Full Judgment Text
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CASE NO.:
Appeal (civil) 6223-24 of 1997
PETITIONER:
M/s Geo Miller & Co. Pvt. Ltd. & Ors.
RESPONDENT:
State of M.P. & Ors.
DATE OF JUDGMENT: 05/05/2004
BENCH:
CJI & G.P. MATHUR.
JUDGMENT:
J U D G M E N T
RAJENDRA BABU, CJI. :
The appellants are dealers registered under the M.P.
General Sales Tax Act, 1958 and were also assessed to the
Entry Tax during the period from 1.1. 1986 to 11.12.1986
under the Madhya Pradesh Sthaniya Kshetra Me Mal Ke
Pravesh Par Kar Adhiniyam, 1976 (hereinafter referred to
as the ’M.P. Entry Tax Act’). The appellants are carrying on
the business of execution of works contract. Before the
authorities below, it was the appellants’ contention that
since the goods were brought for purpose of works contract
and they have been subjected to sales tax under the Sales
Tax Act, the appellants were not liable to pay the entry tax
on goods. The appellants had unsuccessfully challenged the
assessment of tax before the Appellate Deputy
Commissioner of Sales Tax and the Board of Revenue and
thereupon appellants preferred Misc. Petition No. 3960 of
1991 before the High Court of Madhya Pradesh.
The appellants contended that by virtue of the
definition of sale as defined under Article 366 (29-A) of the
Constitution, the activity involved was a transfer of goods in
works contract, it amounted to a ’sale’ and as such the
goods are not exigible to the entry tax. The High Court vide
judgment dated 18/09/1996, did not accept this contention
and dismissed their prayer. Hence these appeals by Special
Leave. In view of the High Court’s judgment the Madhya
Pradesh Builders Association has also joined the present
petitions for special leave to appeal as the judgment affects
the entire community of contractors.
The questions that arise for consideration herein are:
i) Whether the M.P. Entry Tax Act, 1976, is unconstitutional
as it is hit by Article 301 of the Constitution for not
satisfying the conditions laid down in Article 304 (b)?
ii) Whether in any event the goods used by the appellants
are subject to Entry Tax by virtue of Section 3 of the M.P.
Entry Tax Act, 1976?
It is the submission of the appellants that the M.P.
Entry Tax Act, 1976 is unconstitutional as it offends Article
301 owing to non-compliance of the conditions laid down in
Article 304 (b).
The appellants relied on the cases of Atiabari Tea
Co. Ltd. Vs. The State of Assam & Ors., (1961) 1 SCR
809 and Automobile Transport (Rajasthan) Ltd. vs.
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The State of Rajasthan & Ors. (1963) 1 SCR 491, to
state that taxation may impede the movement of goods
from one barrier to the other and would accordingly bring
Article 301 into play. They then contend that the conditions
of Article 304 (b) have not been complied thereby rendering
the M.P. Entry Tax Act, 1976 unconstitutional.
This argument of the appellants does not seem to be
correct. It is well settled by the decision in Atiabari Tea
Co. [supra] at p.860, that only such restrictions or
impediments which directly or immediately impede the free
flow of trade, commerce and intercourse fall within the
prohibition imposed by Article 301. This Court did not
accept the argument that all taxes whether or not their
impact on trade is immediate or mediate, direct or remote
should be governed by Article 301. This view was further
upheld in the Automobile Transport Case and in State of
Kerala vs. A.B. Abdul Kadir & Ors., 1969 (2) SCC 363.
Hence, the mere fact that a tax is imposed does not
automatically bring Article 301 into play.
In fact the concept of "compensatory taxes" was
propounded in the Automobile Transport Case. By virtue
of this, taxes, which would otherwise interfere with the
unfettered freedoms under Article 301, will be protected
from becoming unconstitutional if they are compensatory.
Thus, the reliance placed by the appellants on the
observations made in the Atiabari Case and the
Rajasthan Automobile Case that taxation may impede
the movement of goods from one barrier to the other and
accordingly submitting that the M.P. Entry Tax Act, 1976 is
hit by Article 301 is not properly founded.
In fact, Section 3 of the said Act was under challenge
in the case of M/s Bhagatram Rajeevkumar vs.
Commissioner of Sales Tax, M.P. & Ors., 1995 Supp.
(1) SCC 673. A three Judge Bench of this Court, found that
the levy of tax under the M.P. Entry Tax Act, 1976 was
constitutional, since the nature of revenue earned was
compensatory, as it was handed over to the local bodies to
compensate them for the loss caused.
In the present case too, the respondents have
reiterated that the tax being imposed is compensatory in
nature as the revenue earned therefrom passes over to the
local bodies to compensate them for the loss incurred due
to abolition of octroi.
Augmentation of their finance would enable them to
promote Municipal Services more efficiently helping in the
free flow of trade and commerce.
The Act being compensatory in nature it is not open to
challenge under Article 301 and there is no need to venture
into the argument based on Article 304 (b). Accordingly,
the constitutionality of the Act is upheld.
In the case of Jindal Stripe Ltd. v. State of
Haryana, (2003) 8 SCC 60, a division bench of this court,
raised doubts over the legal proposition laid down in the
aforementioned Bhagatram case (which upheld the
validity of the M.P. Entry Tax Act, 1976) and refers the
matter to a Constitution Bench over the interpretation of
Article 301 vis-‘-vis compensatory tax. In Bhagatram’s
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Case, although it was demonstrated by the appellant State
and not disputed by the respondents that the levy was
compensatory, the Court goes on to make an observation
that compensation need not be that which facilitates the
trade only. It observes that "the concept of compensatory
nature of tax has been widened and if there is substantial
or even some link between the tax and the facilities
extended to such dealer directly or indirectly the levy
cannot be impugned as invalid". In the Jindal Stripe
Case, the division bench noted that the above observation
would mean that "an indirect or incidental benefit to traders
by reason of stepping up the developmental activities in
various local areas of the State can be legitimately brought
within the concept of compensatory tax". Accordingly it
refers the matter to a Constitution Bench to decide what
exactly would fall under the ambit of "compensatory tax",
and thereby fall outside the purview of Article 301.
Inasmuch as the Act in question has been upheld on the
basis that it had been demonstrated by the State and not
disputed by the dealers that the levy was compensatory it
may not be necessary for us to dilate on this aspect any
further.
It is the contention of the appellants that Sec. 3(1) (b)
of the M.P. Entry Tax Act, 1976 does not permit levy of any
entry tax on the entry in the course of a business of a
dealer of goods specified in Schedule III into a local area for
consumption or use of such goods in the execution of works
contracts, as these amount to ’sale’. They contend that
owing to the 46th Amendment transfer of property in goods
involved in the execution of a works contract amounts to
’sale’.
The relevant part of Section 3 of the M.P. Entry Tax
Act is reproduced herein;
"Section 3: Incidence of Taxation ;- (1) There
shall be levied an entry tax
(a) \005\005..
(b) on the entry in the course of business of a
dealer of goods specified in Schedule III, into
each local area for consumption or use of such
goods (raw material or incidental goods) or as
packing material or in the execution of works
contracts but not for sale therein\005\005\005."
(Emphasis supplied)
The relevant portion of Article 366 of the Constitution
is as follows;
"Article 366: In this Constitution, unless the
context otherwise requires, the following
expressions have the meaning hereby
respectively assigned to them, that is to say \026
\005\005\005..
(29-A) "tax on the sale or purchase of goods"
includes \026
(b) a tax on the transfer of property in goods
(whether as goods or in some other form)
involved in the execution of a works contract.."
Accordingly, the appellant contends that Section 3(1)
(b) of the M.P. Entry Tax Act, 1976, no longer permits levy
of entry tax on goods consumed or used in works contract
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as these amount to ’sale’ by virtue of Article 366(29-A).
The question that arises for consideration is whether
the definition of "tax on the sale or purchase of goods" as
provided by the 46th amendment through Article 366 (29-A)
applies to the M.P. Entry Tax Act.
It is evident from the section 3(1) (b) of the M.P.
Entry Tax Act, 1976, that if a dealer effects the entry of
goods specified in Schedule III into any local area and those
goods are meant for
a) consumption or
b) to be used as
i) raw materials or
ii) incidental goods or
iii) as packing material or
iv) in the execution of works contract,
such dealer would come within the ambit of the charging
section and hence, liable to pay tax on the entry of those
goods.
The section goes on to make it clear that goods
specified in Schedule III if they are imported for the
purpose of sale then they are not subject to tax.
Admittedly, the appellants, a dealer, has effected
entry of goods specified in Schedule III in the local area for
use in execution of works contract, and is hence liable to
tax as per Section 3(1)(b) of the Act.
It is hence evident that the M.P. Entry Tax Act, 1976
makes a clear distinction between ’sale’ and ’execution of
works contracts’ and specifically excludes the latter from
the purview of the former. The appellants contention that
the definition of ’sale’ under Article 366 (29-A) of the
Constitution which includes transfer of goods in execution of
works contract, should be adopted into the M.P. Entry Tax
Act, 1976 is not well founded.
The M.P. Entry Tax Act has been enacted by the
Legislature by virtue of Entry 52 of List II of the VIIth
Schedule. It reads as under:
"Entry 52: Taxes on entry of goods into a local
area for consumption, use or sale therein."
Article 366(29-A) on the other hand seeks to define
’tax on the sale or purchase of goods’. This phrase is used
in Schedule VII, List I, Entries 92 and 92-A and Schedule
VII, List II Entry 54. Hence, it can be seen that the said
meaning cannot be imported for the purposes of Entry 52 of
List II.
On the other hand, it is evident that the M.P. General
Sales Tax Act, 1958 has been enacted in relation to Entry
54 of List II, and it indeed includes transfer of goods in the
execution of works contract within the definition of ’sale’ as
required by Article 366(29-A). However the M.P. Entry Tax
Act has specifically excluded the definition of ’goods’ and
’sale’ which is utilised in the M.P. Sales Tax Act. Section
2(2) of the M.P. Entry Tax Act, 1976 reads as under:-
"Section 2(2): All those expressions, other than
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expression ’goods’ and ’sale’ which are used but
are not defined in this Act and are defined in the
Sales Tax Act shall have the meanings as
assigned to them in that Act."
(Emphasis supplied)
The exclusion is justifiable considering the fact that
the M.P. Entry Tax Act, 1976 has been enacted by virtue of
Entry 52 of List II of Schedule VII. It need not be
circumscribed by the definition provided in Article 366 (29-
A).
Article 366(29-A) does not define the term ’sale’, but
enlarges its scope by including transfer of goods in the
execution of works contract within this definition of sale.
Therefore, ’sale’ as it appears in Article 366(29-A) is with
reference to the Sales Tax Act. The M.P. Sales Tax Act
indeed adopts the same. However Section 2(2) of the M.P.
Entry Tax Act has expressly not imported the definition of
’sale’ from the Sales Tax Act. Therefore, the intention of the
legislature in excluding ’execution of works contract’ from
the definition of ’sale’ is manifest and this reflects clearly in
the letter of the law.
Further, the contention that the term ’sale’ utilised in
Entry 52 of List II and Entry 54 of List II are the same
concept deriving from the expression ’tax on the sale or
purchase of goods’ as defined in Article 366(29-A) seems
to be incorrect. The High Court has observed rightly that
the M.P.Sales Tax Act, 1958 is covered by Entry 54 whereas
the M.P. Entry Tax Act, 1976 is covered by Entry 52.
Therefore, both these Acts are covered by different entries
in the Constitution and hence, the incidence of taxation in
both cases is different. Under the Sales Tax Act enacted by
virtue of Entry 54 the incidence of taxation is on the sale
and purchase of goods whereas in the case of the Entry Tax
Act, the incidence of taxation is on the entry of the goods
specified in the Entry Tax Act.
Accordingly, the M.P. Entry Tax Act does not adopt the
expression of "goods" and ’sale’ under the M.P. Sales Tax
Act.
It is a well-settled position of law that in interpreting
taxing statutes, one must have regard to the strict letter of
the law. If the person/entity sought to be taxed comes
within the letter of the law he must be taxed.
In the instant case, the letter of the law, i.e. Section 3
(1) (b) of the M.P. Entry Tax Act, 1976, leaves out
"execution of works contracts" from the definition of "sale".
By expressly not adhering to the definition of ’sale’ in the
M.P. Sales Tax Act [which includes, transfer of property in
goods involved in the execution of works contract within the
definition of ’sale’ as required by Article 366(29A)(b)] their
can be no doubt that the section clearly requires the
appellants to pay the entry tax. Accordingly the appellants
are liable to pay entry tax under the M.P. Entry Tax Act,
1976.
It is true that the M.P. Entry Tax Act, 1976 does not
provide a definition of ’sale’. The appellants contend that in
the absence of such definition the Constitutional definition
as provided in Article 366(29-A) must be imported.
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However, even though the Act does not define ’sale’ it does
provide a negative definition by clearly leaving out
’execution of works contract’ from the definition of ’sale’.
Thus, there is no ambiguity at least with regard to
’execution of works contract’. It cannot be said to be a ’sale’
for the purposes of the M.P. Entry Tax Act, 1976.
The appellants further contend that under Section 3
(1) (b) of the Entry Tax Act, 1976, the goods specified in
Schedule III if are imported from outside the State for
consumption are completely exempted by virtue of
exception (vi) to proviso attached to Section 3(1)(b). The
relevant proviso is extracted herein:
"(vi) in respect of goods specified in Schedule III
imported from outside the State for consumption
or use as [raw materials or incidental goods] or
as packing materials or in the execution of works
contract but which have been disposed of in any
manner." (Emphasis supplied)
The appellants submit that a plain reading of Section 3
would indicate that all those goods falling in Schedule III
which are imported from outside the State for consumption
are not subject to entry tax. This submission is incorrect.
There is no ambiguity in the proviso which clearly states
that tax shall not be levied only on those goods which have
been imported from outside and are meant for use or
consumption as raw materials, incidental goods as packing
material or in the execution of works contract, but only if
after being brought in for such purpose are disposed of in
some other manner. The interpretation of the appellants
fails to consider the final part of the proviso, which has
been emphasised in the reproduction of the same above.
Hence it can be seen that the Entry Tax imposed by
the respondents is justifiable.
These appeals are accordingly dismissed.