I.M. Quddusi, J.
1. This is the second journey of the petitioners in these writ petitions to this Court occasioned due to the direction of the Hon'ble Supreme Court of India.
2. For the purpose of levy and collection of tax on the entry of goods into the local areas of the State of Orissa for consumption, use or sale therein and matters incidental thereto and connected therewith, Orissa State Legislature promulgated the Orissa Entry Tax Act, 1999 (Orissa Act 11 of 1999) on 20th of September, 1999. Validity of the said Act was challenged in the aforesaid writ petitions, inter alia, on the following grounds:
(a) The State Legislature lacked legislative competence to enact the same;
(b) The Act opposed to Articles 301 and 304 of the Constitution of India since it hampered free flow of trade throughout the territory of India;
(c) There was violation of the mandatory provisions of Article 304(b) of the Constitution inasmuch as no previous sanction of the President was obtained and even otherwise no post facto assent of the President under Article 255 of the Constitution had been obtained; and
(d) Entry 52 of List II of the Seventh Schedule to the Constitution of India is made exclusively to pass any legislation to augment the income of the local authorities and by the definition of 'local area' given in the Act, the entire State has been brought under the purview of the Act and hence it is a colourable exercise of power.
3. After hearing learned counsel appearing for the parties and after going through the various decisions relied upon by the learned counsel for the parties, this Court came to hold that the entry tax sought to be introduced by the Orissa Entry Tax Act, 1999 being compensatory in nature is within the legislative competence of the State Government and is intra vires. While declining to strike down the Act as ultra vires, this Court directed as follows:
(1) Unless the basic ingredients, i.e. Entry of scheduled goods for the purpose of consumption, use or sale into a local area of the State are satisfied, the provisions of the Orissa Entry Tax Act, 1999 shall not be attracted;
(2) The goods which enter into a local area/areas only for the purpose of transit will not be subject to entry tax; and
(3) Every manufacturer of scheduled goods under Section 26 of the Orissa Entry Tax act shall collect by way of Entry Tax amount equal to the tax payable on the value of the finished products under Section 3 of the Act from the buying dealer either directly or through an intermediary only if the scheduled goods sold are intended for entry into any local area of the State for the purpose of consumption, use or sale.
Against the aforesaid judgment, the writ petitioners carried SLPs to the Hon'ble Supreme Court, which were converted to Civil Appeals and registered as Civil Appeal Nos.2637 of 2003, 1956 of 2003,2633 of 2003, 2638 of 2003, 3720, 3721 and 3722 of 2003. Those appeals were initially taken up along with C.A. No. 3453 of 2002 (M/s. Jindal Stainless Limited and Anr. v. State of Haryana and Ors.) and certain connected matters by a two-Judge Bench of the Supreme Court. 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 Ors. 1995(Suppl.) 1 SCC 673 which was relied on in a subsequent decision in State of Bihar and Ors. v. Bihar Chambers of Commerce and Ors. : [1996]2SCR184 , the matters were referred to a larger Bench by order dated 26.9.2003. The Constitution Bench in Jindal Stainless Limited and Anr. v. State of Haryana and Ors. : [2006]283ITR1(SC) concluded as follows:
In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatrams case 1995 Supp.(1) SCC 673 followed by the judgment in the case of Bihar Chamber of Commerce : [1996]2SCR184 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 : [1961]1SCR809 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan : [1963]1SCR491 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 Rejeevkumar v. Commissioner of Sales Tax, M.P. 1995 Supp (1) SCC 673and followed in the case of State of Bihar v. Bihar Chamber of Commerce : [1996]2SCR184 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.
4. Thereafter, the two Judge Bench of the Hon'ble apex Court comprising of Hon'ble Mr. Justice A. Pasayat and Hon'ble Mr. Justice S.H. Kapadia observed that the basic issue in all the appeals revolved round the concept of 'Compensatory Tax' and the 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). It was further observed that since relevant data did not appear to have been placed before the High Courts, the apex Court permitted the parties to place them in the concerned writ petitions within two months and desired the concerned High Courts to deal with the basic issue as to whether the impugned levy was compensatory in nature. That is how the seven writ petitions have again come before this Court to decide the basic issue, referred to above.
5. Different sets of counsel appeared for the petitioner in different writ petitions. Shri Debi Prosad Pal, learned Senior Advocate, leading the argument submitted that the Orissa Entry Tax is not compensatory in nature. Neither the statement of object and reasons nor the preamble to the Act nor the provisions contained in the Act facially or patently indicate that the proceeds of such tax would be utilized for providing trading facilities to the trades people. It does not in any manner indicate that the expenses for such facilities and the levy by which such expenses are to be met bear a reasonable and rational relationship. The working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. He submitted that the statement of object and reasons and the Act itself do not indicate that the tax has been levied without providing for any facility to ensure and make easy the free flow of trade. He contended that the entry tax is a fiscal measure which impedes free flow of trade. He next contended that the Orissa Entry Tax Act and the rules framed thereunder are violative of Article 301 of the Constitution. Relying on Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, : [1963]1SCR491 , he contended that only such taxes as directly and immediately restrict trade would fall within the purview of Article 301 and that any restriction in the form of taxes imposed on the carriage of goods or their movement by the State Legislature can only be done after satisfying the requirements of Article 304(b). He further contended that the Act provides for restrictions which directly and immediately impede free flow of trade and would violate Article 301. A compensatory levy and/or tax is an exception to Article 301. If the purpose of levy as regulatory measures to facilitate trade then such an ingredient in the levy justifies the imposition of the said levy being in the nature of compensatory tax. Similarly the quantum of such compensatory tax must co-relate with the funds required for such facilities/regulatory measures. But if the tax is levied for general augmentation of revenue in lieu of octroi then such tax would lose its character of compensatory tax. There is no facility even mentioned with relation to entry of goods into local area for use, consumption or sale therein and, therefore, the link or co-relation between local area and levy is absent and consequently collection of levy not by the local authority but by the State on entry of goods from outside State is unconstitutional. He submitted that the State Government is not providing for any facility, as required to qualify as compensatory tax. Such failure to provide for facilities or services against the entry tax is apparent from the Statement of Object and reasons. He submitted that in the context of Article 301, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the costs of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse in the local area. It may incidentally bring in net revenue to the Government but that circumstance is not an essential ingredient of compensatory tax, rather incidental to the levy. He took us through Section 36 of the Act which provides that subject to such conditions and in such manner as may be prescribed, there shall be paid to each local authority every year such sum as may be determined by the State Government from out of the tax collected under this Act. It is a settled position of law that the State Government will have the discretion to allocate such sum as it may deem to the local bodies out of the proceeds of the entry tax. The sum is allocated to the local bodies for providing municipal services/services to facilitate trade or commerce. It is beyond dispute that municipal services provided by the local bodies is a part of the common burden of the State and if the proceeds of entry tax are utilized for providing municipal services then entry tax cannot be qualified to be compensatory in nature and an exception to Article 301 of the Constitution of India. The entry tax paid by the dealers is not utilized to provide any special benefit to the trades people rather admittedly it is utilized to discharge the common burden of the State. Therefore, the levy cannot be classified as a sub-class of fee.
He has further argued that as a result of the reference the present decision in the case of Jindal Stainless Ltd and Anr. v. State of Haryana and Ors. : [2006]283ITR1(SC) (hereinafter referred as 'Jindal Stainless (2)) has been rendered by a Constitution Bench consisting of Five Judges. The Constitution Bench on an analysis of the relevant provisions of Part XIII of the Constitution analyzed the scope of Articles 301, 302 and 304. The Constitution Bench observed that Article 301 states that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout India shall be free. It is not freedom from all laws but freedom from such laws which restrict or affect activities of trade and commerce amongst the States. Although Article 301 is positively worded, in effect, it is negative as freedom correspondingly creates general limitation on all legislative power to ensure that trade, commerce and intercourse throughout India shall be free. Article 301, therefore, refers to freedom from laws which go beyond regulations which burdens, restricts, or prevents the trade movement between States and also within the State. Since freedom correspondingly imposes 'limitation', the Constitution Bench was of the view that the doctrine' of direct and immediate effect' of the operation of the impugned law on the freedom of trade and commerce in Article 301 as enunciated in Atiabari Tea Co.'s case. According to the Constitution Bench Article 301 is, therefore, not only an authorization to enact laws for the protection and encouragement of trade and commerce amongst the States but by its own force creates an area of trade free from interference by the State and, therefore, Article 301 per se constitutes limitation on the power of the State. Article 301 is however subject to the other provisions of Articles 302, 303 and 304 of the Constitution. The Constitution Bench analyzing the power of the State Legislature to enact any law which may come under the protection of Article 304(b) observed that apart from the limitation imposed by Article 301, Clause (1) of Article 303 imposes additional limitation, namely, that must not give preference or make discrimination between one State or another in exercise of its powers relating to trade and commerce under Entry 26 of List II or List III. However, this limitation on the State Legislature is lifted in two cases, namely, it may impose on goods imported from sister State (s) or Union Territories any tax to which similar goods manufactured in its own State are subjected but not so as to discriminate between the imported goods and the goods manufactured in the State. Article 304 also confers upon the State Legislature power to lift the limitations imposed on it by Article 301 and clause (1) of Article 303. This aspect is important because the doctrine of 'direct and immediate effect' which is mentioned in Atiabari Tea Co.'s case and Automobile Transport's case emerges from the concept of 'limitation' embodied in Article 301. This doctrine of direct and immediate effect which constitutes the basis of the working test propounded vide para 19 in Automobile Transport's case. According to the Constitution Bench, therefore, whenever the law is impugned as violative of Article 301, the Courts will have to examine the effect of the operation of the impugned law on the inter-State and the intra-State movement of goods, which movement constitutes an integral part of trade. If the working test propounded by the Constitution Bench of Seven Judges in Automobile Transport's case is not satisfied in that event the State has to satisfy that such restrictions complied with the provisions of Article 304 (b) of the Constitution.
6. Sri J. Patnaik, learned Senior Advocate though appeared for the State in other fresh cases, it is necessary to consider his arguments also. He argued that the Orissa Entry Tax is an indirect tax on goods. The legal incidence of the levy is both on traders (dealers) in common with the consumers. The tax is borne by the consumers. They levy has not chosen movement of trade and commerce as the criteria of its operation. He further argued that in pith and substance, the tax is on consumption, use or sale aspect of the goods in a local area. It is not a restriction or burden or impediment on trade and commerce. It does not have any direct or immediate impact on trade or its movement. He has further argued that the doctrine of direct and immediate effect enunciated in Atiabari's case does not apply to the tax under the impugned Act. Therefore, the levy is outside the scope of Article 301. There is only one rate of tax on goods or class or classes of goods under the Act in respect of goods coming into a local area both from another local area within the State or from any place outside the State. The impact of the levy on both intra-State trade and commerce and Inter-State trade and commerce is the same. The rate of tax is same for all local areas. The levy does not create any fiscal barrier/trade barrier/tariff wall which will impede the flow of goods to a local area from another within the State or from outside the State. The levy complies Article 304(a). Therefore, it is not an impediment to free flow of trade and commerce under Article 301. He further submitted that assuming that the tax imposed directly and immediately impedes free flow of trade and commerce or in any manner discriminates goods imported from outside the State vis-a-vis good produced within the State in the matter of tax, yet the facilities provided by the State and its agencies to trades people go to show that the levy is compensatory. The tax being paid by the consumer, the trades people do not have claim to facilities. Assuming the legal incidence of the levy to be conclusive of who pays the tax, he argued, such incidence being both on dealers and consumers, the facilities have to be in common. According to the case of Jindal Stainless (2) (supra), the principle of measurement/quantification of the benefits provided/ to be provided to trades people being the cost incurred on facilities, the expenditure incurred on facilities represents the benefits or the advantage derived by them. He further submitted that the tax collected is not patently much more than the amount required for providing the facilities. It complies the working test laid down in para-19 of Automobiles Transport's case for determining if a tax is compensatory. The trades people are having the use of the facilities which provide quantifiable/measurable benefits with some special advantage to trade and commerce. The cost of providing and maintaining the roads and bridges etc. is more because of the special needs of heavy vehicular traffic of trade and commerce. The facilities are provided by positive action by the State or its agencies. Referring to the various legal principles and detailed facts incorporated in the counter affidavit/additional counter affidavit, he contended that the levy is compensatory. He further submitted that in any view of the matter, the levy is outside Article 301 and, therefore, compliance of Article 304(b) is not necessary. He further contended that in any view of the matter the levy is intra-vires Article 301 and valid.
As regards the scope of consideration, he has submitted that the Hon'ble Supreme Court in the order dated 14th July, 2006 observed that (a) the basic issue revolves round the concept of compensatory tax and (b) the said issue has not been examined by the High Courts in proper perspective. The order envisages, as the concept of compensatory tax has been laid down and perspective of examination has been stipulated by the Constitution Bench in Jindal Stainless (2), the 'basic issue as to whether the impugned levy was compensatory in nature' has to be decided accordingly.
He further submitted that the parties have been directed to place relevant data for examination of the said basic issue. The remand order quotes para-43 of the judgment of the Constitution Bench which reads-state has 'to show by placing materials 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 payers. The said expression 'to its payers' is significant. Hon'ble Supreme Court has not directed to examine if the petitioners have been provided with the facilities. But, it is to be seen if the payers of the tax are provided with the facilities for finding if the tax is compensatory. This examination is required as the concept of compensatory tax laid down by the Constitution bench states the theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individual(s) a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it.
Therefore, the most crucial points that fall for determination according to the remand order dated 14th July, 2006 passed by the two Judge Bench are (i) who pays the tax and whether they are provided with the facilities/services involving quantifiable/measurable benefit to them, (ii) whether the payment by the beneficiary comes out of their pockets and is on account of the facilities and the services but not on any other account. Otherwise, it would be violative of the aforesaid principle of 'fairness to the community at large' i.e. the public in general. The principle is that the beneficiary of the facilities and services are those, who bear the burden of the tax or pay for the facilities. To the same effect, it has also been laid down in para-20 of Automobile Transport, AIR 1962 SC 1406 that the 'facilities to Trades people who pay the tax are provided', it requires that the facilities shall be for them who pay the tax.
He, therefore submitted that the determination of the issue whether the tax is compensatory requires examination of the scheme of the Act to find who pays the tax or bears its burden for determination if the tax is compensatory.
7. The State has filed counter affidavit supplying some of the details of the expenditure in paragraphs 12, 13, 16, 17, 18, 19, 21, 22, 23 and 24 of the additional counter affidavit filed on 9.12.2006 which are as under:
12. One of the important aspect of Entry Tax is to Lend financial support and strength to the Urban Local bodies (ULBS) and other local authorities to create facilities and infrastructure for expansion of trade and commerce as the meagre source of income from the octroi had been stopped.
13. Under Section 36 of the 1999 Act the State Government is to contribute the proceeds of the revenue to the Urban Local Bodies. The year wise assignment of tax amount out of entry Tax to Urban Local Bodies (ULV wise) from the year 1999-2000 to 2006-2007 is prepared in the form of a schedule and the same is annexed here into and marked as Annexure-A/1.
16. This opposite party stated the detail expenditure incurred for laying down the roads, maintaining the old roads and expending them along with necessary culverts, bridges and subways. It would not be out of place to mention that in the State Road communications serves a major needs for transportation of Goods both for interstate and intrastate transportation. The State spends much more than the proceeds of the entry tax for the above mentioned purpose. A comparative Table of tax proceeds vis-a-vis the expenses incurred would go to show that the state is required to spend much more than what is collected through entry tax.
17. The detailed list of statement showing major works of the year 2001 -2002 to 2005-2006 is annexed hereto and marked as Annexure-B1.
18. The Urban Local bodies are instrumentalities for urbanization. In the process of urbanization the concerned local areas became the center of trade and commerce. There is great deal of nexus with the urbanization and trades and commerce. When more of trading would occasion there would be increase and growth of commercial activities. The allotment made through urban and housing development department would substantiate the same. Some of the important gist of allocation is prepared in the form of a schedule and annexed as Annexure-C/1.
Thus the Urban bodies would require more of finance to establish infrastructure of trade and commerce. Keeping an eye over the growth of population growth of commercial activities, some more facilities need to be added. In other words financial investment would be of dire necessity. The urban bodies would require to establish new market places, shop rooms laying down of new roads, expansion of existing roads and maintenance of them, besides small, medium and bigger size bridges which are situated within the vicinity.
19. That after considering the growing problem and to bring solutions within the available funds the State Government considered it appropriate to accept the relevant suggestion of the State Finance Commission. As stated earlier the State would provide the allocation of funds to the Urban bodies at an increasing rate of 20% each year.
This should go to show that the proceeds of Entry Tax directly go to facilitate more of trade and commerce and free intercourse by extending financial assistance to the Urban local bodies. The financial assistance shall have direct and greater direct links (it would not be exaggeration to say greater link than before) with the collection of Entry Tax. The collection of Revenue from the Entry Tax and the allocation of fund would indicate the proportion of income and investment. The proportion is relevant and would establish compensatory character of the tax.
21. That in order to facilitate free flow of trade and commerce some of the roads namely State Roads, Express Ways, village roads are being laid down. The State some times gets the loan from outside agencies like Union Govt, World Bank etc. But the repayments of the loan are being made through the Public Exchequer, where the proceeds of Entry Tax is also a constituent. The State has repaid the loan amount as well as a portion of the principal amount. The year wise details are stated in the form of a schedule appended to this counter affidavit and marked as Annexure-D/1. thus this expenditure is borne with a purpose for allowing the growth of trade and commerce.
22. That the State Government through Industries Department incurs expenditure on establishment of Growth Centers, Urban Hats, Testing Laboratories. Besides expenditure, in terms of financial support to industries for making capital investment including on capital goods, are also made by which purchase and consequent flow of capital goods, predominantly from outside the State, are facilitated. Moreover, the facilities in industrial areas established by the State Agencies have also immediately contributed in augmenting flow of trade and commerce into/ out of the State.
It need not to be emphasized that the 'industries' are an integral constituent of 'trade and commerce' as a whole. The State has been incurring heavy expenditure and providing fiscal support for a formidable industrial base which has also facilitated flow of trade and commerce. The total financial burden on the State on these accounts is a necessary element of special advantage to Trade and Commerce and is relevant to compliance of parameters of a compensatory tax. In this regard, some of the details of financial burden on the State facilities/services are more fully described in the form of a Schedule appended to this affidavit and marked as Annexure-E/1.
23. That the State Government have been spending huge sums of money each year through Works, Housing and Urban Development Department, Rural Development Department, Panchayat Raj Department and W.R. Department on construction of roads including bridges, culverts, water supply and sanitation and maintenance thereof. The details of expenditure incurred in this regard prepared in the form a schedule is annexed marked as Annexure-F/1.
24. That the State Government through Co-operative Department has established several godowns market places and market shades and Krusak Bazar. In these investments a portion of the proceeds of Entry Tax utilized. The market places and market shades have become center of trade within the State and as such the tax proceeds have been utilized to create such trading facilities. Investments in such ventures has a justifiable background. Thus entry tax qualifies to have all features of compensatory character. The expenditure incurred by the State is enclosed in a statement and marked as Annexure-G/1.
The year-wise assignment of tax amount out of entry tax to Urban Local Bodies from the years 1999-2000 to 2006-2007, amount spent on construction of roads under Non-plan Demand No.7 from 2001-2002 to 2006-2007, detailed list of statement showing the major works under capital account, amount spent under Demand No.13 (Non-Plan) from the years 1998-1999 to 2006-2007, receipt and repayment position of NABARD during last five years, provision of funds from the year 2000-2001 to 2006-2007 for development of industries under the Industries Department, compensation given for Infrastructure Development basing on collection of Entry tax during the years 1998-1999 to 2006-2007, budget provision for different works of Border Check Gates during the years 1999-2000, 2000-2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005, 2005-2006 and 2006-2007 have been annexed as Annexure-A/1 to F/1 to the counter affidavit filed on 9.12.2006.
The State has filed additional counter affidavit on 15.5.2007. Paragraphs 4 and 5 of the said counter affidavit filed by the State on 15.5.2007 are as under:
4. That, the State Government has submitted its counter in different schedules based on Departmental actuals and as per accounts, and revised estimates. The Statement of accounts have now been extracted from the finance accounts and budget document of the relevant years and pre actual figures certified by the concerned Departmental for 2005-06 where the actual have not been published. The figures are comprehended in the form of a schedule for better and proper appreciation of the fact/figure indicating the collection of revenue through entry tax from the year 1999-2000 to the year 2006-2007. The State Government in its additional affidavit had supplied the details and the same are summarized and are stated in the form of a schedule. Some of the major relevant figures coming within the ambit of compensatory nature of expenditure are more fully stated in the form of a schedule and marked as Annexure-J/1. The same would go to indicate the percentage of the revenue collected from entry tax and spent for compensatory purpose. The same are invested in rendering benefits/facilities to the trading community as a whole providing better amenities and better atmosphere for the growth of trade and commerce.
5. That, in substance, the State Government had spent more than the collection of Entry Tax in providing the afore stated facilities/benefits. The expenditure would go to show that much more had been spent than the collection of entry tax revenue of the State Government had to pull resources from its own fund and borrowing for providing the afore stated facilities/benefits. Apart from this, the State Government has the liability to pay interest on such borrowed funds. Substantial amounts are also spend for the maintenance of Road and Bridges.
___________________________________________________________________________________
| Year | Entry Tax | Major | Non-plan | Plan | Inland Water |
| | Collection | Works- | Allocation | Allocation | Transport |
| | Para-28 | Roads and | by U.D. | by U.D. | Annexure-C/1 |
| | Para-9 | Bridges | Depart | Dept | Page-59 |
| | |Annexure-B/| Annexure- | Annexure- | |
| | | 1 Page-22 | 1 C/1 | C/1 Page- | |
| | | | Page-58 | 59 | |
|---------|-------------|-----------|--------------|-------------|----------------|
| 1 | 2 | 3 | 4 | 5 | 6 |
|---------|-------------|-----------|--------------|-------------|----------------|
|1990-00 | Crores | | 38.65 | 51.46 | TRS |
| | 34.18 | | | | 12102 |
|---------|-------------|-----------|--------------|-------------|----------------|
|2000-01 | 194.04 | | 23.51 | 65.35 | 11586 |
|---------|-------------|-----------|--------------|-------------|----------------|
|2001-02 | 252.04 |In thousand| 15 | 64.20 | 11440 |
| | |975.00 | | | |
|---------|-------------|-----------|--------------|-------------|----------------|
|2002-03 | 313.07 | 847219 | 15.18 | 133.58 | 12647 |
|---------|-------------|-----------|--------------|-------------|----------------|
|2003-04 | 377.19 | NIL | 15.18 | 101.26 | 12549 |
|---------|-------------|-----------|--------------|-------------|----------------|
|2004-05 | 384.93 | 26424 | 17.30 | 46.91 | 14481 |
|---------|-------------|-----------|--------------|-------------|----------------|
|2005-06 | 463.34 | 66189 | 15.23(RF) | 494.38(RF) | 28552 |
| | pre-action | | | | |
|---------|-------------|-----------|--------------|-------------|----------------|
|2006-2007| | | | | |
| upto | | 179690 | 15 (BE) | 625.32 | 28568 |
| Sep. 07 | | | | | |
|_________|_____________|___________|______________|_____________|________________|
___________________________________________________________________________________
|Port and| Compensation | Abstract | Repayment |Provision of | Ann-G/1 |
| Light | to ULB | Annexure- | of | funds for | Page-73 |
| Houses | for | 6 Page-61 | NABARD | development | Funds to Dir. |
|Annexure|infrastructure|Subsidy for| local |of Industries| Agri. For |
|Page-60 | Development |Promotion | Annexure- | under | Market |
| | Annexure- | of | D/1 Page- | Industries | facility- |
| | C Page- |Industries | 62 | Dept | Krushak |
| | 60 | | | Annexure-E/ | Bazar |
| | | | | 1 Page-63 | |
|--------|--------------|-----------|--------------|-------------|----------------|
| 7 | 8 | 9 | 10 | 11 | 12 |
|--------|--------------|-----------|--------------|-------------|----------------|
|TRS | | 6.89 | | | |
|72843 | | | | | |
|--------|--------------|-----------|--------------|-------------|----------------|
|72428 | 85.00 | 1.16 | | | |
|--------|--------------|-----------|--------------|-------------|----------------|
|56966 | 95.00 | 1.60 | 125.08 | | |
|--------|--------------|-----------|--------------|-------------|----------------|
|59836 | 105.00 | 1.40 | 149.72 | | |
|--------|--------------|-----------|--------------|-------------|----------------|
|43554 | 115.00 | 2.85 | 163.69 | | |
|--------|--------------|-----------|--------------|-------------|----------------|
|28693 | 119.52 | 4.94 | 479.21 | | |
|--------|--------------|-----------|--------------|-------------|----------------|
|38441 | 129.85 (RF) | 10.48 | 45.86 (Supp)| | |
|--------|--------------|-----------|--------------|-------------|----------------|
|20439 | 142.84 (DE | 10.34 | | | |
|________|______________|___________|______________|_____________|________________|
ENTRY TAX COLLECTION FROM 1999-2000 TO 2005-06
_____________________________________________________________________________________
| Year | Entry Tax | Actual | Actual | Expn. |
| | Collection | Capital Outly | Capital | incurred by |
| | | on Roads | Outlay on | Ind. Dept. on |
| | | and Bridges | Roads and | growth center |
| | | (Non-plan) | Bridges | |
| | | | (plan) | |
|___________|__________________|_______________|__________________|_________________|
| 1 | 2 | 3 | 4 | 5 |
|___________|__________________|_______________|__________________|_________________|
| 1999-00 | 34.18 | 2.24 | 114.20 | 0.00 |
|___________|__________________|_______________|__________________|_________________|
| 2000-01 | 194.04 | 0.39 | 143.54 | 0.00 |
|___________|__________________|_______________|__________________|_________________|
| 2001-02 | 252.04 | 0.00 | 114.70 | 2.86 |
|___________|__________________|_______________|__________________|_________________|
| 2002-03 | 313.07 | 39.28 | 261.32 | 1.20 |
|___________|__________________|_______________|__________________|_________________|
| 2003-04 | 377.19 | 0.00 | 196.00 | 0.38 |
|___________|__________________|_______________|__________________|_________________|
| 2004-05 | 384.93 | 2.01 | 355.97 | 0.00 |
|___________|__________________|_______________|__________________|_________________|
| 2005-06 | 463.34 | 7.59 | 303.49 | 0.40 |
|___________|__________________|_______________|__________________|_________________|
| Total | 2018.79 | 51.51 | 1489.22 | 4.84 |
|___________|__________________|_______________|__________________|_________________|
_______________________________________________________________________________________
| Funds | Capital | Funds | Total | Expen as a % |
| provided by | expenditure | provided by | expenditure | of ET |
| State to | by State on | State to | made by the | revenue |
| Cooperatives | Inland | ULBs out of | State Govt. | |
| for | transport | ET collection | for the | |
|infrastructure| | | purpose of | |
| development | | | indicated in | |
| | | | column 3 to 9 | |
|______________|_________________|_______________|__________________|_________________|
| 6 | 7 | 8 | 9 | 10 |
|______________|_________________|_______________|__________________|_________________|
| 0.02 | 0.00 | 31.87 | 148.33 | 433.97 |
|______________|_________________|_______________|__________________|_________________|
| 0.04 | 0.00 | 84.93 | 228.90 | 114.97 |
|______________|_________________|_______________|__________________|_________________|
| 0.07 | 0.00 | 94.83 | 212.46 | 84.30 |
|______________|_________________|_______________|__________________|_________________|
| 3.96 | 0.00 | 105.00 | 410.76 | 131.20 |
|______________|_________________|_______________|__________________|_________________|
| 0.00 | 0.00 | 114.83 | 311.21 | 82.51 |
|______________|_________________|_______________|__________________|_________________|
| 0.02 | 0.01 | 119.52 | 477.53 | 124.06 |
|______________|_________________|_______________|__________________|_________________|
| 0.02 | 0.03 | 129.26 | 440.79 | 95.15 |
|______________|_________________|_______________|__________________|_________________|
| 4.13 | 0.04 | 680.24 | 2229.98 | 110.46 |
|______________|_________________|_______________|__________________|_________________|
| Source: Data based on Finance Accounts and Budget Documents |
| N.B. Expenditure incurred by Industries Department on growth Center and funds |
| provided by State to ULBs for the year 2005-06 is based on pre-actual figures |
|_____________________________________________________________________________________|
The data regarding compensation given for infrastructure development basing on collection of entry tax is as follows:
________________________________________________________________| Compensation given for Infrastructure Development basing on || collection of Entry Tax ||______________________________________________________________|| Entry Tax collection | (Rs. In crore) || | Direct Compensation to ULBs through || | H&UD; Dept. ||_______________________|______________________________________|| 0 | ||_______________________|______________________________________||(being collected | || by the ULBs) | ||_______________________|______________________________________|| 0 | 0 ||_______________________|______________________________________||(being collected | || by the ULBs) | 0 ||_______________________|______________________________________|| 34.18 | 0 ||_______________________|______________________________________|| 194.04 | 85.00 ||_______________________|______________________________________|| 252.04 | 95.00 ||_______________________|______________________________________|| 313.07 | 105.00 ||_______________________|______________________________________|| 377.19 | 115.00 ||_______________________|______________________________________|| 384.93 | 119.52 ||_______________________|______________________________________|| 357 | 129.85 ||_______________________|______________________________________|| 370 | 142.84 ||_______________________|______________________________________|____________________________________________________________________________| Compensation given for Infrastructure Development basing on || collection of Entry Tax (in crores) || Year Major (Roads of which Maintenance Expenditure ||__________________________________________________________________________|| | 3054 | 5054 | Total | Works | H& UD | PR | WR | RD || | (Rev) | (Cap) | | Dept. | Dept. | Dept | Dept | Dept || | | | | (D. |(D No. | (D. | (D | (D || | | | | No. 7)| 13) |No. 17)|No. 20)|No. 28 ||_______|________|________|________|_______|_______|_______|_______|_______||1998-99| 101.21 | 120.36 | 221.57 | 51.73 | 0.00 | 0.00 | 0.00 | 49.48 ||_______|________|________|________|_______|_______|_______|_______|_______||1999-00| 138.17 | 117.62 | 255.79 | 73.51 | 0.00 | 0.00 | 0.00 | 64.66 ||_______|________|________|________|_______|_______|_______|_______|_______||2000-01| 142.12 | 149.17 | 291.29 | 71.39 | 0.00 | 0.00 | 0.00 | 70.74 ||_______|________|________|________|_______|_______|_______|_______|_______||2001-02| 130.18 | 114.70 | 244.88 | 67.17 | 0.00 | 0.00 | 0.00 | 56.76 ||_______|________|________|________|_______|_______|_______|_______|_______||2002-03| 140.34 | 302.47 | 442.81 | 82.09 | 0.00 | 0.00 | 0.00 | 57.44 ||_______|________|________|________|_______|_______|_______|_______|_______||2003-04| 125.87 | 196.00 | 321.87 | 76.63 | 0.00 | 0.00 | 0.00 | 49.24 ||_______|________|________|________|_______|_______|_______|_______|_______||2004-05| 138.54 | 357.97 | 496.51 | 91.56 | 0.00 | 000 | 0.00 | 46.97 ||_______|________|________|________|_______|_______|_______|_______|_______||2005-06| 175.59 | 300.74 | 476.33 | 88.32 | 0.00 | 0.00 | 0.00 | 87.27 ||_______|________|________|________|_______|_______|_______|_______|_______||_(RE)__|________|________|________|_______|_______|_______|_______|_______||2006-07| 547.89 | 373.88 | 921.77 |240.26 |18.75 |50.00 |17.50 |221.38 ||_(BE)__|________|________|________|_______|_______|_______|_______|_______|_______________________________________________________________________| Compensation given for Infrastructure Development basing on || collection of Entry Tax (in crores) || Year Major Head (Water supply & sanitation) of which || Maintenance Expenditure ||_____________________________________________________________________|| | 2215 | 4215 | Total | H&UD; | RD Dept | Total || | (Rev) | (Cap) | | Dept (D. | (D |Maintenance || | | | | No. 13) | No. 28) |Expenditure ||_______|________|________|_________|__________|_________|____________||1998-99| 99.64 | 36.49 | 136.13 | 59.55 | 11.36 | 70.91 ||_______|________|________|_________|__________|_________|____________||1999-00| 102.34 | 21.51 | 123.85 | 57.04 | 15.83 | 72.87 ||_______|________|________|_________|__________|_________|____________||2000-01| 76.23 | 54.82 | 131.05 | 53.37 | 15.43 | 68.80 ||_______|________|________|_________|__________|_________|____________||2001-02| 86.49 | 74.40 | 160.89 | 60.18 | 16.73 | 76.91 ||_______|________|________|_________|__________|_________|____________||2002-03| 95.94 | 45.14 | 141.08 | 71.13 | 14.54 | 85.67 ||_______|________|________|_________|__________|_________|____________||2003-04| 104.97 | 46.82 | 151.79 | 68.62 | 16.13 | 84.75 ||_______|________|________|_________|__________|_________|____________||2004-05| 115.19 | 46.87 | 162.06 | 78.16 | 2.18 | 80.34 ||_______|________|________|_________|__________|_________|____________||2005-06| 122.56 | 101.39 | 223.95 | 91.07 | 22.96 | 114.03 ||_______|________|________|_________|__________|_________|____________||2006-07| 144.06 | 197.01 | 341.07 | 117.09 | 28.06 | 145.15 ||_______|________|________|_________|__________|_________|____________|
9. Dr. M.R. Panda, learned Senior Counsel appearing for the State in these seven writ petitions, submitted that the items of some of the relevant expenditure are actual capital outlay on Roads and Bridges (Non-plan) actual capital outlay on Roads and Bridges (Plan) expenditure incurred by Industries Department on growth center, funds provided by State to Co-operative for infrastructure development, capital expenditure by State on inland transport, funds provided by State to ULBS out of entry tax collection. The gist of the expenditure would go to show that the State had spent 433.97%, 117.97%, 84.30%, 131.20%, 82.51%, 124.06%, 95.13% of collected entry tax in respect of the years 1999-2000, 2000-2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005 and 2005-2006 respectively. Therefore, he contended that the State has spent much more than the collection of revenue through entry tax for expanding, developing and maintaining trading facilities.
Dr. Panda next contended that the State being a compendium of local areas, necessary communicable passage like roads path of different nature and sizes are to be provided which justifies the expenditure borne on roads, bridges, culverts constructed, repaired, renovated, expanded through the State. He further stated that the assignment sought to be made under Section 36 of the Act is justifiable on the basis of the statutory functions and obligation saddled upon the local areas. The expenditure on that score goes directly to indicate the compensatory character of the tax. He further submitted that under the public policy as well as relevant provisions of different statutes where the State Government is obligated to spend huge sum for promotion of inter-State as well as intra-State trade and commerce for providing various trading facilities to the trading community of different statutes like the Orissa Development Authority Act, 1982, Orissa Municipal Corporation Act, Orissa Municipal Act, Orissa Zilla Parishad Act, Orissa Panchayat Samiti Act, Gram Panchayat Act. Under the above mentioned statutes, provisions of the establishment of market place, shopping complex, village market, Hata, village industries etc. for industrial establishment have been provided in compliance with the statutory purposes. Funds have been provided under different grants in the budget. Such grants directly go to maintain the compensatory nature of expenditure as the trading communities are directly benefited. Therefore, the assignment under Section 36 of the Act is a relevant consideration and is justifiable under law.
10. Much emphasis was given to the cases of Atiabari Tea Co. v. State of Assam : [1961]1SCR809 , Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan : [1963]1SCR491 , Jindal Strips Ltd. (1) v. State of Haryana : (2003)8SCC60 , State of Karnataka v. Hansa Corporation : [1981]1SCR823 , Khyerbari Tea Co. Limited v. State of Assam : [1964]5SCR975 but since the principle laid down in all these cases have been dealt with in the latest decision of the apex Court in Jindal Stainless (2); : [2006]283ITR1(SC) by the Constitution Bench and the Hon'ble Two Judge Bench of the apex Court has referred the only issue to this Court i.e. whether the impugned levy was compensatory in nature, we think it proper to discuss the latest decision of the Constitution Bench in Jindal (2) case.
11. Before proceeding further, it is necessary to peruse the provisions of the Orissa Entry Tax Act (hereinafter referred to as 'the Act'). First of all the Preamble of the Act is to be reproduced which is under:
An Act to provide for the levy and collection of tax on the entry of goods into the local areas of the State of Orissa for consumption, use or sale therein and matters incidental thereto and connected therewith.
The Statement of objects and reasons of the Act are as follows:
The Bill seeks to provide for the levy of a tax on entry of goods into a local area for consumption, use or sale therein as enjoined under Entry 52 of the List II of the Seventh Schedule to the Constitution of India. The tax is proposed to be levied on every dealer in scheduled goods or any person who brings or cause to be brought into a local area the scheduled goods at such rates as may be prescribed by Government not exceeding twelve per centum of the purchase value of such goods.
The Bill also seeks to mark provisions, inter alia, for furnishing of periodical returns, appointment of taxing authorities, assessments, appeals, revision, maintenance of accounts, composition of offences, refund, recovery, assignment of proceeds including other enforcement provisions and the provisions to empower the State Government to make rules for carrying out the purposes of the Bill after enactment.
The Bill further seeks for abolition of octroi duty levied and collected under THE ORISSA MUNICIPAL ACT, 1950 by repealing Clause (kk) of Sub-section (1) of Section 131 thereof.
This Bill seeks to achieve the above objective.
12. Now we come to the definition clause of the Act. 'Entry of goods', 'Importer' and 'purchase value' have been defined in Clause (d), (e) and (j) respectively of Section 2 of the Act as follows:
(d) 'Entry of goods' will 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;
(e) 'Importer' means a dealer or any other person who in any capacity brings or causes to be brought any scheduled goods into a local area for consumption, use or sale therein;
(j) 'Purchase value' means the value of the scheduled goods as ascertained from original invoice or bill and includes insurance charges, excise duties, countervailing charges, sales tax, value added tax or, as the case may be, turnover tax, transport charges, freight charges and all other charges incidental to the purchase of such goods.
Provided that where purchase value of any scheduled goods is not ascertainable on account of non-availability of non-production of the original invoice or bill or when the invoice or bill produced is proved to be false or if the scheduled goods are acquired or obtained otherwise than by way of purchase, then the purchase value shall be the value or the price at which the scheduled goods of like kind or quality is sold or is capable of being sold in open market.
The provisions of Sections 26 and 36 of the Act are also necessary to be perused which are quoted hereunder.
26. Manufacturers to collect and pay tax-
(1) Notwithstanding anything contained in this Act, every manufacturer of scheduled goods who is registered under the VAT Act shall in respect of sale of its finished products effected by it to a buying dealer or person, either directly or through an intermediary, shall collect by way of tax an amount equal to the tax payable on the value of such finished products under Section 3 of this Act by the buying dealer or person in prescribed manner and shall pay the tax so collected into the Government Treasury:
Provided that the tax so payable by a manufacturer under this Sub-section during a year shall be reduced by the amount of tax paid under this Act on the raw materials which directly go into the composition of the finished products during that year in the prescribed manner.
Provided further that where a buying dealer, under the Rules providing for the rates of tax required to be specified with reference to Section 3, is entitled to pay tax at a concessional rate or not to pay any tax, as the case may be, in respect of such finished products, the manufacturer shall, on a declaration furnished by the buying dealer in the prescribed form, collect the tax at such concessional rate or shall not collect any tax, as the case may be.
13. The Constitution Bench in the Jindal (2) case has laid down the concept of 'compensatory tax' vis-a-vis Article 301 of the Constitution and examined the sources from which the concept of 'compensatory tax' is judicially derived, the nature and character of the compensatory tax and the parameters of compensatory tax in the context of Article 301. Articles 301 to 304 of the Constitution reads as under:
301. Freedom of trade, commerce and intercourse. Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free;
302. Power of Parliament to impose restrictions on trade, commerce and intercourse-Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest;
303. Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce - (1) Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorizing the giving of, any preference to one State over another, or making, or authorizing the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule;
(2) Nothing in Clause (1) shall prevent Parliament from making any law giving or authorizing the giving of any preference or making or authorizing the making of, any discretion if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India; and
304. Restriction on trade, commerce and intercourse among States-Notwithstanding anything in Article 301 or Article 303, the Legislature of a State may by law-
(a) impose on goods imported from other States [or the Union territories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and
(b) impose such reasonable restriction on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest:
Provided that no Bill or amendment for the purpose of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.
In Jindal (2) case it has been held by Constitution Bench that Article 301 is not only an authorization to enact laws for the protection and encouragement of trade and commerce amongst the States but by its own force creates an area of trade free from interference by the State and, therefore, Article 301 per se constitutes limitation on the power of the State. Article 301 is, however, subject to the other provisions of Articles 302, 303 and 304 as it states that subject to other provisions of Part XIII, trade, commerce and intercourse throughout India shall be free and this Article is binding upon the Union Legislature and the State Legislatures but Parliament can get rid of the limitation imposed by Articles 301 by enacting a law under Article 302. Similarly a law made by the State Legislature in compliance with the conditions imposed by Article 304 shall not be hit by Article 301. Article 301 thus provides for freedom of inter-State as well as intra-State trade and commerce subject to other provisions of Part XIII and correspondingly it imposes a general limitation on the legislative powers, which limitation is relaxed under the following circumstances which reads thus:
(a) Limitation is relaxed in favour of Parliament under Article 302, in which case Parliament can impose restrictions in public interest. Although the fetter is limited enabling Parliament to impose by law restrictions on the freedom of trade in public interest under Article 302, nonetheless, it is clarified in clause (1) of Article 303 that notwithstanding anything contained in Article 302, Parliament is not authorized even in public interest, in the making of any law, to give preference to one State over another. However, the said clarification is subject to on exception and that too only in favour of Parliament, where discrimination or preference is admissible to Parliament in making of laws in case of scarcity. This is provided in clause (2) of Article 303.
(a) As regards the State Legislatures, apart from the limitation imposed by Article 301, clause (1) of Article 303 imposes additional limitation, namely, that it must not give preference or make discrimination between one State or another in exercise of its powers relating to trade and commerce under Entry 26 of List II or List III. However, this limitation on the State Legislatures is lifted in two cases, namely, it may impose on goods imported from sister State(s) or Union Territories any tax to which similar goods manufactured in its own State are subjected but not so as to discriminate between the imported goods ad the goods manufactured in the State [see clause (a) of Article 304]. In other words, clause (a) of Article 304 authorises a State Legislature to impose a nondiscriminatory tax on goods imported from sister State(s), even though it interferes with the freedom of trade and commerce guaranteed by Article 301. Secondly, the ban under Article 303(1) shall stand lifted even if discriminatory restrictions are imposed by the State Legislature provided they fulfil the following three conditions, namely, that such restrictions shall be in public interest; they shall be reasonable; and lastly, they shall be subject to the procurement of prior sanction or the President before introduction of the Bill.
The Constitution Bench further laid down that the above analysis of the scheme of Articles 301 to 304 shows that Article 304 relates to the State Legislature while Article 302 relates to Parliament in the matter of lifting of limitation, which, as stated above, flows from the freedom of trade and commerce guaranteed under Article 301. Article 304 also confers upon the State Legislature power to lift the limitations imposed on it by Articles 301 and clause (1) of Article 303. This aspect is important because the doctrine of 'direct and immediate effect' which is mentioned in Atiabari Tea Co. emerges from the concept of 'limitation' embodied in Article 301. It is this doctrine of direct and immediate effect which constitutes the basis of the working test propounded vide para 19 (of AIR) in Automobile Transport. Therefore, whenever the law is impugned as violative of Article 301, the Courts will have to examine the effect of the operation of the impugned law on the inter-State and the intra-State movement of goods, which movement constitutes an integral part of trade. The Constitution Bench further laid down that the primary purpose of a taxing statue is the collection of revenue. On the other hand, regulation extends to administrative acts which produces regulative effects on trade and commerce. The difficulty arises because taxation is also used as a measure of regulation. There is a working test to decide whether the law impugned is the result of the exercise of regulatory power or whether it is the product of the exercise of the taxing power. If the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. Payment for regulation is different from payment for revenue. If the impugned taxing or non-taxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of the operation of such a law is to impede the activity, then the law is a restriction under Article 301. However, if the law enacted is to enforce discipline or conduct under which the trade has to perform or if the payment is for regulation of conditions or incidents of trade or manufacture then the levy is regulatory. This is the way of reconciling the concept of compensatory tax with the scheme of Articles 301, 302 and 304. For example, for installation of pipeline carrying gas from Gujarat to Rajasthan, which passes through M.P., a fee charged to provide security to the pipeline will come in the category of manifestation of regulator power. However, a tax levied on sale or purchase of gas which flows from that very pipe is a manifestation of exercise of the taxing power. It has been further held that tax is levied as a part of common burden. The basis of a tax is the ability or the capacity of the taxpayer to pay. The principle behind the levy of a tax is the principle of ability or capacity. In the case of a tax, there is no identification of a specific benefit and even if such identification is there, it is not capable of direct measurement. On the other hand, a fee is based on the 'principle of equivalence'. This principle is the converse of the 'principle of ability' to pay. In the case of a fee or compensatory tax, the 'principle of equivalence' applies. The basis of a fee or a compensatory tax is the same. The main basis of a fee or a compensatory tax is the quantifiable and measurable benefit. In the case of a tax, even if there is any benefit, the same is incidental to the government action and even if such benefit results from the government action, the same is not measurable. Under the principle of equivalence, as applicable to a fee or a compensatory tax, there is an indication of a quantifiable data, namely, a benefit which is measurable. A tax can be progressive. However, a fee or a compensatory tax has to be broadly proportional and not progressive. In the principle of equivalence, which is the foundation of a compensatory tax as well as a fee, the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services, which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities Compensatory tax is based on the principle of 'pay for the value'. It is a sub-class of 'a fee'. From the point of view of the Government, a compensatory tax is a charge for offering trading facilities. It adds to the value of trade and commerce which does not happen in the case of a tax as such. A tax may be progressive or proportional to income, property, expenditure or any other test of ability or capacity (principle of ability). Taxes may be progressive rather than proportional. Compensatory taxes, like fees, are always proportional to benefits. They are based on the principle of equivalence. However, a compensatory tax is levied on an individual as a member of a class, whereas a fee is levied on an individual as such. If one keeps in mind the 'principle of ability' vis-a-vis the 'principle of equivalence', then the difference between a tax on one hand and a fee or a compensatory tax on the other hand can be easily spelt out. The theory of compensatory tax is that it rests upon the principle that if the Government by some positive action confers upon individual(s), a particular measurable advantage, it is only fair to the community at large that the beneficiary shall pay for it. The basic difference between a tax on one hand and a fee/compensatory tax on the other hand is that the former is based on the concept of burden whereas compensatory tax/fee is based on the concept of recompense/reimbursement. For a tax to be compensatory, there must be some link between the quantum of tax and the facility/ services. Every benefit is measured in terms of cost which has to be reimbursed by compensatory tax or in the form of compensatory tax. In other words, compensatory tax is a recompense/reimbursement. In the context of Article 301, therefore, compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the cost of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It may incidentally bring in net revenue to the Government but that circumstance is not an essential ingredient of compensatory tax. 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 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 (individuals 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 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. Discussing as above, and applying the above tests/parameters, the Constitution Bench laid down that whenever a law is impugned as violative of Article 301 of 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) as laid down in Khyerbari Tea Co. Ltd. v. State of Assam : [1964]5SCR975 . 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 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.
14. Shri Jagannath Patnaik, learned Senior Advocate appearing on behalf of the State has pleaded that Article 301 does not affect the provision of Article 304 as it has been provided therein that notwithstanding anything in Article 301 or Article 303, the Legislature of the State may enact the law with the limitation as mentioned in clause (a) and clause (b). The proviso to clause (b) is limited to only that clause and not to clause (a) of Article 301. Therefore, clauses (a) and (b) are independent clauses. To impose restriction on the freedom of trade in clause (b), it is necessary to get the previous sanction of the President before enacting law but for clause (a) of Article 304 there is no such restriction and the Legislature of the State can enact the law imposed on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in the State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced. According to him the Orissa Entry Tax Act has been enacted under clause (b) of Article 304 and further in view of the question to be proved by the State that the Orissa Entry Tax Act is compensatory does not arise and there was no necessity to indicate in the Act the benefit as a result of realization of entry tax is quantifiable or measurable and the provisions are unambiguous. However, this is issue is not open to be dealt with by us in this seven writ petitions as the same is not to be answered by this Court and this Court is not to adjudicate the matter at this stage. This Court has to deal with the basic issue as to whether the impugned levy was compensatory in nature.
15. The instant writ petitions were disposed of by this Court on the basis of the decisions in Bhagatram Rajeevkumar v. CST, 1995 Supp (1) SCC 673 and State of Bihar v. Bihar Chamber of Commerce (1996) 9 SCC 136 but the Constitution Bench in Jindal (2) supra held hat the test of 'some connection' indicated in para-8 of Bhagatram and followed in Bihar Chamber of Commerce is not good law and held 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 for deciding whether a tax is compensatory or not vide para 19 of the judgment (AIR) will continue to apply. Therefore, in view of the apex Court decision in Jindal (2) case, we have examined the provisions of the Orissa Entry Tax Act and the material placed before the Court. Nowhere in the Act the proportionality of quantifiable benefits has been indicated and nothing has been facially or patently indicated regarding the quantifiable data on the basis of which the compensatory tax has been levied. In Section 36, it has been indicated that there shall be paid to each local authority every year such sum as may be determined by the State Government from out of the tax collected under this Act, subject to such conditions and in such manner as may be prescribed. But nothing has been prescribed in that regard.
16. It is not disputed that the revenue received by way of entry tax collection is deposited in the consolidated fund of the State and the expenditure which is incurred for the development work is not specifically identifiable as a measure of compensation. Expenditure is made in general for the infrastructure development which is said to be for the welfare of the general public. The data given by the learned counsel appearing for the State, as quoted above, shows the entry tax collection in each year and the expenditure which is shown is more than the entry tax collected which itself would go to indicate that there is no link between the quantum of tax and the facilities/services provided to the trades people. More expenditure in comparison to the entry tax collected for the welfare of the general public itself shows that the expenditure made by the State in general is from the general revenue collection of the State by way of taxes. The State has shown the total expenditure for infrastructure development, development of check gates, water supply and sanitation etc. Therefore, the State has failed to show that the entry tax collected under the Orissa Entry Tax Act has been reimbursed/recompense for the quantifiable/ measurable benefits to the trades people. It is not proportional, rather it is progressive and it cannot be said that the tax collected is based on the principle 'pay for value'.
17. According to Dr. M.R. Panda, the State incurred a considerable expenditure for maintenance of roads, highways etc. which facilitate the transport of goods and, therefore, the same is compensatory in nature and since entry tax is not a tax on sale or purchase of goods but the incidence on the entry into the local area or therefore it pertains to the 'movement'. Entry 52 is therefore wider than Entry 56 of List II of the Seventh Schedule to the Constitution. He has further argued that in Automobile Transport case it has been held that providing roads, maintaining roads, good state of repairs are compensatory in nature. Highways including National Highways, lighting, traffic control, amenities for passengers and halting places for buses and trucks were held to be compensatory in International Tourist Corporation case (1981) SCR 364. Check post, departmental organization intended for regulation and law and order, roads and bridges were held to be compensatory in nature in the case of Malwa Bus Services case reported in (1983) SCR 1009. Police regulation, provisions for services, maintenance of roads, provisions for aerodromes and wharfs were also held to be compensatory in the case of Video Electronics Case reported in AIR 1990 SC 820 and hence the facilities or services sought to be rendered by the State is much more wider than the other entries which are dealt with in the above mentioned decisions. In the context of the above submissions of Dr. Panda, it is to be seen as to what is the difference between tax imposed under the statute enacted under Article 304(b) of the Constitution and the statute enacted not following that provision and what is the necessity to follow the provision of Article 304(b) if the maintenance of road, highways, street lights etc. can be made by imposing a tax without following the same. If the difference between the two is that a tax is imposed without following the provisions of Article 304(b), there is no doubt that the same would be hit by the provisions of Article 301 meaning thereby that it will make hindrance in free trade, commerce and intercourse. Therefore, imposition of a tax or a fee is permissible under the various decisions of the Hon'ble apex Court if such fee is based on the principle of equivalence and realized for the purpose of reimbursement facilitating the trade people, i.e. in the form of compensatory tax which is based on the principle of 'pay for the value' which is held to be a sub-class of a fee. In Atiabari Tea Co case the apex Court has held that taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301 and the test is: Does the impugned restriction operate directly or immediately on trade or its movement? In Jindal (2) case, it has been held by the Constitution Bench that if a levy of a tax to be non-discriminatory in that case the previous sanction of the President is not required. The provisions of Article 304(a) and Article 304(b) (b) are to be constructed and interpreted separately.
18. We have already said above that though Article 304(a) and Article 304 (b) are to be construed and interpreted separately but the question raised as to whether the Orissa Entry Tax Act is within the parameters of Article 304(a) of the Constitution, is not the subject matter of issue in these seven writ petitions. However, this plea is open for the State in the other fresh writ petitions which are not being dealt here. We are only determining the issue whether the impugned levy imposed by way of Orissa Entry Tax Act was compensatory in nature and, therefore we consider whether the impugned enactment facially or patently indicates the quantifiable data on the basis of which the compensatory tax is sought to be levied and whether the Act facially indicates the benefits which is quantifiable or measurable and the proportionality of the quantifiable benefits but we have not found any such thing in the Act. They do not show that payment of entry tax is reimbursement/recompense for the quantifiable and measurable benefits to be provided to its payers. Providing facilities to the citizens or others would not definitely come under the activities like movement of trade, commerce and intercourse for the free flow of trade and commerce.
19. Therefore, the State has failed to show that the Orissa Entry Tax is reimbursement/recompense for the quantifiable and measurable benefits provided to trades people and the provision for realization of tax therein was not compensatory in nature.
A.K. Samantaray, J.
20. I agree.