THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON'BLE SRI RAMESH RANGANATHAN WRIT PETITION No.12455 of 2005 and bt
Ms.Vijaya Traders, Kadapa, represented by its Managing Partner
The Commercial Tax Officer-I, Kadapa And others
Counsel for Petitioners: Ms.S.Krishna Murthy, Shaik Jeelani Bash, and others
Counsel for Respondents: Sri A.V.Krishna Kaundinya and Sri P.Balaji Varma
:COMMON ORDER: (Per Hon'ble Sri Justice V.V.S.Rao)
PART - I
The challenge in these writ petitions is to the Andhra Pradesh Tax on Entry of Motor Vehicles into Local Areas Act, 1996 (A.P.Act No.26 of 1996) (the Act, for brevity). Though the attack is against the constitutional vires of charging Section 3 of the Act, without which the other provisions cannot survive, the entire Act may have to suffer invalidation if the petitioners succeed in these cases.
The following background of these cases is taken from W.P.Nos.1564 of 2009, 6713 of 2010 and 2348 of 2011.
(A) W.P.No.1564 of 2009
The petitioner, a company having its registered office at Hyderabad is engaged in the business of civil contracts, consulting and engineering. They are registered dealers under the Andhra Pradesh Value Added Tax Act, 2005 (the VAT Act, for brevity) on the rolls of the Commercial Tax Officer, Jubilee Hills Circle. M/s.Patel Soma JV awarded them works contract of left main canal of Polavaram Project and Hiramandalam Reservoir of Vamsadhara Project. The contract inter alia includes excavation, lining the canal and construction of CM and CD works. For these works, the petitioner purchased three wheel loaders viz., Model TWL-3036 with 2.00 cum Bucket and Kit from M/s.Telco Construction Equipment Limited, Jamshedpur. The petitioner approached the road transport authority (RTA), Rajahmundry for registration of the vehicles. He insisted for payment of entry tax at 12.5% of the value of the wheel loaders. The petitioner would contend that the tax proposed under Section 3 of the Act restricts inter-State trade and commerce in violation of Articles 301 and 304(a) of the Constitution of India (hereafter, the Constitution). According to the petitioner, the levy is not a compensatory tax and therefore, is not saved by Article 304(b) of the Constitution, that the impugned Act in the absence of Presidential assent, is a device to circumvent the State's disability to tax inter-State purchases prohibited by the Articles 269 and 286 of the Constitution.
(B) W.P.No.6713 of 2010
M/s.Kesoram Cements is in the business of manufacture and sale of cement. They are dealers under the VAT Act. During 2007-08 and 2008-09 the petitioner purchased earth moving equipment, rear dumpers from M/s.Bharat Earth Movers, Mysore worth Rs.6,53,56,704/- for the purpose of mining limestone. According to them, they are not motor vehicles, they are used at the mines or factory enclosure, no registration is required under Motor Vehicles Act, 1988 (the MV Act, for brevity) and, therefore, the impugned Act has no application to earth moving equipment which cannot be considered as motor vehicles. However the Assistant Commissioner, Karimnagar, acting upon the report dated 15.07.2009 of the Regional Vigilance and Enforcement Officer, Hyderabad, issued show cause notice dated 21.12.2009 proposing to levy tax under the impugned Act. The petitioner submitted objections on 29.12.2009. The Assistant Commissioner by assessment order dated 23.10.2010 confirmed the levy. Being aggrieved, the petitioner filed the writ petition. The petitioner would contend that the impugned Act is violative of Articles 301 and 304(a). It is further contended that the impugned Act is in pari materia with the Andhra Pradesh Tax on Entry of Goods into Local Areas Act, 2001 (hereafter A.P.Act No.39 of 2001), which has been declared unconstitutional by a Division Bench of this Court in M/s.Rayalaseema Alkalies and Allied Chemicals v State of Andhra Pradesh1. When there is no levy of entry tax on the movement of vehicles produced in Andhra Pradesh entering into local area from another local area within the State, levy of entry tax on the vehicles imported into the State of Andhra Pradesh is discriminatory and is not saved by Article 304(a). The State has no legislative competence to enact a law and it is only Parliament which can impose restrictions on the freedom of trade, commerce and intercourse in public interest or on account of scarcity of goods in any part of the country. The tax levied under the impugned Act is not compensatory tax and, therefore, it cannot be sustained. The charging provision would be operative only when the government notifies the rate of entry tax, no such notification has been issued under Section 3 and the levy of tax at 12% is without any authority of law.
(C) W.P.No.2348 of 2011
M/s.Srinivasa Stone Crusher, a proprietary concern engaged in the business of stone crushing is the petitioner in W.P.No.2348 of 2011 for their quarry operations - excavating earth and crushing the quarried stones. The petitioner purchased Truck Mounted Chain Run Hydraulic Excavator/Crawter Driller from M/s.L&T Komatsu Limited, and M/s.Atlas Copco (India) Limited, Bangalore. The invoice value includes Central Sales Tax at 2%. The Government of Andhra Pradesh issued notification vide G.O.Ms.No.27, dated 09.05.2007 under Section 3 of the Andhra Pradesh Act No.39 of 2001 notifying that the tax shall be levied and collected on the entry of goods inter alia on excavators and other earth moving equipment at 12.5%. In Rayalaseema Alkalies, this Court struck down the said Act. The Commissioner of Commercial Taxes (hereafter, the CCT) issued a Circular dated 24.10.2008 instructing the officers of the Department to levy and collect entry tax on all motor vehicles including excavators, if such vehicles satisfied the definition of motor vehicles under Section 2(28) of the MV Act. Based on the said circular, the CTO, Nandigama Circle, Vijayawada issued the impugned assessment order dated 21.10.2010 levying the tax on the hydraulic excavator and crawter drillers.
In all other writ petitions, the allegations are similar. The common contention raised in all the cases is that the vehicle/construction equipment purchased by them outside the State are not motor vehicles because they are not adapted for use on the road and/or because they are used in enclosed premises.
(D) The case of the State
The CCT filed counter affidavit on behalf of the State in W.P.No.2348 of 2011 taking the following pleas. The limitation imposed by Article 301 is lifted when the tax is imposed on goods imported from other States or Union Territories when similar goods manufactured in the State are also subjected to such levy. The non-discriminatory levy under the impugned Act does not violate Article 304(a). The ban under Article 303(1) stands lifted even if discriminatory restrictions are imposed by the State legislature provided, it fulfils three conditions, namely, such restriction shall be in public interest, they shall be reasonable and shall be subjected to procurement of prior sanction of the President before introduction of the bill. The Act does not discriminate between the motor vehicles produced locally and motor vehicles imported from other States. It ensures that the ultimate tax burden on both types of motor vehicles is equal. The Presidential assent is not required as it is not tax that falls under Article 304(b). The Statement of Objects and Reasons appended to the Bill introducing the Act would show that failure of implementation of uniform floor rates by some of the neighbouring States resulted in diversion of trade, crippling the business activities of local dealers and causes loss of revenue. The Act was enacted, in order to prevent such losses, to create a uniform level playing field between the dealers of the State and dealers of outside State, and to ensure that the total tax burden on the locally produced motor vehicles as well as motor vehicles imported from other states is equal. The CCT who is arrayed as respondent in all the cases filed a separate counter. In addition to the pleas taken by the State, a further plea is raised to the effect that the impugned levy is compensatory tax not requiring previous sanction of the President. The CCT further contends that local bodies have been taking up programmes relating to laying of roads, upkeep of roads, installation of street lights, supply of water, maintenance of sanitation within the local area. They need huge funds for implementing these schemes. There is resource crunch. The local bodies especially the villages are not able to generate their own resources to meet the growing expenditure towards amenities and facilities. There is a need for funding the local bodies to discharge the statutory obligations. The laying of roads would ensure free flow of trade and commerce. Establishment of market yards, water ways and other infrastructure facilities will attract more trade from other States. The substantial allocation of funds is to be met by the State and therefore, entry tax is compensatory and regulatory in nature. Denying the allegation of the petitioners, it is stated that excavators and road rollers are motor vehicles, and therefore, the CCT issued a clarificatory circular informing the subordinates the decision of the Supreme Court in M/s.Bose Abraham v State of Kerala2. They were advised to levy tax on these vehicles after examining each case.
PART - II
SUBMISSIONS AND ISSUES
M/s.S.Krishna Murthy, R.Raghunandan, V.Bhaskar Reddy, S.Dwaraknath, Shaik Jeelani Basha, M.V.J.K.Kumar and B.Srinivas made submissions on behalf of the petitioners. M/s.A.V.Krishna Kaundinya and P.Balaji Varma, the Special Counsel for Commercial Taxes defended the impugned Act. Both the parties referred to various precedents which are adverted to infra. Following is the summary of the petitioners' submissions.
(A) There is no specific entry in List II enabling the State to make a law levying tax on entry of motor vehicles into local areas although entry 52 deals with levy of tax on entry of goods into local areas. MV Act coming under entry 35 of List III takes in its fold the mechanically propelled vehicles on which taxes are levied and therefore, the impugned Act is a colourable piece of legislation.
(B) The impugned Act is violative of Part XIII of the Constitution. Levy of entry tax on imported motor vehicles is discriminatory and contravenes Article 304(a). In the absence of sanction of the President of India under Article 304(b), it does not stand exempted from Article 301 as levy tax only on the vehicles brought for use or sale, is an unreasonable restriction and is not in public interest. Under Section 3 read with Section 4 of the impugned Act, entry tax is levied on the vehicles brought from other States and there is no similar levy on goods moving from one local area to another local area in Andhra Pradesh.
(C) The levy under the impugned Act is not compensatory in nature. The State has not discharged the required burden of proof by placing evidence to show that the levy is intended to regulate the business and that the tax collected is spent for providing trade friendly facilities.
(D) Alternatively and at all times, the levy under the Act is unconstitutional. Various machines/vehicles involved, are not motor vehicles within the meaning of Section 2(28) of the MV Act.
The summary of the contentions made by the Special Counsel for the State is as follows.
(A) In Jai Prakash Associates v State of Madhya Pradesh3, the Supreme Court held that precedents dealing with compensatory tax in transportation cases do not apply to general notion of entry tax. Therefore, the three leading decisions of the Supreme Court on compensatory tax are not of any help to test the vires of the impugned Act.
(B) The legislative entries have to be given widest meaning. Entry 52 of List II deals with levy of tax on sale or purchase of goods into local areas. This includes motor vehicles that are imported from other States. The impugned Act is, therefore, not a colourable piece of legislation nor Andhra Pradesh State lacks legislative competency.
(C) Maharashtra Tax on Entry of Motor Vehicles Act, 1997 (the Maharashtra Act) an in pari materia legislation was upheld in Jaika Automobiles Private Limited v State of Maharashtra4. The Supreme Court affirmed the Bombay High Court Judgment in Shaktikumar M.Sancheti v State of Maharashtra5. When 'in pari materia' legislation has been upheld by the Supreme Court, the Act is not open to challenge.
(D) The impugned Act does not directly and immediately restrict or impede trade nor have the petitioners demonstrated any such impediment to the trade carried on by them and therefore, it does not violate Part XIII of the Constitution.
(E) The impugned Act is non-discriminatory. The VAT Act does not exempt similar motor vehicles in Andhra Pradesh from payment of VAT nor there is any exemption granted by the State to the motor vehicles imported into the State from payment of VAT. As the tax levied by the impugned Act is non- discriminatory, it is saved under Article 304(a).
(F) The entry tax on motor vehicles is compensatory in nature. The tax collected is for the development of trade friendly infrastructure facilities for promotion of development of trade, and therefore, the Act is immune from challenge on the ground that it is violative of Part XIII of the Constitution. (G) All the vehicles involved in these cases are motor vehicles as held by the Supreme Court in Bose Abraham and, in any event, the same is a question of fact. The vehicles not being motor vehicles are not decisive of the vires of the impugned Act.
The various submissions and points can conveniently be dealt with under three main headings - (i) Legislative Competence;
(ii) Freedom of trade and commerce; and (iii) The nature of the vehicles.
PART - III
ANALYSIS OF THE IMPUGNED ACT
(1) The Scheme of the Act
The Act provides "for the levy of tax on entry of motor vehicles into local areas in the State of Andhra Pradesh". It has seven chapters and 31 Sections. Chapter I contains title and the dictionary clause; Chapters II and III contain the charging Sections and the machinery provisions. Chapters IV, V and VI contain incidental or supplemental machinery provisions dealing with filing of returns, appeals/revisions, imposition of penalties and power to check and impound the motor vehicles on import. Chapter VII creates bar for registration of motor vehicles unless there is tax compliance. It also creates offences for certain breaches. Section 30 confers delegated legislative power on the Government of Andhra Pradesh.
(2) The objects and reasons
In the pre-VAT regime, the rates of General Sales Tax besides being umpteen slab rates, were not uniform in various States. Depending on the exigencies, the States frequently increased/decreased rate of tax on various goods sold and purchased in the State under the respective sales tax laws. The customer psychology to procure the same quality of goods at lesser rates prompted them to purchase the goods at low tax in the neighbouring States and bring them for use in the State of Andhra Pradesh, inevitably denying it general sales tax in respect of the vehicles purchased in neighbouring States. To get over the situation, the States of Karnataka, Kerala and Tamil Nadu introduced entry tax on motor vehicles as well as other goods. In 1987, the Andhra Pradesh Entry of Goods into Local Area Tax Act was passed which received the assent of the President. Under this enactment, entry tax was introduced on Textiles, Tobacco and Sugar. The Act was, however, repealed in April, 1990. Half a decade thereafter, the State of Andhra Pradesh again decided to levy entry tax, "on motor vehicles only to plug leakage of revenue".
(3) The Conspectus of relevant provisions
The existence of levy of tax in point of law, generally depend on four components which enter into the concept of tax. These are: (i) the character of the imposition known by its nature which prescribes the taxable event attracting the levy; (ii) the indication of the person on whom the levy is imposed and who is obliged to pay the taxes; (iii) the rate at which the tax is imposed; and (iv) the measure or value to which the rate will be applied for computing the tax liability (Govind Saran Ganga Saran v CST6). In CIT v Suresh N. Gupta7 the Supreme Court indicated that a tax law generally contains (i) the charging section; (ii) a computation section; (iii) a procedural section for assessment; (iv) limitation provision for completion of assessment; and (v) the provisions for imposition of interest and penalty. To be compliant with Article 265 of the Constitution, the legislative scheme of the tax law must be free from uncertainty or vagueness in defining any of the four components of the levy. So as to appreciate the contentions in these cases, we may analyse the impugned Act with reference to four components of levy of the entry tax. The relevant provisions which need to be read are certain terms as defined in Section 2 and Sections 3 and 4.
Section 2. Definitions
(d) 'entry of motor vehicle into a local area' with all its grammatical variations and cognate expressions, means entry of motor vehicle into a local area from any place outside the State for use or sale therein; (e) 'General Sales Tax Act' means the Andhra Pradesh General Sales Tax Act, 1957 (Act No.VI of 1957);
(g) 'Importer' means a person who brings a motor vehicle into a local area from any place outside the State for use or sale therein or who owns the vehicle at the time of its entry into the local area;
(h) 'Local area' means the area of jurisdiction of a local authority; (i) 'local authority' means the area within the limits of, a city as declared under the Hyderabad Municipal Corporation Act, 1955, or the Visakhapatnam Municipal Corporation Act, 1979, or the Vijayawada Municipal Corporation Act, 1981 or any other Municipal Corporation in the State, as in force or a municipality as constituted or deemed to have been constituted under the Andhra Pradesh Municipalities Act, 1965, or any notified area, as declared under Section 389-A of the Andhra Pradesh Municipalities Act, 1965 or the area within the limits of Gram Panchayats, under Andhra Pradesh Panchayat Raj Act, 1994; (j) 'motor vehicle' means a motor vehicle defined in clause (28) of Section 2 of the Motor Vehicles Act, 1988 (Central Act 59 of 1988);
(n) 'purchase value' means the value of a motor vehicle, as ascertained from the original invoice and includes the value of accessories fitted to the vehicle, insurance, excise duties, countervailing duties, sales tax, transport fee, freight charges and all other charges incidentally levied on the purchase of a motor vehicle:
Provided that, where the purchase value of a motor vehicle is not ascertainable on account of non-availability or non-production of the original invoice or when the invoice produced is proved to be false or if the motor vehicle is acquired or obtained otherwise than by way of purchase, then the purchase value shall be the value or price at which a motor vehicle of like kind or quality is sold or is capable of being sold, in open market;
Section 3. Levy of Tax: (1) Subject to the provisions of this Act, there shall be levied and collected tax on the entry of any motor vehicle into any local area for use or sale therein which is liable for registration in the State under the Motor Vehicles Act, 1988.
The tax levied shall be at such rate or rates as may be fixed by the Government, by notification, on the purchase value of the motor vehicle but not exceeding the rates specified for motor vehicles in the First Schedule to the General Sales Tax Act, 1957:
Provided that no tax shall be levied and collected in respect of any motor vehicle which was registered in any Union Territory or any other State under the provisions of the Motor Vehicles Act, 1988, prior to period of fifteen months or more from the date on which it is registered in the State: Provided further that no tax shall be levied and collected in respect of any motor vehicle which is owned by Central Government and is used exclusively for the purposes relating to the Defence of India.
(2) The tax shall be payable by the importer in such manner and within such time as may be prescribed.
(3) Where the motor vehicle is taken delivery of, on its entry into a local area or brought into a local area by a person other than importer, the importer who takes delivery of the motor vehicle from such person shall be deemed to have brought or caused to have brought the motor vehicle into the local area.
Section 4. Reduction in tax liability: (1) Where an importer of a motor vehicle liable to pay tax under this Act, being a dealer in motor vehicles, becomes liable to pay tax under the General Sales Tax Act, as a result, of the sale of such motor vehicle, then the amount of tax payable under the General Sales Tax Act, shall be reduced by the amount of the tax paid under this Act. (2) An importer, other than a dealer, liable to pay tax under this Act, causes entry of motor vehicle into a local area for use or sale therein, shall pay tax to such authority, as Commissioner may notify within fifteen days from the date of entry of such vehicle into a registration of the said vehicle or assignment of a new registration mark to such vehicle under the Motor Vehicles Act, 1988 whichever is earlier.
(3) Where an importer who, not being a dealer in motor vehicles, had purchased a motor vehicle for his own use in any Union Territory or any other State, then the tax payable by him under this Act, shall, subject to such conditions as may be prescribed, be reduced by the amount of tax paid, if any, under the law relating to General Sales Tax in force in that Union Territory or State.
The charging provision, Section 3, indicates the character of imposition, the person who is liable to pay the entry tax and the measure of the tax as well as the rate of tax. The tax is leviable only on a motor vehicle liable for registration in the State under MV Act, and as per Section 2(j), 'motor vehicle' will have the same meaning as in Section 2(28) of the MV Act. Levy is on the "entry of any motor vehicle" into local area, which means the area of jurisdiction within the limits of a city or municipal corporation, municipality or gram panchayat. Further reading sub-sections (1), (2) and (3) of Section 3, would reveal that the tax is payable by the importer of the motor vehicle and where the motor vehicle is taken delivery on entry into local area by a non- importer, the importer who takes delivery shall be deemed to have brought or caused to have brought the motor vehicle into local area. Thus, whenever a vehicle is imported by a person into local area from any place outside the State for use or sale, such person alone is liable. The intention "to use or sell" the motor vehicle in Andhra Pradesh appears to be crucial. It can be argued that if any motor vehicle enters the local area without intention of its owner using it or selling it in the State of Andhra Pradesh, entry tax cannot be levied. If a vehicle enters the State of Andhra Pradesh without any intention whatsoever on the part of its owner to use or sell in the State, the same is not exigible to entry tax. It is also not exigible under A.P.Motor Vehicles Taxation Act, 1963 (the MV Taxation Act, for brevity) (State of Mysore v Sundaram Motors Private Limited8 and International Tourist Corporation v State of Haryana9). The entry of motor vehicle may be for the purpose of use or sale. Whoever be the person who brings a motor vehicle into local area for use or sale is the person on whom levy is imposed. What is the rate and measure of tax? It is left to the Government to notify the rate of tax. In this regard, there is a non-variable factor and variable factor. The non variable is the rate of tax as fixed by the Government not exceeding the rates specified for motor vehicles in the First Schedule to Andhra Pradesh General Sales Tax Act, 1957 (the Sales Tax Act, for brevity). The variable factor is the measure of entry tax which is the purchase value of the motor vehicle. As per Section 2(n) of the Act, 'purchase value' means the value of a motor vehicle as ascertained from the invoice. This value also includes the value of accessories fitted to the vehicle, insurance, excise duties, countervailing duties, sales tax, transport fee, freight charges and other charges incidentally levied on the purchase of a motor vehicle. The two provisos to Section 3(1) describe exempted category of motor vehicles for the purpose of levy of entry tax. These are the motor vehicles registered either in the Union Territory or any other State under the provisions of MV Act prior to period of fifteen (15) months or more from the date on which it is registered in the State of Andhra Pradesh and second category is those vehicles owed by the Central Government and used exclusively for the purposes relating to the Defence of India.
The measure of tax is further dealt with by Section 4. It is to the effect that if an importer of motor vehicle pays the general sales tax, the said amount shall be given credit while levying and collecting the entry tax. Further, when an importer for his own use had paid sales tax in Union Territory or any other State where it was intended to be used, the entry tax shall be reduced by the amount of such tax already paid. Other provisions are mainly machinery provisions. The enforcement of the Act is entrusted to the machinery under the Sales Tax Act including the appeal/revision system as well as recovery procedures. It may be noticed that tax machinery by which entry tax is assessed and collected adopting procedures under the Sales Tax Act, is no indication regarding the character of imposition. We will advert to this aspect when we consider the question of legislative competency. Suffice to mention that the impugned Act is intended to plug the leakage of revenue, as the motor vehicles imported into local areas from other States, were charged to a low rate of tax in comparison with single point tax of 16% on motor vehicles under the Sales Tax Act.
PART - IV
(1) Principles of Law
(i) Doctrine of Colourable Legislation
Whether the impugned Act comes under Entry 52 of List II of the Seventh Schedule to Constitution and whether it is a colourable piece of legislation? The doctrine of colourable legislation is that although apparently legislation is purportedly within the limits of the powers of the legislature, yet in substance and in reality, it transgresses these powers (K.C.Gajapati Narayan Deo v State of Orissa10 and B.R.Shankaranarayana v State of Mysore11). The doctrine resolves itself into a question of competency of the legislature to enact the impugned legislation. If the legislature has transgressed the limits of its powers and if such transgression is indirect, covert or disguised, such legislation is described as colourable in legal parlance. In other words, if in pith and substance, the legislation does not belong to the subject falling within the limits of its powers but is outside it, the mere form of legislation will not determine the legislative competence (Ashok Kumar v Union of India12). The colourable exercise of legislative power is inseparably connected with the issue of legislative competence and what cannot be done directly is not permitted to be done indirectly. It is always a different question as to whether the law made by the Parliament or the State legislature suffers from any other infirmities, namely, legislative incompetence, breach of fundamental rights and/or unconstitutionality (State of Andhra Pradesh v McDowell and Company13 and Gujarat Ambuja Cements Limited v Union of India14).
The doctrine of colourable legislation can be invoked only when there is a doubt about the legislative competence to enact the impugned statute. Once a conclusion is reached by the Court that the State has the requisite legislative competence to enact the law, the enquiry must end there. The Court cannot extend its enquiry into the issue of transgression of limitations of constitutional power merely because the legislation incidentally covers the subject matter of another legislative entry in the Union list or Concurrent list. 'The distinction in regard to the power of a law making authority which is of qualified character and the power granted to the legislative authority which is absolutely without any limitation and restriction being plenary in character' cannot be ignored (State of Kerala v Peoples Union for Civil Liberties15 (PUCL)). (ii) Legislative Competence
There is no gainsaying that under Article 246(2) and (3) subject to other provisions of the Constitution, State has the power to make laws with respect to any matters enumerated in the Concurrent List subject to Article 246(1) and/or exclusive power to make laws with respect to any of the matters enumerated in the State List of the Seventh Schedule to the Constitution. The Court's scrutiny for the requisite competence is based on well evolved principles or tests. In Gujarat Ambuja, the apex Court summarized the following principles. (a) The substance of the impugned Act must be looked at to determine whether it is in pith and substance within a particular entry whatever its ancillary effect may be; (b) Where the encroachment is ostensibly ancillary but in truth beyond the competence of the enacting authority, the statute will be a colourable piece of legislation and constitutionally invalid; and
(c) Apart from passing the test of legislative competency, the Act must be legally valid and would also have to pass the test of constitutionality in the sense that it cannot be in violation of the provisions of the Constitution nor can it operate extraterritorially.
The federal distribution of legislative powers between the Parliament and the States more often than not throws up the question of their competence. In this area also, the tests to be applied are well settled. The important aspect in this regard is that the residuary power is vested in Parliament alone. The Parliament can make laws under Article 248 read with Entry 97 of the Union List in respect of all matters which are not specifically included in the State list. Even if the subject is not specifically enumerated in the Union list, the words "any other matter" in entry 97 of Union List and Article 248 confer power on the Parliament. Therefore when the Parliamentary legislation is challenged, it would be enough to see if such law does not fall within the State list subjects. After examining the State list, if it is not possible to say that the legislation comes under any of the entries therein, enquiry should stop there, and a conclusive presumption in favour of the Parliament's competency is to be drawn (Union of India v H.S.Dhillon16 and Attorney General for India v Amratlal Prajivandas17).
The test to be applied in a case of challenge to the law made by the State legislature is slightly different. The issue is resolved by looking to the substance of the matter. If in pith and substance, the State law is with any of the matters enumerated in the State list even if it incidentally embraces any subject in the Union List or any matter specifically assigned by the Constitution to the Parliament, such incidental encroachment is to be ignored. The pith and substance and legislative competence is to be determined with reference to the object of the enactment and on a scrutiny it is found that the law has substantial connection with a legislative entry, it should be taken as legislation on the topic (Praphullakumar Mukherjee v Bank of Commerce18, Thakur Amar Singhji v State of Rajasthan19, Delhi Cloth Mills v Union of India20 and All India Federation of Tax Practitioners v Union of India21). (iii) Interpretation of legislative entries
The Parliament and Legislature of the States are empowered to make laws on the subjects enumerated in Union List and State List respectively. Both of them are also competent to make laws with regard to the entries in the Concurrent List. All the four clauses of the Article 246 use the phrase "with respect to any matters". The use of 'any matter' indicates two things. It is certainly with regard to the subject matter which is mentioned in the entry and secondly it could be any or more number of things about the subject of the entry. Hence, a legislative entry is to be given broad and wide meaning. The plenary legislative power conferred on the Parliament and Assembly of a State under Article 245 read with 246 does not admit narrow and restrictive purport of a legislative entry. As held by seven-Judge Bench in Synthetics and Chemicals Limited v State of Uttar Pradesh22, "it is well settled that widest amplitude should be given to the language of these entries, but some of the entries in different lists or in the same list may over ride and some times may appear to be in direct conflict with each other, and then comes the duty of the Court to find the true intent and purpose and to examine the particular legislation in question. Each general word should be held to extend to all ancillary and subsidiary matters, which can be fairly and reasonably be comprehended in it". In All India Federation, the Supreme Court observed that, "there are two groups of entries in each of the three lists in the Seventh Schedule. In Union List entries 1 to 81 refer to several matters over which Parliament has authority to legislate and entries 82 to 92 enumerate the taxes which could be imposed by law of the Parliament. Similarly, in State List, entries 1 to 44 form one group mentioning the "subjects" on which States could legislate and entries 45 to 63 in that list form another group which deal with taxes." The Supreme Court also observed that, "the clear grouping of entries shows that taxation is not intended to be compromised in the main subject in which an extended construction can be given as the test cannot be applied to taxation. Taxing entries are distinct entries. The enactment of law by the Parliament with respect to the entry in the Union List, therefore, does not prevent the State Legislature from making a tax law if the State is so prompted by any of the entries 45 to 63". Thus, even if a competent State tax law is targeted against the persons or things which are incidentally also subject matter of Parliamentary legislation, still the former has to be sustained.
(iv) Entry 52 of the State List
Entry 52 deals with "taxes on entry of goods into local area for consumption, use or sale therein", whereas entry 57 is concerned with the "taxes of vehicles whether mechanically propelled or not, suitable for use on roads, including the tramcars subject to the provisions of entry 35 of Concurrent List". Indisputably, the MV Act is a Parliament law made under entry 35 of the Concurrent List. There is also no dispute before us that the MV Taxation Act falls within the ambit of entry 57 of the State List. To recall, the submission of the petitioners is that though entry 52 deals with levy of tax on entry of goods, there is no entry for levy of tax on motor vehicles and as the impugned law does not fall within entry 57 in respect of which the State has already enacted the M.V. Taxation Act, the impugned Act is beyond legislative competence. This argument would ignore the settled principles of interpretation of the legislative entries.
Article 366(12) of the Constitution defines "goods" to include all materials, commodities and Articles. The term 'goods' used in entry 52 should be given the same meaning as in Article 366(12). Whether the motor vehicles come within the scope of 'goods'? Article 366(12) defines goods in inclusive manner. It is well settled that when a word is defined to 'mean' something, the definition is prima facie restricted and exhaustive, but where, the word defined is declared to "include" something more, the definition is prima facie extensive. One has to give wide meaning to the term 'goods' in entry 52. Article 366(12) inter alia includes all Articles, commodities and materials. These are not defined in Article 366 or the General Clauses Act, 1897. One has to necessarily refer to the dictionary meaning which is accepted method of interpreting the words and phrases not defined in the Statute or the General Clauses Act. In 'the New Oxford Dictionary of English' (1998, Oxford University Press), these terms are defined as follows. Articles: A particular item or object, typically one of a specified type. Commodities: A raw material or primary agricultural product that can be brought and sold ... a useful or valuable thing. Material: The matter from which a thing is or can be made. Materials: Things needed for an activity.
In Zaffar Md. V State of West Bengal23, the Supreme Court construed the term 'Article' in Section 2(b)(iii) of the Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954 as under.
That a machine is an "Article" requires no great learning either to expound or to understand. A machine is a tangible thing which can both be seen and felt and as such it answers the description of an "Article" within the meaning of Section 2(f)(iii) of the Act. The "Shorter Oxford English Dictionary" (Ed. 1964, Vol. I, p.102) says that "Article" means, inter alia, "a piece of goods or property". Webster's "New World Dictionary" defines an "Article" as a "commodity" and "commodity" as "any useful thing" or "any Article of commerce" (See Ed. 1962, pp. 83 and 295). Putting it simply, a "machine" is a "thing" and is therefore an "Article". Law may not all be commonsense and logic may not be the life of law but commonsense is not taboo in law courts. A machine is after all intended to be and is conceived as a useful thing and is therefore an "Article".
In Commissioner of Income Tax v M/s.Budharaja and Company24, it was held that, the word 'Article' must be understood in its normal connotation and the language cannot be overstrained beyond its normal and ordinary meaning. All the Articles, materials and commodities, which are either used as such or used as raw-material for manufacturing other Articles or materials, are certainly goods within the meaning of Article 366(12) of the Constitution. The goods may be tangible property or intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed (Tata Consultancy Services v State of Andhra Pradesh25 and BSNL v Union of India26). These attributes are in abundance when one look at motor vehicles.
In Circle Inspector (Excise) v K.Mukundan27, a Division Bench of Kerala High Court construing Section 34 of the Kerala Abkari Act held that the word "other Article" in that Section which empowered the competent officer to arrest a person and/or seize any liquor, drug or other Article includes the motor vehicles. The relevant observations are as follows.
It was pointed out that the latter part of the section specifically refers to vehicles when it speaks of the power to search but that the earlier part of the section significantly has omitted any reference to vehicles but has instead used the expression Article. It was therefore urged that 'Article' will not take within, its ambit a 'vehicle'. We are not impressed by this argument. The word Article is wide enough to take in a vehicle as well. The section cannot be interpreted in a manner which would defeat the object and purpose of the Act. A vehicle which has been used for the commission of an offence is certainly liable to be confiscated. So Section 34 which deals with the power of seizure must normally be taken to provide for the seizure of that vehicle also. There is therefore no justification for giving a limited meaning to the word 'Article' and exclude from its ambit vehicle.
There is yet another reason for holding that motor vehicles are goods for the purpose of entry 52. The Sales Tax Act and the VAT Act (with effect from 01.04.2005) indisputably come under entry 54 which deals with taxes on the sale and purchase of goods. Motor vehicles fall within entry I of First Schedule to Sales Tax Act. There is also no dispute that motor vehicles, except tractors, harvesters, tractor trainers28, fall under Schedule V (residuary) attracting VAT rate of 14.5%. In this scenario, the moot question would be when motor vehicles are goods for the purpose of entry 54 (taxes on sale and purchase) why they are not goods for the purpose of entry 52 (entry tax)? The answer is simple. Motor vehicles are goods within the definition of Article 366(12) of the Constitution and therefore, they are goods for the purposes of both the entries 52 and 54. The levy of tax by the State on motor vehicles - be it under MV Act, MV Taxation Act, the Sales Tax Act and the VAT Act is not only as motor vehicles but as goods as well. The entries in the legislative lists should receive widest meaning and any restrictive reading of 'goods' in entry 52 would be contrary to Article 366(12) and has to be avoided. Therefore, on this aspect, we hold that motor vehicles are goods for the purpose of entry 52. The State is competent to legislate under entry 52 even with regard to the motor vehicles or any goods. (v) The plea of colourable legislation
(a) State's Power to tax inter-State trade
Article 286(1) bars the States from imposing tax on the sale or purchase of goods when they take place (a) outside the State and (b) in the course of import or export of goods into or from India. The explanation to Article 286(1) created a legal fiction regarding situs of sale in the case of transactions coming within that category. In Bengal Immunity Company v State of Bihar29, the Supreme Court held that the prohibitions created under various clauses of Article 286 on the taxing power of the State are independent or separate and each one of them had to be got over by the State before imposing tax on inter- State trade. By Constitution (Sixth Amendment) Act, 1955, the explanation to the said Article was omitted and entry 54 of State list was substituted so as to make the State law imposing tax on sale or purchase of goods subject to the provisions of entry 92A of the Union List, which deals with taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. The clause (2) of Article 286 was also amended enabling the Parliament to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). By the Constitution (Forty-sixth Amendment) Act, 1982, clause (3) was substituted.
After the amendment of Article 286 in 1956, Parliament enacted the Central Sales Tax Act, 1956 (the CST Act, for brevity) "with a view to enabling the State Governments to raise additional revenues by levying tax on inter-State transactions which are immune from tax under their respective sales tax laws". The effect of amendments to Constitution and the CST Act is that every dealer is liable to pay CST on all sales effected in the course of inter-State trade or commerce and States no more suffer from the bar of levying and collecting tax on inter-State trade as defined in Section 3 of the CST Act. A person who carries on business of buying and selling the goods is not exempt from paying the sales tax to the State under the CST Act as was the case before 1956, when by reason of unamended Article 286, the States were incompetent to levy and collect tax on the inter-State trade or commerce. Thus, by reason of Article 246(1), (3) and entry 92A, State cannot make a legislation imposing tax on the sale or purchase that takes place in the course of inter-State trade and commerce. It can however levy and collect tax under the law made by the Parliament under entry 92A. It is also within the scheme of the Constitution that a law made by the State referable to Article 286(3) shall be subject to restrictions and conditions as may be specified by parliamentary law. If any Act, though ostensibly falls either under entry 52, 54 or 57, in fact intends to levy tax on inter-State trade and commerce, it would certainly be a colourable legislation. The key is the nature of tax sought to be levied under the State enactment; is it a tax on inter-State trade and commerce or is it any other tax?
(b) Nature of levy
The salient aspects of the impugned Act and the ambit and scope of charging provision have been adverted to supra. From a reading of Section 3, and understanding the words employed therein in the light of the dictionary clause, the conclusion is irresistible that the Act levies no tax on the sale or purchase of motor vehicles. The tax is attracted when the motor vehicle enters a local area. It is to be a motor vehicle and it should be a motor vehicle liable for registration in the State of Andhra Pradesh. Section 39 of the MV Act prohibits any person from driving any motor vehicle unless the same is registered in accordance with Chapter IV thereof. It is altogether a different question as to whether a particular thing is a motor vehicle and whether such motor vehicle is liable for registration in the State of Andhra Pradesh. So far as the nature of levy under the impugned Act is concerned, any person who imports the motor vehicle into any local area is liable to pay entry tax at the rate fixed by the Government on the purchase value of the motor vehicle not exceeding the rate specified for motor vehicles in the Sales Tax Act. A lengthy discourse is not required to say that the entry of motor vehicle for use or sale in the State of Andhra Pradesh is the taxable event. The sale of such motor vehicle in the State subsequently and the payment of tax thereon under the Sales Tax Act/VAT Act have nothing to do with the levy of entry tax under Section 3 of the Act. To say that the levy is in fact on the sale of the vehicle that takes place outside the State is to ignore the obvious. Such an argument does not stand to reason or to logic. The charging provision has to be interpreted strictly. Further, unless the legislation is demonstrably incompetent, the charging Section in a tax law has to be interpreted to sustain its constitutionality if the subject of legislation falls in any of the taxing entries in the State List. As held by the Supreme Court in PUCL, the plenary power granted to legislative authority is absolute, without any limitation or restriction.
'Entry of motor vehicle into local area' is defined in Section 2(d). With all its grammatical variations and cognate expressions, it means the entry of motor vehicle into local area from any place outside the State for use or sale therein. The taxable event is entry of the motor vehicle into local area in State of Andhra Pradesh. Lexicographically, the verb 'enter' means, "come or go into", and 'entry' as a noun means, 'the act of going or coming in' (New Oxford English Dictionary, 2002). There is a palpable difference between the entry of a motor vehicle and the sale of a motor vehicle. The Sales Tax Act defines 'sale' as 'a transfer of property in goods by one person to another person in the course of trade or business for cash or deferred payment'. The term 'sale' is defined in similar terms in the VAT Act as well. When a motor vehicle enters the State, it could be either for use or sale. Both of them may or may not happen immediately. The entry of motor vehicle is one thing and use or sale of motor vehicle is another thing. The mere fact that the use of the motor vehicle attracts tax under the MV Taxation Act is of no significance to the taxable event under the impugned Act. Similarly, the motor vehicle imported from any place outside India into the State of Andhra Pradesh would attract tax under the VAT Act at a subsequent stage when the property in such motor vehicle is transferred to another person. The levy under Section 3 of the impugned Act, therefore, cannot be considered as a tax on sale. Even if the vehicle on import enters a local area for sale, the different considerations with regard to levy may arise but it has no debilitating effect on the charge of entry tax under the impugned Act. On this, we are well supported by the precedent law. The Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979 (the Karnataka Act) suffered invalidation in the Karnataka High Court. The State's appeal, however, was allowed by the Supreme Court in State of Karnataka v Hansa Corporation30. The charging Section 3 therein authorised levy and collection of tax on entry of scheduled goods into local areas. The Supreme Court held that the taxing event under the statute is entry of scheduled goods and that it does not contravene Article 14 of the Constitution. Dealing with this aspect, the Supreme Court observed that, "entry 52 of State List read with Article 246 of the Constitution confers power on the State Legislature to enact a law to levy tax on the entry of goods into local area. The tax is levied on entry of the goods. Though it had broad features of octroi, the obnoxious features of octroi stand removed by the manner of levy, the method of collection and the persons liable to pay the entry tax". In Suresh Chand Sri Gopal v Union of India31, a Division Bench of this Court repelled the challenge to the vires of the Andhra Pradesh Entry of Goods into Local Area Tax Act, 1987 (the AP Act of 1987). Construing Section 4 - the charging Section therein; this Court held that the State Legislature has exclusive power to make a law imposing tax on entry of goods into local area for consumption, use or sale therein; that what is levied is entry tax; that even if there is no provision to make over the collected entry tax to the local authorities, the same cannot suffer any infirmity and that the law for levying tax on entry of goods is not incompetent merely because the State itself collects the levy instead of authorizing/empowering local authorities themselves to levy and collect the tax.
Jaika Automobiles deals with the constitutional validity of Maharashtra Tax on entry of Motor Vehicles into Local Areas Act, 1987 (the Maharashtra Act). A Division Bench of the Nagpur Bench interpreted the charging Section (which is in pari materia with charging Section in the Act impugned herein) as empowering the government to levy and collect entry tax on the purchase value of motor vehicle, entry of which is effected into a local area for use or sale therein. The decision of the Bombay High Court received approval by the Supreme Court in Shaktikumar M. Sancheti, wherein construing the charging Section in Maharashtra Act, it is held.
This section is an illustration of the charge or incidence of tax and the measure of tax rolled in one. It creates liability on the one hand for payment of tax on entry of any vehicle in a local area for use or sale therein and the on the other provides that the amount of tax shall be on the purchase value of the vehicle. The latter part is what is commonly known as the machinery or procedural part pertaining to calculation and realization of tax. The charge is on the entry of vehicle into a local area for use or sale and not on its purchase. The submission founded on the expression, "there shall be levied and collected a tax on the purchase value of a motor vehicle" proceeded thus on a misconception. Therefore, so long as the levy is on the entry of the vehicle into a local area for use or sale therein it cannot be said to be invalid merely because the measure of levy has been provided to the purchase value of the motor vehicle.
In Bose Abraham, inter alia it was contended that the incidence of payment of entry tax before the Registration under the MV Act is not proper. This plea did not find favour with the apex Court which rejected the same observing as under. In the light of the conclusions reached by the High Court and the contentions urged on behalf of the appellant before us, what we have to bear in mind is the scope of Entry 52 of List II of the Seventh Schedule to the Constitution which provides for tax on entry of goods into local area for sale, use or consumption. This Court in the decisions referred to by the learned counsel to which we have adverted to earlier, was concerned only with those cases where tax arising under the motor vehicles tax enactments coming under Entry 57 of List II of the Seventh Schedule to the Constitution fell for consideration. Under Entry 57 of List II of the Seventh Schedule to the Constitution, what is required to be considered is a tax on vehicle which is suitable for use on roads. But the incidence of taxation in the context of Entry 52 of List II of the Seventh Schedule to the Constitution is entry of goods into a local area for sale, use or consumption therein. The essential features thereof being (i) the entry of goods into a definite local area;
(ii) the goods must be for the purpose of consumption, use or sale therein. Section 2(j) of the Act defines "motor vehicle" to mean a motor vehicle as defined in Section 2(28) of the Motor Vehicles Act, 1988 (Central Act 59 of 1988). Subject to the provisions of the Act, Section 3 of the Act enables the levy and collection of tax on the entry of any motor vehicle into local area for use or sale therein which is liable for registration in the State under the Motor Vehicles Act at such rate as may be fixed by the Government. Therefore, in order to attract tax under the provision of Section 3 of the Act, a motor vehicle must have entered into a local area for use or sale therein, and secondly, which is liable for registration under the Motor Vehicles Act. (emphasis supplied)
The charge under the impugned Act is on the entry of the motor vehicles into a local area for use or sale. It is not a tax on the movement of goods. The measure of tax being on the purchase value of the motor vehicle imported into the State, it cannot be held that the legislation is incompetent. The taxable event being entry of the motor vehicle into the local area, even if the tax is on the purchase value of the motor vehicle, the Act is not rendered incompetent. We accordingly hold that the contention that the impugned Act is beyond legislative competence is devoid of any merit and is accordingly rejected.
PART - V
FREEDOM OF TRADE AND COMMERCE
Principles of the Law
Every law made by competent legislature is subject to constitutional limitations. Article 13(2) renders any law void if it impinges, takes away or abridges the fundamental rights. A law made by the Parliament or State Legislature outside the powers assigned under Articles 245 and 246 read with the legislative entries in the seventh Schedule would be ultra vires. Similarly, a law made by the State legislature on a subject in respect of which the power is donated to the Parliament is unenforceable. The State legislature with respect to one of the matters enumerated in the concurrent list would be void to the extent it is repugnant to the law made by the Parliament with respect to the same subject unless the State law has received the assent of the President. Part XIII of the Constitution consisting of Articles 301 to 307, also places limitation on the legislative jurisdiction of the Union and the States. Any law is subject to the other provisions of the Constitution including Articles 301, 302 and 304 which form the core text of what some scholars call 'commerce clause'. The constitutional litigation during the last more than six decades in a number of cases focused on the free trade clause. All the other Articles in Part XIII rally round Article 301, which reads, "subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free". What is guaranteed is throughoutness of trade and commerce in the territory of India and not restricted to inter-State trade and commerce. It imposes a general limitation on all legislative power to ensure freedom of trade and commerce. The guarantee is, however, not absolute nor the freedom envisaged is free from regulations. The dissection of Article 301 shows three interdependent phrases, namely, 'subject to the other provisions of this part', and 'trade, commerce and intercourse throughout the territory of India' and 'shall be free'. Whatever way one reads, the plain meaning is that trade, commerce and intercourse throughout India shall be free subject to Articles 302 to 307 of the Constitution. The two sets of provisions which are mainly contemplated in the phrase 'subject to other provisions' are Articles 302 read with Article 303, and Article 304(a) and (b). Here again, one set is exception to another set but not vice versa. Article 302 is an exception to Article 301, which is again subject to Article 303. The Parliament may by law restrict the freedom of trade in public interest and a challenge to such law on the plea that the restrictions imposed are unreasonable would not succeed. If the law imposed restrictions on the freedom of trade in public interest, it would be free from the attack of Article 301.
The other arena in which Article 301 loses its prime place is regarding the power of the States to make law under any of the tax entries in the State list, imposing any tax or imposing any reasonable restrictions on the freedom of trade. Such power overrides the freedom of trade and commerce as well as seemingly influential Articles 301 and 303. Thus, the general limitation imposed by Article 301 is relaxed by Article 302 in favour of the Parliament and by Article 304(a) and (b) in favour of the State legislatures. It is interesting to note that Article 304 starts with a non-obstante clause whereas Article 302 does not. As the freedom of trade under Article 301 is itself subject to Articles 302 and 304, though it may not make any difference, considered in the light of relations between the Union and the States, the non-obstante clause in Article 304 has significance. The intention appears to be to ensure, guard and protect the State legislations falling either under Article 304(a) or 304(b). The difference between the power of the Union and the States vis--vis freedom of trade is that Article 302 has no application to tax laws like Article 304(b), but under Article 304(a), tax can be imposed on the goods imported from other States.
Article 304(a) and 304(b) deal with two distinct topics. The former deals with taxes and the latter deals with restrictions. Both are covered by the opening words of Article 304, "notwithstanding anything in Articles 301 and 303", but any law under Article 304(a) imposing any tax is absolute power of the State whereas the law imposing reasonable restrictions on freedom of trade in public interest is subject to the previous sanction of the President. The requirement of the Presidential assent, however, does not in any manner dilute the plenary legislative power of the State nor curtail it. As the law made under Article 304(a) and the one falling under Article 304(b) are basically distinct, if a law is saved under Article 304(a), it is unnecessary to test it with reference to Article 304(b) although a tax law "directly and immediately" restricting the freedom of trade would be a restriction. In other words, if a law under Article 304(a) imposing tax does not create barrier for free movement of goods, in the course of trade and commerce, such law does not require Presidential assent even though it is a restriction in limited sense.
A law under Article 304(a) imposing discriminatory tax is not saved, in which case, Article 301 is not relaxed. The State Legislatures should not impose taxes at different rates on imported and locally manufactured goods. Non- discriminatory tax alone is saved under Article 304(a), and a law which only exempts locally manufactured goods from the levy would be suspect of Article
301. Further, as Article 304(a) contemplates imposition of tax "on goods imported from other States or the Union Territories", such law can only refer to one coming under entry 52 and every such law is certainly suspect of Article 301 and can be saved only if it falls under Article 304(a) without discriminatory protection to local trade.
The embargo under Article 301 is lifted and relaxed in the case of a Parliamentary law under Article 302 read with Article 303, a State tax law under Article 304(a) or under Article 304(b) imposing reasonable restrictions in public interest. In addition to this, a law levying compensatory taxes is no hindrance to anybody's freedom so long as they remain reasonable. The levy of compensatory tax, therefore, is altogether different from the law under Article 301(a) imposing a tax on the goods imported from other States. To treat a law imposing compensatory tax also as one falling under Article 304(a) or Article 304(b) would be ignoring the plain text of the Constitution as well as glossing over the law declared by the Supreme Court of India under Article 141 of the Constitution.
The extent and scope of the freedom of trade, commerce and intercourse guaranteed under Article 301 of the Constitution as discussed supra, is well supported by the precedents discussed infra, and would reveal the following position. The freedom of trade, commerce and intercourse throughout the territory of India guaranteed by Article 301 is subject to the law made by the Parliament imposing restrictions under Article 302 or reasonable restrictions under a law made by the States under Article 304(b) with Presidential assent. Further, a State law imposing non-discriminatory taxes on goods imported from other States is also saved from the mischief of Article 301. In addition to these two categories of laws, a law levying compensatory taxes which fosters growth of inter-State trade and commerce is also exempt from Article 301. A law by way of regulations to provide trade friendly facilities gives fillip to trade and commerce rather than impeding it. Therefore, unless the tax law directly and immediately restricts trade and commerce, it cannot be treated as restrictive law and even if it is one, it can be cured by compliance with the proviso to Article 304(b). Though we propose to advert to the precedents that may be relevant for the pointed attack on various aspects of the impugned Act, at this stage we may beneficially quote from the leading cases.
In Atiabari Tea Company Limited v State of Assam32 and Automobile Transport Limited v State of Rajasthan33, Constitution Benches of the Supreme Court dealt with Part XIII of the Constitution. Both the judgments are "opus classicus". They have been distinguished, explained, followed, referred to and relied on in about half a score of subsequent Supreme Court decisions namely Salonah Tea Company Limited v Superintendent of Taxes34, B.R.Enterprises v State of U.P.,35, Jindal Stripe Limited v State of Haryana36, State of H.P., v Yashpal Garg37, Geo Miller & Co., (P) Limited v State of M.P.,38, State of Punjab v Devans Modern Breweries Limited39, Godfrey Phillips India Limited v State of U.P.,40, Jindal Stainless Limited (2) v State of Haryana41 and Jaiprakash Associates Limited v State of M.P.,42. Atiabari and Automobile Transport now stand referred to a Constitution bench of nine Judges. Such reference, however, does not make Article 141 of the Constitution dormant. Summit precedents bind us and no deviation is permissible, only because a particular binding decision is referred to a larger Bench.
In Atiabari, the validity of Assam Taxation (on Goods Carried by Roads and Inland Waterways) Act, 1954, which squarely comes under entry 56 of List II fell for consideration. It was assailed as violating Article 301, and as not saved by Article 304(b). The challenge was upheld. It is necessary to extract the following (paras 39, 50 and 51).
It is obvious that whatever may be the content of the said freedom it is not intended to be an absolute freedom; absolute freedom in matters of trade, commerce and intercourse would lead to economic confusion, if not chaos and anarchy; and so the freedom guaranteed by Article 301 is made subject to the exceptions provided by the other Articles in Part XIII. The freedom guaranteed is limited in the manner specified by the said Articles but it is not limited by any other provisions of the Constitution outside Part XIII. That is why it seems to us that Article 301, read in its proper context and subject to the limitations prescribed by the other relevant Articles in Part XIII, must be regarded as imposing a constitutional limitation on the legislative power of Parliament and the Legislatures of the States. What entries in the legislative lists will attract the provisions of Article 301 is another matter; that will depend upon the content of the freedom guaranteed; but wherever it is held that Article 301 applies the legislative competence of the Legislature in question will have to be judged in the light of the relevant Articles of Part XIII; this position appears to us to be inescapable.
Let us now revert to Article 301 and ascertain the width and amplitude of its scope. On a careful examination of the relevant provisions of Part XIII as a whole as well as the principle of economic unity which it is intended to safeguard by making the said provisions, the conclusion appears to us to be inevitable that the content of freedom provided for by Article 301 ... certainly includes movement of trade which is of the very essence of all trade and is its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported that, in our opinion, directly affects the freedom of trade as contemplated by Article 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII the freedom of trade on which so much emphasis is laid by Article 301 would turn to be illusory. When Article 301 provides that trade shall be free throughout the territory of India primarily it is the movement part of the trade that it has in mind and the movement or the transport part of trade must be free subject of course to the limitations and exceptions provided by the other Articles of Part XIII.... Besides, it is not irrelevant to remember in this connection that the Article we are construing imposes a constitutional limitation on the power of the Parliament and State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301
In Automobile Transport, the challenge was to the Rajasthan Motor Vehicles Taxation Act, 1951. The appellants were unsuccessful before the Rajasthan High Court, which upheld the said Act. By a majority of 4:3 the Supreme Court affirmed the Judgment of the High Court. Justice S.K.Das (as he then was) who wrote the lead Judgment observed that Part XIII is intended to achieve the federal economic and fiscal integration and addresses the questions of economic unity. He held that, "regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 301 and such measures need not comply with the requirements of the proviso to Article 304(b) of the Constitution, ... (and) that the relevant articles in Part XIII apply only to legislation in respect of the entries relating to trade and commerce in any of the lists of the Seventh Schedule. But we must advert here to one exception which we have already indicated in an earlier part of this Judgment. Such regulatory measures as do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by Article
301. They are excluded from the purview of the provisions of Part XIII of the Constitution for the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them".
Justice Koka Subba Rao (as he then was) in a separate opinion concurred with the majority and summarized the following principles that are to be applied while testing a law under challenge as violating Article 301 of the Constitution. (1) Article 301 declares a right of free movement of trade without any obstructions by way of barriers, inter-State or intra-State, or other impediments operating as such barriers. (2) The said freedom is not impeded, but, on the other hand, promoted, by regulations creating conditions for the free movement of trade, such as, police regulations, provision for services, maintenance of roads, provision for aerodromes, wharfs etc., with or without compensation. (3) Parliament may by law impose restrictions on such freedom in the public interest; and the said law can be made by virtue of any entry with respect whereof Parliament has power to make a law.(4) The State also, in exercise of its legislative power, may impose similar restrictions, subject to the two conditions laid down in Article 304(b) and subject to the proviso mentioned therein. (5) Neither Parliament nor the State Legislature can make a law giving preference to one State over another or making discrimination between one State and another, by virtue of any entry in the Lists, infringing the said freedom. (6) This ban is lifted in the case of Parliament for the purpose of dealing with situations arising out of scarcity of goods in any part of the territory of India and also in the case of a State under Article 304(b), subject to the conditions mentioned therein; and (7) The State can impose a non- discriminatory tax on goods imported from other States or the Union territory to which similar goods manufactured or produced in that State are subject. A Constitution Bench of the Supreme Court struck down Assam Act levying the tax on goods carried by road or inland water ways. Making certain additional provisions, the Assam Assembly enacted Assam Act No.10 of 1961, coming under entry 56 of the State List, with the previous sanction of the President with the same nomenclature, which was impeached as unreasonable under Article 32 of the Constitution, in Khyerbari Tea Company v State of Assam43. By the time, the Supreme Court took up the case, the scope and effect of provisions contained in Part XIII of the Constitution came to be considered in Automobile Transport. Rejecting the challenge the apex Court observed that the freedom can be restricted by a law satisfying the two conditions in Article 304. In examining the constitutionality of the statute, it must be assumed that the legislature understands and appreciates the needs of the people and the laws it enacts are directed to problems which are made manifest by experience and that the legislature enacts the laws which the peoples representatives consider to be reasonable for the purpose for which they are enacted. The presumption is in favour of the constitutionality of enactment. However, when it is shown that an Act invades the freedom of trade, it is necessary to enquire whether the State has proved that the restrictions imposed by way of taxation are reasonable and in public interest within the meaning of Article 304(b). It was also held that a law passed under Article 304(b) can be made to have retrospective effect. In Jindal Stainless (2), the law was summarized by the unanimous Constitution Bench as under.
Article 301 is binding upon the Union Legislature and the State Legislatures, but Parliament can get rid of the limitation imposed by Article 301 by enacting a law under Article 302. Similarly, a law made by the State Legislature in compliance with the conditions imposed by Article 304 shall not be hit by Article 301. Article 301 thus provides for freedom of inter-State as well as intra-State trade and commerce subject to other provisions of Part XIII and correspondingly it imposes a general limitation on the legislative powers, which limitation is relaxed under the following circumstances: (a) Limitation is relaxed in favour of Parliament under Article 302, in which case Parliament can impose restrictions in public interest. Although the fetter is limited enabling Parliament to impose by law restrictions on the freedom of trade in public interest under Article 302, nonetheless, it is clarified in clause (1) of Article 303 that notwithstanding anything contained in Article 302, Parliament is not authorised even in public interest, in the making of any law, to give preference to one State over another. However, the said clarification is subject to one exception and that too only in favour of Parliament, where discrimination or preference is admissible to Parliament in making of laws in case of scarcity. This is provided in clause (2) of Article
(b) As regards the State Legislatures, apart from the limitation imposed by Article 301, clause (1) of Article 303 imposes additional limitation, namely, that it must not give preference or make discrimination between one State or another in exercise of its powers relating to trade and commerce under Entry 26 of List II or List III. However, this limitation on the State Legislatures is lifted in two cases, namely, it may impose on goods imported from sister State(s) or Union Territories any tax to which similar goods manufactured in its own State are subjected but not so as to discriminate between the imported goods and the goods manufactured in the State [see clause (a) of Article 304]. In other words, clause (a) of Article 304 authorises a State Legislature to impose a non-discriminatory tax on goods imported from sister State(s), even though it interferes with the freedom of trade and commerce guaranteed by Article 301. Secondly, the ban under Article 303(1) shall stand lifted even if discriminatory restrictions are imposed by the State Legislature provided they fulfil the following three conditions, namely, that such restrictions shall be in public interest; they shall be reasonable; and lastly, they shall be subject to the procurement of prior sanction of the President before introduction of the Bill.
The nature of enquiry by the Court and the burden of proving/disproving the existence or non-existence of relevant facts would change depending on the challenge. Keeping these principles in mind, we will now examine the constitutional validity of the impugned Act under three sub-headings, namely, the discriminatory protectionism, impact of Article 304(b) and compensatory tax.
Article 304(a) empowers the State to impose any tax on the goods imported from other States, notwithstanding anything in Article 301 or 303 of the Constitution. This power is subject to the condition that similar goods manufactured or produced in that State are also subjected to tax, so as not to discriminate between the goods imported and goods manufactured or produced in the State. Indeed, Article 304(a) prohibits discriminatory protectionism in that a State cannot exempt the goods manufactured or produced in the State and impose a tax on similar goods imported from other States. Article 304(a) thus immunizes a State law imposing tax from the mischief of Article 301 which guarantees free trade, commerce and intercourse.
The counsel for petitioners, in support of their plea that the levy under the impugned Act is discriminatory, made the following contentions: (1) the State is not imposing any entry tax on similar motor vehicles which are not imported from other States; (2) under the Sales Tax Act the tax is levied on the invoice value whereas under the impugned Act, entry tax is levied on the purchase value which includes the value of accessories fitted to the vehicle, insurance, excise duties, countervailing duties, sales tax, transport fee, freight charges, which is discriminatory; and (3) the levy is only on the motor vehicles into local area from other States, and there is no such levy when the vehicles move from one local area to another local area within the State. We will consider these submissions one after the other after noticing the applicable legal principles in this regard.
Theory of Classification
There is no constitutional embargo especially on taxing statutes to classify goods and persons for the purpose of levying and collecting different rates of tax in respect of different taxable events. The sovereign power to tax is wide enough to choose things and persons and exclude others from the levy. The burden is always on the person who impeaches a tax law as discriminatory. If the initial burden is discharged, the onus then shifts to the State to justify the classification. At the happening of these two things, there would be two situations rendering the impugned law defective, in that the classification may suffer from the vice of under-inclusion or over-inclusion. The group of people classified as one category for the purpose of levy can legitimately complain of discrimination if another group similarly situated is exempted from the levy. The issue then would be whether non-inclusion or under- inclusion of the compliant from the exempted group is discriminatory. In the case of over-inclusion, one category or group of things or persons is chosen for the levy of tax but others seeming dissimilar are also roped in with reference to the inclusion of taxable things or persons. The law permits invalidating a case of over-inclusion but any interference in a case of under-inclusion is not proper as any mandamus to include the category who suffered under-inclusion would amount to legislation. The legislature is free to recognize the degree of harm and may confine benefits or burdens to those classes or cases where the need is clearest, but the Court giving a direction to include and exclude a category is impermissible (Sakhawat Ali v State or Orissa44 and B.R.Kapur v State of Tamil Nadu45).
That the State has wide discretion in selecting the persons or objects to tax is too well settled. Equally well settled is the proposition that a statute is not open to attack on the ground that the law taxes some persons or objects and not others. In East India Tobacco Company v State of A.P.,46, the Supreme Court while quoting with approval the following statement of law from Willis on 'Constitutional Law', held that "A State does not have to tax everything in order to tax some thing. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably...". The Supreme Court held that, "it is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of Article 14". In M.Match Works v Assistant Collector, C.E.,47, the principles to test the validity of differential fiscal treatment of goods and things for the purpose of taxation were summarized. It is beneficial to quote the following. Certain principles which bear upon classification may be mentioned here. It is true that a State may classify persons and objects for the purpose of legislation and pass laws for the purpose of obtaining revenue or other objects. Every differentiation is not discrimination. But classification can be sustained only it is founded on pertinent and real differences as distinguished from irrelevant and artificial ones. The constitutional standard by which the sufficiency of the differentia which form a valid basis for classification may be measured, has been repeatedly stated by the Courts. If it rests on a difference which bears a fair and just relation to the object for which it is proposed, it is constitutional. To put it differently, the means must have nexus with the ends. Even so, a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the Court will be reluctant and perhaps ill-equipped to investigate. In this imperfect world perfection even in grouping is an ambition hardly ever accomplished. In this context, we have to remember the relationship between the legislative and judicial departments of Government in the determination of the validity of classification. Of course, in the last analysis Courts possess the power to pronounce on the constitutionality of the acts of the other branches whether a classification is based upon substantial differences or is arbitrary, fanciful and consequently illegal. At the same time, the question of classification is primarily for legislative judgment and ordinarily does not become a judicial question. A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the Judicature cannot rush in where even the Legislature warily treads. All these operational restraints on judicial power must weigh more emphatically where the subject is taxation.
Therefore, when discriminatory fiscal treatment is the ground of challenge, the Court cannot strike down a law because it has not made classification which commends to the Court as proper. Equally well settled is the principle that exercise of legislative power is not rendered unconstitutional mainly because it avoids a reasonable sub-classification of a contracted group. In Hiralal Ratanlal v STO48, levy of sales tax on dal splits or processed food grains was challenged as discriminatory. It was argued that the classification of dal into independent commodity of split and unsplit pulses or processed or unprocessed pulses is irrational classification. Rejecting the plea, a Constitution Bench held that, "the use to which those goods can be put" is a reasonable classification.
In Kerala Hotel and Restaurant Association v State of Kerala49, the Supreme Court was dealing with the levy of sales tax under Kerala Hotels Act on cooked food served in the luxury hotels but not on the food served in ordinary hotels. The Court observed that, "reasonableness of the classification has to be decided with reference to the realities of life and not in the abstract" and indicated that, "a discernible dissimilarity between those grouped together and those excluded is a pragmatic test, if there be a rational nexus of such classification with the object to be achieved". A blurred and blinkered perception is misplaced in evaluating the validity of classification. We may now examine the issues of discrimination, urged by the counsel.
Whether similar goods in the State are not subjected to tax Article 304(a) is an exception to Article 301 which prohibits any barriers to free trade in the territory of India. If the goods manufactured in the State are subjected to tax, the State legitimately can impose any tax on the goods imported from other States. The entry tax is not defined in the impugned Act. The charge under the Act is on the entry of any motor vehicle into the local area. The measure of the tax is on the purchase value as defined under Section 2(n). The tax so levied, let us say, entry tax - shall not however be more than the sales tax levied on motor vehicles in the State under the relevant entry of the First Schedule to the Sales Tax Act. It is nobody's case that the motor vehicles manufactured and produced in Andhra Pradesh are immune from sales tax or VAT or that they are not liable to pay tax under MV Taxation Act. All the motor vehicles are liable to pay different taxes under the State Laws. The entry tax payable on the vehicle imported into local area is equal to the sales tax payable under the State law. Further, a person who brings a motor vehicle into the local area for use or sale, described in the Act as 'importer' under Section 2(g) is given the benefit of set off to the extent of entry tax paid under the Act while paying tax under the Sales Tax Act.
VAT Act replaced Sales Tax Act from 01.04.2005. Section 4(1), which is charging Section, requires every dealer registered or liable to be registered as a VAT dealer to pay tax on every sale of goods in the State at the rates specified in the Schedules. There is no power vested in the Government to exempt any dealer or any commodity from tax liability. Section 7, however, exempts goods listed in Schedule I from the VAT. The rates of VAT are either 1%, 4% or 14.5% except in respect of goods in Schedule VI which are subjected to special rates. None of the varieties of motor vehicles are found included in Schedule I (exempted) goods. Tractors in entry 63 of Schedule IV attract the VAT @ 4% whereas all other vehicles are liable to pay 14.5% under residuary schedule. Therefore, the submission that the motor vehicles manufactured or produced in Andhra Pradesh are not subjected to any tax is ignoring the obvious. The petitioners, however, seem to be under the impression that the entry tax is not collected on the motor vehicles produced and manufactured in the State of Andhra Pradesh. This is an argument which ignores the plain language of Article 304(a) and Section 3 of the Act. Article 304(a) itself empowers the State by law to impose tax on goods imported from other States. Any law made under Section 304(a) can only be with reference to the tax which can be imposed on the goods imported from the other States and not on the goods manufactured or produced in the State of Andhra Pradesh. Section 3 is very clear that the levy and collection shall be on the entry of any motor vehicle and not on the manufacture, production or sale of such motor vehicles in the State. The levy of VAT in the State is regulated and governed by the VAT Act whereas, the impugned Act is intended to levy entry tax on motor vehicles entering into any local area and which are imported. This is clear from a combined reading of Section 2(d)(g)(h), 3(1) and 4(2) of the impugned Act. The levy is on the entry of the motor vehicles when an importer other than the dealer causes entry of motor vehicle into a local area for use or sale therein. Therefore, the submission that no entry tax is levied on the vehicles in the State of Andhra Pradesh, whereas such entry tax is levied on the importer (use or consumption) when he causes entry of motor vehicles into a local area, cannot be countenanced. Article 304(a) enables the State to make a law imposing any tax on the goods imported from other States or Union Territories. Such tax, however, cannot be discriminatory in the sense that similar goods manufactured and produced in the State cannot be given any differential treatment in the matter of levying tax. It is settled law that when a taxing statute does not impose rates of tax on imported goods different from the rates of tax on goods manufactured or produced, Article 304 had no application so long as the rate is the same (Rattanlal & Company v Assessing Authority50). If the general rate applicable to the goods locally made and on those imported from other States is the same, nothing more normally and generally is to be shown by the State to dispel the argument of discrimination. The variation of the rate of inter-State Sales Tax does not affect free trade and commerce nor create a local preference contrary to the scheme of Part XIII of the Constitution (Indian Cement v State of A.P.,51 and M/s.Video Electronics Private Limited v State of Punjab52). A notification was issued reducing the rate of tax on contract carriages covered by intra-State carriages. The benefit was, however, not given to inter-State contract carriages. This was successfully assailed in the Kerala High Court. But the Supreme Court reversed and allowed the appeal of the State in State of Kerala v Aravind Ramakant Modawdakar53, observing as follows. (para 6 of SCC) It is also a settled position in law that the actual user of the road by the vehicles which are covered by the requisite permits is not always a relevant factor since the taxable event under Section 3(1) of the Act occurs when the vehicle is used or is kept for use in the State. Therefore, once the vehicle becomes liable for payment of tax the extent and quantity of use by the vehicle is not a decisive factor for the purpose of levy of tax as could be seen from the judgment of this Court in the case of International Tourist Corporation. Coming to the power of the State in legislating taxation law, the court should bear in mind that the State has a wide discretion in selecting the persons or objects it will tax and thus a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is also well settled that a very wide latitude is available to the legislature in the matter of classification of objects, persons and things for the purpose of taxation.
Sustaining the classification between inter-State and intra-State contract carriages subjected to different rates of quarterly tax, the Supreme Court observed as under. (para 9 of SCC)
The tax levied under the legislative power found in Entries 56 or 57 of List II of the 7th Schedule is primarily a tax, though it may be compensatory and/or regulatory in nature and, therefore, while testing the constitutional validity of a taxing statute it may not be safe to rely upon the hypothetical factors as against the wisdom of the legislature. In regard to measure of road user both the sides can give contrary arguments which may look convincing. Hence examples of this nature would not carry the argument to any logical conclusion. Having noticed the fact that the area of judicial review is considerably limited in testing the validity of a taxing statute and considering the impugned classification in its factual background, it seems the two permits are different from the very nature of their operation: while one allows operation within the State only the other allows operation beyond the boundaries of the State. Even though in generic terms both are contract carriages, there are individual restrictions and advantages attached to each of these permits which could be exclusive to themselves. As argued on behalf of the respondents, even the types of vehicles used by the holders of these permits, in most cases, if not in all cases, are different. The carrying capacity of the vehicles concerned covered by these two permits is different. Thus in many factual ways these vehicles covered by two different permits do form a separate and distinct class. So long as this classification is not arbitrary or unreasonable, the courts will not interfere with this classification which is the prerogative of the legislature. Now coming to the nexus of the classification with the object of taxation, it should be noted that in the present cases the classification is made for the purpose of granting exemption under Section 22 of the Act. Grant of exemption/reduction under this section is in "public interest", therefore, the nexus of this classification will have to be traced to "public interest" which is again within the realm of legislative wisdom unless tainted by perversity or absurdity. The legislative classification of the motor vehicles into those imported and enter the local area in the State and those manufactured and produced in the State of Andhra Pradesh would certainly satisfy the twin tests, viz., rationality test and nexus test. The classification has been founded on an intelligible differentia which distinguishes the motor vehicles that are grouped for the levy of entry tax. It also has a rational relation with the object sought to be achieved by the impugned Act. The jurisprudence of interpretation permits a reference to the Statement of Objects and Reasons to understand the background, antecedent state of affairs in relation to the statute, and the evil which it has sought to remedy. The facts stated in the Preamble and the Statement of Objects and Reasons appended to any legislation are evidence of the legislative Judgment (State of Gujarat v Mirzapur Moti Kureshi Kassab Jamat54). It may be reiterated that the Statement of Objects and Reasons appended to the bill when the impugned Act was enacted would show that the legislature took cognizance of the fact that the motor vehicles were purchased at low cost in neighbouring States and brought and used in this State. On the other hand, the motor vehicles produced, manufactured and sold in Andhra Pradesh have to necessarily pay the VAT/sales tax at the prescribed rate. Therefore, the classification is based on intelligible differentia, viz., the motor vehicles imported into local area and those motor vehicles manufactured and produced - both these vehicles cannot certainly be grouped alike. Therefore, if imported motor vehicles are taxed under the Act, the same does not contravene Article 14 of the Constitution of India (Ayurveda Pharmacy v State of Tamil Nadu55 and State of UP v Deepak Fertilizers and Petrochemical Corporation Limited56). The classification of motor vehicles for the purpose of Section 3 has also a rational relation with the object sought to be achieved, i.e., to plug the leakage of revenue by reasons of low tax paid by the owners of imported vehicles. We accordingly reject the submission of the petitioners that the impugned Act violates Article 304(a) and that it seeks to give discriminatory protection to the motor vehicles manufactured and produced in the State of Andhra Pradesh.
Whether measure of tax is discriminatory
The levy of entry tax under the Act is on the purchase value of the motor vehicle, which means, 'the value of a motor vehicle as ascertained from the original invoice and includes the value of accessories fitted to the vehicle, insurance, excise duties, counterveiling duties, sales tax, transport fees, freight charges and all other charges incidentally levied on the purchase of the motor vehicle'. If the purchase value cannot be ascertained due to non- availability or non-production of original invoice or due to a false invoice, purchase value shall be the value or price at which a motor vehicle of like mind or quality is sold or is capable of being sold in open market. Under Section 5 of the Sales Tax Act, the levy is on the turnover of sales or purchase of goods for each year, irrespective of the quantum of turnover at the rates of tax and at the points of levy specified in Schedules to the said Act. Section 2(s) defines 'turnover' to mean 'the total amount set out in the bill of sale excluding the amount collected towards the tax or the tax due under the Act whichever is less'. Under Section 4(1) of the VAT Act, every dealer is liable to pay the VAT on every sale of goods in the State at the rates specified in the schedules. A dealer who has not opted for registration as a VAT dealer is liable to be registered for turnover tax and shall pay tax @ 1% on the taxable turnover. The sale price is defined to mean the total amount set out in the tax invoice or bill of sale and 'taxable turnover' means 'the aggregate of sale prices of all taxable goods'. The counsel for the petitioners submits that the measure of tax on the motor vehicles imported from other States and those manufactured or produced in the State is discriminatory. This submission in our considered opinion is devoid of any merit.
The State is allowed to pick and choose the objects, persons, methods and even rates for taxation if it is reasonable (East India Tobacco and Karnataka Bank Limited v State of A.P.,57). It can even classify goods depending on the use to which they are put to (Hiralal and Tata Cummins Limited v State of Jharkhand58) and so long as the tax is on entry of vehicle into local areas for use or sale therein, it cannot be said to be invalid merely because the measure of levy has been provided to be the purchase value of the motor vehicle (Shakthi Kumar M. Sancheti). If the measure of tax for the levy is different for two classes of commodities, the same cannot be treated as discriminatory fiscal legislation as long as it is not obnoxious and does not suffer any constitutional embargo. The very wide latitude in
classification for taxation is conceded to the State to enable it to function in a practical way.
Article 304(a) bars imposition of tax on imported goods unless the goods manufactured or produced in the State are also subjected to tax. We have already held that the State law does not grant any exemption to the goods and therefore, on that score, the plea of discrimination is not available. For the purpose of levy of entry tax, the purchase value is not only the value of the motor vehicles but also includes value of accessories, fittings, transport facilities and other items of expenditure that may have incurred by the importer of the vehicle. On the contrary, the turnover under the sales tax or the sale price under the VAT Act means the price of the goods as mentioned in the invoice or bill. The first impression one gathers is that the measure of tax is different. But, a closer look does not support any such contention even remotely. When one considers the measure of tax, the method and manner while determining the quantum of the taxable value cannot be ignored. Section 3(1) bars the Government from notifying the rate of tax exceeding the rate specified for motor vehicles under the Sales Tax Act. To give an illustration, we will assume two motor vehicles of similar make; one imported into local area for use or sale (imported vehicle) and the one produced or sold in the State of Andhra Pradesh (local vehicle). Assuming the bill value or the invoice value of the local vehicle is Rs.1,00,000/- and the sales tax thereon at 16% would be Rs.16,000/-. If the purchase value of the imported vehicle including all items mentioned in Section 2(n), the same vehicle with the basic value of Rs.1,00,000/- and Rs.20,000/- more towards other items, the tax @ 16% on Rs.1,20,000/- which would be Rs.19,200/-. Article 304(a) does not bar a law even when tax is a little higher. The tax levied under the State Act even if it is little higher would not go out of the protective umbrella of Article 304(a) if it is shown that the rate of tax is the same. In Associated Tanners v CTO59, the challenge by the dealer to item 9(b) of Schedule III of the A.P.General Sales Tax failed. The contention that the tax is discriminatory violating Article 304(a) was not accepted by the Division Bench of this Court. The Supreme Court affirmed the Judgment observing as under.
In Rattan Lal & Co. v. Assessing Authority (AIR 1970 SC 1742), a Bench of five learned Judges of this Court observed dealing with the Punjab General Sales Tax Act that when a taxing State was not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced. Article 304 had no application. So long as the rate was the same, Article 304 was satisfied. In the instant appeal before us the tax was at the same rate. It cannot be said to be higher in respect of imported goods. When the rate is applied the resulting tax might be somewhat higher but that did not contravene the equality clause contemplated by Article 304 of the Constitution. ... The effect of an imposition of tax might work differently upon different dealers namely, those who use imported tanned goods and those who purchase these locally and tan these locally and then sell in the course of inter-State sales. But that effect cannot be said to be arising directly, or as an immediate effect of the imposition of the tax. Therefore there cannot be any question of violation of Article 304 (a) of the Constitution.
In Video Electronics, the notification of the U.P.Government exempting goods manufactured in new industrial units from payment of sales tax was assailed by a dealer who was engaged in the business of selling similar imported products, on which there was a net rate of tax at 8.8%. The levy of differential rate of tax by the State of Punjab under its Sales Tax Act on the electronic goods imported from other States was also subject matter of challenge in another case. The apex Court noticed that what constitutes an economic barrier at one point of time often ceases to be so at another point of time and it will be wrong to denude the people of the State of the right to grant exemptions which flow from the plenary powers of legislative heads in the State List. If all the States have provisions to exempt or reduce the rates, on the locally manufactured goods, the question of economic war does not arise. If any law levies differential rates of taxes on the imported goods and locally manufactured goods, the question of discrimination has to be examined in the light of Article 14 of the Constitution by interpreting various entries in the legislative lists widely, liberally and harmoniously, so as to include ancillary and incidental powers including the one to grant exemption inherent in all tax legislations. How to reconcile such State Action? The Supreme Court observed. Economic unity is a desired goal, economic equilibrium and prosperity is also the goal. Development on parity is one of the commitments of the Constitution. Directive principles enshrined in Articles 38 and 39 must be harmonised with economic unity as well as economic development of developed and under developed areas. In that light on Article 14 of the Constitution, it is necessary that the prohibitions in Article 301 and the scope of Article 304(a) and (b) should be understood and construed. Constitution is a living organism and the latent meaning of the expressions used can be given effect to only if a particular situation arises. It is not that with changing times the meaning changes but changing times illustrate and illuminate the meaning of the expressions used. The connotation of the expressions used takes its shape and colour in evolving dynamic situations. A backward State or a disturbed State cannot with parity engage in competition with advanced or developed States. Even within a State, there are often backward areas which can be developed only if some special incentives are granted. If the incentives in the form of subsidies or grant are given to any part of (sic or) units of a State so that it may come out of its limping or infancy to compete as equals with others, that, in our opinion, does not and cannot contravene the spirit and the letter of Part XIII of the Constitution. However, this is permissible only if there is a valid reason, that is to say, if there are justifiable and rational reasons for differentiation. If there is none, it will amount to hostile discrimination.
Even otherwise as per Section 4, when the importer of a motor vehicle becomes liable to pay sales tax, the entire amount paid by him towards entry tax would be given set off, which means in the illustration we have given, no sales tax is payable. The intention of the legislation is to arrest tax evasion and, therefore, they have taken abundant caution in defining purchase value so that the importer does not resort to inflating invoice by including all items of expenditure and then claim various exemptions under the State law or other laws. Therefore, the submission on this ground cannot be accepted. Even otherwise, the question raised strictly does not arise. The petitioners have not placed any material to demonstrate the discrimination meted out in assessing the entry tax on the vehicles purchased by them admittedly for their own use. Movement of goods within the State
The submission of the petitioners is that the levy, being on the motor vehicles entering the local area from other States, in the absence of any such levy on the internal movement of motor vehicles from one local area to another local area, the levy is discriminatory. The submission need not detain us even for a while. 'An importer' means a person who bring a motor vehicle into local area from any place outside the State for use or sale therein, or the person who owns the vehicle at the time of entry into local area. The local area could be either a Municipal Corporation, Municipality or Gram Panchayat. Entry of motor vehicle into a local area means, 'entry of motor vehicles into local area from any place outside the State for use or sale therein' (Sections 2(d), (h) and (i)). Section 3(2) makes importer liable to pay tax. A reading of all these provisions would clearly show that the object of the impugned Act itself is to levy tax on the entry of a motor vehicle into local area from any place outside the State for use or sale therein. There is no such levy if motor vehicles within the State move or enter from one local area into another local area. The classification of these vehicles - those which enter from any place outside the State and those which enter into local area within the State is certainly a valid classification having regard to the object of the Act being to levy entry tax on the motor vehicles purchased and imported into the State. Article 304(a) specifically deals with the power of the State to impose tax on the import of goods.
IMPACT OF ARTICLE 304(b)
A State law under Article 304(b) imposing reasonable restrictions on the freedom of trade as may be required in public interest is exempt from the mischief of Article 301 of the Constitution. The only requirement is the previous sanction of the President before such law is enforced. As held by the Supreme Court in Atiabari, every law imposing tax on the inter-State trade and commerce is not a restriction unless such law is hit by the doctrine of direct and immediate effect. When a law imposing tax does not directly or immediately restrict inter-State trade and commerce, a further enquiry under Article 304(b) as to whether it imposes a reasonable restriction may not be necessary. Articles 304(a) and (b) as mentioned supra deal with two different topics. If a law is referable to Article 304(a) and it is found that the levy is non-discriminatory, in our considered opinion, a further enquiry as to whether such law is impacted by Article 304(b) is uncalled for. Further examination as to whether the tax levy is compensatory in nature also may not be necessary, especially in regard to a State law coming under entry 54 levying tax on entry of goods. This view is supported by the Judgment of the Supreme Court in Jaiprakash Associates wherein it was observed that "Atiabari, Kheyrbari and Jindal Stainless (2), did not relate to entry tax". The approach as far as levy in the just mentioned cases is conceptually and textually different from entry tax cases. Thus, the levy of compensatory tax which is exempt from the applicability of Part XIII of the Constitution is altogether different from the levy of entry tax under entry 54 of the State laws. But, we have adverted to this issue, as the counsel pressed the same before us.
Article 304(b) does not bar a State law imposing reasonable restrictions in public interest. Indeed, Article 19(6) also permits, in the interests of the general public, reasonable restrictions to curtail the fundamental right to practice any profession, or to carry on any occupation, trade or business. The term 'restriction' means, "to restrain by prohibition". It also means to regulate the exercise of right under a contract or a statute or the one that may be regulated by conditionalities or subjected to discharge of obligations under the same contract or statute. The tests applicable to determine the reasonableness under Article 19(6) are also applicable to a law under Article 304(b) (Tika Ramji v State of U.P.,60). In considering the reasonableness of the restrictions, various factors have to be kept in mind. Whether a law totally prohibits the exercise of right? Whether it is necessary in public interest? Whether the restriction amounts to total prohibition? And whether a lesser alternative would have been adequate? These are some of the questions to be addressed (State of Bihar v Harihar Prasad Debuka61 and Mirzapur Moti Kureshi). In addition, one may have to test the law as to whether it directly hinders the free flow of trade, commerce and intercourse between two parts of India and whether such restriction is in public interest (Koteswar Vittal Kamath v K.Rangappa Baliga & Co.,62).
The term "restriction" can certainly mean a regulation. It can be total prohibition of human activity. In Mirzapur Moti Kureshi, the Constitution Bench ruled that "(i) "restriction" includes cases of "prohibition"; (ii) the standard for judging reasonability of restriction or restriction amounting to prohibition remains the same, excepting that a total prohibition must also satisfy the test that a lesser alternative would be inadequate; and (iii) whether a restriction in effect amounts to a total prohibition is a question of fact which shall have to be determined with regard to the facts and circumstances of each case, the ambit of the right and the effect of the restriction upon the exercise of that right".
The Court scrutiny of restrictions imposed by a law cannot be on subjective standards in deciding their reasonableness (State of Madras v V.G.Row63). The general notion of reasonableness or hardship is unsuitable. The test of reasonableness is to be viewed in the context of the issues which faced the legislature (Dalmia Cement (Bharat) Limited v Union of India64). The Court has to keep in mind two rules of construction, namely to lean towards constitutionality of the law and to construe the enactment by examining the object and purpose of the Act, and the mischief it seeks to prevent (Vrajilal & Co., v State of M.P.65). The restrictions on the freedom of trade may not be hurdles at one point of time and may prohibitively curtail the enjoyment of the right during another time. The need of the society and the constitutional requirement of protecting the people are relevant while deciding the reasonableness of restrictions imposed by law. "There must be a direct and proximate nexus or a reasonable connection between the restrictions imposed and the object sought to be achieved. If there is a direct nexus between the restrictions and the object of the Act, then a strong presumption in favour of the constitutionality of the Act will naturally arise" (M.R.F.Limited v Inspector of Kerala66).
The expression "in the public interest" in Article 304(b) and the expression "in the interests of general public" in Article 19(6) of the Constitution convey the same meaning. The object of a law to increase its revenue by itself may not be always regarded as the law enacted in public interest. The Court has to consider the totality of facts, without giving undue importance to the rival pleadings. But a law levying a tax to compensate the loss of tax by any reason is certainly in public interest. A law which is regulatory or compensatory in nature not being confiscatory is a reasonable restriction even if the business is rendered uneconomical by such tax (Automobile Transport and Malwa Bus Service (Pvt) Limited v State of Punjab67). The burden of proving that the restrictions imposed under a law made under Article 304(b) are reasonable, that they do not hinder or restrict the free trade and commerce and that there is required constitutional compliance in the making of a law is on the State. When the State demonstrates the nexus between restriction and the object for which the law has been enacted, the burden would be on the one who challenges such law. Of course, in a case where the Court comes to the conclusion that the law is under Article 304(a), a further probe may not be necessary.
We may again refer to the Statement of Objects and Reasons because the nature and intention of levy under a State law, suspect of Article 301, can best be assessed with reference to the Statement of Objects and Reasons. It is permissible for understanding the antecedent state of affairs in relation to the statute and the evil which it seeks to remedy. The conditions prevalent at the time of passing the law and the extent of urgency of the evil can be ascertained, which would be important in testing the reasonableness of the restrictions (Mirzapur Moti Kureshi). Indeed, the preamble and the Statement of Objects and Reasons are the best evidence of legislative Judgment and constitute important factors amongst other for judging the reasonableness of restrictions. The Statement of Objects and Reasons appended to the Bill while introducing the impugned Act read as under.
It is observed that proper tax is not being realized by the State on all the Motor Vehicles which are being used in Andhra Pradesh. Many Vehicles are purchased at low tax in the neighbouring States and brought and used in the State. Since no sales took place within our State the government is not getting any revenue on such vehicles. To overcome such problem, neighbouring States like, Tamil Nadu and Kerala have introduced entry Tax on Motor Vehicles and in Karnataka it is being levied on all the commodities except 35 specified items. Entry Tax was introduced in our State in the year 1987 on Textiles, Tobacco and Sugar and it was subsequently withdrawn from 1st April, 1990. It is decided to levy Entry Tax on Motor Vehicles only to arrest tax evasion. The rate of tax on the local sales on motor vehicles is increased from 4% to 8% on the first sales and Entry Tax is levied at the rate of 8%. Entry Tax is not leviable if the motor vehicles suffer tax under local Sales Tax Act. The levy of entry tax on motor vehicles is therefore mainly meant to plug the leakage of revenue. To achieve the above object, Government have decided to enact, a separate law for the purpose.
This would reveal the background, the antecedent state of affairs and the conditions prevalent at the time of proposing the bill. In addition, it also reveals the evil which the impugned Act seeks to remedy and legislative Judgment thereon. In the absence of any material contra, on these aspects, our conclusion is as follows. Motor Vehicles were being purchased at low tax in the neighbouring States and used in the State of Andhra Pradesh. Since the sales took place outside the States, proper tax could not be realized as a result of which the State has been losing revenue. So as to plug the leakage of revenue and arrest tax evasion, the legislature chose to levy entry tax on motor vehicles exempting those vehicles which suffer tax under the Local Sales Tax Act. The law thus is enacted only 'to arrest tax evasion' and 'mainly meant to plug the leakage of revenue'. There can therefore be no doubt that the impugned Act levies entry tax to prevent revenue loss to the State by reason of the motor vehicles being purchased in the neighbouring States at the low tax. In so far as the vehicles imported for use are concerned, there is no way of levying sales tax on those vehicles because the situs of sale is outside the State and any such levy is prohibited by Article 286(1)(a) of the Constitution. But to minimize any hardship, the tax liability is reduced to the extent of sales tax paid in the State, which means only the difference of sales tax is collected from the vehicles imported for the purpose of sale.
The tax levied under Section 3(1) of the impugned Act is not on the basis that the goods are carried or transported. The taxable event is import of motor vehicle into the local area from any place outside the State for use or sale in Andhra Pradesh. The content of freedom under Article 301 also includes movement of trade, and if it is impeded or obstructed or hampered by the taxation, it would certainly be invalid for want of Presidential assent (Atiabari). There is no incidence of obstruction of movement of motor vehicles into Andhra Pradesh. The object of the enactment is to prevent loss of revenue to the State of Andhra Pradesh by reason of such imported vehicles having been subjected to a low tax rate in the neighbouring States, and thereby escape the taxation under Sales Tax Act. By levying tax, it cannot be said that the movement is impeded or obstructed. Unless and until it is shown that these things happen by reason of levy, there is no violation of Article 301. There is no dispute that the construction equipment, which is allegedly owned by the petitioners, is taxable under the VAT Act under residuary entry of Schedule V which, at the relevant time, was 12.5%. It is nobody's case that the tax levied on the petitioners vehicles under the impugned Act is in excess of the scheduled rate under Sales Tax/VAT Act nor it is shown that such tax has direct and immediate effect on trade. It is assumed that the legislature understands and appreciates the needs of the people and that the laws made by them manifests the legislative experience and are considered to be reasonable for which they are enacted (Khyerbari). The petitioners have failed to demonstrate that the levy has direct and immediate effect on the entry of imported motor vehicles. Unless the test is satisfied, a tax levied under a State law cannot be treated as a restriction as per the ratio in Atiabari and Automobile Transport.
Koteswar Vittal Kamath arose out of a civil suit instituted by the appellant for recovery of damages for breach of contract in respect of goods sold by him to the respondents therein. The suit was opposed relying on a State Order prohibiting forward contracts in vegetable oils. A question arose whether the said prohibitory order which virtually prevented the free movement of goods during inter-State trade violated Article 304(b) of the Constitution. The apex Court found that Government Order prohibiting Forward Contract directly effects 'commercial transaction relating to an essential article', and such a law without complying the requirements of the proviso to Article 304(b) would be void'. The relevant observations are as follows.
The first point that was urged by learned counsel for the appellant was that Section 3 of Act 5 of 1950, did not require compliance with the proviso, because it was not a piece of legislation for purposes of clause (b) of Article 304; but we are unable to see any force in this submission. It is enough to refer to clause (f) of Section 3(2) which is the provision under which a Prohibition Order relating to Forward Contracts could have been passed, and the Prohibition Order of 1119 or the Prohibition Order of 1950, can be held to be continued in force. Under Section 3(2)(f) power is conferred on the State Government to make an order which may provide for regulating or prohibiting any class of commercial or financial transactions relating to any essential article which, in the opinion of the Government, are, or if unregulated are likely to be, detrimental to public interest. An order prohibiting Forward Contracts would clearly be an order prohibiting a class of commercial transactions relating to an essential article which, in this case, was coconut oil. The conferment of power on a State Government to prohibit such transactions clearly permits imposition of restrictions on the freedom of trade or commerce and, therefore, falls within the scope of clause (b) of Article 304 of the Constitution. This argument advanced on behalf of the appellant must, consequently, be rejected. However, the question that has to be further examined is whether this Act 5 of 1950 was void, because the provisions of the proviso to Article 304 were attracted and the Act was passed without complying with the requirements of the proviso. (emphasis supplied)
In Malwa Bus Service, a bus operator assailed 1980 Amendment to Punjab Motor Vehicles Taxation Act, 1924 (Punjab Act) contending that the Act imposes unreasonable restrictions on the freedom of trade. One of the contentions was that the increase of tax on stage carriages renders the business of the bus operator uneconomical and is unreasonable restriction. The plea was negatived observing as under.
The mere fact that a tax falls more heavily on certain goods or persons may not result in its invalidity. As observed by this Court in Khandige Sham Bhat v Agricultural Income Tax Officer (AIR 1963 SC 591) in respect of taxation laws, the power of legislature to classify goods, things or persons are necessarily wide and flexible so as to enable it to adjust its system of taxation in all proper and reasonable ways. The courts lean more readily in favour of upholding the constitutionality of a taxing law in view of the complexities involved in the social and economic life of the community. It is one of the duties of a modem legislature to utilise the measures of taxation introduced by it for the purpose of achieving maximum social good and one has to trust the wisdom of the legislature in this regard. Unless the fiscal law in question is manifestly discriminatory the court should refrain from striking it down on the ground of discrimination. These are some of the broad principles laid down by this Court in several of its decisions ...
Harihar Prasad Debuka is the case wherein the Patna High Court quashed the Bihar Government's Notification as violating Articles 301 and 304 of the Constitution. The notification issued under Section 31 (2-a) of the Bihar Finance Act, 1981 prescribed two forms in which a person transporting good shall have to carry a declaration that the goods transported suffered tax at the place of origin of the goods. The plea of the respondent therein, that it would effect inter-State trade and commerce, found favour in the High Court. The Supreme Court reversed. Reiterating that regulatory measures cannot be regarded as violative of Article 301, it was held that, "the reasonableness (of regulatory measures) has to be considered in the context of effectiveness of the State's power and the erosion, if any, of the powers of the Parliament in respect of the inter-State trade, commerce and intercourse. ... This motive of the State Regulation in exercise of incidental power to tax has to be scrutinized and laissez faire hostility towards trade regulations of tax has to be kept in mind within the limits. ... The peculiarity of the local situation of a State may not also be entirely ignored". It was further held that, "the continuity of the transport will not be obstructed or interrupted ... a mere stoppage of the movement of vehicle will not have any direct or immediate impact on the trade and the channel of inter- State trade, commerce and intercourse would not be thwarted or evaded". Applying the above test to the impugned Act, the levy of entry tax as a matter of counterveiling duty would not in any manner directly and immediately effect inter-State trade or inter-State movement of the transport equipment/vehicles imported by the petitioners into local areas in the State of Andhra Pradesh. The petitioners have not complained that the import of transport vehicles - which are as of now not available in the State of Andhra Pradesh - is totally prohibited. Nor is it their grievance that levy of entry tax has deterred them from importing the motor vehicles from other States.
The entry tax on the motor vehicles is in public interest and non- discriminatory. If levy is not imposed on the imported vehicles, there is likelihood of locally manufactured and produced goods suffering from decline in sales. If all the vehicles produced and manufactured in the State of Andhra Pradesh remain unsold, and everybody starts buying the motor vehicles in the neighbouring States where the taxes are low, public good would be a casualty. The impugned Act is intended to avoid such a situation and legislature is always competent to meet such a situation by plugging the revenue loss. As is clear from the object of law, the vehicles imported and used in the State of Andhra Pradesh are not paying any tax resulting in revenue loss, whereas the motor vehicles purchased and used in the State of Andhra Pradesh are chargeable to the local tax and by reason of the taxes being at low rates in the neighbouring States, for obvious reasons the consumers naturally prefer to buy the vehicles in the neighbouring States. If a State for valid reasons enacts the law for levy of entry tax to plug the revenue loss, it is not a restriction which directly or immediately impacts inter-State trade. Therefore, Article 304(b) is not at all attracted. Further, as we have already held when once a law is justified under Article 304(a), the question of testing such law on the anvil of Article 304(b) would not arise. When the impugned levy is not a restriction, the question of obtaining the prior sanction of President does not arise nor it can be invalidated on that ground. On this point, therefore, we hold in favour of the State.
It is now well accepted that compensatory taxes do not impinge Article 301 of the Constitution. Such tax is not a restriction contemplated by Article 301 and, therefore, there is no requirement of a law for levying compensatory tax to be compliant with the proviso to Article 304(b). The CCT, in the counter affidavit filed earlier in point of time, specifically raised the plea that the impugned levy is compensatory in nature intended to defray the expenditure of local bodies incurred for providing, maintaining infrastructural facilities and other utilities. The Government, however, in their counter filed later did not raise such a plea. Nevertheless, the Special Counsel for Commercial Taxes pressed the argument.
In Automobile Transport, the majority ruled that the levies under the State MV Taxation Act are compensatory taxes which do not cause hindrance to anybody's freedom nor directly affect the movement of trade. So long as a tax remain compensatory or regulatory, it cannot operate as a hindrance. The compensatory tax, "in reality facilitates trade and commerce (and) is not a restriction and that which in reality hampers or burdens trade and commerce is a restriction". "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 (and) it would be impossible to judge the compensatory nature of a tax by meticulous test....". After about four decades of Atiabari and Automobile Transport, in Bhagatram Rajit Kumar v CST68 and State of Bihar v Bihar Chambers of Commerce69 a view was taken that, so as to characterize as compensatory tax, it would suffice to establish 'some connection' between the tax and the trade facilities extended to dealers directly and indirectly. A Constitution Bench in Jindal Stainless Limited (2) v State of Haryana70 expressly overruled these two decisions and reiterated the Automobile Transport working test. The basis of a tax is the ability or capacity of the tax payer whereas 'the principle of equivalence' applies in the case of compensatory tax. It is based on the principle of 'pay for the value'. It is a levy in the hybrid nature between fees and tax and, therefore, even though it incidentally brings revenue to the Government, it need not be an essential ingredient of compensatory tax. The Government levies compensatory tax as a charge for offering trading facilities. It adds the value of trade and commerce. In the case of tax, however, there is no identification of a special benefit (Jindal Stainless (2)). Here, we may quote following pertinent observations from Jindal Stainless (2). To sum up, the basis of every levy is the controlling factor. In the case of "a tax", the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of "a fee", the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of "burden" to the concept of measurable/quantifiable benefit and then it becomes "a compensatory tax" and its payment is then not for revenue but as reimbursement/recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/ recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then Article 301 is violated.
Jindal Stainless (2) Bench further ruled that, so as to justify the levy as compensatory tax, the State has to discharge the burden that, "impugned enactment facially or patently indicates quantifiable data on the basis of which the compensatory tax is sought to be levied (and) the Act must facially indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionality to the quantifiable benefit. How the burden has to be discharged when the provisions of the impugned enactment levying the tax which is allegedly compensatory?" If the 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 before the Court, that the payment of compensatory tax is a reimbursement/ recompense for the quantifiable/measurable benefit provided or to be provided to its payer(s). We would revert to pleadings and other material, if any, to see whether the State has discharged the burden. The counter of the CCT alleged as follows. It is submitted that the levy of Entry Tax Act in the present case is compensatory in nature and therefore no previous sanction of the President has been obtained. The local bodies have been taking up lot of programmes relating to laying of roads, upkeeping of roads, installation of street lights, supply of water, sanitation programs, cleanliness schemes etc., within their local areas. They need huge funds for implementing all these schemes. There has been a resource crunch. For several reasons the local bodies especially in villages are not able to generate their own resources to meet the growing expenditure on account of provisions of various amenities and facilities. The local bodies, therefore, need funding by the State Government. The State Government has to provide substantial funds to these bodies to enable them to discharge their statutory obligation.
It is submitted that well laid roads would help and ensure free flow of trade and commerce, establishment of market yards, water ways and other amenities for the traders within local areas attract more trade from other States. It is only such provision of the facilities within the State that would attract more traders from other States to dispatch the goods. The infrastructure facilities within the local area are the real attraction for more flow of goods from other States. It all needs substantial allocation of funds. The present levy of entry tax is therefore totally compensatory and regulatory in nature. It is therefore submitted that these submissions are sufficient to negative the plea of the petitioners as regards the Constitutional validity of Entry Tax Act on the grounds of violation of Article 304(b) of the Constitution of India. The CCT has not placed any material before this Court to justify the stand. The burden of proof has not been discharged much less an attempt as been made. Therefore, the plea of the State that the impugned Act levies compensatory tax is rejected.
PART - VI
After completion of the arguments, Sri S.Dwaraknath, counsel appearing for some of the petitioners placed a compilation of eighteen decisions of various High Courts. In all these decisions, the respective State enactments levying tax on entry of goods into local areas were declared ultra vires. The Senior Standing Counsel for CT Sri A.V.Krishna Kaundinya has relied on three decisions in which enactments levying tax on entry of goods or motor vehicles into local areas were upheld by the High Courts of Bombay (Nagpur Bench), Gujarat as well as this Court. Indeed, petitioners' counsel did not press the decisions in support of their contentions during the course of their arguments nor attention of this Court has been invited to a specific portion of each of the Judgments. But the Senior Standing Counsel laid emphasis on the Judgments cited by him. We do not wish to add to the length of this Judgment by referring to each of the decisions in detail, except briefly indicating the essential controversy and the resolution thereof.
In Suresh Chand Sri Gopal, a Division Bench of this Court comprising B.P.Jeevan Reddy, Syed Shah Mohammed Quadri, JJ (as their Lordships then were) inter alia considered the issue whether the Andhra Pradesh Entry of Goods into Local Areas Tax Act, 1987 restricted the freedom of trade and movement guaranteed under Article 301 and whether it was void for non-compliance with the proviso to Article 304(b). Recording a finding that no material was placed before the Court to show that the impugned levy had the effect of impeding the free flow of intra and inter-State trade and commerce, their Lordships also held that the restriction, if any, cannot be said to be unreasonable since the rate of tax is less. It was further held that post enactment assent accorded by the President would be sufficient compliance with the proviso to Article 304(b). In Jaika Automobiles to which a reference has already been made supra, the Nagpur Bench of Bombay High Court upheld the validity of the Maharashtra Act whose provisions are in pari materia with various Sections of the impugned Act. Ground (c) therein was concerned with the impingement of free trade right under Article
301. The Division Bench of the Bombay High Court, having regard to the fact that no material was placed by the complainants as to how the levy of entry tax on motor vehicles affected the free flow of trade, commerce and intercourse, did not accept the plea that there is violation of Article 301 as the levy does not directly and immediately restrict the inter-State trade. Jaika Automobiles was taken to Supreme Court in Shaktikumar M.Sancheti. Two grounds were urged, viz., that the incidence of tax being on the purchase value of the motor vehicles, it was in nature of purchase tax and that it is violative of Article 286 because it is in addition to the tax levied and collected as octroi by a local authority. Both these grounds did not find favour with the apex Court. After noticing the objects and reasons of the Maharashtra Act, the Supreme Court observed that, "the charge is on the entry of vehicle into local area for use or sale and not on its purchase", that it cannot be invalidated merely because the measure of tax is purchase value and that when the Legislature intended to avoid any loss of legitimate sales tax revenue by the State, the same is not invalid. In Eagle Corporation v State of Gujarat71, a Division Bench of the Gujarat High Court examined the vires of the Gujarat Tax on Entry of Specified Goods into Local Areas Act, 2001 (Gujarat Act) with reference to Articles 301 and 304 of the Constitution. The State defended legislation as levying non-discriminatory tax immune from the vice of unconstitutionality. Though initially the levy was also justified as being compensatory tax subsequently, by a separate affidavit, the State gave up the contention. The Gujarat Bench repelled the plea of discriminatory levy observing that when there is reduction in the effective rate of sales tax, there will automatically be a corresponding reduction in the maximum rate of entry tax prescribed in the Schedule so that the goods brought from outside the State are not discriminated against the goods being manufactured within the State from the point of view of ultimate burden of tax. It may be mentioned here that, under Section 4 of the Gujarat Act, the entry tax paid would be reduced to the extent of amount paid towards sales tax and similar provision is found in the impugned Act as well. It was also observed by the Gujarat High Court that, "if the levy of tax is found to be non-discriminatory, the previous sanction of the President is not required", that Article 304(a) and (b) deal with two separate situations, and that if the levy satisfies Article 304(a), the conditions imposed under Article 304(b) are not required to be complied with.
We may now briefly refer to the decisions submitted by Sri S.Dwaraknath on behalf of the petitioners. In Eurotex Industries Limited v State of Maharashtra72, the Bombay High Court nullified entry 13 to the Schedule to the Maharashtra Tax on Entry of Goods into Local Areas Act, 2002 which taxed furnace oil and low sulphur waxy residue oil on the ground that similar goods produced in Maharashtra were exempted from payment of sales tax. In Tata Iron & Steel Company Limited v State of Jharkhand73 and Central Coalfields Limited v State of Jharkhand74, the Jharkhand High Court declared Bihar Tax on entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 as adopted by the State of Jharkhand vide Jharkhand Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Thereof (Amendment) Ordinance, 2001 as ultra vires holding that the levy does not constitute reasonable restriction, that the levy is not in the nature of compensatory tax and that the levy violates Articles 301 and 304 of the Constitution. In State of Assam v Chhotabhai Jethabhai Patel75 and Jaiprakash Industries Limited v State of Arunachal Pradesh76, the Gauhati High Court refused to uphold the constitutional validity of Assam Entry Tax Act, 2001 and Arunachal Pradesh Goods Tax Act, 2005 respectively. In Thressiamma I Chirayil v State of Kerala77, ITC Limited v State of Tamil Nadu78, BEML v State of Karnataka79, L&T Case Equipment Private Limited v State of Karnataka80, IOC Limited v State of Uttar Pradesh81, Jindal Strips Limited v State of Haryana82, R.Gandhi v State of Tamil Nadu83, National Aluminium company v State of Orissa84, Dinesh Pouches Limited v State of Rajasthan85 and IOC v State of Haryana86, the High Courts considered the vires of the respective State enactments levying tax on entry of goods into local areas. In all these cases, it was held that the levy violates Article 301 and that not being a compensatory tax, it is not saved under Article 304(b).
Except the decision of the Bombay High Court in Eurotex Industries, all the decisions were rendered after the decision of the Constitution Bench of the Supreme Court in Jindal Stainless (2). The validity of the various State Acts levying entry tax on the goods was mainly tested with reference to the principles laid down in Jindal Stainless(2). In most of these cases, various High Courts took the view that the levy is not compensatory and that the State failed to discharge the burden of proving that the levy is regulatory and compensatory in nature. The High Courts also invalidated the respective entry tax Acts on other grounds like discrimination and absence of Presidential assent.
After going through the decisions of various High Courts mentioned by petitioners' counsel referred to, we are convinced that these are of no assistance to the petitioners. We have taken the view that the levy under the impugned Act does not directly and immediately restrict the freedom of trade, that the petitioners have not demonstrated any impediment by such levy, and that having regard to the object of the enactment it is reasonable for the State to levy entry tax on motor vehicles to plug the leakage of revenue. We have also recorded a conclusion that the levy being non-discriminatory is permissible under Article 304(a) and does not require compliance with the proviso under Article 304(b) as it is not at all attracted. As adverted to in the succeeding paragraphs, there is yet another reason for us not to be persuaded by any of the decisions referred to hereinabove which mainly deal with the levy of tax on entry of goods into local areas sought to be justified as compensatory. The charging Section in Maharashtra Act and the charging Section in the impugned Act are in pari materia, though not ipsissima verba. For ready reference, we quote both the provisions as below.
The Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987 (As quoted in Shaktikumar M.Sancheti)
The Andhra Pradesh Tax on Entry of Motor Vehicles Into Local Areas Act, 1996
3. Incidence of Tax: (1) Subject to the provisions of this Act and rules made thereunder, there shall be levied and collected a tax on the purchase value of a motor vehicle an entry of which is effected into a local area for use or sale therein which is liable for registration in the State under the Motor Vehicles Act, 1939, at such rate or rates as may be fixed by the State Government by notification in the Official Gazette but not exceeding the rates prescribed for motor vehicles in the Schedules appended to the Bombay Sales Tax Act, or fifteen paise in the rupee whichever is less:
Provided that, no tax shall be levied and collected in respect of a motor vehicle which was registered in any Union Territory or any other State under the Motor Vehicles Act, 1939, for a period of fifteen months or more before the date on which it is registered in the State under that Act.
(2) The tax shall be payable and paid by an importer within 15 days from the entry of motor vehicle into the local area or before an application is made for registration of the vehicle under the Motor Vehicles Act, 1988, whichever is earlier in the manner laid down under Section 10 of this Act.
((3) Omitted here as not relevant.)
3. Levy of Tax: (1) Subject to the provisions of this Act, there shall be levied and collected tax on the entry of any motor vehicle into any local area for use or sale therein which is liable for registration in the State under the Motor Vehicles Act, 1988.
The tax levied shall be at such rate or rates as may be fixed by the Government, by notification, on the purchase value of the motor vehicle but not exceeding the rates specified for motor vehicles in the First Schedule to the General Sales Tax Act, 1957:
Provided that no tax shall be levied and collected in respect of any motor vehicle which was registered in any Union Territory or any other State under the provisions of the Motor Vehicles Act, 1988, prior to period of fifteen months or more from the date on which it is registered in the State:
Provided further that no tax shall be levied and collected in respect of any motor vehicle which is owned by Central Government and is used exclusively for the purposes relating to the Defence of India.
(2) The tax shall be payable by the importer in such manner and within such time as may be prescribed.
((3) Omitted here as not relevant.)
The charging Section in both the Acts is similar. Its purport is same. The taxable event and incidence of tax are also same. The object of the enactments is also the same. Further, Section 4 in both the Acts stipulate reduction of sales tax liability under the relevant Act to the extent of tax paid under the Entry Tax Act. The Maharashtra Act was upheld in Jaika Automobiles. The Supreme Court in Shaktikumar M.Sancheti affirmed the decision of the Nagpur Bench upholding the Maharashtra Act. Thus, the legislation made by the State of Maharashtra under the same entry in the State list has been interpreted and upheld by the Supreme Court in the appeal against the decision of the Bombay High Court. Is there, then, any scope for taking a different view ignoring the decision of the Supreme Court upholding in pari materia legislation. It is nobody's case that a decision of the Supreme Court is not binding on the High Court. An attempt is however made by the petitioners that Shaktikumar M.Sancheti does not consider the effect of the embargo imposed by Article 301 read with Article 304 of the Constitution. They would, therefore, suggest that this Court must either ignore Shaktikumar M.Sancheti or consider it as not laying down any contra law to deny the reliefs to the petitioners on various grounds urged in challenge to the impugned Act.
We are, however - though appreciative of the effort of the petitioners' counsel - do not feel compelled to countenance the contention. The legislations enacted by two independent States in exercise of the same constitutional power with reference to the same legislative entries, are different. But, a decision of the Supreme Court upholding the vires of any one of the two legislations is certainly a binding precedent specially when the two legislations are in pari materia. In other words, if there is a decision of the Supreme Court on the constitutional validity with reference to the legislative powers and legislative entries, the same is binding while dealing with a legislation of another State, if it is in pari materia with the law upheld by the apex Court. Any attempt to ignore the decision of the Supreme Court on the plea that a particular issue was not raised or a point was not urged or a question was not considered, would be futile.
In B.M.Lakhani v Malkapur Municipality87, the Municipality of Malkapur in State of Maharashtra levied certain tax on the appellant. The same was successfully challenged in a suit filed for permanent injunction restraining the assessing municipality from recovering the tax. The decree was modified and affirmed by the District Court. The High Court set aside the decree insofar as the levy was saved by the provisions of Government of India Act, 1935, but held that the suit is barred under the C.P. and Berar Municipalities Act, 1922. While doing so, the High Court distinguished the earlier decision in Bharat Kala Bhandar v Municipal Committee of Dhamangaon88 observing that the relevant provisions were not brought to the notice of the Supreme Court. In Appeal by the plaintiff therein, the issue was whether a suit is competent. While answering the same in affirmative, the Supreme Court observed that, the High Court could not have ignored the Bharat Kala Bhandar merely because it was thought that the relevant provisions were not brought to the notice of the Court. It is apt in this regard to quote the following passage from the said decision.
The first question is concluded by the judgment of this Court in Bharat Kala Bhandar case. That case arose under the C.P. and Berar Municipalities Act, 1922. The right of a Municipality governed by that Act to levy under Section 66(1)(b) a tax on bales of cotton ginned at the prescribed rate was challenged by a taxpayer. This Court held that levy of tax on cotton ginned by the taxpayer in excess of the amount prescribed by Article 276 of the Constitution was invalid, and since the Municipality had no authority to levy the tax in excess of the rate permitted by the Constitution the assessment proceeding levying tax in excess of the permissible limit were invalid, and a suit for refund of tax in excess of the amount permitted by Article 276 was maintainable. The decision was binding on the High Court and the High Court could not ignore it because they thought that "relevant provisions were not brought to the notice of the Court".
In Director of Settlements, A.P v M.R.Appa Rao89, the Supreme Court after referring to B.M.Lakhani explained the scope of Article 141 of the Constitution as follows. "... What is binding is the ratio of the decision and not any finding of facts. It is the principle found out upon a reading of a judgment as a whole, in the light of the questions before the Court that forms the ratio and not any particular word or sentence. ...
A judgment of the Court has to be read in the context of questions which arose for consideration in the case in which the judgment was delivered. ... The law which will be binding under Article 141 would, therefore, extend to all observations of points raised and decided by the Court in a given case. ... The decision in a judgment of the Supreme Court cannot be assailed on the ground that certain aspects were not considered or the relevant provisions were not brought to the notice of the Court".
Our conclusion that a decision of the Supreme Court in relation to a State legislation which is in pari materia, is binding on the High Court in a subsequent case derives support from the observations of the Supreme Court in Sudesh Kumar v State of Uttarakhand90. Therein, the interpretation of Section 6 of the Probation of Offenders Act, 1958 was involved. The appellant in that case was convicted for an offence under Section 392 read with Section 34 of the Indian Penal Code, 1860 and sentenced to five years rigorous imprisonment. The High Court confirmed the conviction and sentence. Before the Supreme Court, it was urged that the appellant was below 21 years of age at the time of commission of crime, and therefore, entitled to consideration and benefit under Section 6 of the Probation of Offenders Act. In Ramji Missar v State of Bihar91, a Constitution Bench took the view that the age of the offender must be reckoned from the date of the Judgment of the trial Court. The appellant however relied on the decision of the Supreme Court in Pratap Singh v State of Jharkhand92, which arose under Juvenile Justice Act, 1986, to contend that the reckoning date for determining the age of juvenile is the date of commission of offence and not the date when he produced before the competent authority or the Court and that Section 6 of the Probation of Offenders Act should also be interpreted keeping in view the ratio in Pratap Singh. Observing that the object and purpose of Probation of Offenders Act and Juvenile Justice Act being different, both the statutes cannot be treated as in pari materia and that the decision in Pratap Singh would not govern the interpretation of the provisions of Probation of Offenders Act, the Supreme Court rejected the submissions. It was held. It can be noticed from Ramji Missar case and Pratap Singh case that the object and purpose of the Probation of Offenders Act, 1958 for applying the relevant provisions to the accused are different and cannot be said in pari materia with the Juvenile Justice Act, 1986 and the Juvenile Justice (Care and Protection of Children) Act, 2000. The court would not construe a section of a statute with reference to that of another statute unless the latter is in pari materia with the former. Therefore, a decision made on a provision of a different statute will be of no relevance unless underlying objects of the two statutes are in pari materia. The decision interpreting various provisions of one statute will not have the binding force while interpreting the provisions of another statute.
Section 6 of the Act has been construed by a 4-Judge Bench of this Court in Ramji Missar case and that will have the binding force while interpreting the same section in same statute and the decision of the Constitution Bench interpreting provisions of the 1986 Act and the 2000 Act would not be held to be a decision on interpretation of Section 6 of the Act. Section 6 of the Act would apply to the accused who is under 21 years of age on the date of imposition of punishment by the trial court and not on the date of commission of the offence. If on the date of the order of conviction and sentence by the trial court the accused is below 21 years of age the provisions of Section 6 of the Act applies in full force.
The submission that the question of the effect of Articles 301 and 304 was not adverted to in Shaktikumar M.Sancheti may not be fully correct. In the very first paragraph of the judgment, the Supreme Court summed up various submissions made before the Nagpur Bench in Jaika Automobiles and focused attention only on two questions to which we have already made reference supra. From this an inference can be drawn that the appellants did not specifically press the argument based on Articles 301 read with Article 304 and therefore, the view of Nagpur Bench on the question which was specifically considered as issue (c) stands affirmed. Even otherwise as held by the Supreme Court in B.M.Lakhani, the decision in Shaktikumar M.Sancheti cannot be ignored. As the same deals with Maharashtra legislation, which is in pari materia with the impugned Act, it is certainly binding on this Court.
PART - VII
VALIDITY OF NOTIFICATION UNDER THE ACT
Section 3 of the impugned Act is the charging Section authorizing levy and collection of tax on the entry of any motor vehicle into local area. As to the rate of tax to be levied and collected, Section 3 requires the notification by the Government fixing the rate of tax. The rate of tax however shall not exceed the rates specified for motor vehicles in the APGST Act. Though the Act came into force with effect from 01.08.1996, the Government issued a notification vide G.O.Ms.No.636, Revenue (CT-II) Department, dated 02.08.1996 fixing 8% as the rate of tax to be levied and collected under the Ordinance which preceded the impugned Act. This notification was superceded by another one vide G.O.Ms.No.917, Revenue (CT.II) Department, dated 31.12.1999 fixing the rate of entry tax on motor vehicles at 12%. The latter notification reads as under. G.O.Ms.No.917, Revenue (CT.II) Department, dated 31.12.1999
In exercise of the powers conferred under Section 12 of the Andhra Pradesh Tax on Entry of Motor Vehicles into Local Areas Act, 1996, and in supersession of orders issued in G.O.Ms.No.636, Revenue (CT.II) Department dated 02.08.1996, the Governor of Andhra Pradesh hereby specifies that, with effect from the 1st day of January, 2000 tax shall be levied and collected under the said Act at the rates specified in Column (3) of the table given below on the entry of Motor Vehicles specified in corresponding entries in Column (2) thereof.
Category of Motor Vehicles
Rate of Tax
Motor Cars, Motor Taxi Cabs
Twelve per cent
Twelve per cent
Motor Cycles and Motor Scooters, Motorettes
Twelve per cent
Three Wheelers - Tempos, Five Wheelers and auto-rickshaws Twelve per cent
Twelve per cent
Twelve per cent
Motor - Lorries
Twelve per cent
Chassis of Motor Vehicles, all other types of motor vehicles excluding Tractors, Power tillers
Twelve per cent
The counsel would submit that the notification is not issued under Section 3 of the impugned Act and, therefore, levy and collection of entry tax on motor vehicles at the rates fixed by the notification issued under Section 12 is invalid and unconstitutional. This submission ought not to detain us long, nor we feel compelled to take serious note of it. It is axiomatic that if authority is conferred under the Act, while exercising such power if the provision is not specifically mentioned or a reference is made to a wrong provision of law in the Act, the same does not lead to an inference that there is an improper exercise of power nor mention of wrong provision invalidates or vitiates the exercise of power. The same is also true when something has to be done by issuing a notification under law. The precedents are galore. We may refer to some of them. In Pournami Oil Mills v State of Kerala93, the Government of Kerala issued notifications exempting small scale industries set up after 01.04.1989 from the payment of sales tax for a period of five years from the date of commencement of production. Notifications were purportedly issued in exercise of powers under Section 10 of the Kerala General Sales Tax Act. The same was withdrawn subsequently which was unsuccessfully challenged in the Kerala High Court. Before the Supreme Court, it was urged that the notifications were not issued under Section 10 of the Act and, therefore, suffer invalidity. The Supreme Court, however, repelled the contention observing that, "it is a well settled principle of law that where the authority making an order has power conferred upon it by statute to make an order made by it and an order is made without indicating the provision under which it is made, the order would be deemed to have been made under the provision enabling the making of it". To the same effect is the dicta of the Supreme Court in State of Karnataka v Krishnaji Srinivas Kulkarni94 and Vikram Singh Junior High School v District Magistrate95. State of West Bengal v Jindal India Limited96, is a case which considered the validity of demand under Section 14(3) of the Taxes on Entry of Goods into Calcutta metropolitan Area Act, 1972. In a challenge before the West Bengal Taxation Tribunal, the demand was quashed, taking a view that the demand under Section 14(3) would not have been issued in view of the assessee's declaration under Section 13 of the said Act; Section 14(3) did not authorize reopening of the case; and steps to recover short levied tax can be taken only under Section
17. The question was whether reopening under Section 14(3) is illegal. The Supreme Court held that, "Section 17(1) contemplates reopening of assessments when there has been a short levy by reason of inadvertence, error or misconstruction on the part of the prescribed authority or by reason of misstatement of the dealer, as to quantity, description or value, or for any other reason. In our view, the provisions of Section 17(1) are very wide and gave authority to the appellant to reopen the assessment that was made upon the first respondent. The fact that the reopening was said to be under Section 14(3) and not under Section 17 can make no difference; the misstatement of the appropriate section would not invalidate the reopening, power to do so being there".
In N.Mani v Sangeetha Theatre97, the Supreme Court considered the validity of exemption granted to the appellant under Rule 14 of the Tamil Nadu Cinemas (Regulation) Rules, 1957 instead of Section 11 of the Parent Act. The appellant therein was owner of touring talkies, which was granted exemption in 1988 under Section 11. After expiry of the period of exemption, he again applied. In the meanwhile, Rule 14 was amended imposing certain restrictions for grant of licences to permanent touring cinemas. As a result of which the appellant's touring cinema could not have been operated as per restrictions under the Regulations. Therefore, the Government granted exemption to the appellant from the operation of Rule 14. The learned single Judge dismissed the respondent's writ petition but the order was reversed by the Division Bench holding the exemption as illegal. The Supreme Court, however, reversed, reiterating that, "if an authority has a power under the law merely because while exercising that power the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself does not vitiate the exercise of power so long as the power does exist and can be traced to a source available in law."
In Kedar Shashikant Deshpande v Bhor Municipal Council98, it was held that quoting wrong provisions would not invalidate the order passed by the authority if it is shown that such order could be passed under the provisions of the statute.
There is no dispute that as per Section 3 of the Act the rate of tax shall be fixed by the Government by notification which shall not exceed the sales tax rates. A careful perusal would show that Section 3 being a charging Section has to be given full effect. It cannot be defeated merely because the notification fixing the rate of entry tax on motor vehicles is issued under Section 12 which speaks of the power of the Government, by notification, to reduce the rate of tax. Though Section 12 as such does not empower the Government to fix the rate of entry tax, the notification in question is not vitiated or rendered illegal by mention of Section 12 instead of Section 3. Therefore, we reiterate that the submission is misconceived.
Yet another submission made by some of the counsel is about the rate at which entry tax was collected. The rate of tax fixed by the Government should not exceed the rates specified for motor vehicles in the First Schedule to the APGST Act. At the relevant time, it was 12%. The rate of tax fixed by the Government under the notification vide G.O.Ms.No.917, dated 31.12.1998 is 12%. As per entry 1 of
Schedule I, the rate of sales tax on motor vehicles including motor cars, motor taxi-cabs, motor cycles and motor cycle combinations, motor scooters, motorettes, motor omnibuses, motor vans, motor lorries and chassis of motor vehicles, was reduced to 12% with effect from 01.01.2000 though for the period earlier to it, it was 16%.
Sri S.Dwaraknath brought to our notice that in some of the cases, entry tax was collected at 12.5%. The VAT Act came into force with effect from 01.04.2005. As the motor vehicles fall under the residuary Schedule V attracting VAT of 12.5%, there may have been some mistake on the part of the assessing officers. In so far as the notification under the Entry Tax Act is concerned, unless and until Section 3 is amended substituting the VAT Act for the General Sales Tax Act, 1957 levying 12.5% is certainly an unauthorized and an unsustainable levy. To that extent, wherever the petitioners were compelled to pay entry tax under the impugned Act at 12.5%, they would be entitled to claim refund.
PART - VIII
NATURE OF THE VEHICLES
The petitioners purchased excavators (which allegedly move either on wheels or iron chain plates), wheel loaders, JCBs, truck mounted chain run hydraulic excavators, crawter driller, rear Dumpers, Road rollers, Compactors etc. All of them would contend that the various construction/mining equipment is machinery and do not fall within the definition of 'motor vehicles' as defined under Section 2(28) of the MV Act. They would, therefore, contend that they are not exigible to tax under the impugned Act. The State opposes relying on Bose Abraham. When a motor vehicle can be said to enter "for use" and when such motor vehicle is liable for registration? The consideration of this issue needs reference to the MV Act, Central Motor Vehicles Rules, 1989 (CMV Rules, for brevity), A.P.Motor Vehicles Rules, 1989 (APMV Rules, for brevity) and MV Taxation Act.
As per Section 2(j) of the Act, motor vehicle means 'a motor vehicle as defined in clause (28) of Section 2 of the MV Act'. The charging section levies tax on the entry of any motor vehicle into any local area, which is liable for registration in the State under the MV Act. Section 2(28) of the MV Act reads as under.
2(28) "Motor Vehicle" or "Vehicle" means any mechanically propelled vehicle adapted for use upon roads where the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimeters.
The main part defines motor vehicle or vehicle as to mean, "any mechanically propelled vehicle adapted for use upon the roads". Under the inclusive part, even a chassis to which a body has not been attached and trailer also are the motor vehicles. The exclusive part excludes three types of vehicles, namely, a vehicle running upon fixed rails, a vehicle of a special type adapted for use only in a factory or any other enclosed premises and a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimeters. The crucial aspect of the definition is that a vehicle should be mechanically propelled and it should be adapted for use upon the roads. There is no dispute that the vehicles purchased by the petitioners are mechanically propelled. They, however, allege that they are not adapted for use upon the roads. According to them, they are specialized vehicles designed and manufactured only for construction, earth moving, mining and industrial activity and are always carried from place to place on trucks. They are also used only in enclosed premises. These are disputed questions of fact and wherever there is doubt about the nature of the vehicle, it is not proper for this Court to consider each and every vehicle in these cases and give a finding as to whether the vehicle is adapted for use on the roads for the purpose of levy of entry tax. Therefore, the consideration herein is limited to examining the various legal aspects of the matter.
MV Taxation Act is a law referable to entry 57 of State List. The tax under Section 3(1) of the MV Taxation Act is levied on every motor vehicle 'used or kept for use in a public place in the State'. Section 3(2) thereof stipulates either life tax or periodical tax. When a vehicle can be said to be "used or kept for use"? Sections 39 to 65 in Chapter IV of the MV Act deal with registration of motor vehicles. A perusal of these provisions and Rules 33 to 61 of the MV Rules as well as Rules 79 to 129 of APMV Rules would reveal the position as follows. A owner of a motor vehicle shall not ply it in any public place or in any other place unless a vehicle is registered by registering authority in whose jurisdiction the owner has residence or in place of business where the vehicle is normally kept. In cases where motor vehicle is registered in another State but is kept or used in Andhra Pradesh for a period exceeding thirty days, as per Rule 96 of the APMV Rules, the owner shall send the intimation to registering authority. If the owner intends so, he has to obtain a new registration in Andhra Pradesh, within a period of twelve months. A question arose whether the registration or re-registration of a motor vehicle in the State is relevant for the purpose of levying tax under the MV Taxation Act. The apex Court held that a motor vehicle cannot escape liability to tax even in a situation where for some reason or other the vehicle is not registered under the MV Act and that if the Certificate of Registration is current, the vehicle shall be deemed to be used or kept for use in the State. (The Travancore Tea Estates Company Limited v State of Kerala99, International Tourist Corporation and State of Karnataka v Gopala Krishnan Shenoy100).
The nature of the MV tax and entry tax is different though both are State taxes paid in advance. In the former case, if the vehicle whether or not registered in the State is used or kept for use in a public place in a State, the liability is attracted. Under the impugned Act, however, the liability is attracted the moment the vehicle enters the local area in the State either for use or sale. When once a vehicle is adapted for use on the roads as defined in Section 2(28) of the MV Act, it is mandatory under Section 39 thereof, that it shall be registered to be driven in any public place. Therefore, the legislature seems to have made a vehicle liable for registration in the State, the target for levy of entry tax by way of abundant caution. If the owner of a motor vehicle is merely passing through the State of Andhra Pradesh to another state where it is intended to be used, the vehicle is not liable for registration in Andhra Pradesh. In such an event, the levy under the Act is not attracted. If the entry of motor vehicle is for use or sale in the State of Andhra Pradesh, the tax can be levied.
Deviating for awhile, we may refer to Rule 2(ca) of the CMV Rules, which defines 'construction equipment vehicle', as quoted hereunder.
"Construction equipment vehicle" means rubber tyred (including pneumatic tyred), rubber paddedor steel drum wheel mounted, self-propelled, excavator, loader, backhoe, compactor roller, dumper, motor grader, mobile crane, dozer, fork lift truck, self-loading concrete mixer or any other construction equipment vehicle or combination thereof designed for off-highway operations in mining, industrial undertaking, irrigation and general construction but modified and manufactured with "on or off" or "on and off" highway capabilities. Explanation"- A construction equipment vehicle shall be a non-transport vehicle the driving on the road of which is incidental to the main off-highway function and for a short duration at a speed not exceeding 50 kms per hour, but such vehicle does not include other purely off-highway construction equipment vehicles designed and adopted for use in any enclosed premises, factory or mine other than road network, not equipped to travel on public roads on their own power.
The law regulates the manufacturing of construction equipment and their movement from place to place on the roads. Every manufacturer of construction equipment is required to submit the prototype of equipment/vehicle manufactured and while on the roads, the movement is regulated by Rule 126B and Rule 108A of the Central Motor Vehicles Rules, 1989 respectively. These vehicles are also required to comply with the emission standards and the rules. We are only making a passing reference to these rules to show that under the MV Act itself various types of construction equipment are subjected to regulatory controls by appropriate authorities. These regulations are intended to keep the public safe. This has also some bearing when we consider the submissions of the counsel in the light of various precedents referred to infra.
It is crucial that a mechanically propelled vehicle must have been adapted for use on the roads. Bolani Ores Limited v State of Orissa101 is a case dealing with dumpers, rockers and tractors. The question before a Division Bench of the Supreme Court was whether these are motor vehicles within the meaning of Bihar and Orissa Motor Vehicles Taxation Act, 1930. Section 2(c) therein adopted the definition of motor vehicle as defined in Section 2(18) of the MV Act, 1939. The definition is in pari materia with Section 2(28) except for a minor part of the definition dealing with vehicles (a vehicle having less than four wheels) with an engine capacity of 25 cubic centimeters. Interpreting the definition of motor vehicle, the Supreme Court held that the dumpers and rockers are registerable under the MV Act but are not taxable under Taxation Act as long as they are working within the enclosed premises of the owner. The relevant observations are as follows.
The question would then arise, are dumpers, rockers and tractors suitable or fit for use on roads? It is not denied that these vehicles are on pneumatic wheels and can be moved about from place to place with mechanical power. The word "vehicle" itself connotes that it is a contrivance which moves. A vehicle which merely moves from one place to another need not necessarily be a motor vehicle within the meaning of Section 2(18) of the Act. It may move on iron flats made into a chain such as a caterpillar vehicle or a military tank. Both move from one place to another but are not suitable for use on roads. It is not that they cannot move on the roads but that they are not adapted, made fit or suitable for use on roads. They would, if used, dig and damage the roads. ... ... Where a vehicle is adapted for use upon roads and though it is not driven on the public roads or in a public place even then if it carries goods or passengers which may not be for hire or reward or the passengers may be friends or relatives of the owner or the goods may belong to the owner and plying in a place to which the public has, as a matter of right, no access, it nonetheless cannot be driven without its being registered or without the driver holding a licence to drive such a vehicle.
In Central Coal Fields v State of Orissa102, Bolani Ores was relied to hold that dumpers and rockers are vehicles adapted or suitable for use on the roads, and therefore, motor vehicles. It is necessary to excerpt the following observations from the said Judgment.
... which indicate prominently one factor that these Dumpers run on tyres, in marked contrast to chain plates like caterpillars or military tanks. By the use of rubber tyres it is evident that they have been adapted for use on roads, which means they are suitable for being used on public roads. The mere fact that they are required at places to run at a particular speed is not to detract from the position otherwise clear that they are adapted for use on roads. The very nature of these vehicles make it clear that they are not manufactured or adapted for use only in factories or enclosed premises. The mere fact that the Dumpers or Rockers as suggested are heavy and cannot move on the roads without damaging them is not to say that they are not suitable for use on roads. The word 'adapted' in the provision was read as 'suitable' in Bolani Ores case by interpretation on the strength of the language in Entry 57, List II of the Constitution.
Goodyear India Limited v Union of India103 is a case regarding the exigibility of rubber tyres of the size of more than 1800 mm manufactured for fitment to heavy motor vehicles such as dumpers and earth movers under the Central Excise Act. The assessee took the stand that those tyres do not fall within the category of "tyres for motor vehicles" and, hence, they should be classified under residuary sub-item (3) of item 16 exigible to tax at 20% ad voleram. Item 34 of the Central Excise Tariff defined motor vehicles as to mean mechanically propelled vehicles adapted for use upon roads. Under the Explanation to item 34, where a motor vehicle is mounted, fitted or fixed with any weight lifting or earth moving equipment, then such equipment shall not be taken into account for the purpose of levy. Construing the phrase "adapted for use upon roads" in item 34, the Supreme Court held.
A close reading of the definition of "motor vehicle" in Item 34 reveals that the striking ingredient thereof is that it should have been "adapted for use upon roads". Merely because the areas on which such heavy-movers traverse might sometimes include roads also is not enough to hold that they were "adapted for use upon roads". Such use of the heavy-mover on the road may only be ancillary or incidental to the main use of it. Emphasis in the definition must be on the words "use upon road" as those words would denote the principal or dominant use and not where it may move incidentally.
In Biju Joseph v State of Kerala104, a question arose whether excavators and road rollers are motor vehicles under Section 2(28) of the MV Act exigible to tax under the Kerala Taxation on Entry of Motor Vehicles into Local Areas Act. A learned single Judge held that excavators and road rollers are motor vehicles. Before the Division bench it was contended that entry tax can be levied only when the vehicle is a motor vehicle and an excavator loader mounted on four wheels is used for cutting, digging or scooping and therefore, do not fall within the definition of motor vehicle under Section 2(28) of the MV Act. The Division Bench followed Bolani Ores and Central Coal Fields and came to the conclusion that the words 'adapted for use upon roads' have to be interpreted as 'is suitable or fit for use on the roads'. It was further noticed that the excavators and road rollers are fitted with four rubber tyres, that move from one place to another, that they are required to be registered and obtain certificate of road worthiness under the MV Act and, therefore, they are suitable for being used on the roads. It is apt to extract the following passage from the Judgment.
The excavator loader mounted on four wheels is mobile digging and loading machines. It is suitable to move from one place to another. This vehicle is fitted with four rubber tyres. It is capable of being driven at a speed of 30 Kms., per hour. It is provided with brakes and parking brakes as in the case of any other vehicles. It has a steering system, road lights, direction indicators, rear view mirror, front screen viper, horns etc. The above provisions make it suitable for being used on the roads. Any reasonable person looking at these vehicles could think that the plying of the vehicles on the road would be one of the normal uses of the vehicles. Therefore, accepting the decision of the Division Bench we find that the excavator is a motor vehicle. Hence, we repel the said argument of the counsel for the appellants.
... Regarding road rollers also, the Court held that they are motor vehicles on the following reasons. Ext.P.4 certificate of road worthiness has been issued in Form No.22 under the Rules 47(g) and 127, which would go to show that the vehicle compiles with the provisions of the MV Act. Road roller is used for crushing and smoothing road surface which is part of the excavation of the works contract. It is admitted that road rollers are to be registered under the MV Act. There is nothing to show that road rollers are of a special type adapted for use only in factory or enclosed premises.
The appeal against Biju Joseph, was considered by the Supreme Court in Bose Abraham. It was submitted that the excavators and road rollers were used solely for the purpose of owner or they were used in closed premises, that they were not intended to be used or were not capable of being used for general purpose and that these vehicles are of special type adapted for use only in factory or any other enclosed premises. Referring to Bolani Ores, Central Coal Fields and Goodyear India, the Supreme Court held as follows.
We hold that the excavators and roadrollers are motor vehicles for the purpose of the Motor Vehicles Act and they are registered under that Act. The High Court has noticed the admission of the appellants that the excavators and roadrollers are suitable for use on roads. However, the contention put forth now is that they are intended for use in the enclosed premises. Merely because a motor vehicle is put to a specific use such as being confined to enclosed premises, will not render the same to be a different kind of vehicle. Hence, in our view, the High Court has correctly decided the matter and the impugned order does not call for any interference by us. However, the question whether any motor vehicle has entered into a local area to attract tax under the Entry Tax Act or any concession given under the local Sales Tax Act will have to be dealt with in the course of assessment arising under the Entry Tax Act. (emphasis supplied)
The general tests to be applied, as culled out from the MV Act and Rules made thereunder as well as the decided cases are the following. (i) Every vehicle adapted for use upon roads is motor vehicle; (ii) If any vehicle is registered under Chapter VI of the MV Act, and is required to obtain approvals and fitness certificates thereunder, it would lead to an inference that it is a motor vehicle;
(iii) When a vehicle is adapted for use upon roads even though it is not driven on the public roads or in a public place and it cannot be driven without obtaining licence - it is certainly a motor vehicle;
(iv) The word 'adapted' in Section 2(28) of the MV Act has to be read as suitable for use on the roads. The mere fact that they are such which do not move on the roads by reason of their weight or slow movement, does not mean that they are not suitable for use on roads. Whether or not it moves on the roads if it is suitable to move on the roads, it is a motor vehicle; (v) Merely because a motor vehicle is put to a specific use, such as being confined to enclosed premises will not render the same to be a different kind of vehicle. The steering system, rear lights, direction indicators, rear view mirror, front screen viper, horns, brakes, parking brakes etc are some of the factors which may have to be considered before drawing appropriate inferences; and
(vi) The question whether any motor vehicle has entered into local area to attract tax under the entry tax Act ordinarily will have to be dealt within order passed in the course of assessment.
There are various categories and types of mechanically propelled vehicles involved in these cases. On an analysis, with the assistance of the Special Counsel for CT, we may group these vehicles into three categories. The first category of the vehicles are those described as track mounted or chain mounted. In W.P.Nos.21260, 21316 of 2007; 11216 of 2008; 7970, 21096, 25856 of 2009; 6231, 10922, 11276, 12155, 12213, 12246, 12355, 12358, 14378, 14404, 14410, 15012, 15733, 21336, 21706, 26105, 30662, 33868 of 2010; and 2348 of 2011, the petitioners allege that the vehicles purchased are either track mounted or chain mounted vehicles. In W.P.Nos.25253, 25323 of 2007; 10110 of 2008; and 6231, 6713, 7227, 9010, 14834 of 2010; the vehicles involved are allegedly fitted with tyres. This is second category. The third category includes the motor vehicles like jeeps and construction vehicles like dumpers, tippers, compactors (road rollers) and other vehicles like excavators fitted with tyres and wheel loaders. This third category of vehicles are purchased by the petitioners in W.P.Nos.12455 of 2005; 23253 of 2007; 1564 of 2009; and 6231, 6713, 6864, 15012 of 2010. In these matters, a submission is made across the bar that though they are fitted with tyres, they are used in the factory or enclosed premises and come within the exclusionary part of Section 2(28) of the MV Act. As we have opined supra, there is a serious disputed question of fact regarding the nature of these vehicles and/or regarding their user. As was held in Bose Abraham, "the question whether any motor vehicle has entered into local area to attract tax under the Entry Tax Act will have to be dealt with in the course of assessment under the Act". Such an enquiry, in our considered opinion, would also take in its fold the physical verification, if necessary, with the assistance of an expert in the field to know whether the vehicle is a motor vehicle for the purpose of levying entry tax under the Act. Any order of the assessing officer would, of course, be subject to appeal under Section 13 of the impugned Act. In all these cases the challenge is also to the assessment orders pursuant to the notification issued under the Act vide G.O.Ms.No.917 (Revenue C- II) Department, dated 31.12.1999. The writ petitions were filed without availing the alternative remedy of filing an appeal under Section 13(1) of the impugned Act. In view of the fact that the finding of the assessing officer with regard to the nature of the vehicle is seriously disputed, we feel it appropriate to remit the matters for appropriate enquiry/verification of the vehicles involved in these cases.
PART - IX
CONCLUSION AND RELIEF
In the result, on an analysis of various issues and conclusions as above, we hold that Section 3 of the impugned Act does not suffer from any of the infirmities canvassed by the petitioners. The Act is constitutionally valid and within the competence of the State Legislature. The question whether the vehicles purchased and imported by the petitioners are motor vehicles or not, in view of our conclusions on Part VIII supra, has to be decided at the stage of assessment by the competent officer. Therefore, we deem it appropriate to set aside the impugned assessment orders and remit them to the respective assessing officers. Keeping in view the principles laid down by the Supreme Court as summarized in this Judgment, they shall now proceed to consider the contentions on this question alone, if necessary by obtaining an opinion from any Gazetted Officer of the Department of Transport. This exercise shall be completed within a period of eight weeks from the date of receipt of a copy of this Order, whereafter it shall be open to the petitioners to avail the alternative remedy provided under the impugned Act read with provisions of the VAT Act. We also give liberty to the petitioners to claim refund of tax over and above 12% if it is paid by any of the petitioners. If any such claims are made, the respective assessing officers/Government authority shall dispose them of expeditiously and refund the amount of excess entry tax promptly.
All the writ petitions shall stand disposed of accordingly. We refrain from making any order as to costs.
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2 (2001) 3 SCC 157 : (2001) 121 STC 614 : AIR 2001 SC 835 3 (2009) 21 VST 1 (SC)
4 (1994) 92 STC 248
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8 (1980) 1 SCC 66 : AIR 1980 SC 148
9 (1981) 2 SCC 318 : AIR 1981 SC 774
10 AIR 1953 SC 375
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15 (2009) 8 SCC 46
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22 AIR 1990 SC 1927
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24 AIR 1993 SC 2529
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27 AIR 1976 Ker 120
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31 (1989) 72 STC 241 (AP)
32 AIR 1961 SC 232
33 AIR 1962 SC 1406
34 (1988) 1 SCC 401
35 (1999) 9 SCC 700
36 (2003) 8 SCC 60
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38 (2004) 5 SCC 209
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48 (1973) 1 SCC 216
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50 AIR 1970 SC 1742
51 AIR 1988 SC 567
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54 (2005) 8 SCC 534
55 (1989) 2 SCC 285
56 (2007) 10 SCC 342
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75 (2008) 15 VST 70 (Gauhati)
76 (2009) 22 VST 310 (Gauhati)
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78 (2007) 7 VST 367 (Madras)
79 (2007) 8 VST 69 (Kar)
80 (2010) 27 VST 447 (Kar)
81 (2007) 10 VST 282 (All)
82 (2008) 12 VST 149 (P&H)
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86 (2009) 21 VST 10 (P&H)
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91 AIR 1963 SC 1088
92 (2005) 3 SCC 551
93 1986 (Supp) SCC 728
94 (1994) 2 SCC 558
95 (2002) 9 SCC 509
96 (2000) 9 SCC 369
97 (2004) 12 SCC 278
98 (2011) 2 SCC 654
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100 (1987) 3 SCC 655: AIR 1987 SC 1911
101 (1974) 2 SCC 777 : AIR 1975 SC 17
102 AIR 1992 SC 1371103 (1997) 5 SCC 752: AIR 1997 SC 2038