In the Supreme Court of India Civil Appeal Jurisdiction Case No. Civil Appeal No. 3453/2002 Date of the Judgment Decided on 11th November, 2016 Appellant Jindal Stainless Ltd. & Anr. Respondent State of Haryana & Ors. Bench Justice A K Sikri, Justice Bobde, Justice T S Thakur, Justice N V Raman, Justice Shiva Kirti Singh
1. Jindle Ltd. Is a part of a product manufacturing industry within the state of Haryana. It imports the raw materials for production purposes and exports the financial goods to other states.
2. The Haryana Local Development Act, 2000 provides for levy and collection of entry tax, tax levied on the entry of goods in the states for the consumption or use therein. As amended in 2003, in Section 22 of the act provided for the collection for the development of local areas instead of the utility above.
3. The Petitioner challenged the constitutional validity of the Haryana Local Area Development Act, 2000 before a Division Bench of the Supreme Court which was further reffered to a highr bench.
1. Whether the power to impose tax is the sovereign right of the state.
2. Whether the entry state is a tax or a fee.
3. Whether there was unreasonably high rate of tax.
4. Whether there are any limitation in this regard in the Constitution.
5. Whether the use of expression “by virtue of any entry relating to trade and commerce” appearing in Article 303 are wide enough to include entries relating to levy taxes.
6. Whether Non-Discriminatory tax serves as a restriction on free trade and commerce.
The essence of compensatory tax is that the service rendered or facilities. By this view, a tax law which does not serve its purpose of free trade and commerce can not be designated as a compensatory tax. Thus, this can be taken as a correct test to differentiate a ‘Compensatory tax’ from a regular tax. The Hon’ble Supreme Court in various cases has explained the difference between tax and a compensatory tax, Supreme Court has also evolved the concept of Compensatory Taxes but it went in the opposite direction. Thus, it needs to be overruled.
It is not necessary that a quid pro quo should be maintained. In case of levying of certain fees, a quid pro quo is there more than it is there in a regular tax but not to the extend as in the case of a fee. As a result of a chain of decisions, even the concept of fee has undergone a sea of change from essentially a quid pro quo to a casual relation with the services. So, the interpretation of theextend to which compensation exists in a compensatory tax needs to be evolved taking note of recent developments and thus, the principles of suggested by the Bhagatram case are consistent with the contemporary thinking. The entry tax does not have a limited range of facility as the entries 56, 57, 59 of the Part-II of the schedule 7 which indicates a link to road, waterways, bridges, etc. On the other hand, an entry tax has a link with local areas as well, which provides for certain amenities for better living. Accordingly, the entry tax aims at enabling and facilitating local bodies in discharging their multiple functions. So, the compensatory nature of the entry tax has to be adjudged keeping in mind these facilities provided by the local bodies.
Apex Court while giving an answer in affirmation held that yes it is the sovereign right of the state. In Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., Court while laying emphasis also explained that even thought it is a sovereign right but it has to be exercised in accordance with the framework established by the constitution. Apex Court held that no matter whether the tax is high or low it doesn’t constitute to be restriction under Article 301 of the Constitution. It was observed by the Court that levy of tax is both attribute of sovereignty and unavoidable necessity. Court held that merely because there are entries related to trade and commerce and not in themselves sufficient in character to levy taxes.
Court held that such a thing doesn’t constitute to form a restriction on Article 301 of the Constitution of India. Further the intention of the Article thus, clearly is that where a tax exists on goods imported into a state there should be a special statue which should empower the legislature to impose such tax. Court held that such a thing doesn’t constitute to form a restriction on Article 301 of the Constitution of India. Further the intention of the Article thus, clearly is that where a tax exists on goods imported into a state there should be no discrimination between such a tax and a tax on similar goods manufactured or produced in the importing state.
Supreme Court before discussing the said concept and prior to making analysis went to the historical backdrop to analysis the reasoning and the mindset of the constitutional makers behind the said provisions and for that very purposes while analyzing various case laws in great details court reiterated the well established concept that the Indian Constitution is quasi federal in character the concept even constitutes to be a part of basic structure doctrine and reliance was placed on S.R. Bommai v. Union of India and Kaeshvananda Bharti v. State of Kerala. Court further stated that a co-joint reading of Article 301 and Article 302 led to clear implications that legislature have the power impose restrictions with regard to freedom of trade and commerce. The only restrictions with regard is that Parliament can’t make a legislature which is discriminatory in nature or give a special preference to one state over other.
Court then went into the chronological development that took place since the inception in this regard i.e. tax on inter state sale and movement of goods. The first decision that was referred by the court i.e. tax on inter state sale and movement of goods. The decision that was referred by the court was M.P. v. Sunderaremier v. State of Andhra Pradesh in which a writ petition was filed under Article 32 of the Constitution of India whereby the tax on interstate sale of yarn was challenged and the contentions of the assessee was that freedom guaranteed under Article 301 also include the freedom from taxation as any such imposition of tax will offend that guarantee. The court in the said case found it to be suffering from the infirmities and discarded the argument of the assessee. While another view came after 3 year this judgment in the case of Atiable Tea Company case, where the constitutional validity of the Assam Taxation Act, was challenged and it was held that it was constitutionally invalid as it is in direct contravention with Article 301 of the Constitution.
The said justice while agreeing with the chief justice held that taxes are not a restriction on freedom of trade commerce and intercourse. Further on this point he stated that if this would be considered to be a restriction than even paying a charge of bus ticket would be considered to restriction on freedom of movement. Further while giving the same reasons for the question so formulate in the said case as given by the chief justice he gave a concurring judgment.
Shiva Kirti Singh Judge
The said justice while giving a concurring judgment held that Atiabari’s case one was required to apply the test of “direct or immediate” effect of Entry Tax. If it restricts freedom of trade and commerce, it had to be struck down. Since such a view did not permit certain levies imposed by the State legislature to provide better facilities for interstate trade and commerce, the concept of regulatory and compensatory taxation was advanced as a permissible exception, by the majority view in Automobile Transport case. Now even the said concept as discussed by CJI doesn’t have any application as every tax is compensatory in nature. But there has to be some level of limitation in freedom of trade and commerce and the only limitation in that regard in the one enumerate under art. 304(a).
He further expressed that law laid down in Atiabari case as well as in Automobile Transport case is no longer a good law and a non discriminatory tax is not a restriction under article 301.
Justice expressly stated that state legislature are free to exercise their taxing powers without the need of declaring and showing that taxes imposed by them are for the benefit of concerned traders or manufacturers but such taxes must be non- discriminatory in nature. To ultimately reach compliance with the constitution, the tax must pass the twin tests embodies in Article 304(a)-
1. Similar goods produced locally must be subjected to similar tax and,
2. Such state action should not attract the vice of discrimination between the two varieties of goods.
According to me, the State should be free to impose any such entry taxes without unreasonable discrimination. Constitution has itself given this power to states to impose such taxes. But while impose such taxes state should always think about reasonable classification.