2009 Supreme(Kar) 497

High Court of Karnataka
THE HONOURABLE MR. JUSTICE N. KUMAR
M/s. L&T Case Equipment Pvt. Limited
Versus
State of Karnataka by its Finance Secretary & Another
W.P. No.39540 of 2003 (T-YET) C/w etc…..
Decided on : 24-07-2009

Headnote:CONSTITUTION OF INDIA - Chapter XIII - Articles 301, 302, 303 & 304: [N. Kumar, J] Interpretation of -Notification issued by the Government of Karnataka prescribing the rule of entry tax on the motor vehicles mentioned therein - Whether the impugned provisions, Sections 4-B and 4-BB are violative of Articles 301read with 304(a) of Constitution of India? Held, The impugned law chooses an activity namely, the movement of trade and commerce as the criterion of its operation and if the effect of the operation of such law is to impede the activity, then the law is a restriction under Article 301. Article 301 provides, trade shall be free throughout the territory of India. It means that territory of India. It means that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or the transport of goods from one part of the country to the other that is intended to be saved and if any law imposes any direct restrictions on the very movement of such goods it attracts the provisions of Article 301, and its validity can be sustained only if it satisfies the requirements of Article 302 or Article 304 of Part XIII. The said discriminatory tax directly and immediately restrict or impede trade and commerce. It would fall within the purview of Article 301 and will be valid only if it comes within the terms of Article 304(a). The tax levied under the Act on the goods imported from other States or the Union Territories and similar goods manufactured or produced in the State are to be subjected to the same tax., at the same rate, on the entry is effected into a local area for use or sale therein, which is liable for registration or assignment of a new registration mark in the State under the Motor Vehicles Act 1988. Once the impugned provisions on the face of it indicate discrimination between the goods imported from other States and the goods in that State, the enquiry regarding the Constitutional validity of such provision should end there. In order to find out the discrimination what it to be seen is the impugned provisions and nothing else. The price structure of the imported goods, vis-à-vis the locally manufactured goods or the economics of the importer cannot be gone into. The levy of tax on both ought to be at the same rate. "any Tax" in Article 304(a) of the Constitution means same tax which is levied on an importer and not levied on the local dealer. The discrimination to be considered qua the same tax and not with regard to different taxes levied under different enactment. The entry tax is on entry and not on sale whereas the sales tax is on sale. The two taxing events are totally different and operate as different points of time. Once the discrimination is established or admitted the law becomes void, as offending the Constitution, as such discrimination results in creating tax barriers or fiscal barriers. Further, A welfare State cannot exercise its Legislative power contrary to the Constitutional scheme and take away the benefit accrued to a common man, extended by another State, on the pretext of recovering the depleted revenue of the State on account of tax holidays and lower taxes in the neighbouring State. It impedes free flow of trade, commerce and intercourse throughout the territory of India, violative of Article 301 read with 304(a) of the Constitution, as such, such provisions are void, and unenforceable. It is liable to be struck down as offending the Constitutional right.

       KARNATAKA TAX ON ENTRY OF GOODS INTO LOCAL AREA ACT, 1979 - Section 4-B & 4-BB: [N.Kumar,J] Constitutional validity of - Levy of tax and reduction of tax liability - Held, A reading of the impugned provisions make it clear that, what is levied is a tax. It is payable by the importer. The importer is defined to mean a person who brings a motor vehicle into a local area from any place "out side the State" for use or sale therein and who owns the vehicle at the time of its entry into a local area. The words "out side the State" in the definition of importer has created a charge only on the imported vehicles. The goods manufactured or produced within the State are not subjected to any such levy under the Act, as the imported goods. Therefore, the discrimination is writ large on the fact of the impugned provision. The freedom of trade so declared is against the imposition of barriers or obstructions within the State as well as inter-State. All restrictions which directly and immediately affect the movement of trader are declared by article to be ineffective. The only two exceptions under which the Part XIII of the Constitution held to be non applicable is that when such levy of tax is in the nature of compensatory tax regulatory in character. Therefore, first it is to be found out whether the levy of tax is regulatory in nature or is it a compensatory tax. Further, The tax levied is not a compensatory tax for the use of trading facilities. The tax levied is also not regulatory in nature. The regulation extends to administrative acts which produces regulative effect on trade and commerce. The impugned provisions do not seek to contract conditions under which the activity like trade is to take place. The said provisions are not enacted to enforce discipline or conduct under which the trade has to perform. The tax is not a payment for regulation of conditions or incidents of trade or manufacture. The levy of tax do not facilitate trade. On the contrary it hampers free trade. The primary object of levy of tax is the collection of revenue, as is clear from the object behind the amendment. Therefore, the impugned levy is neither a compensatory tax nor a regulatory measure. Therefore, Part XIII of the Constitution is attracted to the levy of tax and it has to satisfy the Constitutional requirement as contained in Article 301 and 304 of the Constitution as it is a law passed by the State legislature. The Karnataka Legislature by law, under the impugned provisions of the Act, has not imposed any tax on motor vehicles manufactured or produced on purchase value of a motor vehicle and entry of which is effected into a local area for use or sale therein, within the local area of the State of Karnataka. Under the impugned provision such a tax is levied and collected only in respect of motor vehicle which are brought into a local area from any place outside the State for use or sale therein and who owns the vehicle at the time of entry into a local area. Therefore, the imposition of tax under the Act is discriminatory and hit by Article 304 (a) of the Constitution.

       KARNATAKA TAX ON ENTRY OF GOODS INTO LOCAL AREA ACT, 1979 - Sections 4-B & 4-BB: [N. Kumar,J] Levy of Tax - Reduction of Tax Liability -Held, Sections 4B and 4BB of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979, are ultra vires of the constitution and was accordingly quashed. It is the common man who bears the burden of tax. A Welfare State cannot exercise its legislative power contrary to the Constitutional scheme and take away the benefit accrued to a common man, extended by another State on the pretext of recovering the depleted revenue of the State on account of tax holidays and lower taxes in the neighbouring State. It impedes free flow of trade, commerce and intercourse throughout the territory of India. It violates Articles 301 read with Article 304(a) of the Constitution and as such, the provisions are void and unenforceable. Accordingly they were struck down.