Geo Miller & Co. Pvt. Ltd. & Ors Vs. State of M.P. & Ors  Insc
351 (5 May 2004)
& G.P. Mathur. Rajendra Babu, Cji. :
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 the 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.
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.
questions that arise for consideration herein are:
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)?
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?
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).
appellants relied on the cases of Atiabari Tea 809 and Automobile Transport
(Rajasthan) Ltd. vs. The State of Rajasthan & Ors. (1963) 1 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
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.
the mere fact that a tax is imposed does not automatically bring Article 301
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.
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.
fact, Section 3 of the said Act was under challenge in the case of M/s Bhagatram
Rajeevkumar vs. Commissioner of Sales Tax, M.P. & Ors., 1995 Supp. (1) SCC 673.
A three Judge Bench of this Court, found that the levy of tax under the M.P.
Entry Tax Act, 1976 was constitutional, since the nature of revenue earned was
compensatory, as it was handed over to the local bodies to compensate them for
the loss caused.
present case too, the respondents have reiterated that the tax being imposed is
compensatory in nature as the revenue earned therefrom passes over to the local
bodies to compensate them for the loss incurred due to abolition of octroi.
of their finance would enable them to promote Municipal Services more
efficiently helping in the free flow of trade and commerce.
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.
case of Jindal Stripe Ltd. v. State of Haryana, (2003) 8 SCC 60, a division
bench of this court, raised doubts over the legal proposition laid down in the
aforementioned Bhagatram case (which upheld the validity of the M.P. Entry Tax
Act, 1976) and refers the matter to a Constitution Bench over the
interpretation of Article 301 vis-`-vis compensatory tax. In Bhagatram's Case,
although it was demonstrated by the appellant State and not disputed by the
respondents that the levy was compensatory, the Court goes on to make an
observation that compensation need not be that which facilitates the trade
only. It observes that "the concept of compensatory nature of tax has been
widened and if there is substantial or even some link between the tax and the
facilities extended to such dealer directly or indirectly the levy cannot be
impugned as invalid". In the Jindal Stripe Case, the division bench noted
that the above observation would mean that "an indirect or incidental
benefit to traders by reason of stepping up the developmental activities in
various local areas of the State can be legitimately brought within the concept
of compensatory tax". Accordingly it refers the matter to a Constitution
Bench to decide what exactly would fall under the ambit of "compensatory
tax", and thereby fall outside the purview of Article 301.
as the Act in question has been upheld on the basis that it had been
demonstrated by the State and not disputed by the dealers that the levy was
compensatory it may not be necessary for us to dilate on this aspect any
the contention of the appellants that Sec. 3(1) (b) of the M.P. Entry Tax Act,
1976 does not permit levy of any entry tax on the entry in the course of a
business of a dealer of goods specified in Schedule III into a local area for
consumption or use of such goods in the execution of works contracts, as these
amount to 'sale'. They contend that owing to the 46th Amendment transfer of
property in goods involved in the execution of a works contract amounts to
relevant part of Section 3 of the M.P. Entry Tax Act is reproduced herein;
3: Incidence of Taxation ;-
There shall be levied an entry tax (a) ..
the entry in the course of business of a dealer of goods specified in Schedule
III, into each local area for consumption or use of such goods (raw material or
incidental goods) or as packing material or in the execution of works contracts
but not for sale therein." (Emphasis supplied) The relevant portion of
Article 366 of the Constitution is as follows;
366: In this Constitution, unless the context otherwise requires, the following
expressions have the meaning hereby respectively assigned to them, that is to
"tax on the sale or purchase of goods" includes (b) a tax on the
transfer of property in goods (whether as goods or in some other form) involved
in the execution of a works contract.." Accordingly, the appellant
contends that Section 3(1) (b) of the M.P. Entry Tax Act, 1976, no longer
permits levy of entry tax on goods consumed or used in works contract as these
amount to 'sale' by virtue of Article 366(29-A).
question that arises for consideration is whether the definition of "tax
on the sale or purchase of goods" as provided by the 46th amendment
through Article 366 (29-A) applies to the M.P. Entry Tax Act.
evident from the section 3(1) (b) of the M.P. Entry Tax Act, 1976, that if a
dealer effects the entry of goods specified in Schedule III into any local area
and those goods are meant for
be used as
packing material or
the execution of works contract,
dealer would come within the ambit of the charging section and hence, liable to
pay tax on the entry of those goods.
section goes on to make it clear that goods specified in Schedule III if they
are imported for the purpose of sale then they are not subject to tax.
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.
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.
M.P. Entry Tax Act has been enacted by the Legislature by virtue of Entry 52 of
List II of the VIIth Schedule. It reads as under:
52: Taxes on entry of goods into a local area for consumption, use or sale
therein." Article 366(29-A) on the other hand seeks to define 'tax on the
sale or purchase of goods'. This phrase is used in Schedule VII, List I,
Entries 92 and 92-A and Schedule VII, List II Entry 54. Hence, it can be seen
that the said meaning cannot be imported for the purposes of Entry 52 of List
other hand, it is evident that the M.P. General Sales Tax Act, 1958 has been
enacted in relation to Entry 54 of List II, and it indeed includes transfer of
goods in the execution of works contract within the definition of 'sale' as
required by Article 366(29-A). However the M.P. Entry Tax Act has specifically
excluded the definition of 'goods' and 'sale' which is utilised in the M.P.
Sales Tax Act. Section 2(2) of the M.P. Entry Tax Act, 1976 reads as under:-
"Section 2(2): All those expressions, other than expression 'goods' and
'sale' which are used but are not defined in this Act and are defined in the
Sales Tax Act shall have the meanings as assigned to them in that Act."
(Emphasis supplied) The exclusion is justifiable considering the fact that the
M.P. Entry Tax Act, 1976 has been enacted by virtue of Entry 52 of List II of
Schedule VII. It need not be circumscribed by the definition provided in
Article 366 (29- A).
366(29-A) does not define the term 'sale', but enlarges its scope by including
transfer of goods in the execution of works contract within this definition of
'sale' as it appears in Article 366(29-A) is with reference to the Sales Tax
Act. The M.P. Sales Tax Act indeed adopts the same. However Section 2(2) of the
M.P. Entry Tax Act has expressly not imported the definition of 'sale' from the
Sales Tax Act. Therefore, the intention of the legislature in excluding
'execution of works contract' from the definition of 'sale' is manifest and
this reflects clearly in the letter of the law.
the contention that the term 'sale' utilised in Entry 52 of List II and Entry
54 of List II are the same concept deriving from the expression 'tax on the
sale or purchase of goods' as defined in Article 366(29-A) seems to be
incorrect. The High Court has observed rightly that the M.P.Sales Tax Act, 1958
is covered by Entry 54 whereas the M.P. Entry Tax Act, 1976 is covered by Entry
both these Acts are covered by different entries in the Constitution and hence,
the incidence of taxation in both cases is different. Under the Sales Tax Act
enacted by virtue of Entry 54 the incidence of taxation is on the sale and
purchase of goods whereas in the case of the Entry Tax Act, the incidence of
taxation is on the entry of the goods specified in the Entry Tax Act.
the M.P. Entry Tax Act does not adopt the expression of "goods" and
'sale' under the M.P. Sales Tax Act.
a well-settled position of law that in interpreting taxing statutes, one must
have regard to the strict letter of the law. If the person/entity sought to be
taxed comes within the letter of the law he must be taxed.
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".
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.
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.
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'.
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.
appellants further contend that under Section 3 (1) (b) of the Entry Tax Act,
1976, the goods specified in Schedule III if are imported from outside the
State for consumption are completely exempted by virtue of exception (vi) to
proviso attached to Section 3(1)(b). The relevant proviso is extracted herein:
in respect of goods specified in Schedule III imported from outside the State
for consumption or use as [raw materials or incidental goods] or as packing
materials or in the execution of works contract but which have been disposed of
in any manner." (Emphasis supplied) The appellants submit that a plain
reading of Section 3 would indicate that all those goods falling in Schedule
III which are imported from outside the State for consumption are not subject
to entry tax. This submission is incorrect.
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.
it can be seen that the Entry Tax imposed by the respondents is justifiable.
appeals are accordingly dismissed.