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2007 Supreme(Pat) 57
PATNA HIGH COURT
Aftab Alam and Samarendra Pratap Singh JJ.
Indian Oil Corporation Limited,
Versus
State Of Bihar
Civil Writ Jurisdiction Case No. 2739 of 2003 ;
Decided On : JANUARY 9, 2007
Headnote:
Bihar Entry Tax Act, 1993 - Constitutional Validity - Compensatory Tax - Levy of Entry Tax - Discrimination - Amendments - Presidential Sanction - Bihar Trade Development Fund - Bihar Finance Act, 1981.
Fact of the Case:
The Bihar Entry Tax Act, 1993 was challenged on the grounds of being violative of Articles 301 and 304 of the Constitution. The Act was amended several times during the pendency of the case. The main issues before the court were whether the levy of entry tax was compensatory in nature, whether the Act discriminated against goods imported from other States, whether the amendments were made without the previous sanction of the President, and whether the creation of the Bihar Trade Development Fund made the levy compensatory.
Finding of the Court:
The court held that the levy of entry tax under the Parent Act of 1993 was not compensatory in nature and was, therefore, violative of Article 301 of the Constitution. However, the Act was saved by virtue of Article 304(b) of the Constitution. The amendments introduced in the Act by amending Acts 10 of 2001 and 9 of 2004 were held to be bad because the former made the Act violative of Article 304(a) of the Constitution and further because both the amendments were made without the previous sanction of the President. The introduction of imported goods within the definition of Entry of Goods was held to be bad for being retrospective as also for want of the Presidential sanction/assent. The court further held that after the 2006 Amendment the levy under the Act acquired the nature of a compensatory tax and the Act in its present form is a valid piece of legislation.
Issues: 1. Whether the levy of entry tax under the Bihar Entry Tax Act, 1993 was compensatory in nature? 2. Whether the Act discriminated against goods imported from other States? 3. Whether the amendments to the Act were made without the previous sanction of the President? 4. Whether the introduction of imported goods within the definition of Entry of Goods was valid? 5. Whether the creation of the Bihar Trade Development Fund made the levy compensatory?
Ratio Decidendi: The court applied the test laid down in Atiabari Tea Company Limited v. State of Assam, AIR 1961 SC 232 and Automobile Transport (Rajasthan) Limited v. State of Rajasthan, AIR 1962 SC 1406 to determine whether the levy of entry tax was compensatory in nature. The court held that the levy was not compensatory as it did not provide any quantifiable or measurable benefit to the payer. The court also held that the Act discriminated against goods imported from other States as the definition of Entry of Goods excluded goods brought to a local area from another local area within the State from the purview of the Act. The court further held that the amendments to the Act were made without the previous sanction of the President and were, therefore, invalid. The court also held that the introduction of imported goods within the definition of Entry of Goods was invalid as it was retrospective and was made without the previous sanction of the President. The court, however, held that the creation of the Bihar Trade Development Fund made the levy compensatory as the proceeds of the levy were to be used exclusively for the development of trade, commerce, and industry in the State.
Final Decision: The court allowed the petitions and held that the levy of entry tax under the Bihar Entry Tax Act, 1993 was not compensatory in nature and was, therefore, violative of Article 301 of the Constitution. The court also held that the Act discriminated against goods imported from other States and that the amendments to the Act were made without the previous sanction of the President and were, therefore, invalid. The court further held that the introduction of imported goods within the definition of Entry of Goods was invalid. However, the court held that the creation of the Bihar Trade Development Fund made the levy compensatory and the Act in its present form is a valid piece of legislation.
Aftab Alam, J.
1. These two writ petitions challenging the constitutional Validity of Bihar Entry Tax were taken up for hearing in light of the direction of the Supreme Court in order, dated 14.7.2006 in Jindal Stainless Limited (3) vs. State of Haryana and Others (2006)7 SCC 271.
2. Having regard to the fact that the law in Bihar underwent many changes during the past six years, it becomes necessary to begin at the beginning and to take a brief look at some developments taking place in the past.
3. The Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 (Bihar Act 16 of 1993) came into force on 22.8.1993. According to its preamble, the Act provided for levy and collection of tax on entry of goods into local areas for consumption, use or sale therein. Sec.2(c) of the Act defined "entry of goods" as follows:
"(c) "Entry of Goods" with all its grammatical variations and cognate expressions means entry of goods into a local area from any place outside that local area or any place outside the State for consumption, use or sale therein."
4. Sub-sections (d), (e) and (f) defined "importer", "import value" and "local areas" respectively. Sec.3(1) provided for levy and collection of tax on entry of the scheduled goods into a local area for consumption, use or sale therein at such rate, not exceeding 5% of the import value of the goods, as might be fixed by the State Government. Sec.3(2) provided that the tax would be paid by every dealer liable to pay tax under the Bihar Finance Act or any other person who brought or caused to be brought the scheduled goods into the local areas. Sec. 4 provided that in case of motor vehicle the payment of entry tax would be adjustable against the sales tax liability resulting from its sale by the dealer. Section 8 provided for the application of the provisions of the Bihar Finance Act, 1981 and empowered the authorities under that Act for enforcement of the provisions of the Entry Tax Act. The schedule to the Act had listed under it only six goods, namely, (i) motor vehicles, (ii) tobacco products (excluding biris), (iii) India made foreign liquor, (iv) vegetable and hydrogenated oils, (v) cements and (vi) crude oil.
5. The Bihar Entry Tax Act, 1993 was declared ultra vires Articles 301 and 304 of the Constitution and consequently bad and illegal by this court in Bihar Chamber of Commerce vs. State of Bihar and others, (1995)97 STC 538 (Patna) [:1995(1) PUR 716]. The State of Bihar took the matter in appeal before the Supreme Court. A two Judges Bench of the Supreme Court in State of Bihar and Others vs. Bihar Chamber of Commerce (1996)9 SCC 136 [:1996(1) PLJR (SC) 105] reversed the decision of this court and held that the Bihar Entry Tax Act, 1993 was constitutionally valid. The Supreme Court decision in Bihar Chambers of Commerce found and held that the levy under the Act was compensatory in nature and hence, it did not offend Art. 301 of the Constitution. It further held that the impost constituted reasonable restriction and it was in public interest within the meaning of Article 304(b) of the Constitution. It also held that the bill had received the assent of the President and, thus, the requirement of the proviso to Article 304(b) too was satisfied. The levy was held to be compensatory in nature by applying, what is called in the later Constitution bench decision of the Supreme Court in Jindal Stainless Limited (2) & Anr. vs. State of Haryana and Others, (2006) SCC 241 as the test of "Some Connection" between the tax and the facilities extended to the trade directly or indirectly.
6. On behalf of the petitioners in the two cases before us it was submitted that Bihar Entry Tax Act, 1993 (that received the seal of approval by the Supreme Court in Bihar Chamber of Commerce) was actually the thin edge of the wedge and the finding in that decision that the bill (for the 1993 Act) had received the assent of the President was taken by the State as licence
