WP/26568/2006 of M/s. DCM Shriram Consolidated Ltd. a Company Vs State of Andhra Pradesh Rep by the Secretary, on 31 December 2007

ORDER:

(Per the Hon’ble Sri Justice Nooty Ramamohana Rao)

Constitutional validity of Sections 3 and 4 ofthe A.P. Tax on Entry of Goods into the Local Area Act of2001, together with the notifications issued thereunder,has been questioned in this batch of cases.

The State of Andhra Pradesh enacted theA.P. Tax on Entry of Goods into the Local Area Act of2001; Act No.39 of 2001 (henceforth referred to as ‘theEntry Tax Act’ for brevity). Section 3 of the Entry Tax Actis the charging provision, which enabled the levy andcollection of tax on the entry on notified goods into anylocal area for sale, consumption or use therein. This levyof entry tax is characterized as unconstitutionalprincipally for the reason that it is discriminatory and italso impedes and restricts the free movement of tradeand commerce, guaranteed across the Federal Polityunder Article 301 of our Constitution and for that reason also it is bad. It is further contended that the Presidentialconsent, which is so essentially to be obtained prior tothe introduction of the Bill, needed in terms of Clause (b)of Article 304 of our Constitution having not beenobtained, the impugned Entry Tax Act which seeks toimpose restrictions on the freedom of trade andcommerce, should be declared as invalid.

Before we further elaborate the contentionscanvassed on both sides, it will be relevant to notice thesalient features of the Entry Tax Act.

Prior to enacting the present Entry Tax Act,the Governor of Andhra Pradesh has promulgated theA.P. Tax on Entry of Goods into the Local AreaOrdinance 2001; Ordinance No.1 of 2001. Present EntryTax Act replaces the said Ordinance No.1 of 2001. Thestatement of objects and reasons set out in the Billindicate that in order to protect the interests and revenuesof the State as some of the neighbouring States are foundindulging in trade diversion by reducing the rates of taxesfor certain goods than those levied in the State of AndhraPradesh for such goods.

Various expressions found in the Entry TaxAct are defined in Section 2. The expressions “entry ofgoods into a local area” and “importer” are defined in sub-sections (e) and (h) of Section 2 in the following manner :

Section 2(e) – “Entry of goodsinto a local area” with all itsgrammatical variations and cognate expressions, means entry of notifiedgoods into a local area from any placeoutside the State for consumption, useor sale therein; Section 2(h) – “Importer” meansa person who brings or causes to anynotified goods whether on his ownaccount or on account of a principal orany other person, into a local area,from any place outside the State forconsumption, use or sale therein orwho owns the notified goods at thetime of entry into the local area fromany place outside the State.

The charging provision Section 3 reads as under :

“Section 3 – Levy and collection oftax”- (1)(a) There shall be levied andcollected a tax on the “entry of thenotified goods into any local area” forsale, consumption or use therein. Thegoods and the rates at which, thesame shall be subjected to tax shallbe notified by the Government the taxshall be on the value of the goods asdefined in clause (n) of sub section (1)of Section 2 and different rates may beprescribed for different goods ordifferent classes of goods or differentcategories of persons in the localarea; (b) the tax shall be payable by theimporter in such manner and withinsuch time as may be prescribed;

(c) the rate of tax to be notified by theGovernment in respect of anycommodity shall not exceed the ratespecified for that commodity under theAndhra Pradesh Value Added TaxAct, 2005 or the notifications issuedthereunder :Provided that the tax payable by the importer under this Act shall bereduced by the amount of tax paid, ifany under the law relating to GeneralSales Tax in force in Union Territoryor State in which the goods arepurchased.

(2) Notwithstanding anythingcontained in sub-section (1), no taxshall be levied on the notified goodsimported by a dealer registered underthe Andhra Pradesh Value Added TaxAct, 2005 who brings such goods intoany local area for the purpose ofresale in the State of Andhra Pradeshor during the course of inter-statetrade or commerce;Provided that if any such dealer, afterimporting the notified goods for thepurpose of resale, consumes suchgoods in any form or deals with suchgoods in any other manner exceptreselling the same, he shall forthwithnotify the assessing authority by the20[th] of the month, succeeding themonth in which such goods are soconsumed or dealt with and pay thetax, which would have been otherwiseleviable under sub-section (1), alongwith interest for the period of delay atthe rate of 19% per annumcompounded quarterly.(3) If any dealer having imported thenotified goods for the ostensiblepurpose of resale deals with suchgoods in any other manner orconsumes the same and does notnotify to the assessing authority asprovided in sub-section (2) or does notpay the tax as required in sub-section(2) within the specified period, theassessing authority shall assess theamount of tax which such dealer isliable to pay and levy penalty equal to the amount of tax due, apart fromcollecting interest from the date ofentry of goods into the local area.”0

A perusal of these provisions makes it clear that the levyand collection of tax on entry of notified goods into a localarea from any place outside the State for consumption,use or sale therein has been authorized. Entry of thenotified goods from one local area to another localarea within the State is not subject to the levy. Inother words, intra-state movement of notified goods is notsubjected to the tax. Therefore, learned counsel for thepetitioners, urge that that such of those importers whosecure movement of the notified goods into a local areasituate within the State of Andhra Pradesh from a placeoutside the limits of Andhra Pradesh are discriminatedagainst while leaving out from the tax net of the notifiedgoods brought into the limits of a local area from yetanother local area within the State. Learned counsel forthe petitioners have illustratively highlighted theircontention by pointing out that if the notified goods arebrought into the local area of Hyderabad from the localarea at Visakhapatnam, they are not subjected to entrytax as both these local areas are situate within the limitsof Andhra Pradesh whereas if the notified goodsmanufactured at Bombay are brought into the local arealimits of Hyderabad, such notified goods are subjected tothe entry tax. Therefore, according to the learnedcounsel, it is plain discrimination shown by preferring

such local manufacturers within the State of AndhraPradesh and the manufacturers situated outside the Stateof Andhra Pradesh are thus discriminated. Sinceimposition of any tax implies in itself a certain degree ofimpediment on the freedom of trade, commerce andintercourse guaranteed through the federal polity underArticle 301 and hence for this violation of the guaranteeunder Article 301 also, according to the learned counselthe impugned levy of entry tax is unconstitutional. Sincethe impost is an unreasonable restriction on the freedomof trade and commerce, the same is not liable to bebrought on to the Statute book without obtaining theprevious sanction of the President as required underclause (b) of Article 304. Since no such sanction wasobtained, the Act is liable to be declared unconstitutional.

In opposition, the learned SpecialGovernment Pleader for Commercial Taxes, has pointedout that the present Entry Tax Act was enacted by theState Legislature under Entry 52, List II of the VIISchedule to our Constitution and hence the StateLegislature had the competence for enacting the presentpiece of legislation. The learned Special GovernmentPleader would urge that the Entry Tax sought to be leviedis compensatory in nature and not regulatory and hencestands outside the purview of Article 301. When once itstands outside the purview of Article 301, the operation ofArticle 304 of the Constitution is not attracted at all andhence there is no need to obtain the previous sanction of the President. Hence, no prior sanction of the Presidenthas, in fact, been obtained. Further the learnedGovernment Pleader sought to justify the levy on theground that the sum total of the sales tax suffered by thenotified goods in the States of their manufacture/originand the entry tax sought to be imposed, being equal tothe levy of sales tax imposed on such goods in the Stateof Andhra Pradesh. Hence, far from preferring the localdealer or discriminating the importer, the present EntryTax Act is seeking to create a level playing field amongstboth types of dealers.

It is, therefore, required of us to determine atthe very outset as to whether the present levy iscompensatory in nature or not, before necessarilyexamining the other questions.

In ATIABARI TEA COMPANY LIMITED v.

STATE OF ASSAM[[1]],while considering theconstitutional validity of the Assam Taxation of (Goodscarried on Roads and Inland Waterways) Act, 1954,which provided for levy of tax on certain goods carried byroad or inland waterways, the Supreme Court haspointed out that if any direct restrictions on the verymovement of goods is attempted at, then, such aprovision attracts Article 301 of the Constitution and itsvalidity can be sustained only if it satisfies therequirements of either Article 302 or Article 304contained in Part-XIII of the Constitution. The SupremeCourt went on to clarify that the restrictions must be such that they will directly and immediately restrict or impedethe free flow or movement of trade for them to have theprotection of Article 301. It was also held that Article 301had also built implicitly an injunction against the State. Therefore, levy of taxes were considered as capable ofimpeding such free flow or movement of trade.

When the State of Rajasthan wanted tosubject the motor vehicles used in any public places orkept for such use thereat to tax, the question ofcompetence of the State Legislature to enact such ataxing law had fallen for consideration before theSupreme Court in AUTOMOBILE TRANSPORT(RAJASTHAN) LIMITED v. STATE OF RAJASTHAN

AND OTHERS[[2]].The jurisprudential concept ofcompensatory taxation was propounded in theabovementioned case. Taxes, which would otherwiseinterfere with the freedom of their free movementguaranteed under Article 301 were sought to beprotected, if they are shown to be compensatory taxes. For determining what constitutes a compensatory tax, thenecessary test was also evolved in AUTOMOBILETRANSPORT (RAJASTHAN) LIMITED cited (2supra). It is pointed out that if the trade people areprovided the use of certain facilities for enabling them toconduct their business better and if they are not payingmuch more than what is required to be paid for securingsuch facilities, the tax then could broadly meet thestandard of compensatory tax. Thus, the jurisprudential march from ATIABARI TEA COMPANY CASE cited (1supra), had started and a new tool for saving certainkinds of taxes from the onslaught from violation of Article301 has been laid. Once again the whole gamut wastraversed by a Constitution Bench of the Supreme Courtin JINDAL STAINLESS AND ANOTHER v. STATE OFHARYANA AND OTHERS[[3]].After noticing thejurisprudential principles evolved till then, their Lordshipshave reiterated that the doctrine of “direct and immediateeffect of the impugned levy of tax on trade andcommerce” propounded in ATIABARI TEA COMPANYCASE cited (1 supra) is a correct principle to assess thevalidity of Tax versus the protection available underArticle 301. Their Lordships have also further held thatthe working test for determining the compensatory taxespropounded in AUTOMOBILE TRANSPORT(RAJASTHAN) LIMITED cited (2 supra) was also thecorrect principle and hence reaffirmed. It will beimportant, therefore, to notice how Jindal Stainless Steelhad unfolded the scope and width of Articles 301, 302,303 and 304.

Difference between exercise of Taxing and Regulatory Power

38. In the generic sense, tax, toll, subsidies, etc. are manifestationsof the exercise of the taxing power. The primary purpose of a taxingstatute is the collection of revenue. On the other hand, regulationextends to administrative acts which produces regulative effects ontrade and commerce. The difficulty arises because taxation is alsoused as a measure of regulation. There is a working test to decidewhether the law impugned is the result of the exercise of regulatorypower or whether it is the product of the exercise of the taxing power.If the impugned law seeks to control the conditions under which anactivity like trade is to take place then such law is regulatory.

Payment for regulation is different from payment for revenue. If theimpugned taxing or non-taxing law chooses an activity, say,movement of trade and commerce as the criterion of its operation andif 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 lawenacted is to enforce discipline or conduct under which the trade hasto perform or if the payment is for regulation of conditions or incidentsof trade or manufacture then the levy is regulatory. This is the way ofreconciling the concept of compensatory tax with the scheme ofArticles 301, 302 and 304. For example, for installation of pipelinecarrying gas from Gujarat to Rajasthan, which passes through M.P., afee charged to provide security to the pipeline will come in thecategory of manifestation of regulatory power. However, a tax leviedon sale or purchase of gas which flows from that very pipe is amanifestation of exercise of the taxing power. This example indicatesthe difference between taxing and regulatory powers (see Essays inTaxation by Seligman).

Difference between “a tax”, “a fee” and “a Compensatory Tax” Parameters of Compensatory Tax

39. As stated above, in order to lay down the parameters of acompensatory tax, we must know the concept of taxing power.

40. Tax is levied as a part of common burden. The basis of a tax isthe ability or the capacity of the taxpayer to pay. The principle behindthe levy of a tax is the principle of ability or capacity. In the case of atax, there is no identification of a specific benefit and even if suchidentification is there, it is not capable of direct measurement. In thecase of a tax, a particular advantage, if it exists at all, is incidental tothe State’s action. It is assessed on certain elements of business,such as, manufacture, purchase, sale, consumption, use, capital,etc. but its payment is not a condition precedent. It is not a term orcondition of a licence. A fee is generally a term of a licence. A tax isa payment where the special benefit, if any, is converted intocommon burden.

4 1 . On the other hand, a fee is based on the “principle ofequivalence”. This principle is the converse of the “principle of ability”to pay. In the case of a fee or compensatory tax, the “principle ofequivalence” applies. The basis of a fee or a compensatory tax is thesame. The main basis of a fee or a compensatory tax is thequantifiable and measurable benefit. In the case of a tax, even ifthere is any benefit, the same is incidental to the government actionand even if such benefit results from the government action, thesame is not measurable. Under the principle of equivalence, asapplicable to a fee or a compensatory tax, there is an indication of aquantifiable data, namely, a benefit which is measurable.

42. A tax can be progressive. However, a fee or a compensatory taxhas to be broadly proportional and not progressive. In the principle ofequivalence, which is the foundation of a compensatory tax as wellas a fee, the value of the quantifiable benefit is represented by thecosts incurred in procuring the facility/services, which costs in turn

become the basis of reimbursement/ recompense for the provider ofthe 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 viewof the Government, a compensatory tax is a charge for offeringtrading facilities. It adds to the value of trade and commerce whichdoes not happen in the case of a tax as such. A tax may beprogressive or proportional to income, property, expenditure or anyother test of ability or capacity (principle of ability). Taxes may beprogressive rather than proportional. Compensatory taxes, like fees,are always proportional to benefits. They are based on the principle ofequivalence. However, a compensatory tax is levied on an individualas a member of a class, whereas a fee is levied on an individual assuch. If one keeps in mind the “principle of ability” vis- i s the“principle of equivalence”, then the difference between a tax on onehand and a fee or a compensatory tax on the other hand can beeasily spelt out. Ability or capacity to pay is measurable by propertyor rental value. Local rates are often charged according to the abilityto pay. Reimbursement or recompense are the closest equivalence tothe cost incurred by the provider of the services/facilities. The theoryof compensatory tax is that it rests upon the principle that if theGovernment by some po sitive action confers upon individual(s), aparticular measurable advantage, it is only fair to the community atlarge that the beneficiary shall pay for it. The basic differencebetween a tax on one hand and a fee/ compensatory tax on the otherhand is that the former is based on the concept of burden whereascompensatory tax/fee is based on the concept ofrecompense/reimbursement. For a tax to be compensatory, theremust be some link between the quantum of tax and thefacility/services. Every benefit is measured in terms of cost whichhas to be reimubursed by compensatory tax or in the form ofcompensatory tax. In other words, compensatory tax is arecompense/reimbursement.

43. In the context of Article 301, therefore, compensatory tax is acompulsory contribution levied broadly in proportion to the specialbenefits derived to defray the costs of regulation or to meet the outlayincurred for some special advantage to trade, commerce andintercourse. It may incidentally bring in net revenue to theGovernment but that circumstance is not an essential ingredient ofcompensatory tax.

44. In the context of Article 301, therefore, compensatory tax is acompulsory contribution levied broadly in proportion to the specialbenefits derived to defray the costs of regulation or to meet the outlayincurred for some special advantage to trade, commerce andintercourse. It may incidentally bring in net revenue to theGovernment but that circumstance is not an essential ingredient ofcompensatory tax.

45. xxxxxxxxxxxxx

46. To sum up, the basis of every levy is the controlling factor. In thecase 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 basisis the special benefit to the payer (individual as such) based on theprinciple of equivalence. When the tax is imposed as a part ofregulation or as a part of regulatory measure, its basis shifts from theconcept of “burden” to the concept of measurable/quantifiable benefitand then it becomes “a compensatory tax” and its payment is thennot for revenue but as reimbursement/recompense to theservice/facility provider. It is then a tax on recompense.Compensatory tax is by nature hybrid but it is more closer to feesthan to tax as both fees and compensatory taxes are based on theprinciple of equivalence and on the basis ofreimbursement/recompense. If the impugned law chooses an activitylike trade and commerce as the criterion of its operation and if theeffect of the operation of the enactment is to impede trade andcommerce then Article 301 is violated.

Burden on the State

4 7 . Applying the above tests/parameters, whenever a law isimpugned as violative of Article 301 of the Constitution, the Court hasto see whether the impugned enactment facially or patently indicatesquantifiable data on the basis of which the compensatory tax issought to be levied. The Act must facially indicate the benefit whichis quantifiable or measurable. It must broadly indicate proportionalityto the quantifiable benefit. If the provisions are ambiguous or even ifthe Act does not indicate facially the quantifiable benefit, the burdenwill be on the State as a service/facility provider to show by placingthe material before the Court, that the payment of compensatory taxis a reimbursement/recompense for the quantifiable/ measurablebenefit provided or to be provided to its payer(s). As soon as it isshown that the Act invades freedom of trade it is necessary toenquire whether the State has proved that the restrictions imposed byit by way of taxation are reasonable and in public interest within themeaning of Article 304(b) [ see para 35 (of AIR) of the decision inKhyerbari Tea Co. Ltd. v. State of Assam 17 ].

Scope of Articles 301, 302 and 304 vis-a-vis Compensatory Tax

48. As stated above, taxing laws are not excluded from the operationof Article 301, which means that tax laws can and do amount torestrictions on the freedom guaranteed to trade under Part XIII of theConstitution. This principle is well settled in Atiabari Tea Co.4 It isequally important to note that in Atiabari Tea Co.4 the SupremeCourt propounded the doctrine of “direct and immediate effect”.Therefore, whenever a law is challenged on the ground of violation ofArticle 301, the Court has not only to examine the pith and substanceof the levy but in addition thereto, the Court has to see the effect andthe operation of the impugned law on inter-State trade and commerceas well as intra-State trade and commerce.

49. When any legislation, whether it would be a taxation law or a non-taxation law, is challenged before the Court as violating Article 301,the first question to be asked is: what is the scope of the operation of

the law? Whether it has chosen an activity like movement of trade,commerce and intercourse throughout India, as the criterion of itsoperation? If yes, the next question is: what is the effect of operationof the law on the freedom guaranteed under Article 301? If the effectis to facilitate free flow of trade and commerce then it is regulationand if it is to impede or burden the activity, then the law is a restraint.After finding the law to be a restraint/ restriction one has to seewhether the impugned law is enacted by Parliament or the StateLegislature. Clause ( b ) of Article 304 confers a power upon the StateLegislature similar to that conferred upon Parliament by Article 302subject to the following differences:

( a ) While the power of Parliament under Article 302 is subject to theprohibition of preference and discrimination decreed by Article 303(1)unless Parliament makes the declaration under Article 303(2), theState power contained in Article 304( b ) is made expressly free fromthe prohibition contained in Article 303(1) because the opening wordsof Article 304 contain a non obstante clause both to Article 301 andArticle 303.

( b ) While Parliament’s power to impose restrictions under Article 302 is not subject to the requirement of reasonableness, the power ofthe State to impose restrictions under Article 304 is subject to thecondition that they are reasonable.

( c ) An additional requisite for the exercise of the power under Article304( b ) by the State Legislature is that previous Presidential sanctionis required for such legislation.”

Ultimately, the Supreme Court had pointed out that thatmere nomenclature employed either for describing thetitle of the enactment or the language employed in theobjects and reasons set out in the bill are not the proof ofthe compensatory nature of the levy. The burden liesheavily on the State to demonstrate as to how the levy isintended to compensate the trade and commerce and forwhich purposes it is intended to subject the said levy.

It is now well settled principle that a modernWelfare State is certainly expected to engage in allactivities necessary for the promotion of the social andeconomic welfare of its larger community. It is thereforeaccepted that that the State carries in the process certain primary and fundamental obligations in the form andshape of providing infrastructure so essentially neededfor securing the welfare and common good of thesociety. No State can carry on its obligations of securingsuch a social welfare without collecting the revenue byway of imposition of taxes. Consequently, it has beenrecognized that for imposing a tax, there was nonecessity for the State to demonstrate a direct orimmediate corresponding service or failure or anobligation to discharge towards the taxed. Keeping thatin consideration, taxes imposed for augmenting thegeneral revenues of the State, which are in the form ofsales tax are not considered as compensatory taxes. Thus, imposition of sales tax stands out completely anddistinctly from compensatory taxes which it might seek toadditionally impose. In the instant case, the State in itscounter affidavit have taken a specific plea that thepresent levy is compensatory tax. It is thereforenecessary as to how far the State has discharged theburden of demonstrating that the impugned levy iscompensatory. This is what the State would say in theircounter affidavit :- “15. It is submitted that the levy ofEntry Tax in the present case iscompensatory in nature and thereforeno previous sanction of the Presidenthas been obtained. The local bodieshave been taking up lot ofprogrammes relating to laying ofroads, up keeping of roads,installation of street lights, supply of

water, sanitation programmes,cleanliness schemes etc. within theirlocal areas. They need huge funds forimplementing all these schemes. There has been a resource crunch. For several reasons the local bodiesespecially in villages are not able togenerate their own resources to meetthe growing expenditure on account ofprovisions of various amenities andfacilities. The local bodies thereforeneed funding by the StateGovernment. The State Governmenthas to provide substantial funds tothese bodies to enable them todischarge their statutory obligation.16. It is submitted that well laid uproads would help and ensure free flowof trade and commerce. Establishment of market yards, waterways and other amenities for thetraders within local areas attract moretrade from other States. It is only suchprovision of the facilities within theState that would attract more tradersfrom other States to dispatch theirgoods. The infrastructure facilitieswithin the local area are the realattraction for more flow of goods fromother States. It all needs substantialallocation of funds. A Statementshowing the funds allotted by theGovernment to the various localbodies – urban and rural – is annexedto this counter affidavit whichevidences substantial allocation forproviding various facilities within thelocal areas by the local authorities. The present levy of Entry Tax istherefore totally compensatory andregulatory in nature….”

In the annexure to the counter affidavit, the statement showing the allocation of funds to various local bodieshas been enclosed.

STATEMENT SHOWING THE FUNDS ALLOTTED BYTHE GOVERNMENT TO THE VARIOUS LOCAKBODIES URBAN AND RURAL.For the year (in crores)S.No.Head of2001-2002-2003-2004-allotment02030405URBANTo 76.00130.7694.4980.001.Municipalitiesformaintenanceof Roads etc.2.To Municipal 61.1515.8935.0019.65Corporationsformaintenanceof Roads etc.,RURAL3.To Panchayat -----------78.0948.11Raj institutionsformaintenanceof RuralRoads etc.,Total 137.15146.65207.49147.76

Statement showing the Receipts under Entry Tax Act The annexure has also enclosed a statement showingthe receipts pursuant to the impugned levy. Obviouslydue to the hopeless mismatch between the levy of theEntry tax and the budgetary allocation made by the Stateto the local bodies, it is sought to be contended by thelearned Government Pleader that the impugned levy can be justified on the premise that it is compensatory.

We are afraid that the justification offered bythe State for us to treat or accept the impugned levy ascompensatory is wholly inadequate. A mere look at thestatement showing the allocation of funds to the variouslocal bodies in the various years between 2001 to 2005will provide the answer thereto. The budgetary allocationfor Municipalities for the purpose of maintenance of roadsduring 2001 was shown as Rs.76 Crores which wentupto Rs.130.76 Crores during the next fiscal and it camedown to Rs.94.49 Crores during 2003 and in 2004-05came down further to Rs.80 Crores. Similarly, allocationof funds to the Municipal Corporations for maintenance ofroads for the corresponding periods were Rs.61.15,15.89, 35.00 and 19.65 Crores respectively, whereas forthe Panchayat Raj institutions in the rural areas therewas no budgetary allocation made in the years 2001-02and 2002-03. For the next two years the allocation wasRs.78.09 and 48.11 Crores. This statement, obviously, isindicative of the priority choice accorded for the saidsubjects by the State in it’s annual exercise of planningand allocation of funds. It has no bearing or relationshipwith the impugned levy of the Entry Tax. Clearly, theimpugned levy is sought for making necessary addition tothe State’s overall revenue.

For one to justify, a particular tax levied to becompensatory in nature, it is essential that there shouldbe direct and intricate relationship between the collection of tax and it’s intended expenditure. The broad andgeneralized statements mentioned by the StateGovernment, as were noticed supra by us, are allrepresenting or corresponding to the basic andfundamental obligations of any Government, which theyowe to their citizens. They are not special featuresspecific to cater to the needs of the people indulging intrade or commerce. Construction of roads, culverts andbridges or providing basic health care facilities or rest-houses for the transport operators on the waysides arenot exclusively intended or meant for promoting anyclass, or even generally, the trade or commerce. Suchbasic and essential infrastructural facilities are also liableto be put to use by all others as well. In that respect,provision of such facilities like good motorable roads,illumination of streets or provision of parks or gardenscannot be rolled up and presented as the “specific endobjectives” of the intended promotion of the interests oftradesmen or businessmen. The essential link betweenthe infrastructure or facility or service, which is directly oreven indirectly held to promote the cause of trade orcommerce, is missing in them. Hence, we find ourselvesnot in a position to accord approval for the present impostas a compensatory tax.

Therefore, clearly the impugned lawamounts to impeding the freedom of movement of tradeor commerce across the territory of the Nation. Theprinciples enunciated by the Supreme Court in ATIABARI TEA COMPANY CASE cited (1 supra),SHREE MAHAVIR OIL MILLS AND ANOTHER v.STATE OF JAMMU AND KASHMIR AND OTHERS[[4]],AUTOMOBILE TRANSPORT (RAJASTHAN) LIMITEDcited (2 supra) and JINDAL STAINLESS CASE cited(3 supra), have all been followed in the breach. Further,it is admitted that the procedure prescribed to obtain thesanction of the President has not been obtained prior toenacting the impugned Entry Tax Act.

Therefore, we have no hesitation to declarethe impugned levy as unconstitutional.

For the foregoing discussion, the batch of writpetitions stands allowed, but, in the circumstances,without costs.

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Bilal Nazki, ACJ

31[st] December 2007knk/mrk

--------------------------------Nooty Ramamohana Rao, J

[1]AIR 1961 SC 232[2]AIR 1962 SC 1406[3]2006 (7) SCC 241[4]1997 (104) STC 148