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2004(4) Supreme 746
SUPREME COURT OF INDIA
(From Madhya Pradesh High Court)
Rajendra Babu, CJI & G.P. Mathur, J.
M/s. Geo Miller & Co. Pvt. Ltd. & Ors. -Appellants
versus
State of M.P. & Ors. -Respondents
Civil Appeal Nos. 6223-6224 of 1997
Decided on 5-5-2004
Counsel for the Parties :
For the Appellant : P.P. Rao, Sr. Advocate, Kavin Gulati, S.K. Chauhan and G. Balaji Iyer, Advocates.
For the Intervenors : R.P. Gupta, Advocate.
Satish K. Agnihotri and Anil K. Pandey, Advocates.
Held : The Act being compensatory in nature it is not open to challenge under Article 301 and there is no need to venture into the argument based on Article 304 (b). Accordingly, the constitutionality of the Act is upheld. (Para 12)
Admittedly, the appellants, a dealer, has effected entry of goods specified in Schedule III in the local area for use in execution of works contract, and is hence liable to tax as per Section 3(1)(b) of the Act. It is hence evident that the M.P. Entry Tax Act, 1976 makes a clear distinction between sale and execution of works contracts and specifically excludes the latter from the purview of the former. The appellants contention that the definition of sale under Article 366 (29-A) of the Constitution which includes transfer of goods in execution of works contract, should be adopted into the M.P. Entry Tax Act, 1976 is not well founded. (Paras 21 and 22)
In the instant case, the letter of the law, i.e. Section 3 (1) (b) of the M.P. Entry Tax Act, 1976, leaves out "execution of works contracts" from the definition of "sale". By expressly not adhering to the definition of `sale in the M.P. Sales Tax Act [which includes, transfer of property in goods involved in the execution of works contract within the definition of `sale as required by Article 366(29A)(b)] their can be no doubt that the section clearly requires the appellants to pay the entry tax. Accordingly the appellants are liable to pay entry tax under the M.P. Entry Tax Act, 1976. It is true that the M.P. Entry Tax Act, 1976 does not provide a definition of sale . The appellants contend that in the absence of such definition the Constitutional definition as provided in Article 366(29-A) must be imported. However, even though the Act does not define sale it does provide a negative definition by clearly leaving out execution of works contract from the definition of sale . Thus, there is no ambiguity at least with regard to execution of works contract . It cannot be said to be a sale for the purposes of the M.P. Entry Tax Act, 1976. (Paras 31 and 32)
There is no ambiguity in the proviso which clearly states that tax shall not be levied only on those goods which have been imported from outside and are meant for use or consumption as raw materials, incidental goods as packing material or in the execution of works contract, but only if after being brought in for such purpose are disposed of in some other manner. The interpretation of the appellants fails to consider the final part of the proviso, which has been emphasised in the reproduction of the same above. (Para 34)
JUDGMENT
Rajendra Babu, CJI.-The appellants are dealers registered under the M.P. General Sales Tax Act, 1958 and were also assessed to the Entry Tax during the period from 1.1.1986 to 11.12.1986 under the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (hereinafter referred to as the M.P. Entry Tax Act ). The appellants are carrying on the business of execution of works contract. Before the authorities below, it was the appellants contention that since that goods were brought for purpose of works contract and they have been subjected to sales tax under the Sales Tax Act, the appellants were not liable to pay the entry tax on goods. The appellants had unsuccessfully challenged the assessment of tax before the Appellate Deputy Commissioner of Sales Tax and the Board of Revenue and thereupon appellants preferred Misc. Petition No. 3960 of 1991 before the High Court of Madhya Pradesh.
2. The appellants contended that by virtue of the definition of sale as defined under Article 366 (29-A) of the Constitution, the activity involved was a transfer of goods in works contract, it amounted to a sale and as such the goods are not exigible to the entry tax. The High Court vide judgment dated 18/09/1996, did not accept this contention and dismissed their prayer. Hence these appeals by Special Leave. In view of the High Court s judgment the Madhya Pradesh Builders Association has also joined the present petitions for special leave to appeal as the judgment affects the entire community of contractors.
3. The questions that arise for consideration herein are:
i) Whether the M.P. Entry Tax Act, 1976, is unconstitutional as it is hit by Article 301 of the Constitution for not satisfying the conditions laid down in Article 304(b)?
ii) Whether in any event the goods used by the appellants are subject to Entry Tax by virtue of Section 3 of the M.P. Entry Tax Act, 1976?
4. It is the submission of the appellants that the M.P. Entry Tax Act, 1976 is unconstitutional as it offends Article 301 owing to non-compliance of the conditions laid down in Article 304(b).
5. The appellants relied on the cases of Atiabari Tea Co. Ltd. Vs. The State of Assam & Ors., (1961) 1 SCR 809 and Automobile Transport (Rajasthan) Ltd. Vs. The State of Rajasthan & Ors. (1963) I SCR 491, to state that taxation may impede the movement of goods from one barrier to the other and would accordingly bring Article 301 into play. They then contend that the conditions of Article 304 (b) have not been complied thereby rendering the M.P. Entry Tax Act, 1976 unconstitutional.
6. This argument of the appellants does not seem to be correct. It is well settled by the decision in Atiabari Tea Co. [supra] at p.860, that only such restrictions or impediments which directly or immediately impede the free flow of trade, commerce and intercourse fall within the prohibition imposed by Article 301. This Court did not accept the argument that all taxes whether or not their impact on trade is immediate or mediate, direct or remote should be governed by Article 301. This view was further upheld in the Automobile Transport Case and in State of Kerala vs. A.B. Abdul Kadir & Ors., 1969 (2) SCC 363. Hence, the mere fact that a tax is imposed does not automatically bring Article 301 into play.
7. In fact the concept of "compensatory taxes" was propounded in the Automobile Transport Case. By virtue of this, taxes, which would otherwise interfere with the unfettered freedoms under Article 301, will be protected from becoming unconstitutional if they are compensatory.
8. Thus, the reliance placed by the appellants on the observations made in the Atiabari Case and the Rajasthan Automobile Case that taxation may impede the movement of goods from one barrier to the other and accordingly submitting that the M.P. Entry Tax Act, 1976 is hit by Article 301 is not properly founded.
9. In fact, Section 3 of the said Act was under challenge in the case of M/
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