IMPORTANT POINT
Once it is held that the tax levied by the State Government was compensatory or regulatory in nature, there is no question of obtaining sanction of the President under proviso to Article 304 of the Constitution.

Headnote:Karnataka Tax on Entry of Goods Act, 1979-Section 3 as amended by amending Act No. 8 of 1993 (Karnataka Tax on Entry of Goods (Second Amendment) Act 1992)-Levy of tax on entry of goods into local area-Substitution of words retrospectively or prospectively by State Government for words by the State Government -Amending Act passed by State legislature after obtaining assent of Governor-However, assent of President was not obtained-Thereafter Karnataka Act No. 45 of 1994 was enacted after obtaining assent of President-Whether sanction of President was required to be obtained before amending and enacting Act No. 8 of 1993-(No)-Addition of words retrospectively or prospectively in Section 3(1) would not make the section restrictive which can be hit by Article 301 of the Constitution-Imposition of tax was compensatory or regulatory in nature-No question of obtaining assent of President under Article 304(b) of the Constitution-Constitution of India-Articles 301 to 304.
       Held : In these appeals, no contention is raised to the effect that levy of tax on goods by the impugned notification discriminates between the goods imported from other States and similar goods manufactured or produced within the State. Hence, it would be difficult to accept the contention that the sanction of the President was required to be obtained before amending and enacting Act No. 8 of 1993 whereby for the words "by the State Government, by notification from time to time", the words "retrospectively or prospectively by the State Government by notification and different dates" were substituted. Addition of words `restrospectively or prospectively in Section 3(1) would not make the Section restrictive which can be hit by Article 301 of the Constitution nor the said part of the legislation could be held to be discriminatory. To clarify the situation, it can be stated that a subsequent notification issued in exercise of the powers conferred under the said Section may in some case amount to restriction to free trade and commerce but simplicitor addition of the words `retrospectively or prospectively would not require sanction of the President as contemplated under Article 304(b). Hence, the contention that amending Act No. 8 of 1993, by which the words `retrospectively or prospectively are added, requires sanction of the President, is without any substance. Further, once it is conceded that imposition of tax was compensatory or regulatory in nature, there is no question of obtaining the assent of the President under Article 304(b) of the Constitution. (Paras 31 & 32)
       In view of this settled law, once it is held that the tax levied by the State Government was compensatory in nature, there is no question of obtaining sanction of the President under proviso to Article 304. (Para 33)
       It is true that normally tax would not be levied with retrospective effect but at the same time to validate the tax which was levied, after removing the defects pointed out by the previous decision, the State Government could exercise its powers under Section 3(1) of the Act and it cannot be said that it has acted beyond its jurisdiction. Therefore, it cannot be held that notification dated 23rd September, 1998 empowering the authority to levy and collect tax w.e.f. 1.4.1994 to 6.1.1998 is, in any way, illegal or erroneous. The defects pointed out in Avinyl Polymers s case (supra) are removed and, therefore, it cannot be said that the notification dated 23.9.1998 is, in any way, illegal. In a situation like present one where notifications levying tax were held to be illegal, for validating such levy, the State Government has issued the aforesaid notification. It is not pointed out that the said notification is discriminatory between the goods imported from other States and similarly goods manufactured or produced within the State. (Para 34)

JUDGMENT

Shah, J.-The levy of entry tax on goods by the State of Karnataka has chequered history and the State had to face various litigations on this score. The constitutional validity of Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979 (hereinafter referred to as the Act ) and the notifications issued by the State Government in exercise of its powers conferred by Section 3 of the said Act were challenged before the High Court by filing writ petitions under Article 226 of the Constitution. The Act and the notifications issued thereunder were declared unconstitutional and mandamus was issued directing the State Government and its officers to forebear from enforcing the provisions of the Act. Against that judgment and order, the State Government preferred appeal before this Court. This Court in State of Karnataka and another v. M/s Hansa Corporation [(1980) 4 SCC 697] set aside the order passed by the High Court striking down the Act.

2. The Court negatived the contention that Section 3 of the Act was vague. The Court also held that it was settled law that if the tax is compensatory in character, it would be immune from challenge under Article 301 of Constitution of India; if on the other hand, the tax is not shown to be compensatory in character, it would be necessary for the party seeking to sustain the validity of the tax law to show that the requirements of Article 304 have been satisfied. The Court also held that the levy of tax by the notification at the relevant time was not discriminatory in character as envisaged by Article 304(a) and it does not impose restrictions. The Court further held that the restrictions imposed are reasonable and in public interest and the Act subsequently having received the assent of the President, proviso to Article 304(b) is complied with and, therefore, the Act was saved by Article 304 and could not be struck down on the ground of its being violative of Article 301.

3. The title of the aforesaid Act was amended in 1992 and it was named as The Karnataka Tax on Entry of Goods Act, 1979 . Section 3 of the Act empowers the State Government to levy tax by issuing notification on the entry of any goods specified in the Schedule into a local area for consumption, use or sale therein. At present, Sub-section (1) of Section 3 reads as under:-

"3. Levy of Tax.-(1) There shall be levied and collected a tax on entry of any goods specified in the First Schdule into a local area for consumption, use or sale therein, at such rates not exceeding five per cent of the value of the goods as may be specified "retrospectively or prospectively" by the State Government by Notification, and different dates and different rates may be specified in respect of different goods or different classes of goods or different local areas."

4. The controversy in these appeals centers round the addition of the word retrospectively . Section 3 was amended by amending Act No.8 of 1993, namely, the Karnataka Tax on Entry of Goods (Second Amendment) Act, 1992, whereby for the words "by the State Government, by notification from time to time", the words "retrospectively or prospectively by the State Government by notification and different dates" were substituted. The amending Act was passed by the State legislature after obtaining the assent of the Governor on 11th February, 1993 but the assent of the President was not obtained and that is the only surviving challenge in these appeals.

5.Thereafter, Karnataka Act No.45 of 1994, namely, the Karnataka Tax on Entry of Goods (Amendement) Act, 1994 was enacted after obtaining the assent of the President on 19.10.1994. Again, the said Act was amended by Karnataka Act No. 3 of 1995, namely, the Karnataka Tax on Entry of Goods (Amendment) Act, 1992 after obtaining the assent of the President on 6.9.1994.

6. The Government of Karnataka in exercise of its power under Section 3(1) of the Act brought out notification dated 30.3.1994, which came into

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2003 Supreme(SC) 786

IMPORTANT POINTOnce it is held that the tax levied by the State Government was compensatory or regulatory in nature, there is no question of obtaining sanction of the President under proviso to Article 304 of the Constitution.

Cases Referred (11)

IMPORTANT POINT
Once it is held that the tax levied by the State Government was compensatory or regulatory in nature, there is no question of obtaining sanction of the President under proviso to Article 304 of the Constitution.