commerce. Similarly, for compelling reasons, projects may be abandoned, inordinately delayedor modified. The actual costs of projects may be lower than the estimated costs. Even otherwise, the



actual expenditure may be lesser for various reasons, leaving some part of the tax collected,unutilized.

Thus, an impugned enactment would not be vitiated only because it might bring in some revenue, inthe sense that the unutilized amount of the levy would be utilized for other general purposes. Norwould a Statute be vitiated because the specific facilities provided by the State to the class oftaxpayers, may also be enjoyed by some others, who do not have to pay the tax.

If a tax is compensatory, applying the parameters laid down in Jindal Stainless (2) (Supra), that taxwould not cease to be compensatory only because the proceeds of the tax might have to first becredited to the Consolidated Fund of West Bengal and thereby get mixed up with the revenuerealized by the State. As rightly pointed out by Mr. Mazumdar, in Automobile Transport (Rajasthan)Limited (supra) the Supreme Court clearly held that it would not make any difference if moneycollected from the tax was not put into a separate fund, so long as the tax was for specific facilitiesfor the trade people who paid the tax and the expenses for providing those facilities were borne bythe State.

However, in this case, the Entry Tax lying to the Consolidated Fund of West Bengal under Section 16might, by appropriation, be credited to the Compensatory Entry Tax Fund, from time to time, only ifthe State Legislature, by law made in this behalf, so provides, for being utilized exclusively for thepurposes of the impugned Entry Tax Act.

The utilization of the proceeds of the Entry Tax Act is, thus, subject to enactment of law by the StateLegislature. As argued by Mr. Poddar, under Article 199(1)(d) of the Constitution of India, anyappropriation of money out of the Consolidated Fund of the State, has to be done by way of a 'MoneyBill'.

The Entry Tax collected by the State may thus be treated as part of general revenue, its utilizationbeing directly dependent upon budgetary allocation to be made by the State Legislature by way of'Money Bill'.

Even, assuming, that in passing the 'Money Bill' the State Legislature would be bound by theprovisions of the impugned Entry Tax Act and would make appropriate budgetary provision, thewithdral of the money credited to the Compensatory Entry Tax Fund would depend on enactment oflaw, in view of the express provision of Section 16 of the impugned Entry Tax Act. There is, thus, noguarantee that the proceeds of the Entry Tax would actually be utilized for the purposes specified inSection 18 of the said Act.

While these writ petitions were being heard, the Government of West Bengal, Finance Department,Budget Branch issued Notification No.766 FB dated Kolkata, the 24th July, 2012 framing WestBengal Compensatory Entry Tax Fund Rules, 2012. The notification dated 24th July, 2012 issued bythe Government of West Bengal Finance Department, Budget Branch is in itself contrary to Section16 of the impugned Entry Tax Act and apparently inconsistent with the Constitution of Indiaparticularly Article 266(3) and Article 199(1)(d), as argued by Mr. Poddar and Mr. Khaitan.



The Rules framed in exercise of power conferred by Statute cannot be contrary to the provisions ofthe Statute. A committee comprising of secretaries of different departments of West Bengal, cannotdetermine budget provisions and assume the power exclusively reserved to the State Legislature ofappropriation of money from the Consolidated Fund of the State.

Furthermore, compensatory tax being equivalent to a fee, based on the principle of 'quid pro quo'and/or equivalence, to qualify as a compensatory tax, the Entry Tax collected from one local areamust be identified to be spent in that local area and in no other area. In Automobile Transport(Rajasthan) Limited (supra) the Supreme Court was concerned with a tax on motor vehicles and nota tax on entry of goods into local areas for consumption, use or sale therein. In Jindal Stainless Ltd.(2) (supra) also the question of whether tax for entry of goods into a local area for consumption, useor sale therein, could be utilized for the development of another local area was not considered.

Utilization of Entry Tax collected from a local area for consumption, use or sale of goods in that localarea, for development of trade facilities in the rest of the State, would denude the tax of itscompensatory character. The theory of direct and immediate effect and the principle of equivalencecan only be achieved if the amount of Entry Tax collected from one local area is spent for the benefitof the trading people of that local area, or atleast proportionally allocated between that local areaand those other local areas, which the goods subject to levy might enter, for further consumption,use or sale. Significantly, in course of arguments learned counsel appearing for the State did notdispute that it was open to the State to spend the amount collected from one local area in anotherlocal area. This is also apparent from the provisions of the impugned Entry Tax Act.

As noted above, the object of the impugned Entry Tax Act is to provide for the levy and collection oftaxes on the entry of certain goods into a local area in the State of West Bengal, for consumption useor sale therein, and matters connected therewith, for the purpose of creating a Compensatory EntryTax Fund.

The impugned Entry Tax Act facially provides for a levy for the purpose of creating a compensatoryEntry Tax Fund. It also facially indicates some of the purposes for which the proceeds of the EntryTax collected may be utilized, that is, the purposes enumerated under Section 18 most of which, ifread and understood as per their plain meaning pertain to general development of the State, and arewithin the ambit of the general duties of the State to all its tax payers.

In examining the constitutional validity of the provisions of a statute, the presumption is on itsconstitutionality and the onus is on those who challenge the vires of the statute to show that therehas been transgression of constitutional principles. Of course, once a case of transgression ofconstitutional principles is made out and a levy on entry of goods into any particular area is shownto impede free trade, commerce and intercourse throughout the territory of India, the onus wouldshift on the State to show that the levy is in the nature of reimbursement and/or recompense forbenefits provided or to be provided to the tax payer.

It is also well settled that the Court adjudicating a challenge to the validity of the provisions of astatute may, if possible, interpret the provisions of the statute in a manner that saves those



provisions from constitutional invalidity. Needless to state, that in doing so, the Court must be verycautious so that it does not embark upon the legislative functions of enacting or re- enacting the law.However, before reading words into a statute or omitting from the statute words thought to besurplus, the question which the Court should ask itself is, what could be the intention the legislatureand what would the legislature have done, had its attention been drawn to the confusion caused bythe omission or the surplusage.

Thus, a provision conferring very wide and expansive powers on an authority can be read down andconstrued in conformity with the legislative intent that the power should be exercised withinconstitutional limitations. As held by the Supreme Court in Arun Kumar Vs. Union of India reportedin (2006) 286 ITR 89 (SC) where a statute is silent or is inarticulate, the Court would attempt totransmute the inarticulation and adopt a construction which would lean towards itsconstitutionality, without departing from the material of which the law is woven.

Where the plain interpretation of a statutory provision gives a manifestly absurd and unjust result,which could never have been intended by the legislature, the Court may even, 'do some violence' tothe language used by the legislature to achieve the obvious intention of the legislature and save theconstitutionality of the statute and render the same workable. This proposition finds support fromthe judgements of the Supreme Court inter alia in Bhudan Singh Vs. Nabi Bux reported in [1969] 2SCC 481; K.P. Varghese Vs. ITO reported in [1981] 131 ITR 597 (SC); C.W.S. (India) Ltd. Vs. CITreported in [1994] 208 ITR 649 (SC) and Calcutta Gujarati Education Society Vs. Calcutta MunicipalCorporation reported in [2003] 10 SCC 533.

In Narang Overseas Pvt. Ltd. Vs. ITAT reported in [2007] 295 ITR 22 (Bom) the Division Bench ofBombay High Court referred to the observation of the Supreme Court in CIT Vs. J.H. Gotla reportedin [1985] 156 ITR 323 (SC) that:

"Though equity and taxation are often strangers, attempts should be made that thesedo not remain always so and if a construction results in equity rather than ininjustice, then such a construction should be preferred to the literal construction."

The impugned Entry Tax Act appears to be a hastily drafted enactment, fraught with errors, passedin haste, in abdication of essential legislative duties and functions, without sufficient deliberation ordiscussion, with a view to augment revenue, for general development of the State.

There are, as pointed out by Mr. Kapur, glaring errors in various provisions of the impugned EntryTax Act, which render the said provisions unintelligible, particularly Sections 16 and 18(1)(c).

However, it is well settled that grammatical errors, inadvertent omissions and the like are nogrounds to strike down a statute that is otherwise comprehensible and workable. It is also difficult toaccept Mr. Kapur's submission that if the Act contains defects, which render a provisionmeaningless, the Court cannot cure the same. It is true that the Courts should not ordinarilytransgress into the legislative sphere of enactment, re- enactment and amendment. This court may,however, interpret a statutory provision in a manner, that renders the provision workable and



constitutional.

Section 16 as enacted reads as follows:-

"Section 16. Crediting of proceeds to the Fund - The proceeds of the levy under this Act shall first becredited to the Consolidated Fund of West Bengal, and the State Government may, if the StateLegislature by appropriation made by law in this behalf so provides, credit such proceeds to theFund from time to time, after deducting the expenses of collection for being utilized exclusively forthe purposes of this Act." Section 16, as it stands is unintelligible. This Court, therefore, construesSection 16 to read "the proceeds of the levy shall first be deposited to the Consolidated Fund of WestBengal and the State Government may, by appropriation, if the State Legislature, by law in thisbehalf so provides, credit such proceeds to the Fund from time to time, after deducting the expensesof collection, for being utilized exclusively for the purposes of this act"

Section 16 as construed above, read with Sections 15 and Section 18(1) of the impugned Entry TaxAct, casts a mandatory statutory duty and/or obligation on the State Government to appropriate andcredit the proceeds to the Compensatory Entry Tax Fund, provided the State Legislature, by law,provides for such appropriation.

The use of the word 'may' in Section 16 of the impugned Entry Tax Act, would make no difference. Inordinary parlance, 'may' implies discretion. Normally the world 'may' is used when a provision ismeant to be directory where a statutory provision confers power, coupled with performances of apublic duty, as in this case, may would mean 'must' as held by the Supreme Court in DelhiAdministration Vs. I.K. Nanjia reported in (1980) 1 SCC

258. Going by the plain ordinary meaning of Section 18 and the Sub-sections thereunder, many ofthe benefits contemplated therein might, as observed above, be part of the general obligations of theState to its tax payers and the people of the State, for example, construction of roads and bridges forlinking markets, construction of railway over-bridges and subways, supply of electricity and waterand maintaining pollution free environment.

Furthermore, having regard to the obligation cast by Section 18(1) to utilize the proceeds of the levyfor development of or facilitating trade including the purposes specified in Sub-clause (a) to (i), thiscourt may construe the various sub paragraphs, particularly sub paragraphs (a), (c), (f) in harmonywith the statutory obligation to utilize the proceeds of the tax to develop and facilitate trade andcommerce.

The State has a general duty to construct roads and bridges for all its citizens, and utilization of theproceeds of the levy to construct and maintaining roads and bridges throughout the State,irrespective of the trading activities would render the levy a tax to collect revenue. This court maythus construe 'roads and bridges' in Section 18(1)(a), to read special roads and bridges for carriageof goods.



Similarly "construction development and maintenance of linking the market areas" in sub-clause 'c'would make no sense unless the Court reads the word 'roads' or may be 'roads and bridges' as inClause (c) into Sub- section (b), and construe 'roads and bridges' in the manner indicated above.

Utilization of the proceeds of Entry Tax under the impugned Entry Tax Act for the purpose specifiedin Sub-clause (g) of creating, developing and maintaining pollution free atmosphere in theconcerned areas has remote connection, if not, no connection with developing and facilitating tradeand commerce, even though the same might improve the quality of life for citizens. Taxes utilized forkeeping the environment free of pollution, would not qualify as a compensatory Tax. Be itmentioned that individual industries are responsible for ensuring that they conform to theenvironmental norms. Similarly vehicles including those which carry goods, are required to complywith pollution norms.

The cost of railway over bridges and/or subways are substantially borne by the Railways and asargued by Mr. Poddar the purpose specified in Sub- clause (1) of providing financial aid grants andsubsidies to local bodies and government agencies is totally vague and devoid of materialparticulars.

In view of the law laid down by the Supreme Court in Atiabari Tea Company Ltd. (supra), theimpugned Entry Tax must be held to restrict the right to free trade, commerce and intercourse,throughout the territory of India, even though the restriction is reasonable and in public interest.

There can be no doubt that the State Legislature has exclusive power to enact legislation imposing atax on the entry of goods into a local area, for consumption use or sale therein by virtue of Entry 52of List II of the Seventh Schedule to the Constitution of India. However, this power is subject to thelimitations imposed by the Constitution itself, particularly Part XIII thereof.

The imposition of a compensatory tax, being a judicially devised exception to the restrictions ofArticles 301 and 303 of the Constitution of India, the tests judicially enunciated in Jindal StainlessLtd. (2) (supra) to examine whether the impugned tax on movement of goods from one area toanother is, in effect and substance, a compensatory tax, must strictly be applied before the validity ofan enactment imposing the impugned tax can be upheld, notwithstanding non-compliance of therequisites of Article 304(b) of the Constitution of India.

A taxing Statute generates revenue for various developmental and welfare activities. Theexpenditure inter alia for facilities of roads, bridges, public transport, pollution control, sanitation,health care, medical treatment, water supply etc. provided by the State, is met from the revenuegenerated by taxing Statutes.

What distinguishes a compensatory tax is that a compensatory tax is imposed for a specific purposeor a few specific identifiable purposes, to pay for expenses in connection with specific projects,whether completed, in progress or in contemplation, which provide specific, tangible, measurablebenefits to the tax payers as a class and is based on the 'principle of equivalence' and/or 'quid proquo' and/or 'pay for value'. A tax on the other hand generates revenue, but not necessarily for any



specific identifiable purpose.

To clear the test of compensatory tax, the onus lies on the State to show the exact purpose orpurposes for which the levy is imposed, which should be identifiable, measurable, directly beneficialto the tax payers as a class, who in the instant case, would primarily be the traders andmanufacturers of the local area, who import goods from outside the State and/or outside thecountry.

The State has failed to disclose details of projects in contemplation, projects in progress and/orcompleted projects, providing facilities to the trading community, which the levy would pay for, andshow that the expected proceeds of such levy are more or less equivalent to the estimatedexpenditure on such projects. To qualify as a compensatory tax, the Statute imposing the tax mustfacially indicate that the tax is a recompense for identifiable, measurable benefits to the class of taxpayers as a whole on the principle of equivalence. If the statute does not contain particulars of thecorresponding benefits in return for the tax, details may be disclosed by affidavit.

It is reiterated that a compensatory tax would not cease to be a compensatory tax, only because ofsome excess collection, which may have to be diverted towards the revenue of the State. However,imposition of the tax would necessarily have to be preceded by the exercise of ascertaining theapproximate financial requirements for specific and/or earmarked projects and balancing the samewith the targeted tax receipts. The State should be able to justify the basis on which the rate of taxhas been determined.

The impugned Entry Tax Act does not indicate the quantifiable or measurable benefits to beprovided in lieu of the levy. The data on the basis of which the compensatory tax is sought to belevied is neither disclosed in the impugned Entry Tax Act or the Affidavit-in-Opposition filed by theState.

There being no disclosure of the quantifiable benefits or the proportionality of the levy to thequantifiable benefits, either in the impugned Act or by way of affidavit, the tax does not meet thetest of compensatory tax, even though the tax imposed by the impugned Act may be in publicinterest, and perhaps reasonable too.

The previous sanction of the President of India not having been obtained, before enactment of theimpugned Entry Tax Act, this court is constrained to hold that the impugned Entry Tax Act is ultravires Section 304(b) of the Constitution of India.

The writ petitions are disposed of accordingly.

This Court cannot, but record its appreciation, for the immense assistance rendered to this Court, bythe respective counsel appearing for the parties and in particular Mr. Avrotosh Mazumdar for theState and Mr. Poddar, Mr. Kapur and Mr. Khaitain for the writ petitioners, by their tireless andcommendable hard work.



(INDIRA BANERJEE, J.) LATER On the prayer of Mr. Majumder, there will be stay of the operativepart of this Judgement and Order for a period of six weeks from date.

(INDIRA BANERJEE, J.)



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Bharti Airtel Ltd vs the State of West Bengal & Ors on 24 June, 2013