M/S. Jindal
Stainless Ltd. & Anr Vs. State of Haryana & Ors [2006] Insc 411 (14 July 2006)
Arijit
Pasayat & S.H. Kapadia
WITH (SLP
(C) No.10003/2004, SLP (C) No.10007/2004 SLP (C) No.10156/2004, SLP (C)
No.10164/2004 SLP (C) No.10167/2004, SLP (C) No.10206/2004 SLP (C)
No.10381/2004, SLP (C) No.10391/2004 SLP (C) No.10404/2004, SLP (C)
No.10417/2004 SLP (C) No.10501/2004, SLP (C) No.10563/2004 SLP (C)
No.10568/2004, SLP (C) No.10571/2004 SLP (C) No.11012/2004, SLP (C)
No.11271/2004 SLP (C) No.11326/2004, T.C. (C) No. 13/2004 SLP (C) No.14380/2005
C.A.Nos.2608/2003, 2637/2003, 2769/2000, 3144/2004, 3145/2004, 3146/2004,
3314/2001, 3381-3400/1998, 3454/2002, 3455/2002, 3456-3459/2002, 3460/2002
3461/2002, 3462-3463/2002, 3464/2002, 3465/2002 3466/2002, 3467/2002,
3468/2002, 3469/2002, 3470/2002, 3592/1998, 4471/2000, 4476/2000, 4651/1998,
4954/2004, Writ Petition No. 512/2003, C.A. Nos. 5141/2004, 5143/2004,
5144/2004, 5145/2004, 5147/2004, 5148/2004, 5149/2004, 5150/2004, 5151/2004,
5152/2004, 5153/2004, 5156/2004, 5157/2004, 5158/2004, 5159/2004, 5160/2004,
5162/2004, 5163/2004, 5164/2004, 5165/2004, 5166/2004, 5167/2004, 5168/2004,
5169/2004, 5170/2004, Writ Petition (C) No. 574/2003, C.A. Nos. 5740/2002,
5858/2002, 6331/2003, 6383-6421/1997, 6422-6435/1997, 6436/1997,
6437-6440/1997, 7658/2004, 8241/2003, 8242/2003, 8243/2003, 8244/2003,
8245/2003, 8246/2003, 8247/2003, 8248/2003, 8249/2003, 8250/2003, 8251/2003,
8252/2003, 918/1999, SLP (C) No.9496/2004, SLP (C) No.9569/2004, SLP (C)
No.9883/2004, SLP (C) No.9891/2004, SLP (C) No. 9898/2004, SLP (C) No.
9904/2004, SLP (C) No. 9910/2004, SLP (C) No. 9911/2004, C.A. Nos.
997-998/2004, SLP (C) No.9976/2004, SLP (C) No.9993/2004, SLP (C) No.9998/2004,
SLP (C) No.9999/2004, C.A.Nos. 1956/2003, 2633/2003, 2638/2003, 3720-
3722/2003, SLP (C) No.10153/2004 ARIJIT PASAYAT, J.
These
appeals and certain connected matters were initially heard by a two-Judge Bench
of this Court. The matters were referred to a larger Bench by order dated
26.9.2003 as the Bench hearing the matters doubted the correctness of the views
expressed in M/s. Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. and
Others [1995 (Suppl.) 1 SCC 673] which was relied on in a subsequent decision
in State of Bihar and Others v. Bihar Chambers of Commerce and Others [1996 (9)
SCC 136] . The matters were dealt with by a Constitution Bench to decide with
certitude the parameters of the judicially evolved concept of 'Compensatory
Tax" viz-a-viz. Article 301 of the Constitution of India, 1950 (in short
the 'Constitution').
The
Constitution Bench in Jindal Stainless Ltd. & Anr. v. State of Haryana & Ors. [2006(4) SCALE 300] [speaking
through one of us (Kapadia, J] concluded as follows :
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In our opinion,
the doubt expressed by the referring Bench about the correctness of the
decision in Bhagatram's case 1995 Supp. (1) SCC 673 followed by the judgment in
the case of Bihar Chamber of Commerce (1996) 9 SCC 136 was well-founded.
-
We reiterate
that the doctrine of "direct and immediate effect" of the impugned
law on trade and commerce under Article 301 as propounded in Atiabari Tea Co.
Ltd. v. State of Assam AIR 1961 SC 232 and the working test enunciated in
Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406
for deciding whether a tax is compensatory or not vide para 19 of the report,
will continue to apply and the test of "some connection" indicated in
para 8 of the judgment in Bhagatram Rajeevkumar v. Commissioner of Sales Tax,
M.P. 1995 Supp. (1) SCC 673 and followed in the case of State of Bihar v. Bihar
Chamber of Commerce (1996) 9 SCC 136, is, in our opinion, not good law.
Accordingly,
the constitutional validity of various local enactments which are the subject
matters of pending appeals, special leave petitions and writ petitions will now
be listed for being disposed of in the light of this judgment.
In all
these appeals and connected matters the basic issue revolves round the concept
of "Compensatory Tax". In all these matters the concerned High Courts
do not appear to have examined the issue in the proper perspective, as they
were bound by the judgments in Bhagatram's case (supra) and Bihar Chambers of
Commerce's case (supra).
At
this juncture, it is necessary to take note of what has been stated in
paragraphs 42 to 45 of the judgment rendered by the Constitution Bench, which
read as follows :
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To sum up, the
basis of every levy is the controlling factor. In the case of "a
tax", the levy is a part of common burden based on the principle of
ability or capacity to pay. In the case of "a fee", the basis is the
special benefit to the payer (individual as such) based on the principle of
equivalence. When the tax is imposed as a part of regulation or as a part of
regulatory measure, its basis shifts from the concept of "burden" to
the concept of measurable/quantifiable benefit and then it becomes "a
compensatory tax" and its payment is then not for revenue but as
reimbursement/ recompense to the service/facility provider. It is then a tax on
recompense. Compensatory tax is by nature hybrid but it is more closer to fees
than to tax as both fees and compensatory taxes are based on the principle of
equivalence and on the basis of reimbursement/recompense. If the impugned law
chooses an activity like trade and commerce as the criterion of its operation
and if the effect of the operation of the enactment is to impede trade and
commerce then Article 301 is violated.
BURDEN
ON THE STATE:
-
Applying the
above tests/parameters, whenever a law is impugned as violative of Article
301of the Constitution, the Court has to see whether the impugned enactment
facially or patently indicates quantifiable data on the basis of which the
compensatory tax is sought to be levied. The Act must facially indicate the
benefit which is quantifiable or measurable. It must broadly indicate
proportionality to the quantifiable benefit. If the provisions are ambiguous or
even if the Act does not indicate facially the quantifiable benefit, the burden
will be on the State as a service/facility provider to show by placing the material
before the Court, that the payment of compensatory tax is a
reimbursement/recompense for the quantifiable/ measurable benefit provided or
to be provided to its payer(s). As soon as it is shown that the Act invades
freedom of trade it is necessary to enquire whether the State has proved that
the restrictions imposed by it by way of taxation are reasonable and in public
interest within the meaning of Article 304(b) [See: para 35 of the decision in
the case of Khyerbari Tea Co. Ltd. and Anr. v. State of Assam reported in AIR
1964 SC 925.
SCOPE
OF ARTICLES 301, 302 & 304 VIS-@- VIS COMPENSATORY TAX:
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As stated above,
taxing laws are not excluded from the operation of Article 301, which means
that tax laws can and do amount to restrictions on the freedom guaranteed to
trade under Part-XIII of the Constitution. This principle is well settled in
the case of Atiabari Tea Co. AIR 1961 SC 232. It is equally important to note
that in Atiabari Tea Co. AIR 1961 SC 232, the Supreme Court propounded the
doctrine of "direct and immediate effect".
Therefore,
whenever a law is challenged on the ground of violation of Article 301, the
Court has not only to examine the pith and substance of the levy but in
addition thereto, the Court has to see the effect and the operation of the
impugned law on inter-State trade and commerce as well as intra-State trade and
commerce.
-
When any
legislation, whether it would be a taxation law or a non-taxation law, is
challenged before the court as violating Article 301, the first question to be
asked is: what is the scope of the operation of the law? Whether it has chosen
an activity like movement of trade, commerce and intercourse throughout India, as the criterion of its operation?
If yes, the next question is: what is the effect of operation of the law on the
freedom guaranteed under Article 301? If the effect is to facilitate free flow
of trade and commerce then it is regulation and if it is to impede or burden
the activity, then the law is a restraint. After finding the law to be a restraint/restriction
one has to see whether the impugned law is enacted by the Parliament or the
State Legislature. Clause (b) of Article 304 confers a power upon the State
Legislature similar to that conferred upon Parliament by Article 302 subject to
the following differences:_
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While the power
of Parliament under Article 302 is subject to the prohibition of preference and
discrimination decreed by Article 303(1) unless Parliament makes the
declaration under Article 303(2), the State power contained in Article 304(b)
is made expressly free from the prohibition contained in Article 303(1) because
the opening words of Article 304 contains a non-obstante clause both to Article
301 and Article 303.
-
While the
Parliament's power to impose restrictions under Article 302 is not subject to
the requirement of reasonableness, the power of the State to impose
restrictions under Article 304 is subject to the condition that they are
reasonable.
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An additional
requisite for the exercise of the power under Article 304(b) by the State
Legislature is that previous Presidential sanction is required for such
legislation.
Since
relevant data do not appear to have been placed before the High Courts, we
permit the parties to place them in the concerned Writ Petitions within two months.
The concerned High Courts shall deal with the basic issue as to whether the
impugned levy was compensatory in nature. The High Courts are requested to
decide the aforesaid issue within five months from the date of receipt of our
order. The judgment in the respective cases shall be placed on record by the
concerned parties within a month from the date of the decision in each case
pursuant to our direction.
Place
these matters for further hearing in third week of January, 2007.
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