Impugned Act ultra vires Article 301 of Constitution.

A.P. Shah CJ.

Constitutional validity of the Tamil Nadu Tax on Entry of Goods into Local Areas Act, 2001("Act" for short), and various notifications issued by the State Government in exercise of the powers conferred by Section 15 of the Act is questioned in these writ petitions and connected writ appeals.

2. Tamil Nadu State enacted the Act to provide for the levy of tax on entry of goods into local areas for consumption, use or sale therein, being Tamil Nadu Act 20 of 2001. Section – 3 empowers the State Government to levy and collect tax on entry of scheduled goods into any local area for consumption, use or sale therein at such rate not exceeding 30% ad valerom, as may be specified by the State Government. Goods liable for levy of tax under the Act on entry in the specified local areas at the specified rates are those set out in the schedule annexed to the Act. Section 15 of the Act contains power of the State Government to amend the schedule and armed with that power the State Government issued various notifications inserting several goods/classes of goods into the schedule annexed to the Act. The Act was brought into force on 012. 2001.

3. Numerous petitions have been filed under Article 226 of the Constitution contending that the Act and the notifications issued thereunder are unconstitutional on diverse grounds. The main ground of attack is that the tax sought to be levied under the Act is neither regulatory in nature nor does it satisfy the tests laid down for a compensatory tax. The tax being discriminatory in nature and being levied on the entry of goods into a local area is a direct and immediate impediment to the freedom of trade guaranteed under Article 301 of the Constitution. No Presidential assent has been obtained under Article 304(b) of the Constitution for the levy of the entry tax under the Act. The demand and collection of entry tax under the impugned Act is therefore illegal, unauthorised and violative of Articles 301 and 304 of the Constitution.

4. It is necessary at this stage to notice the broad features of the Act. The long title and the preamble of the Act demonstrates the purpose for which the Act was enacted, it being to provide for the levy of tax on the entry of scheduled goods into local areas for consumption, use or sale thereunder. Section 3 of the Act, which is the charging section, reads as under: -

"3. Levy and Collection of tax -

.(1) Subject to the provisions of this Act, there shall be levied and collected a tax on the entry of any scheduled goods into any local area for consumption, use or sale therein. The rate of tax of shall be at such rate not exceeding thirty percent on the value of the scheduled goods as may be fixed by the Government, by notification and different rates may be fixed for different scheduled goods.

.(2) The tax shall be payable by an importer in accordance with the provisions of the Act."

5. The expression "entry of goods into local area" has been defined under the Act vide Section 2(c) and it reads as follows:

"Section - 2(c): Entry of goods into a local area - with all its grammatical variations and cognate expressions, means entry of scheduled goods into a local area from any place outside the State for consumption, use or sale therein;"

6. It can be seen from a plain reading of Section 2(c) and Section 3 that levy of entry tax under the Act is only on goods which are imported from any place outside the State of Tamil Nadu for consumption, use or sale within the Sate. The term local area is defined in Section 2(h) and it reads as follows: -

"Section – 2(h) Local Area means the area within the limits of -

.(i) the City of Chennai as defined in the Chennai City Municipal Corporation Act, 1919 (Tamil Nadu Act No.IV of 1919), or

.(ii) the City of Madurai as defined in the Madurai City Municipal Corporation Act, 1971 (Tamil Nadu Act No.15 of 1971), or

(iii) the City of Coimbatore as defined in the Coimbatore City Municipal Corporation Act, 1981 (