K.G. Balakrishnan, J.
1. All these original petitions are filed to declare that Section 3 of the Kerala Tax on Entry of Motor Vehicles into Local Areas Act, 1994 (Act 15 of 1994) (hereinafter mentioned as 'Entry Tax Act') and Rule 4 of the Rules framed thereunder are ultra vires and violative of the Constitution. The Act received the assent of the Governor on June 9, 1994 and was published in the Kerala Gazette Extraordinary No. 550 dated June 10, 1994. The contention of the petitioners is that levy of tax under Section 3 of the Entry Tax Act is opposed to Articles 301 and 304 of the Constitution as it hampers free flow of trade throughout the territory of India. In some of the petitions it is contended that even if it is assumed that the State can impose certain restrictions on the free flow of trade, commerce and intercourse such legislation ought to have been moved in the Legislature only with the previous sanction of the President as contemplated under Article 304(b) of the Constitution.
2. Yet another contention raised is that there is no legislative competence to pass the impugned Act and the entry 52 of List II of the Seventh Schedule is made exclusively to pass any legislation to augment the income for the local authorities and by the definition of the 'local authority' given under Section 2(i) of the Act the entire State is brought under its purview and, hence, it is a colourable exercise of. The contention is that the legislative power given under entry 52 of List-II of the Seventh Schedule could have been made exclusively for raising income of the local authority.
3. The first respondent-State filed a counter-affidavit stating that the State was losing substantial income as a result of the purchase of motor vehicles from outside the State and the legislation was brought about to compensate the loss of revenue caused by such purchasers who avoided payment of sales tax which would be paid by them if the vehicles had been purchased within the State. It is contended that levy of tax under the Entry Tax Act is compensatory or regulatory in nature and the levy of tax is made for entry of vehicle into local area. The purchase value of the vehicle is taken as the criterion for calculating the tax. It is also contended that the imposition of tax does not affect the free flow of trade, commerce and intercourse in the country.
4. We heard counsel for the petitioners and also the Additional Advocate-General (Taxes). Section 3 of the Act reads as follows :
'3. Levy of tax.--(1) Subject to the provisions of this Act, there shall be levied and collected a tax on the entry of any motor vehicle into any local area for use or sale therein which is liable for registration in the State under the Motor Vehicles Act, 1988 (Central Act 59 of 1988). The tax shall be at such rate or rates as may be fixed by the Government, by notification, on the purchase value of the motor vehicle but not exceeding the rates specified for motor vehicles in the First Schedule to the General Sales Tax Act'.
5. Section 3 of the Act says that tax shall be levied on the entry of any motor vehicle into the local area for use or sale therein which is liable for registration in the State under the Motor Vehicles Act, 1988. The first proviso to Section 3 gives exemption to the vehicles registered in any Union Territory or any other State prior to a period of 15 months or more and the vehicles owned by the Central Government or any vehicles exclusively used for purposes relating to Defence of India.
6. Section 4 of the Entry Tax Act says that where an importer of a motor vehicle is liable to pay tax under the General Sales Tax Act as a dealer, the amount of tax payable by him will be reduced. Section 4(2) gives reduction of tax in respect of an importer who, not being a dealer in motor vehicles, had purchased vehicles for his own use in any Union Territory or any other State, then the tax payable by him under this Act shall be reduced by the amount of tax paid, if any, under the law relating to general sales tax in force in that Union Territory or State.
7. Section 5 of the Entry Tax Act prescribes that the officers of the Agricultural Income-tax and Sales Tax Department not below the rank of Sales Tax Officer shall be the assessing authorities and the appellate authorities are prescribed under Section 6 of the Act.
8. The first contention of the petitioners is that there was no legislative competence for enacting this statute. The ground of attack is that a legislation of this nature should not have been brought about by virtue of entry 52 of List II. Entry 52 of List II of the Seventh Schedule reads as follows :
'52. Taxes on the entry of goods into a local area for consumption, use or sale therein'.
It is contended that the definition of 'local area' given under Section 2(i) of the Act covers the entire State and hence this Act is not intended to augment resource for the local authorities and, therefore, it lacks legislative competence. But, it may be noticed that under entry 52 of List II, there is no indication that the State is given power to pass legislation only for the purpose of raising revenue for the local authorities. The words used in entry 52 List II are clear that the State can impose tax for entry of goods into local area. As the State Legislature was competent to pass the Act the question of motive with which the tax was imposed is immaterial. It has been observed by K.K. Mathew, J. in G.K. Krishnan v. State of Tamil Nadu AIR 1975 SC 583 thus :
'...there can be no plea of a colourable exercise of power to tax if the Government had power to impose the tax and the fact that the imposition of the tax was for the purpose of eliminating competition would not detract from its validity. If an authority has power to impose a tax, the fact that it gave a wrong reason for exercising the power would not derogate from the validity of the tax.'
9. It is well-settled that the power of legislation of the State Legislature under the legislative entries is plenary and is only subject to the provisions of the Constitution. The legislative entries have received widest interpretation by all courts as these are different heads of legislation empowering the State to legislate on the subjects mentioned therein. The classic observation of Lord Salborne of the Privy Council in Queen v. Burah (1878) 5 Ind App 178, at page 193, is to the following effect :
'The established courts of justice, when a question arises whether the prescribed limits have been exceeded, must of necessity determine that question ; and the only way in which they can properly do so, is by looking to the terms of the instrument by which affirmatively, the legislative powers were created, and by which, negatively, they are restricted. If what has been done is legislation, within the general scope of the affirmative words which give the power, and if it violates no express conditions or restrictions by which that power is limited (in which category would, of course, be included any Act of the Imperial Parliament at variance with it), it is not for any court of justice to inquire further, or to enlarge constructively those conditions and restrictions.'
This observation of Lord Salborne has been followed by the Supreme Court in Deep Chand v. State of Uttar Pradesh [1959] supp 2 SCR 8.
10. In a decision reported in Jaora Sugar Mills (P) Ltd. v. State of Madhya Pradesh AIR 1966 SC 416 the Supreme Court observed :
'It is difficult to understand how the Act can be said to be invalid because the cosses recovered under it are not dealt with in the manner provided by the Constitution. The validity of the Act must be judged in the light of the legislative competence of the Legislature which passes the Act and may have to be examined in certain cases by reference to the question as to whether fundamental rights of citizens have been improperly contravened, or other considerations which may be relevant in that behalf. Normally, it would be inappropriate and indeed illegitimate to hold an enquiry into the manner in which the funds raised by an Act would be dealt with when the court is considering question about validity of the Act itself.
11. From the terms used in the entry it cannot be heard to say that there was no legislative competence. We do not think that the levy of tax upon goods entering into local area is discriminatory or bad. There is no case for the petitioners .that the Legislature had no authority to impose the tax in question.
12. The next question is whether the impugned legislation is violative of Articles 301 and 304 of the Constitution. Article 301 imposes general limitation on legislative power in order to ensure freedom of trade, commerce and intercourse throughout India. This limitation of power is regularised under Article 302 for making legislation in the public interest. However, Article 303 further says that such legislation in respect of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule shall not be discriminatory between one State and another.
13. Article 304(b) of the Constitution enables the State Legislature to impose a reasonable restriction on the freedom of trade, commerce or intercourse as may be required in public interest provided no bill or amendment for the said purpose shall be introduced or moved in the Legislature without previous sanction of the President. The contention of the State is that the levy of entry tax is compensatory in character and, therefore, the same is not hit by the provisions contained in Article 301 and 304(b) of Constitution.
14. Petitioners' counsel placed reliance on the division Bench decision of the Patna High Court reported in Bihar Chamber of Commerce v. State of Bihar [1995] 97 STC 538. In that, Section 3 of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 was held to be violative of Article 301, 304(b) of the Constitution. That decision was rendered on the foundation that the levy of entry tax was neither regulatory nor compensatory. It has been observed in paragraph 52 of the judgment :
'In this case no attempt has been made by the State to sustain the levy as either compensatory or regulatory in character. Nor has any material been disclosed in the affidavit of the State how the impugned levy, in any way, be of any benefit to the free flow of trade or commerce. Therefore, the onus which falls squarely on the State has not been discharged at all.'
15. We are of the view that the decision rendered by the Patna High Court was exclusively based on the facts disclosed in that case. Here, the main contention of the State is that the tax levied was as a regulatory measure and it is also compensatory. The objects and reasons of the bill were to the following effect :
'The State is a loser of sales tax on motor vehicles which are purchased from outside the State and brought into the State. In order to curb the evasion of sales tax on motor vehicles purchased from outside the State and brought into the State, Government have decided to levy a tax on entry of such motor vehicles into the State, either for use or sale, which are liable for registration in the State under the Motor Vehicles Act, 1988 (Central Act 59 of 1988).'
The decision of the division Bench of the Patna high court in Bihar Chamber of Commerce v. State of Bihar [1995J 97 STC 538 was based on some of the observations of the Supreme Court in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232. In that case the appellants challenged the validity of the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act, 1954 on ground that it violated Article 301 and was not saved by Article 304(b). By a majority of 4 of 1, the Supreme Court upheld the challenge and declared the Act to be void. The majority said that it would be reasonable and proper to hold that restrictions impede the free flow or movement of trade and that taxes may and do amount to restrictions. In a subsequent decision a larger Bench was constituted to consider this question. The Bench considered this question once again. Automobiles Transport (Rajasthan) Ltd. v. State of Rajasthan (1963) 1 SCR 491 ; AIR 1962 SC 1406. The appellants in that case impugned the Rajasthan Motor Vehicles Taxation Act, 1951 as violative of Article 301. The Supreme Court by a majority of 4 to 3 held that the Act was valid and dismissed the appeal filed against the decision of the Rajasthan High Court. This case practically overruled the decision in Atiabari case AIR 1961 SC 232. The interpretation which was accepted by the majority in Atiabari case [1961] SCR 809 ; AIR 1961 SC 232 was explained and was partly accepted and held that regulatory measures or measures imposing compensatory tax do not come within the purview of restrictions contemplated in Article 301 and that such measures need not comply with the requirement of the provisions of Article 304(b) of the Constitution.
17. So, the question is whether the tax imposed is compensatory or regulatory in nature. It is specifically contended by the State that there was evasion of sales tax on motor vehicles purchased from outside the State and brought into the State and it was as a compensatory measure the Entry Tax Act was enacted. If it is compensatory or regulatory in nature it cannot be contended that it is violative of Article 301 of the Constitution and, if Article 301 is not attracted, it cannot be assumed that there is any restriction to the freedom of trade, commerce and intercourse and, therefore, the procedural regulation contained in Article 304(b) of the Constitution has no application.
18. It may also be noticed that in Shaktikumar M. Sancheti v. State of Maharashtra [1995] 96 STC 659 the Supreme Court upheld the validity of Section 3 of the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1977. The Supreme Court held :
'the levy could not be held to be bad because the Legislature intended to avoid any loss of sales tax in the State, so long as it was not found to be invalid because of any constitutional or statutory invalidity: it was not the intention or propriety of the legislation but its legality or illegality that rendered it valid or invalid.'
Therefore, the challenge against Section 3 of Entry Tax Act is unsustainable and we uphold the validity of that section.
19. Counsel for the petitioners lastly contended that Section 4(2) of the Act is so vague that the purchasers are not likely to get the benefit of that section. Section 4(2) reads as follows :
'Where an importer who, not being a dealer in motor vehicles, had purchased a motor vehicle for his own use in any Union Territory or any other State, then the tax payable by him under this Act shall, subject to such conditions as may be prescribed, be reduced by the amount of tax paid, if any, under the law relating to general sales tax in force in that Union Territory or State.'
If the purchasers produce any receipt or document to show that they had paid tax under the general sales tax in force in the State or Union Territory from where they purchased the vehicle, the purchasers are definitely entitled to get reduction of that amount. That is a matter to be considered by the assessing authority. We are told that the assessing authorities are not giving deduction of tax to purchasers. If the purchasers produce bills or other documentary evidence evidencing the payment of tax in the State or Union Territory from where they purchased the vehicle, the assessing authority shall give credit to that amount and only the balance amount shall be recovered under Section 3 of the Entry Tax Act.
With the above observation, we dispose of all these original petitions.