Validity of U.P. Tax on Entry of Goods into Local Areas Act, 2007 has been upheld with retrospective effect by the Hon'ble Allahabad High Court
Writ Tax No. 1484 of 2007
HIGH COURT OF JUDICATURE AT ALLAHABAD
Judgment reserved on: 29th November 2011 Judgment delivered on: 23rd December 2011
WRIT TAX NO. 1484 OF 2007
STATE OF UP AND OTHERS
Hon'ble Sunil Ambwani, J. Hon'ble Naheed Ara Moonis, J.
1. In all these writ petitions the petitioners as traders, manufacturers and importers bringing scheduled goods into the local areas in the State of U.P. for consumption, use or sale therein have challenged the validity of the U.P. Tax on Entry of Goods into Local Areas Act, 2007, (in short the U.P. Act of 2007) on the grounds of lack of the legislative competence of the State of U.P. of enactment, as also violative of freedom of trade, commerce and intercourse guaranteed under Art.301 and not saved by Art.304 (b) of the Constitution of India. The petitioners have also challenged the retrospectivity of the Act. w.e.f. 1.11.1999, when the U.P. Tax on Entry of Goods Ordinance, 1999, replaced by U.P. Tax on Entry of Goods Act, 2000, was promulgated and which was struck down by this Court in Indian Oil Corporation Ltd. v. State of U.P., AIR 2004 Alld. 277.
2. The substance of challenge in all these writ petitions to the constitutional validity of the U.P. Act of 2007 is that the entry tax is levied under the Act is by way of payment of compensatory tax of which the quantifiable/ measurable benefits are not provided either facially or patently to its payers, in view of the tests laid down in Jindal Stainless Ltd. (2) & Anr. v. State of Haryana & Anr., (2006) 7 SCC 241. The expenditure of the entry tax as compensatory tax collected is not broadly in proportion to defray the cost of regulation, or to meet the outley incurred for some special benefit to the trade commerce and industry. There is no link between the entry tax collected and the facilities extended to the trades, directly or indirectly, and for which the State on which the burden of proof lies has failed to prove the direct and immediate effect on trade and commerce, as laid down in Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232, and the working trest enunciated in Automobile Transport (Rajashtan) Ltd. v. State of Rajasthan, AIR 1962 SC 1406.
3. We have heard Shri S.P. Gupta, Sr. Advocate assisted by Shri Yashwant Verma; Shri Bharat Ji Agrawal, Sr. Advocate assisted by Shri Piyush Agrawal, Shri Subham Agrawal; Shri V.K. Upadhyay, Sr. Advocate assisted by Shri Ritwik Upadhyay; Shri Dhruv Agrawal, Sr. Advocate assisted by Shri Nikhil Agrawal; Shri Aloke Kumar; Shri K.N. Kumar; Shri R.R. Agrawal appearing along with Shri Suyash Agrawal; Shri S.D. Singh; Shri Nishant Mishra; Shri Navin Sinha, Sr. Advocate assisted by Shri Saral Srivastava for the petitioners. Shri S.P. Kesarwani, Addl. Chief Standing Counsel along with Shri C.B. Tripathi, Addl. Chief Standing Counsel appear for the State respondents.
4. The Second State Finance Commission (2001-06) of the State of U.P. observed in para 14.111 of its report that octroi used to be the most important source of revenue for urban local bodies in the State. The collection of octroi was full of deficiencies, malpractice and caused harassment. It also imposed negative economic costs due to impediments on movement of goods carriers, leading to wastage of fuel and substantial time delays. A decision was taken at the national level to abolish octroi and to compensate local bodies through matured mechanisms for loss of revenue cost. The U.P. Taxation Enquiry Committee 1980 recommended abolition of octroi. In the alternative it suggested levy of entry tax on selected commodities. Subsequently in many states including State of U.P. octroi was abolished. Some States like Maharashta and Gujarat did not abolish the octroi. In U.P. it was decided to levy surcharge on sales tax, the proceeds whereof were to be distributed to Urban Local Bodies as grants to compensate them for the loss of revenue. In the course of time the surcharge was merged in trade tax. The Urban Local Bodies were made entitled to receive a share of 7% in net tax receipts, following the recommendations of the First State Finance Commission. The volume of transfers to the Urban Local Bodies substantively improved under the new system. In 1995-96 total non-planned grants to Urban Local Bodies in U.P. amounted to Rs.285 crores. In the year 2001-02 this amount exceeded to Rs.700 crores.
5. The 11th Finance Commission in its report presented to the Lok Sabha on 27th July, 2000 considered in para 8.13 the assessment about the manner and extent of augmentation of the Consolidated Funds of the State, keeping in view of the provisions required to be made for the emoluments and terminal benefits of the local bodies including teachers; the existing powers of the local bodies to raise financial resources and the powers, authorities and responsibilities transferred to local bodies. In para 8.14 to para 8.18 of the report, the 11th Finance Commission submitted the study of the report on panchayats and municipalities; measures to augment the consolidated funds of the State, reforms in local tax and rates and maintenance of civil services. In para 8.16 on the issue of reforms in local tax and rates, the 11th Finance Commission reported as follows:-
"8.16. In addition to the measures mentioned above, we would like to highlight the need for improving the revenue mobilisation by the local bodies themselves. Many SFCs have, in their reports, given suggestions in this regard, of which some are State specific but some can be considered useful for all the States. We mention two local taxes, besides user charges, for consideration of all the States. a. Property/house tax: Property tax/house tax is the single most important local tax today, in a majority of the States. Yet it has remained beset with a variety of problems that have prevented the local bodies to exploit its full potential. Such problems are not merely confined to the proximity factor, namely, the local bodies being too close to the people to be effective tax collectors. In most States, the tax rates have not been revised periodically and there is no standard mechanism for determination of property tax rates and their revision. Indeed, West Bengal has experimented with the institution of Central valuation authority and some other States have initiated reforms in the system of property taxation with provisions for self-assessment, mandatory periodic revision, dispensing with the demand notice for the tax and putting the onus on property owners for timely tax payment, etc. Such measures have yielded good results and need to be pursued by all States in a rationalised manner. Most States have accorded a variety of tax concession/exemption leading to Revenue loss to the local bodies. Arrears of taxes are allowed to accumulate either due to sheer inefficiency or due to delay in assessments and in appeals. Yet another major impediment to the growth of revenue from the property/house tax has been the rent control laws. The property/house tax legislation should be suitably modified to overcome this impediment where the property has been let out, the property tax should be made recoverable from the occupier.
b. Octroi/entry tax: Besides the property/house tax, octroi has been the major source of revenue for the municipalities and, in some States, even for the panchayats. Many States have, however, abolished octroi with a view to remove impediments to the physical movement of goods, though several other new barriers have been created. Some States have introduced a levy in lieu of octroi, usually the entry tax, the net proceeds of which are transferred to the local bodies in the form of grant. During our interaction with the representatives of the local bodies, we were told that though the grant in lieu of octroi given to the local bodies was raised by certain percentage from year to year, it does not have as much buoyancy as the octroi had. There have also been numerous complaints of delay in release of the compensatory grants. While we do not advocate re-introduction of octroi, we do feel that there is a need for replacing it with a suitable tax that is buoyant and can be collected by the local bodies."
6. The State of U.P. promulgated the U.P. Tax on Entry of Goods Ordinance, 1999 w.e.f. 1.11.1999, which was later on enacted as U.P. Tax on Entry of Goods Act, 2000. The Prefatory Note of the Act of 2000 read as follows:-
"Prefatory Note-Statement of Objects and Reasons.--With a view to augmenting the revenue of the State, it was decided to make law to provide for the levy and collection of tax on entry of certain goods into a local area from any place outside that local area including a place outside Uttar Pradesh for consumption, use or sale therein, at such rates, not exceeding five per cent of the value of the goods, as may be specified by the State Government by notification. It was also decided to provide for the application of certain provisions of the Uttar Pradesh Trade Tax Act, 1948 including the use of check-posts and barriers established thereunder for the purposes of the said law. Since the State Legislature was not in session and immediate legislative action to implement the aforesaid decision was necessary, the Uttar Pradesh Tax on Entry of Goods Ordinance, 1999 (U.P. Ordinance No. 21 of 1999) was promulgated by the Governor on October 30, 1999 after obtaining the instructions of the President...."
7. The Act of 2000 was challenged by M/s Indian Oil Corporation Ltd. and many other companies and traders importing scheduled goods into local area of the State. A Division Bench consisting of Hon'ble Mr. Justice M. Katju (as he then was) and Mrs. Justice Poonam Srivastava by their judgment dated 27.1.2004 reported in AIR 2004 Alld 277, declared the Act as violative of Art.301 and 304 of the Constitution of India and thus ultra vires, and allowed all the writ petitions. The observations of the Bench made in paragraph 51, 54, 66, 67, 68, 69 and 107 are quoted as below:-
"Paragraph no.51, In our opinion, this does not help the respondents because the respondents have to show that the realization from entry tax has been used for facilitating trade and commerce and not for raising general revenue. There is nothing to show that the amount realised as entry tax cannot be used or has not been used for setting up schools, housing payment of salary to Government employees, payment of salaries to Ministers, M.L.As, constructing Government building acquiring land etc.
Paragraph no.54. In our opinion a tax to be a compensatory tax must be in the nature of a cess. A cess is a tax imposed for realizing revenue which is utilized for a specific purpose. Thus, while a cess is also a tax, it is a tax of a special nature. It does not realize revenue which is used for general public expenditure but for specific expenditure for a specific purpose. For example, education cess would be a tax which generates revenue which is utilized for education purposes e.g., school building, paying salaries to teachers etc. Similarly, a health cess would be a tax which generates revenue which is utilized for health purposes e.g. for building hospitals giving free medicines to poor people etc. Similarly in our opinion a compensatory tax is really in the nature of a cess because it generates revenue which is not used for general public purpose but for the specific purpose of facilitating trade and commerce.
Paragraph no.66. In fact in the Statement of Objects and Reasons of the impugned Act (U.P. Act no.12 of 2000) it is specifically mentioned:
"Preferatory Note-Statement of Objects and Reasons- with a view to augmenting the revenue of the State it was decided to make law to provide for levy and collection of tax on entry of certain goods into a local area from any place outside that local area including a place outside U.P........."
Paragraph no. 67. Thus the Statement of objects and Reasons of the impugned Act clearly discloses that the impugned Act was enacted to augment the general revenue of the State and not for facilitating trade and commerce.
Paragraph no. 68. In the supplementary counter affidavit of Shri B.P. Sonkar dated 7th January, 2004 the respondents have annexed copy of a letter of the Director (Judicial), Government of India, Ministry of Home Affairs, dated 19th January, 2000 addressed to the Principal Secretary, Legislative Section, Government of U.P. this letter states:
"With reference to your letter no.2386/XVII-V-I-1 (Ka)-39/39 dated 1st January, 2000 on the subject mentioned above, I am directed to say that the Government of India have no objection to the introduction of the Uttar Pradesh Tax of Entry of Goods Bill, 2000, in the State Legislature under Article 304 (B) of the Constitution of India."
Paragraph No.69. In our opinion, there is a difference between the Government of India and President of India. The aforesaid letter dated 19th January 2000 only states that the Government of India has no objection to the introduction of the impugned Act but it does not say that the president of India has given his previous sanction as required by the proviso the Article 304 (b) of the Constitution.
Paragraph no. 107. Any amount collected under the said Act shall be refunded to the petitioners with 10 per cent annum interest from the date of realization to the date of refund and the refund shall be made within two months from Tribunal today. However, if the burden of tax has been passed on by the petitioners to the consumers then the refund shall not be given to the petitioners of the tax realized as it will amount to unjust enrichment."
8. Aggrieved by the judgment the State of U.P. preferred Special Leave to Appeal (Civil) No.2757-2758 of 2004. The Supreme Court by order dated 9.2.2004 stayed the operation of the judgment subject to appellant depositing all the taxes that may be realized from the respondents after 27.1.2004 in a separate interest bearing account. The interim order is quoted as below:
"Issue notice on the application for impleadment Leave granted. The operation of the impugned judgment is stayed, subject to the appellant's depositing all taxes that may be realized by the appellant from the respondents after 27.1.2004 in a separate interest bearing account. This amount and the interest accrued thereon shall be held subject to the further orders of this Court."
9. A two judges bench of the Supreme Court had doubted the correctness of the views expressed in Bhagat Ram Rajiv Kumar v. CST, 1995 Supp 1 SCC 673, which was relied on in a subsequent decision in State of Bihar v. Bihar Chamber of Commerce, (1996) 9 SCC 136 and had referred the matter to a Larger Bench. In Jindal Stainless Ltd. (2) v. State of Haryana, (2006) 7 SCC 241 a Constitution Bench of the Supreme Court overruled the judgment in Bhagat Ram and Bihar Chamber of Commerce's case and concluded as follows:-
"49. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case 1995 Supp. (1) SCC 673 followed by the judgment in the case of Bihar Chamber of Commerce (1996) 9 SCC 136 was well-founded. 50. We reiterate that the doctrine of "direct and immediate effect" of the impugned law on trade and commerce under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 for deciding whether a tax is compensatory or not vide para 19 of the report, will continue to apply and the test of "some connection" indicated in para 8 of the judgment in Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. 1995 Supp. (1) SCC 673 and followed in the case of State of Bihar v. Bihar Chamber of Commerce (1996) 9 SCC 136, is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment."
10. When the matter of entry tax in Special Leave to Appeal Nos.2757-2578/2004, were again taken up, a Division Bench of the Supreme Court passed an order on 14.7.2006 to the following effect:
"Paragraph no.5. Since relevant data do not appear to have been placed before the High Courts, we permit the parties to place them in the concerned writ petitions within two months. The concerned High Courts shall deal with the basic issue as to whether the impugned levy was compensatory in nature. The High Courts are requested to decide the aforesaid issue within five months from the date of receipt of our order. The judgment in the respective cases shall be placed on record by the concerned parties within a month form the date of the decision in each case pursuant to our directions."
11. A Division Bench of this Court consisting of Hon'ble Justice A.K. Yog and Hon'ble Justice Poonam Srivastava considered the validity of the Act of 2000 on the relevant date and the material provided by the State of U.P., on the principles of law laid down in Jindal Sainless Ltd. (2) v. State of Haryana (Supra). The reasons and conclusions of the Division Bench in its judgment dated 8.1.2007 given in paragraph 27 to 34 are quoted as below:-
"27. It is to be appreciated that we are not called upon to adjudicate or define parameters of "compensatory tax" or vires of the "Act", which is outside the scope of the "issue" remitted to High Court vide Supreme Court judgment and order dated July 14, 2006 Reported as jindal Stainless Ltd. v. State of Haryana whereunder High Court/s, after affording opportunity to the parties to furnish relevant data (to discharge its "burden") decide nature of "entry tax", i.e., whether the "tax" under the Act, is "compensatory" in nature. Undisputedly it is to be done on the parameters/touchstone laid down by the apex court in the case of Jindal Stainless Ltd. holding:
(a) That "tax" rests upon and has roots running on the lines of "principles of equivalence" (which is converse of the principle of ability to pay) applies to a case of compensatory tax
(b) That benefits, under a compensatory tax, are quantifiable and measurable.
(c) That it is broadly-proportional and not progressive ;
(d) That it is based on the principle of "pay for the value";
(e) That it is based on the concept of recompense/reimbursement; and reimbursement/recompense is in close proximity to the cost incurred by the provider of the services/facilities; and
(f) That compensatory tax, compulsorily charged is in proportion to the special benefits derived to defray the cost of regulation or facilities or special advantages provided to the trades in question;
(g) That the burden of showing that the tax is compensatory in nature lies on the State.
28. Laying down parameters of compensatory tax, the apex court in Jindal Stainless Ltd. observed:
"40. In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net-revenue to the Government but that circumstance is not an essential ingredient of compensatory tax."
29. It is clear from the perusal of documents annexed with the affidavit of Amitabh Mishra that the amount of revenue earned from "entry tax" under the Act is pooled in the "consolidated fund"--which is utilised under budgetary-allocation to the States, which is also utilised as "grant-in-aid" by "State" to make up budgetary deficit of a local body to discharge their statutory/ constitutional obligations--which apart from others include construction of roads, bridges, etc. The respondents have placed figures relating to the "funds" given as "grant-in-aid" to panchayats/local bodies from "consolidation fund"--as part of its share received by State of U.P.
33. There is not even an iota of evidence/material on record to give required data/statistics to prove/establish that the amount collected as "tax" and its expenditure on providing additional/specific advantage/facility provided to trade/s in particular mentioned under the Schedule of the Act. In absence of such a data it is not possible for this court to hold that "entry tax" is "compensatory tax". We hold accordingly.
30. There is, therefore, no occasion for us to probe reasonableness or proportionality of the same in the instant case.
31. "Aims and objects" of the Act, even though not decisive as held by the Supreme Court, merely refer "to augment revenue of the State" and hence support the contention of the petitioners that "tax" under it is not compensatory in nature. The State has failed to pin-point or establish through its data, the specific/additional service/facility provided to its tax-payer (s).
32. It is obvious that the apex court remitted the issue of "compensatory tax" (after parties are given opportunity to file "data" to discharge their burden) apparently for the reason that it found "aims and object" of the Act irrelevant and none of the provisions of the Act (including its Sections 4, 4-A and 6 read with the Schedule) reflect that the amount of "entry tax" is to provide "additional" or "specific" facility to the scheduled trades visa-vis those who are not subjected to this "tax". There is no co-relation between the "levy of entry tax" and the "scheduled trades".
34. In the nature of the case we make no order as to costs."
12. The State of U.P. filed special leave petition against the order of the Division Bench dated 8.1.2007 in which following interim order was passed by the Supreme Court on 17.4.2007:-
"It is stated by learned counsel for the State of U.P. that an appeal shall be filed against the order of the Allahabad High Court which was passed pursuant to the directions given by this Court on 14th July, 2006 in Civil Appeal No.3453 of 2003 and connected cases. It is stated that some other High Court have also decided the matter afresh. The High Court's orders, wherever it has been passed in favour of the tax payers, shall operate so far as the concerned writ petitioner's are concerned. A list has been filed indicating that seven of the High Courts have already decided the writ petitions and the judgments are awaited in respect of five other High Courts. The concerned High Courts, i.e. Karnataka, Rajasthan, Andhra Pradesh, Orissa and Tamil Nadu are requsted to dispose of the matter pursuanct to the direcgtion of this Court dated 14th July, 2006 within a period of three months."
13. M/s Indian Oil Corporation demanded refund of the entry tax of Rs.3022 crores on the basis of the order dated 8.1.2007 passed by the High Court and the interim order dated 17.4.2007 passed by the Supreme Court. The State of U.P. decided to enact a new law to remove the defects pointed out by the Division Bench of this Court and to bring it in conformity with the parameters of the compensatory tax as laid down by the Supreme Court in Jindal Sainless Ltd. (2) v. State of Rajasthan (Supra). The U.P. Tax on Entry of Goods Into Local Areas Ordinance (U.P. Ordinance No.35 of 2007) was promulgated with retrospective effect from 1.11.1999. The Ordinance was replaced by the U.P. Tax on Entry of Goods into Local Areas Act, 2007 (the Act).
14. The object and reasons of U.P. Ordinance No.37 of 2007, which was replaced by the U.P. Act No.30 of 2007 are quoted as below:-
"Statement of objects and reasons:-
This Bill is introduced to replace the aforesaid Ordinance."
15. The Act was amended by the Amendment Act No.8 of 2009 to make it single point levy on the entry of the scheduled goods in the State of U.P. The statement of objects and reasons of the Amendment Act No.8 of 2009 are quoted as below:-
"Amendment Act No.8 of 2009 Statement of Objects and Reasons
The Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007 (U.P. Act no.30 of 2007) has been enacted to provide for levy and collection of tax on entry of goods into a local area for consumption, use or sale therein. With a view to simplifying tax system and removing certain anomalies it has been decided to amend the said Act mainly to provide that,-
(a) no tax shall be levied on or collected from a dealer or subsequent dealer on entry of goods into a local area if the tax on such goods has been paid in any other local area;
(b) the State Government is being empowered to allow rebate upto the full amount of tax under the said Act whether the liability for payment of tax under the Uttar Pradesh Value Added Tax Act, 2008 has accrued before or after entry of such goods into any local area.
The Uttar Pradesh Tax on Entry of Goods into Local Areas (Amendment) Bill, 2009 is introduced accordingly."
16. The State Government made and published by notification dated 24.9.2008 the U.P. Tax on Entry of Goods into Local Area Rules, 2008 providing for registration of dealers (Rule 3); submission of returns and assessment of tax (Rule 4); refund of tax in certain circumstances (Rule 5); manner of payment (Rule 6) and release and deposit of tax by the manufacturer (Rule 7) and power to amend the formate of different forms (Rule 8). The U.P. Tax on Entry of Goods into Local Areas (Fund) Rules, 2007 were notified on 11.10.2007 providing for utilization of money of the fund (Rule 3); manner of utilization of the fund (Rule 4); heads and accounts and financial procedures (Rule 5). The U.P. Tax on Entry of Goods into Local Areas First amendment Rules, 2010 were notified on 19.1.2010.
17. In order to appreciate the challenge to the Rules it would be necessary to refer to Sections 4, 5, 12, 14 and 17 of the Act:-
"4. Levy of tax
Provided that the State Government may by notification amend the Schedule and upon issue of any such notification, the Schedule shall, subject to the provisions of sub-section (10), be deemed to be amended accordingly. (2) The tax under sub-section (1) shall be continued to be levied till such time as is required to improve infra-structure within the State such as power, road, market condition etc. with a view to facilitate better market conditions for trade, commerce and industry. (3) The tax levied under sub-section(1) shall be payable by a dealer who brings or causes to be brought into the local area such goods, whether on his account or on the account of his principal or takes delivery or is entitled to take delivery of such goods on its entry into a local area:
Provided that the State Government may by notification, permit any Power Project Industrial Unit engaged in generation, transmission and distribution, having aggregate capital investment of rupees one thousand crore or more to own the liability of payment of tax of other dealers on the entry of such goods into a local area from any place outside that local area as are used and consumed by the said unit subject to such conditions as may be specified in the notification.
Explanation:-Where the goods are taken delivery of on its entry into a local area or brought into a local area by a person other than a dealer, the dealer who takes delivery of the goods from such person shall be deemed to have brought or caused to have brought the goods into the local area.
(3A) Notwithstanding anything to the contrary contained in sub-section (1) of sub-section (3), no tax shall be levied on or collected from a dealer or subsequent dealer who brings or causes to be brought into a local area any goods in respect of which tax has been paid in any other local area under any of the said sub-sections and such dealer furnishes before the concerned assessing authority the prescribed declaration in regard thereto within such time as may be prescribed:
Provided that the amount of tax deposited under this section shall be deemed to have been deposited for and on behalf of such dealer or any subsequent dealer to whom above prescribed declaration has been issued. (4) The State Government may by notification remit the amount of tax to the extent necessary to ensure that effective rates of tax on entry of goods into a local area, from any place out side the local area for consumption or use in a Power Project Industrial Unit, do not exceed the respective rates applicable as on the date of commencement of State Energy Policy subject to the conditions as may be notified in such notifications. (5) No dealer who brings or causes to be brought any goods into a local area shall be liable to tax, if during the assessment year the aggregate value of such goods is less than two lakh rupees in the case of manufacturers and three lakh rupees in case of other dealers or such larger amount as the State Government may by notification specify in that behalf either in respect of all dealers in any goods or in respect of a particular class of such dealers:
Provided that the provisions of this sub-section shall not apply in respect of value of the goods brought into a local area from outside Uttar Pradesh. (6) Notwithstanding anything contained in sub-section (1) or sub-section (3), no tax shall be levied on or collected from a dealer who brings or causes to be brought into a local area any goods which are- (i) consigned without using them in the local area to any place outside the State; or (ii) sold or re-sold either in the course of inter-State trade or commerce or in the course of export out of the territory of India,
Explanation- Section 3, section 5 and section 6-A of the Central Sales Tax Act, 1956 shall apply for the purpose of determining whether or not any goods has been sold by a dealer in the course of inter-State trade or commerce or in the course of export out of the territory of India.
Provided that where at the time of entry of goods into a local area, the quantity or value of goods to be sold within such local area for the purpose of being taken outside the State without consumption, use or sale in such local area, is not ascertainable, the dealer shall pay the amount of tax on the value of total quantity of goods and after the goods are consigned or sold outside the State or int he course of export, the dealer may claim refund or adjustment of the amount so paid as tax in the month in which such goods area transferred outside the State or sold in the course of inter-State trade or commerce or in the course of export, in respect of such goods.
(8) Where tax, in respect of entry of any goods into a local area, is payable and has been so paid by the agent, the principal shall not be liable for payment of tax and likewise where tax, in respect of entry of any goods into a local area, is payable and has been so paid by the principal, the agent shall not be liable for payment of tax.
(9) Where in respect of any-
(i) purchased scheduled goods, -
(a) value of such goods is not ascertainable or value of such goods, as declared by the dealer or the person in- charge of the goods, as the case may be, is not verifiable on account of non-availability or non-production of any document; or
(b) any document produced in support of purchase price or transport charges and other charges, is not worthy of credence; or
(ii) scheduled goods, acquired or obtained otherwise than by way of purchase, value of such goods disclosed by the person in-charge of the goods or the dealer, as the case may be, does not appear to be reasonable and worthy of credence, then the whole-sale price, in the open market in a local area in which such goods are being brought, reasonably determined by the assessing authority, after affording reasonable opportunity of being heard to the person in-charge of the goods or the dealer, as the case may be, shall be deemed to be, the value of goods, and for this purpose in reference to clause (i), the assessing authority shall assume that goods has been acquired or obtained otherwise than by way of purchase.
(10) Every notification made under this section shall, as soon as may be after it is made, be laid before each House of the State Legislature, while it is in session, for a total period of not less than fourteen days, extending in its one session or more than one successive sessions and shall unless some later date is appointed take effect from the date of its publication in Gazette subject to such modifications or annulments as the two Houses of the Legislature may during the said period agree to make, so however, that any such modification or annulment shall be without prejudice to the validity of anything previously done thereunder except that any imposition, assessment, levy or collection of tax or penalty shall be subject to the said modification or annulment.
5. Reversal of levy of tax- Where any dealer has brought or has caused to be brought or has taken delivery of any goods notified under sub-section (1) of section 4 on its entry into a local area, for consumption, use or sale therein and has paid tax in respect of entry of such goods into such local area or purchased such goods on which entry tax has already been paid, such tax shall be refunded or adjusted to such dealer by whom without using them in the local area such goods are consigned to any other place outside the State or are sold either in the course of inter-State trade or commerce or in the course of export outside the territory of India.
12. Realization of tax through manufacturer- (1) Notwithstanding anything contained in any other provision of this Ordinance, any person who intends to bring into a local area from any manufacturer within the State, such goods specified in the Schedule as may be notified by the State Government, shall, at the time of taking delivery of the goods from the manufacturer, pay to the manufacturer the tax payable on entry of such goods into the local area and the manufacturer shall receive the tax so paid. The manufacturer shall not give such goods to the purchaser unless the amount of such tax has been paid by the purchaser.
(2) The manufacturer receiving the tax under sub-section (1) shall submit to the assessing authority a return in respect of the goods supplied, and the tax received, by him under sub-section (1) and deposit the tax so received, in such manner and within such time as may be prescribed.
(3) Where any manufacturer fails to deposit, the tax under this section he shall be liable to pay the tax along with the interest and penalty, if any, payable thereon which shall be recoverable as arrears of land revenue.
(4) Where the assessing authority is satisfied that any goods referred to in sub-section (1) is lost or destroyed after its delivery by the manufacturer and before its entry into the local area, it shall direct that the tax paid in respect of such goods shall be refunded to the person who had paid the tax under sub-section (1):
Provided that no claim for such refund shall be entertained after the expiry of six months from the date of the loss or destruction of the goods.
(5) Provisions regarding imposition of penalty in respect of amount of tax deducted under section 34 of the Uttar Pradesh Valued Added Tax Act, 2008 and provision regarding payability of interest under sub-section (2) of section 33 of the said Act shall mutatis mutandis apply to amounts collected by manufacturers from purchasers under this section.
(6) The amount of tax deposited under this section shall be deemed to have been deposited for and on behalf of the dealer from whom such tax has been received. The manufacturer shall mention the amount of such tax in the tax invoice or sale invoice, as the case may be, issued to the purchasing dealer. It shall be deemed to be the proof for deposit of tax unless the tax invoice or sale invoice, as the case may be, is found forged or bogus or fake or not validly issued or obtained fraudulently.
14. Utilization of the proceeds of the levy under this Ordinance - (1) The proceeds of the levy under this Ordinance shall be appropriated to the Fund and shall be utilized exclusively for the development or facilitating the trade, commerce and industry in the State of Uttar Pradesh which shall include the following:-
(a) construction, development and maintenance of roads and bridges for linking the market and industrial areas;
(b) providing finance, aids, grants and subsidies to financial, industrial and commercial units;
(c) creating infrastructure for supply of electricity and water to industries, marketing and other commercial complexes;
(d) creation, development and maintenance of other infra-structure for the furtherance of trade, commerce and industry in general;
(e) providing finance, aids, grants and subsidies for creating, developing and maintaining pollution free environment in the concerned areas;
(f) any other purpose connected with the development of trade, commerce and industry or for facilities relating thereto which the State Government may specify by notification;
(g) providing finance, aids, grants and subsidies to local bodies and government agencies for the purposes specified in clauses (a), (c), (d), (e) and (f);
(2) The entry tax levied and collected under this Ordinance shall be credited to the Uttar Pradesh Trade Development Fund and shall exclusively be used for facilitating trade, commerce and industry. The amount realised as entry tax shall not be used for the purposes other than those specified in sub-section (1).
(3) The State Government shall, by notification, specify the manner of deposit of tax under appropriate Heads of Accounts and the manner in which the proceeds of the levy shall be utilized exclusively for the development of trade and commerce in the State of Uttar Pradesh.
17. Validation- Notwithstanding any judgement, decree or order of any Court, Tribunal or Authority, all actions taken, things done, rules made, notifications issued or purported to have been taken, done, made or issued and entry tax levied, assessed, collected, realised, received or liability accrued under the Uttar Pradesh Tax on Entry of Goods Act, 2000 shall be deemed to have been validly taken, done, made, issued, levied, assessed, collected, realised, received or accrued under this Ordinance, as if this Ordinance were in force at all material times and no suit or other proceedings shall be maintained or continued in any Court or before Tribunal or any Authority for the refund of entry tax.
(2) For the removal of doubts it is hereby declared that nothing in sub-section (1) shall be construed as preventing any person from claiming refund of entry tax paid by him in excess of the amount due from him under the Act provided the burden of tax has not been passed on."
-(1) For the purpose of development of trade, commerce and industry in the State, there shall be levied and collected a tax on entry of goods specified in the Schedule into a local area for consumption, use or sale therein, from any place outside that local area, at such rate not exceeding five percent of the value of the goods as may be specified by the State Government by notification and different rates may be specified in respect of different goods or different classes of goods;
18. By a notification dated 29.9.2008 w.e.f. 30.9.2008 the State Government, in exercise of powers under sub-section (1) of Section 4 of the Act of 2007, notified a Schedule with 20 items for levy and collection of entry tax with the rate of tax, varying from 1% on motor vehicles of all kinds, including chases thereof, but excluding tractor (Item 13), and iron and steel as defined under Section 14 of the Central Sales Tax Act, 1956 (Item 14), to 5% on crude oil (Item 1), natural gas (Item 3), tobacco in the form of cigarette (Item 5), paper meant for writing, printing and packing purpose excluding news print (Item 6), pan masala containing tobacco (gutkha) (Item 7); high speed diesel, low sulphur high speed diesel and other petroleum products excluding, kerosene oil for public distribution system (Item 11); clinker (Item 12) and refrigerator, air conditioners, and air conditioning plants (Item 20). The entry tax was notified at 2% on the remaining items including machinery and spare parts (Item 2); non-levy sugar (Item 4); cement (Item 8), coal (Item 9); aluminum and its product (Item 14); cable of all kinds (Item 16), laptop, computer system and peripherals, TV including LCD (Item 17); tyre and tubes excluding tyres and tubes of cycle, rickshaw and animal driving vehicle (Item 18), and marbles stones and their tiles (Item 18).
19. The notification was amended on 19.2.2010, excluding natural gas, cement, motor vehicles of all kinds, tyres and tubes. It was again amended on 29.3.2009 excluding machinery and spare parts; wood and timber of all kinds; clinker; aluminum and its products; cables of all kinds, lap top-computer system and peripherals; marbles stones and tiles; and refrigerator, air conditioner and conditioning plants. On high speed diesel and other petroleum products, excluding kerosene oil for public distribution system, a notification was issued on 04.3.2008 providing rebate and a notification was issued on 30.6.2008, providing exemptions. At present only 08 items out of 20 are left in the Schedule for levy of entry tax. Section 5 of the Act of 2007 provides for reversal of levy of tax. Where any dealer has paid entry tax in respect of entry of such goods in such local area or purchased such goods, on which entry tax has already been paid, such tax shall be refunded or adjusted to such dealer by whom without using them in the local area, such goods are assigned to any other place outside the State or are sold either in the course of inter-state trade or commerce or in the course of export outside the territory of India. Section 6 provides for powers to the State Government to give rebate by a notification upto the full amount of tax leviable under the Act. Where the tax is payable in respect of a sale or purchase of such goods under the UP Value Added Tax Act, 2008 by a dealer registered under the Act, and for exemptions under Section 7 by the State Government on any notified goods.
20. In almost all the writ petitions, the Court has passed interim orders. In some of the writ petitions interim orders directed furnishing of bank guarantees, which were to be renewed from time to time. The writ petitions were heard in the year 2009. The hearing, however, could not be concluded. Thereafter all the cases were bunched together and were heard for several days fixing dates. In almost all the States in the country after abolition of octroi the State Governments in exercise of their legislative competence under entry 52 of List 2 of the 7th Schedule of the Constitution of India, which authorizes the State to levy tax on entry of goods into local area for consumption, use and sale therein, have enacted legislations imposing entry tax on the entry of the goods into local area. Whereas the High Courts of the State of Gujarat, Orissa, Madhya Pradesh, Assam, Andhra Pradesh and Chattisgarh have upheld the respective State legislations imposing entry tax and the Patna High Court upheld retrospective validation of levy, the High Courts of States of Punjab and Haryana, Kerala, West Bengal, Jharkhand, Rajasthan, Arunanchal Pradesh, Tamil Nadu and Karnataka have struck down the Acts being violative of Art.301 and not saved by 304 (b) of the Constitution of India on the touchstone/ parameters laid down in Jindal Stainless Ltd. (2) v. State of Rajastan (Supra).
21. The Gujarat High court in Eagle Corporation Pvt. Ltd. v. State of Gujarat & Ors., 2007 (6) VST 560 (Gujarat) by its judgment dated 10.10.2006 dismissed the writ petitions upholding the validity of the Gujarat Tax on Entry of Specified Goods into Local Areas Act, 2001. The High Court found that the levy of entry tax under the Gujarat Act were compensatory. The entry tax on the goods did not violate Art.301, nor was the levy of tax found to be discriminatory between goods so imported and the goods so manufactured or produced in the State. The importer would be at par with the local dealers.
22. The Patna High Court in Indian Oil Corporation Ltd. & Anr. v. State of Bihar & Ors. decided on January 9th, 2007, (2007) 10 VST 140 (Patna) examined the provisions of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 as amended by Bihar Amendment Act, 2001; Bihar Amendment Act, 2003; Bihar (Amendment and Validation) Act, 2003; Bihar Amendment Act 7 of 2006 and Bihar Amendment Act (9) of 2006 and held the Validation Act to be constitutionally valid. It held that the collection of entry tax is compensatory tax, which has been diverted to Urban Local Bodies, to provide various services and infrastructure facilities to traders community to carry on their business activity. The Patna High Court further found that since the State had not produced any data to show that levy of entry tax under the Act of 1993 was a reimbursement/ recompense, for the quantifiable/ measurable benefit provided or to be provided to its payer, the levy was not compensatory in nature under the Parent Act of 1993, and in any event till the amendment of the Act on 29th August, 2006, and therefore levy under the Parent Act of 1993, was violative of Art.301 of the Constitution of India. It struck down the Amendment and Validating Act of 2003, as bad both on account of giving retrospective effect to the amendment, and for want of previous sanction by the President.
23. The Karnataka High Court in Manipal Academy of Higher Education, Manipal v. State of Karnataka & Ors., decided on 9.10.2007, 2008 (13) VST 377 (Karnataka), upheld the charge of tax under the Karnataka Tax on Entry of Goods Act, 1979 as compensatory tax, which has been diverted to Urban Local Bodies to provide various services and infrastructural facilities to trader community to carry on their business activity.
24. The Orissa High Court in Reliance Industries ltd. v. State of Orissa decided on 18.2.2008 reported in (2008) 16 VST 85 (Orissa) upheld the validity of Orissa Entry Tax Act on the ground that there was no discrimination between goods imported from outside the State and those manufacture or produce in the State and brought into the local areas within the State. The rate of tax imposed was applicable uniformly on the goods imported from outside or goods manufactured within the State or brought into local areas and further the levy was compensatory in nature, the Act did not violate Art.301 or Art.304 (a) or (b).
25. The Madhya Pradesh High Court in Godfray Philips India Ltd. v. State of M.P. & Ors. decided on May 15, 2008 reported in (2008) 17 UST 465 (MP) upheld "the entry tax under the Madhya Pradesh Sthaniya Kshetra Ke Mal Ke Pravesh Par Kar Adhiniam, 1976" as compensatory in nature, and thus valid. It held that various notifications issued from time to time did not challenge the tax effect, enhancing the rate of tax and therefore the tax remains compensatory. The Act did not create a barrier in trade and the concept enshrined under Art.301 and 304 of the Constitution of India was not attracted. It also give reasons for holding the Act as compensatory as the Act provided for local bodies to maintain rolls for facilitating trade and commerce; there was no direct or immediate impact empowering trading facilities; the incidental used by community of the facilities used by traders, did not engage the primary or principal use for facilitating trade and commerce; the entry tax collected was allotted to the local bodies for the loss sustained due to abolition of octroi. The substantial amount of the entry tax was allotted to the local bodies was spent in commercial or industrial centres; measures have been taken to provide trading facilities and markets had been established. The proportionality between quantum of tax and the facilities/ services provided demonstrated that 44% of the amount spent by them was on the expenditure incurred creating facilities for trade, commerce and industry; the tax imposed was single point tax and was provisional to the benefits without which the trading facilities could not have been availed of.
26. The Guwahati High Court in Indian Oil Corporation Ltd. (Guwahati Refinery) v. State of Assam & Ors decided on 9.1.2009 reported in (2009) 21 VST 76 (Guwahati) upheld the validity of the Assam Entry of Tax Act, 2008 as well as the retrospectivity of the Act w.e.f. 1.10.2001. The Assam High Court held that the persons bringing specified goods transported through pipelines is an importer within the meaning of the Act. The services provided by the State, i.e. security of the pipelines would benefit the petitioner, who receive crude oil within the refinery owned by it, thus showing a discernible relationship between tax paid and the services to be provided. The Court further held that validity situate more often than not being retrospective operation. The services provided to the entry tax payers as recompense may be existing or intended, creation of special fund by the name of Assam Trade Development Fund, for exclusive utilization for development of infrastructure and amenities to facilitate trade, commerce and intercourse including different fields mentioned in the Act has been made inclusive and thus providing that other areas, where development of infrastructure and proceedings for mandates will be required to be made determining on the experience of the working of the Act. The transfer of the entire amount of the entry tax collected to the fund is sufficient indication that the levy is intended to provide certain identifiable benefits to the trade. The Assam high Court also held that different rates of tax levied for different goods by itself is not destruction of the compensatory nature of the tax. The advalorem rate of tax being a measure of tax, levy in question cannot be adjudged to be unconstitutional unless such rate can be held to be confiscatory. The amount collected is provided to be allocated to different local bodies to enable them to carry on their activities useful by the State itself for expenditure against infrastructural development activities in the local areas. By enacting the Validating Act of 2008 the State Legislature has removed the defects in the Act of 2001. Thus levy of entry tax under the Act of 2008 is compensatory and valid. The Court made observations with regard to the dates from which the different specified goods would become taxable.
27. The Jharkhand High Court, in Tata Steel Limited v. State of Jharkhand and others (2008) 17 VST 209 (Jharkh), declared Section 11 of the Jharkhand Value Added Tax Act, 2005 and the amendment made therein by the Jharkhand Value Added Tax (Amendment) Act, 2007 as ultra vires and unconstitutional, being opposed to Article 301 of the Constitution and not saved by Article 304 of the Constitution of India on the grounds that the respondent- State did not produce and place any material before the Court showing that payment of compensatory tax is a reimbursement for the quantifiable/measurable benefit provided or to be provided to its payers. The High Court found that there was no quantifiable data, i.e., a benefit which is measurable. Maintaining of roads and providing bridges is not compensatory in nature so as to constitute special advantage to trade, commerce and intercourse. The expenses for maintenance or construction of roads and bridges are met from the general revenue of the State. It is the statutory obligation and duty of the State to provide facilities like roads and bridges. Similarly, State Financial Corporation, constituted under the State Financial Corporation Act for providing incentive and financial aids functions as a statutory body. The supply of electrical energy and waters to the industries, marketing and commercial complexes, cannot be held to be special benefits to the trades men. The trade development fund was created by notification dated 29.3.2008 with retrospective effect from 1.4.2006. Nothing was brought on record to show that the entry tax collected from 1.4.2006 till the date of notification was utilised. The entry tax was thus found by the Jharkhand High Court as discriminatory being violative of Article 304 (a) of the Constitution of India.
28. The Kerala High Court, in Thressiamma L. Chirayil v. State of Kerala and another (2007) 7 VST 293 (Ker), held that the levy of entry tax imposed by the Kerala Tax on Entry of Goods into Local Areas Act, 1994 on goods imported from other States to the State of Kerala and from abroad, is not compensatory in nature. The State Government could not discharge its burden by placing the materials before the Court that the payment of levy of entry tax is reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to the petitioners. The Act imposing entry tax could not be said to be specifically meant for facilitating trade, commerce and intercourse, but is raised for augmenting the general revenue of the State. The Act was thus illegal, unauthorised and violative of Article 301 of the Constitution of India. The Kerala High Court held that the provision for convenient roads in the State and its expenditure for maintenance, so also bridges, water transport, ports, light houses, development of industries and allied matters are not the services rendered by the State so as to support the levy of compensatory tax. Neither in the object and reasons of Bill nor in the preamble of the Act there is any indication that the levy of entry tax was for the aforesaid purpose but only for augmenting the general revenue. The essence of compensatory tax is that the services rendered or facilities provided should be more or less commensurate with the tax levied. The services provided should have a direct co-relation with the trade. Applying the test in Jindal Stainless Ltd (2) vs. State of Haryana it was held that it cannot be said that maintaining of roads, providing bridges, etc. is compensatory in nature so as to meet the outlay incurred for some special advantage to trade, commerce and intercourse. Providing these facilities and its use may incidentally bring in net revenue to the Government, but that circumstance is not an essential ingredient of compensatory tax. Some indirect connection or some connection, more or less commensurate, etc., are not the tests, but the direct and immediate effect is the test. Maintaining of roads, bridges, etc., and promotion of SSI units, etc. are generally met from the general funds or revenue. Whether the goods are transported into the State from outside the State or abroad the State has got a duty to provide those facilities, like roads, and bridges, which is being enjoyed not only by persons who bring goods notified for levy of entry tax but also others. The Kerala High Court found that there are absolutely no connection or nexus with the collection of entry tax and its utilisation for the benefit of traders/manufacturers from whom such tax is collected.
29. The Karnataka High Court, in Bharat Earth Movers Ltd v. State of Karnataka and others decided on 29.3.2007 (2007) 8 VST 69 (Katn), allowed the writ petitions holding the Karnataka Special Tax on Entry of Certain Goods Act, (29 of 2004) as violative of Articles 301, 304 (a), (b) and 255 of Constitution of India; followed its earlier Division Bench decision in Avinyl Polymers Pvt. Ltd v. State of Karnataka (1998) 109 STC 26 (Karn) and held that the State was not able to demonstrate any exclusive or special service provided to the class of taxpayers who bear the entry tax under the Act. The Karnataka High Court found that there was absolutely no co-relation to the revenue generated under the specific Act to the so-called expenditure incurred by the local authorities for services sought to be provided such as provision for roads, water, lighting, drainage, etc. There are other levies imposed under other enactments by the State and local authorities. There is no link or co-relation at all on facts in respect of the revenue from the levies under the enactment and the revenue and expenditure under other enactments. The levy of entry tax was only in respect of the goods brought into a local area by an importer from outside the State and not on other persons who bring similar goods to the very local area, thus the discrimination is writ large on the face of the provisions violating Article 304 (a) of the Constitution of India. There was no parity in the matter of levy of tax by the State legislature on particular or similar goods.
30. The Karnataka High Court further held that taxing statute has the effect of impeding movement but can still be found to be a non-discriminating to pass the test of Article 304 (1) but not answer the requirements of Article 304 (b). The State in imposing such tax must demonstrate that it is a reasonable restriction and is in public interest and further the requirement of obtaining the previous sanction of the President in terms of the proviso inevitably gets attracted. Since the Bill did not receive the sanction of the President nor the defects were cured by the Act having been reserved for the assent of the President, the provisions of the Act are violative of Article 304 (b) of the Constitution of India.
31. The Madras High Court, in ITC Limited v. State of Tamil Nadu and another (2007) 7 VST 367 (Mad.), held that the Tamil Nadu Tax on Entry of Goods in Local Areas Act, 2001 and various notifications issued thereunder levying entry tax on goods imported from other States to the State of Tamil Nadu and from abroad is not compensatory in nature. Since the State Government could not discharge its burden by placing material before the Court, that payment of levy of entry tax is reimbursement/recompense for the quantifiable/measurable benefits provided or to be provided to the tax payers. The levy imposing entry tax being discriminatory is also violative of Article 304 (1) of the Constitution. The demand of entry tax under the Act was held to be illegal, unauthorised and violative of Article 301 of the Constitution. The Madras High Court held that maintaining of roads, providing bridges etc. cannot be said to be compensatory in nature so as to constitute special advantage to trade, commerce and intercourse. Maintenance of roads, bridges etc., is generally met from general funds or revenue. Whether goods are transported into the State or outside State or abroad, the State has got a duty to provide facilities like roads, brides, etc., which are being enjoyed not only by the persons who bring the goods notified for levy of entry tax, but also by others. The State of Tamilnadu also levies taxes for the purpose of maintenance of roads from the owners of motor vehicles under the Tamil Nadu Motor Vehicles Taxation Act, 1974 wherein the parameters of levy are based on the laden weight of the motor vehicle. The Madras High Court also held that the levies of entry tax only on goods which are imported into the State of Tamil Nadu as against those which are produced or obtained within the State of Tamilnadu causes discrimination. The price structure of the imported goods vis-a-vis the locally manufactured goods or the economics of the importer, need not be gone into, to examine the discrimination.
32. The Gauhati High Court in ITC Limited v. State of Assam and others delivered by Hon'ble I.A. Ansari, J sitting singly on 17.11.2006 (2007) 9 VST 250 (Gauhati) declared the notifications issued under sub-section (4) of Section 3 of Assam Entry Tax Act, 2001 dated January 8, 2002, August 21, 2003, August 26, 2003, September 29, 2004 and February 28, 2005 and the Ordinance of 2005 as well as the Assam Entry Tax (Second Amendment) Act, 2005 as ultra vires, unconstitutional, null and void. While examining the true nature and character of the levy it was held that if an entry tax, imposed by a State by recourse to Entry 52 of the State List is otherwise in conformity with the provisions of the Constitution, the levy cannot be interfered with. The preamble of the Act, the statement of objects and reasons and the provisions of the Act envisages the Act as a taxing statute for augmenting revenue of the State. The tax levied was not specifically meant for providing any trading facility nor are the provisions of the Act regulatory in nature. The State Government did not show as to what trading facilities it was really provided to the traders, and what expenses were incurred for providing such facilities. It also did not show as how much amount realised from the imposition of the entry tax is utilised for providing the trading facilities. The Court found that the legislative object and the scheme of the enactment are to realise payment of sales