.JINDAL STA!NLESS TTD. & ANR. v. STATE OF HARYANA & ORS.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 645

[DR. D. Y. CHANDRACHUD, J.]

220Copy pinpoint220. These observations indicate that Entry 52 having used the expression "local area" rather than "area", the Con:stitution did not intend that the entry of goods into just any area in the state would attract the entry. The entry had to be into a local area. A local area is an area administered by a local authority such as a municipality, a district or a local board or a panchayat or some other body constituted by law for administering the governance of local affairs in any part of the state. Whether the entire state could be declared as a local area was, however, kept open in Diamond Sugar Mills.

221Copy pinpoint221. In another judgment of a Constitution Bench in Bangalore Woollen Cotton and Silk Mills Co. Ltd. v. Corporation of the City c of Bangalore 91 , there was a challenge to the constitutional validity of the imposition of octroi duty on cotton and wool by the Bangalore Municipal Corporation Act, 1949 inter alia under the provisions of Article 30 I. The octroi duty was, in the submission of the state, saved by Article 305 which stipulated that nothing in Articles 301 and 303 shall affect the provisions of any existing law except in so far as the President may by order otherwise direct. The Constitution Bench accepted the submission and held that there was no contravention of Article 301.

222Copy pinpoint222. In Burmah Shell Oil Storage and Distribution Co. India Ltd. v. The Belgium Borough Municipality 9",the appellant had unsuccessfully moved the High Court for a writ seeking to prohibit the municipality from charging octroi on its products which were brought inside octroi limits for sale. The goods brought into octroi limits by the appellant comprise of four categories : (i) Goods consumed by the appellant; F (ii) Goods sold by the appellant itself or through dealers and consumed within octroi limits by others; (iii) Goods sold by the appellant itself or through dealers within octroi limits but consumed outside; and (iv) Goods sent by the appellant from its depot within octroi limits G to points outside the municipality where they were produced and consumed by others.

"'(1961) 3 SCR 707 "(1963) Supp. 2 SCR 216 H

646 SUPREME COURT REPORTS [2016] 10 S.C.R.

223Copy pinpoint223. Under Section 73 of the Bombay Municipal Boroughs Act, 1925, the municipality was empowered to impose an octroi on animals or goods brought within the octroi limits for consumption, use or sale therein. The Constitution Bench took note of the legislative history relating to tem1inal taxes and octroi. Tenninal Taxes were concerned only with the entry of goods into a local area irrespective of whether or not they B were used there. Octrois were taxes on goods brought into the local area for consumption, use or sale. When the Constitution was adopted, the expression octroi was avoided and instead a description was used. Expounding the ambit of Entry 52, the Constitution Bench observed as follows: c "21.It is not the immediate person who brings the goods into a local area who must consume them himself, the act of consumption may be postponed or may be perfonned by D someone e!se but so long as the goods have been brought into the local area for consumption in that sense, no matter by whom, they satisfy the requirements of the Boroughs Act and octroi is payable. Added to the word "consumption" is the word "use" also. There may be certain commodities which though put to use are not 'used up' in the process. A E motor-car brought into an area for use is not used up in the same sense as food-stuffs. The two expressions use and consumption together therefore, connote the bringing in of goods and animals not with a view to taking them out again but with a vie•.v to their retention either for use without using them up or for consumption in a manner which destroys, wastes or uses them up." (ld. at p. 230-231)

224Copy pinpoint224. The Constitution Bench ruled that so long as goods are brought inside the area for sale within the area to an ultimate consumer, it makes no difference that the consumer does not consume them in the area but takes them out for consumption elsewhere : "22 ...... The word "therein" does not mean that all the act of consumption must take place in the area of the municipality. It is sufficient ifthe goods are brought inside H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 647

[DR. D. Y. CHANDRACHUD, J.]

the area to be delivered to the ultimate consumer in that A area because the taxable event is the entry of goods which are meant to reach an ultimate user or consumer in the area." (Id. at. P. 233) Hence, the appellant was held to be liable to pay octroi duty on goods brought into a local area : B (i) To be consumed by itself or sold directly by it to consumers; (ii) For sale to dealers who in their tum sold the goods to consumers within the municipal area irrespective of whether. such consumers bought them for use inside or outside the area. c However, the appellant was not liable to octroi in 1·espect of goods which it brought into a local area for re-export.

225Copy pinpoint225. For many years after the adoption of the Constitution, local bodies across the country continued to levy octroi, which was an important source of revenue. Octroi was levied under state legislation, enacted with reference to Entry 52 of List II (read with Articles 244, 245 and 246). Octroi, however, assumed an obnoxious character and was a subject of comment by this Court in Hausa Corporation (supra). Octroi duty became associated with check posts installed by local bodies. The octroi balTiers became notorious for long queues of fully laden vehicles awaiting entry into local limits. Worse still, octroi became a vexed symbol of the misdeeds oflocal officials or contractors tasked with the collection of octroi duty. Over a period of time, accepting the clamour of the trade, octroi was gradually phased out and replaced by entry tax legislation in the states. Noteworthy, among the changes made, was that the tax would be leviable upon a dealer. Moreover, the tax would be collected not at the octroi or municipal limit but subsequently after the submission of returns.

K.2 Entry taxes and Article 304(a) G

226Copy pinpoint226. For the purposes of this reference, it is necessary to clarify at the outset that the detailed provisions of each state legislation pertaining to entry tax do not fall for consideration. It is sufficient for the purposes of the present reference to consider some of the important aspects of entry tax legislation vis-a-vis Part Xlll which are of common cor.cem. H

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227Copy pinpoint227. The first significant aspect of the matter is the inter-play between entry tax legislation and Article 304 (a). The interface between the two arises because entry tax is levied on the entry of goods into a local area for consumption, use or sale therein. If the goods originate in any other state, the imported goods would upon entry into a local area be liable to entry tax since the charging event is the entry of the goods into B the local area for consumption, use or sale. Issues of discrimination arise on whether similar goods produced or manufactured within the state are subject to entry tax.

228Copy pinpoint228. Article 304 permits the state legislature to impose on goods c impo1ted from another state any tax to which similar goods produced or manufactured in the state are subject. The object is to ensure that there is no discrimination between the goods "so imported" and the goods "so produced or manufactured". The critical requirement of Artic!e 304 (a) is that the tax must be origin neutral. Hence, where the state legislature levies an entry tax on goods entering a local area (without making any discrimination based on whether or not the goods originate in the state or are imported from outside) the mandate of Article 304(a) would be met.

229Copy pinpoint229. The issue is whether Article 304 (a) would be breached by imposing an entry tax only upon goods that are imported from other states. Plainly, if a tax is imposed on goods which are imported from other states without subjecting similar goods produced or manufactured within the state to the tax, there would be a violation ofArticle 304(a).This would coi1stitute an unconstitutional discrimination between goods imported from other states which are subject to tax and goods produced or manufactured within the state which are not subject to the levy. Such F an act of discrimination may take place, for instance, in a situation where state law defines the entire area of the state as a local area or by inco:-porating a specific definition of the expression dealer or importer to mean an importer of goods from outside the state. For instance, goods may be subject to entry tax only when they cross the state boundary. Movement of goods exclusively within the state, is not subject to entry G tax. Alternatively, the expression local area may be defined with reference to the entire state. If the legislation imposes a tax only upon the entry of goods originating outside the state into the state, while goods produced and manufactured within the state are not subject to the levy, this would constitute a hostile discrimination prohibited by Article 304 (a). H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 649

[DR. D. Y. CHANDRACl-IUD, J.]

K.3 Meaning of 'Local area' A

230Copy pinpoint230. The issue as to whether the entire area of a state can be treated as a local area for the purposes of Entry 52 of List 11, was specifically kept open for consideration in the judgment of the Constitution B Bench in Diamond Sugar Mills. The issue was, however, dealt with in a judgment of three learned Judges of this Court in Shaktikumar M. Sancheti v. State of Maharashtra°'. In that case an entry tax was levied under Section 3 of the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987. The Act was challenged by contractors or dealers of motor vehicles who had purchased them outside the state and c had brought them within the state of Maharashtra as being a colorable exercise oflegislative power under Entry 52 of List ll as well as violating Article 30 I. Taking note of the fact that the issue of what constitutes a local area had not been decided in Diamond Sugar Mills, the Bench of three Judges held as follows: D

"4 .... The expression 'local area' has been used in various Articles of the Constitution, namely, l, l2, 245( I). 246, 277, 321, 323A and 37 l([)). They indicate that the constitutional intention was to understand the 'local area· in the sense of E any area which is administered by a local body, may be corporation, municipal board, district board etc. The High Court on this aspect held, and in our opinion rightly that the definition does not comprehend entire State as local area as the use of the word ·a· before 'local area' in the Section F is significant. The ta-.;able event according to the High Court, is not the entry of vehicle in any area of the State but in a local area. The High Court explained it by giving an illustration that if a motor vehicle was brought from Jabalpur (Madhya Pradesh) for being used or sold at Amravati (in Nagpur District of Maharashtra), which was the border G area, taxable event was not the entry in Nagpur District but entry in area ofAmravati Municipal Corporation. The levy, therefore. is not, as urged by the learned Counsel for "] (1995) 1 sec 351 H

650 SUPREME COURT REPORTS [2016] 10 S.C.R.

A appellant, on entry of vehicle in any part of the State but in any local area in the State. It cannot, therefore, be stn•ck down on this ground." (Id. at p. 355)

231Copy pinpoint231. The Seventy-third amendment to the Constitution has B incorporated Pait IX which deals with Panchayats while the Seventy fourth amendment has incorporated Part IXA which deals with Municipalities. Article 243(d) defines Panchayats as institutions of self- government constituted under Article 243(b) for the rural areas. Article 243(b) requires the constitution in every state of Panchayats at the village, c intennediate and district levels. Article 243H (a) empowers the legislature of a state by law to authorize a Panchayat to levy, collect and appropriate such taxes, duties, tolls and fees in accordance with such procedure and subject to such limits. A1ticle 243Q provides for the constitution of a Nagar Panchayat, a Municipal Council and a Municipal Corporation. D Article 243X empowers the legislature of a state by law to authorize a Municipality to levy, collect and appropriate such taxes duties, tolls and fees in accordance with such procedure and subject to such limits. With these amendments, local areas now have assumed a constitutional context and significance.

232Copy pinpoint232. In the judgment in Diamond Sugar Mills, the Constitution Bench emphasized that in using the expression local area, the framers of the Constitution were aware of the previous legislative history and meant an area administered by a body (such as Municipalities, Panchayats or local board) constituted under the law for the governance of local affairs in any part of the state. This statement of principle in the decision F in Diamond Sugar Mills now stands fortified in view of the constitutional amendments brought by the insertion of Parts IX and IXA. into the Constitution. A local area cannot be defined with reference to che entire state but will comprehend within the state, an area tliat is administered by a local body constituted under the law. G K.4 Sever.ability

233Copy pinpoint233. On behalf of the states, it has been urged that where a state legislature provides for the levy of an entry tax only upon goods brought from outside the state, the offending words may be treated as severable

JINDAL STArNLESS LTD. v. STATE OF HARYANA 651

[DR. D. Y. CHANDRACHUD, .J.]

and struck down so as to allow for the imposition on goods entering a A local area both from within or outside the state. Such an exercise would clearly be impermissible. Where the state legislature has evinced a clear intent to levy a tax only upon the entry of goods originating from outside the state, it would be impermissible, by a process of interpretation as suggested to excise the offending words. Such an excise would not fall within the permissible scope of reading down the statute. The effect of such a judicial exercise would be to impose a levy upon goods moving into a local area from within the state, though, thi.s has not been done by the state legislature. Whether such a levy should be imposed is a matter for the state legislature to determine in its law making authority. This Court in the exercise of its power of judicial review can hold that a c discrimination between goods imported from outside the state and goods produced or manufactured within the state for the levy of a tax would be violative of Article 304(a). Where the state legislature has committed an act of hostile discrimination by imposing a tax only upon goods originating outside the state upon their entry within it, the court must strike down D such a provision which violates Article 304(a). The provision cannot be re-written by judicial interpretation to mean that the tax will be levied both on goods originating outside the state and goods originating within the state and entering a local area. Re-writing a legislative provision is impermissible in the exercise ofjudicial review. E

K.5 E<1uality of tax burdens

234Copy pinpoint234. At first impression A1iicle 304(a) presents a fairly simple application. If a tax at the rak of five percent is imposed by a taxing state on goods imported from other states, similar goods which are produced or manufactured within the taxing state must be subjected to a five per cent tax. If a higher rate of tax is imposed on goods originating in other stateswhich are imported into the taxing state, this would result in a discrimination against impo1ted goods. Such a discrimination is sought to be obviated by the requirement that the rate of tax should be the same as between similar goods produced or manufactured within the taxing state and goods imported from other states. This furnishes the rationale for several decisions of this Court, which hold that Article 304(a) mandates the same rate of tax and once that requirement is fulfi lied, the application of the provision is at an end. H

652 SUPREME COURT REPORTS [2016] 10 S.C.R.

235Copy pinpoint235. The submission of the petitioners, however, which falls for close examination is that Article 304(a) requires that the very tax which is imposed by a taxing state on imported goods must be imposed on domestic goods. In the context of entry tax, the submission is that unless the taxing state imposes it on similar local goods, an entry tax cannot be imposed on goods imported from other states. If goods manufactured or B produced in the taxing state are not subject to entry tax, that will result in a discrimination if imported goods of other states are so subject.

236Copy pinpoint236. The example which has been set out above of the application of differential rates of tax, for the same tax imposed on domestic as c opposed to imported goods presents a simple application ofArticle 304(a). The example is simple in the sense that a discrimination is then effected in the imposition of the same tax by subjecting domestic and imported goods to differing treatment. The picture may, however, become more nuanced. Different states have adopted varying models while framing legislation in a manner which, according to them, fulfils the mandate of D Article 304(a). Whether it in fact, does so is for the court to determine. 23 7. A state may have a single legislative enactment providing for both entry tax and sales tax at equal rates. Some other states provide for set offs and statutory exemptions to goods paying local sales ta:~. Certain states provide a similar set off for goods imported from another state, if they are sold in the taxing state. The legislation of some states provides for a reduction of tax liability under the sales tax law by the amount of ently tax paid while in other cases, state legislation provides for a reduction of entry tax by the amount of tax paid under the General Sales Tax Act. Similarly, state enactments provide for the reduction of liability under entry tax legislation by the amount of tax which is paid under the sales tax law of that state. Contrariwise, such a reduction has not been made available to imp01ted goods in ce1tain state legislation. The state legislation may have excluded from entry tax those local goods which are liable to pay sales tax under the State Act. However, an importer of scheduled goods who incurs liability under value added tax legislation, by vi1tue of the sale of imported goods or the sale of goods manufactured by consuming such imp01ted scheduled goods, is entitled to a set off. State legislation in certain cases exempts goods from entry tax if after entry in a local area, the goods are sold there and become liable to pay value added tax. In other cases, manufacturers in a local area are exempt from paying H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 653

[DR. D. Y. CHANDRACHUD, J.]

entry tax on raw material imported from another local area or another state. In some cases, manufacturers in a local area are required to pay the same entry tax on raw material imported from another local area or another state.

238Copy pinpoint238. These examples furnish illustrations of different patterns and approaches adopted by state legislation. It is necessary to clarify that in this reference the nuances of each state law are not being considered since the cases would have to be placed for disposal before the appropriate Bench after the reference is answered. For the purpo5es of this reference, it is sufficient for the court to lay down broad principles governing the area without going into individual facts or detailed provisions covering each case in relation to the period at issue in the respective states.

239Copy pinpoint239. Article 304(a), in so faras is material, authorises the legislature of a state to impose on "goods imported" from other states "any tax to which similar goods manufactured or produced in that state are subject". D Several aspects of Article 304(a) merit emphasis:

240Copy pinpoint240. The first is that Article 304(a) refers to the imposition of any tax on goods. The provision is not either a source of legislative power nor does it prescribe fields of legislation. The expression "any tax on goods" is of a generic nature and covers all taxes which a state is E competent to impose on any aspect of goods under Articles 245 and 246 read with List II of the Seventh Schedule. The expression 'any tax' would mean any exactionin the nature of an impost or levy which the state legislature is competent to enact by virtue of its legislative powers. The expression 'any tax' must mean what itsays: it means any levy which the state is constitutionally competent to legislate. F

The second aspect ofArticle 304(a) is the latter part which provides that the state shall act :

"so, however, as not to discriminate between goods so G imported or goods so manufactured or produced."

24 I. The fundamental reason for the incorporation of this provision is to prohibit discrimination being practiced by the state against imported H

654 SUPREME COURT REPORTS [2016] 10 S.C.R.

A gooGs by embarking upon protectionist policies. The discrimination which the constitutional provision is intended to rule out is discrimination which is protectionist in nature. A state cannot impose taxes in a manner that would make the goods of another state non-competitive so as to effectively bar the inflow of trade by utilizing fiscal exactions. B Thirdly, the latter part of Article 304(a) is prefaced by the expression "so however". In Words and Phrases 94 ,the expression however has been explained as indicating "an alternative intention, a contrast with a previous clause and a modification of it under circumstances" 95 • The Oxford dictionary defines the expression c 'however' to mean "in any case, at all events, at any rate." Another meaning attributed to the phrase is "used by itself, or follov!ed by points of suspension, as an inte1jection or as a fonnula concluding, introducing or modifying an utterance in some contextual way". P Ramanatha Aiyar's Law Lexicon 96 states that the word 'however' in a deed or will indicates an alternative intention, a contrast with a previous clause and a D modification of itunder certain circumstances. The latter part of Article 304(a) follows upon the first which enables the state to impose on goods which are imp01ted from other states any tax to which the goods produced or manufoctur<!d within the state are subject. The latter part constitutes a positive re-affirmation that in any case, at all events and at any rate there shall be no discrimination between goods manufactured or produced within the taxing state and goods imported from other states. This narrative is the dominant theme of Article 304 (a). Fourthly, an expression of some significance that is used in the latter part of Article 304(a) is "between". That expression has been employed so as to mandate that there shall be no discrimination between gooc!s imported into the taxing state from other states and goods that are manufactured and produced within. The use of the expression "so" in the latter part is an obvious reference to the imported goods and the goods manufactured or produced within, referred to in the first part. The G expression 'between' postulates that imported goods and local goods must be allowed a level playing field in the taxing state. Imported goods from another state cannot be placed at a comparative disadvantage. " (Pennanent Ed. Vol. i 9A) " (II"' Ed. Vol. II, p. 59) "(4'" Ed. Vol. III, Id. at p. 3134) H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 655

[DR ..D. Y. CHANDRACHUD, J.]

The expression 'between' also signifies that goods produced or manufactured within the taxing state should also not be discriminated against. In seeking parity of treatment, it is as much the obligation of the taxing state to ensure that there is no discrimination against goods originating in other states, as much as it is its concern to ensure that domestic goods are not discriminated against. The former is a matter of constitutional obligation. However, it does not exclude a similar obligation and concern of the taxing state in respect of goods produced and manufactured within its territorial limits. Both must go hand in hand. Discrimination both in a positive manner against imported goods and a reverse discrimination against domestic goods are within the ambit of Article 304(a). c The fifth important principle which requires emphasis is that our Constitution does not embody a requirement that the state legislature while enacting ;!_legislation must legislate separately in respect of each subject of legislation contained in List II. A law enacted by the state legislature imposing a fiscal levy may cover more than one subject of D legislation falling within its legislative competence in List II. In contrast, Section 55 of the Australian Constitution mandates that there shall be one tax law on one subject. Article 55 of the Australian Constitution reads as follows: E

"Article55 : Laws imposing taxation shall deal only with the imposition of taxation and any provision therein dealing with any other matter shall be of no effect. Laws imposing taxation except laws imposing duties of customs or of excise shall deal with one subject of taxation only; but laws imposing F duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only."

242Copy pinpoint242. The Indian Constitution does not impose such a restriction on the states. Considered from a different perspective, '"rag-bag" legislation is constitutionally permissible under the Indian Constitution and it is open to a single enactment to draw sustenance from more than one entry which falls within the legislative competence of the enacting H

656 SUPREME COURT REPORTS [2016] 10 S.C.R.

A legislature. [See in this context: Ujagar Prints (II) v. Union oflndia 97 , All India Federation of Tax Practitioners v. Union of lndia 98 ,and State of A. P. v. NTPC 99 ].

243Copy pinpoint243. As a matter of constitutional doctrine, there is no restraint on the plenary powers of Parliament as well as the state legislatures which B rcqu;res the legislative body enacting a statute to legislate only upon one head of legislation falling within its competence. The legislature can distribute or allocate its regulatory or law making requirements (both fiscal and non-fiscal) in a manner which best sub-serves its needs and concerns. Once this be the position, its impact upon the interpretation of c Article 304( a) is that it is open to the state legislature to have due regard to the equality of tax burdens, when it legislates to impose "any tax" so long as it does not breach the notion of non-discrimination as between goods that are imp01ied from other states and goods which are produced or manufactured within. It is legitimately entitled to ensure that the tax burden should not discriminate between locally produced or manufactured goods of that state and goods originating in other states. The substance must prevail over fonn. Once there is no constitutional necessity that the form in which legislation is enacted in India must cover only one legidative entry, the legislature is entitled to devise a law in a suitable manner which while being consistent with the norm of non-discrimination also preserves a parity of tax burden between goods imported and domestic goods. This is the foundation of the theory of equivalence.

244Copy pinpoint244. The burden of establishing that there is a discrimination against goods which are imported from other states lies on the person who sets up such a plea. In answering a plea of discrimination, it would be open to the state to establish that the legislative provision which it has enacted maintains the principle of non-discrimination between goods produced and manufactured within the state and goods imported from other states while at the same time bringing about parity in ten11S of tax burden between domestic and imported goods. Sales tax is referable to Entry G 54 of List 11 ("taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I"). Entry tax is referable to Entry 52 of List II ("taxes on the entry of goods into a "' (1989) 3 sec 488 "(2007) 7 sec s21 '" (2002) s sec 203 H

JINDAL STAfNLESS LfD. v. STATE OF HARYANA 657

[DR. D. Y. CHANDRACHUD. J.]

local area for consumption. use or sale therein"). Both sets of taxes fall A within the competence of the state legislature. Ta:-rnblc events under entries both entries are distinct :in the case of one the sale of goods and in the case of the other, entry of goods into a local area for consumption, use or sale therein. Both deal with separate aspects of the taxation of goods: the ta\.able events being proximate though distinct. The expression B "any tax'' recognises the full panoply of taxes on goods falling within List II. If a law can cover Entry 52 and Entry 54 of List II, there is no reason to prohibit the state law making authority from having due regard to the wx burdens imposed on domestic goods and goods imported from other states under entry tax and sales tax legislation, taken as a composite whole. "Any tax'' does not mean n tax under one entry of List II as a c discrete and isolakd legislation independent of any another entry. Any adjustment, exemption or set offbased on the payment of sales tax may be intended to avoid double taxation and discrimination. \Vheth~r this object has been legitimately achieved by the enacting law is· a matter to be determined on its interpretation and application. D

245Copy pinpoint245. lt is trite law that every discrimination involves a differentiation but every differentiation does not implicate discrimination. (Digvijay Cement v. State of Rajasthan""'). The cnqui1y into whether a stak has practiced discrimination against goods imported from other states will commence with an investigation into whether the state legislation E has made any differentiation between the two sets of goods.This is not merely in terms of the rate of tax but there are other important aspects including:

(i) procedures and machinery including aspects such as Iiccncing, F recognition and compliance: (iii) Measure of the tax; and (iv) Exemptions or set offs; Beyond this enquiry, the court would need to analyse the reasons G for the differentiation and then to determine as to whether there has been a discrimination violative of Article 304(a).

""'(2000J 1 sec 688 (Pr. 24J

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A K.6 Entry tax and imported goods

246Copy pinpoint246. Entry 83 of List I provides for "duties of customs including export duties". The submission of the petitioners is that there being no over-lapping oflegislative entries, the field of Entry 52 of List II would 8 begin where that of Entry 83 of List I ends. Hence, while considering whether entry tax can be imposed in relation to goods imported into India, it is urged that until the goods become a part of the landmass, they can be subjected to a law under Entry 83 of List I and to a duty of import. It is only where a Bill of entry for home consumption is. filed that c the goods cease to be imported goods. Until then, it is urged, no entry tax would be leviable.

247Copy pinpoint247. The taxable event referable to a law enacted under Entry 83 of List I (in relation to an import customs duty) is the act of import by which goods miginating in a foreign country are brought into India. Section D 2 (23) of the Customs Act, 1962 defines the expression import to mean "bringing into India from a place outside India''. The expression imported goods is defined to mean "any goods brought into India from a place outside India" but so as not to include goods which have been cleared for home consumption. Section 2 (26) defines the expression importer in E relation to any goods at any time between their importation and the time whea they are cleared for home consumption, to include any owner or any person holding himself out to be an importer.

248Copy pinpoint248. Section 46 provides that the importer of any goods (other than goods for transit or transhipment) shall present to the proper officer F a bill of entry for home consumption or warehousing in the prescribed fonnat. The bill of entry can be presented at any time after the delivery of the imp011 manifest or import report. Section 4 7 provides for clearance of goods for home consumption upon the satisfaction of the officer that the goods entered for home consumption are not prohibited goods and the importer has paid the import duty assessed thereon together with the G charges payable under the Act. Section 48 provides for the sale of goods by the person having custody if they are not cleared for home consumption or warehousing or transhipped within 30 days from the date of unloading. Chapter IX provides for warehousing. Section 57 provides for public warehouses where dutiable goods may be deposited. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 659

[DR. D. Y. CHANDRACHUD, J.]

Section 58 provides for the licencing of private warehouses where dutiable goods !'1rny be deposited. Section 59 provides for the execution of a warehousing bond. Section 60 deals with the grant of pennission to deposit goods in a warehouse. Section 61 provides for the period during which goods can remain in a warehouse. Under Section 64, the owner's right to deal with warehoused goods has been statutorily recognized to the extent mentioned therein. Section 65 enables the owner of any warehoused goods with due permission to carry on any manufacturing process or operations in the warehouse, relating to the goods. Section 68 provides for the clearance of warehoused goods for home consumption subject to the presentation of a bill of entry, payment of import duty and all penalties and charges and upon the passing of an order of clearance c for home consumption. Section 73 provides for the cancelation and the return of a warehousing bond.

249Copy pinpoint249. The Constitution distributes subjects oflegislation including, amongst them, those covering fiscal matters between the Union and the States. The fields or subjects oflegislation are elaborately defined so as to exclude the possibility of overlapping between entries in List I and those in List II. Even where the fields may appear to overlap, they must be construed to be mutually exclusive. The submission of the petitioners proceeds on the basis that if entry into any part of India from outside India is an entry into a local area, it 1would nonetheless be necessary to eannark the ambit of Entry 83, List I and Entry 52 List 11 respectively. Both, according to the petitioners cover taxes on the movement of goods. According to the petitioners, Entry 52 should cover an entry into a local area after the importation of the goods is complete since the field of Entry 83 continues to subsist until the goods have been imported by filing of a Bill of entry for home consumption.

250Copy pinpoint250. Entry 83 of List I and Entry 52 of List II have separale and distinct fields of operation. Entry 41 of List I deals with trade and commerce with foreign countries; import and export across customs frontiers; and definition of customs frontiers. The distribution of powers with reference to the taxing entries in List I and 11 is mutually exclusive.

251Copy pinpoint251. In a decision rendered in 1942 by the Federal Court in Province of Madras v. Messrs. Boddu Paidanna & Sons 101 , it was IOI 1942 F.C.R. 90 H

660 SUPREME COURT REPORTS [2016] 10 S.C.R.

A held that if a tax payer who pays sales tax is also a manufacturer subject to excise duty "there may no doubt be overlapping in one sense, but there is no overlapping in law". The two taxes which he is called upon to pay-excise duty and sales tax were held to be "economically two separate and distinct imposts". There was, in the view of the Federal Comt no reason to expand the meaning of the expression 'duties of excise' at the B expense of the provincial power to levy taxes on the sale of goods. The judgment of the Federal Cornt was affirmed by the Privy Council in Governor General in Council v. Province of Madras' 0". The Privy Council held that :

c "The two taxes, the one levied upon a manufacturer in respect of his goods, the other upon a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in Jaw there is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the exciseable article leaves the factory or workshop for the first time upon the occasion of its sale. But that method of collecting the tax is an accident of administration, it is not of the essence of the duty of excise which is attracted by the manufacture itself."

252Copy pinpoint252. Applying the same principle, this Court held in Ram Krishan F Ram Nath Agarwal v. Secretary, Municipal Committee, Kamptee 103 that a Bidi manufacturer was liable to pay excise duty and octroi on two distinct taxing events : whereas excise duty is a tax on manufacture, octroi duty is a tax on the entry of goods into a local area. In The Jiyajeerao Cotton Mills Ltd. v. State of Madhya Pradesh 104, a textile mill which was generating electricity for running the mill (and G not for sale) questioned the levy of electricity duty on the ground that this would amount to a levy of excise duty which fell exclusively within

'"' AIR (1945) PC 98 1oi AIR (1950) SC II

H '°' (1962) Supp. I SCR 282

JINDAL STAINLESS LTD. v. STATE OF HARYANA 661

[DR. D. Y. CHANDRACHUD, J.]

the competence of Parliament under Entry 84 of List I. Rejecting the submission, this Court held that :

"6. lt is difficult to see how the levy of duty upon consumption of electrical energy can be regarded as duty of excise falling within Entry 84 of List I. Under that Entry, what is permitted to Parliament is levy of duty of excise on manufacture 01' production of goods (other than those excepted expressly by that entry). The taxable event with respect to a duty of excise is "manufacture" or "production". Here the taxable event is not production c generation of electrical energy but its consumption. If a producer generates electrical energy and stores it up, he would not be required to pay any duty under the Act. It is only when he sells it or consumes it that he would be rendered liable to pay the duty prescribed by the Act. The D Central Provinces and Berar Electricity Act was enacted under Entry 48-B of List II of the Government of India Act, 1935. The relevant portion of that Entry read thus:

"Taxes on the consumption or sale of electricity" E Entry 53 of List 11 of the Constitution is to the same effect ... '' (Id. at p. 286-287)

253Copy pinpoint253. In D G Gose v. State of Kerala 105 , this Court held that a tax F on buildings imposed under the Kerala Building Tax Act, 1961 was referable to Entry 49 of List 11 and was not a tax on the capital value of assets under Entry 86 of List I. In that context, it was held that :

G "7 .... So if a tax is levied on all that one owns, or his total assets, it would fall within the purview of Entry 86 of List I, and would be outside the legislative competence of a State

'"' (1980) 2 sec 4to H

662 SUPREME COURT REPORTS [2016] 10 S.C.R.

A legislature, e.g. a tax on one's entire wealth. That entry would not authorise a tax imposed on any of the components of the assets of the assessee. A tax directly on one's lands and buildings will not therefore be a tax under Entry 86 ..... 8 ... .lf, therefore, a tax is directly imposed on 'buildings', it will bear a direct relation to the buildings owned by the assessee. It may be that the building owned by an assessee may be a component of his total assets; but a tax under Enny 86 will not bear any direct or definable relation to his building. A tax on 'buildings' is therefore a direct tax on the assessee's buildings as such, and is not a personal tax without reference to any particular property." (Id. at. p. 421)

254Copy pinpoint254. This decision has been affinned in Union of lndfa v. H S Dhillon 106 .While reiterating this position in Lt. Col. Sawai Bhawani D Singh v. State of Rajasthan 107 , this Court held that:

"7 ..... These two taxes are separate and distinct in nature and it cannot be said that there was any overlapping, or that the State Legislature was not competent to levy such E tax on lands and buildings merely on the ground that they have been subjected to another tax as a component of the total assets of the person concerned." (Id. at p. 111)

255Copy pinpoint255. In Mis RR Engineering Co. v. Zila Parishad Bareilly 108 , a tax was imposed on "circumstances and property" under the U P Kshettra Samitis & Zila Parishad Adhiniyam, 1961. This composite tax was questioned on the ground that this was essentially a tax on income under Entry 82 of List I and therefore outside the legislative competence G of the state legislature. Rejecting this submission, this Court held that:

'°'(1971) 2 sec 779 '"' o996) J sec 10s '""(I 980) 3 sec 330 H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 663

[DR. D. Y. CHANDRACHUD, J.]

"17. The Full Bench decision under appeal in the instant case, R.R. Engineering Co. [R.R. Engineering Co. v. Zila Parishad, Bareilly, AIR 1970 All 316], has taken the same view of the nature of the tax on circumstances and property by holding that it is not a tax on income but is a tax on a man's financial position, his status as a whole, depending upon his income from trade or business. Earlier, another Full Bench of the Allahabad High Court had held in Zila Parishad, Muzaffar Nagar v. Jugal Kishore that the tax on circumstances and prope11y is fundamentally distinct from and cannot be equated with income tax, that it is not covered by item 82, List I, Schedule VII, of the Constitution and c that it is essentially a tax on status or financial position c0mbined with a tax on property. These decisions correctly describe the nature of the tax on circumstances and property. We affirm the view taken therein, especially that the aforesaid tax is not a tax on income." D (Id at p. 337)

The constitutional principle has been enunciated by a Constitution Bench in Godfrey Phillips India Ltd. v. State of U P 109 thus : E

"The logical corollary of holding that taxes are imposed only on taxable events is that even when an ently speaks of a levy of a tax on goods, it does not include the right to impose taxes on taxable events which have been separately provided F for under other taxation entries. The tax in respect of goods has sometimes been referred to as a tax on an aspect of the goods and sometimes as the taxable income. (See Federation of Hotel Restaurant v. Union oflndia (1989) 3 sec 634=AIR 1990 SC 1637, (Pr. 13, 14, 16)." G (Id. at p. 544)

256Copy pinpoint256. The principle oflaw is hence well-settled: the taxing powers of the Union and the states are mutually exclusive. (See in this context

'°' (2005) 2 sec 515 H

664 SUPREME COURT REPORTS [2016] IO S.C.R.

A the decisions in Hoechst Pharmaceuticals v. State of Bihar 110 ; and State of West Bengal v. Kesoram lndustries 111 ).

257Copy pinpoint257. A Bench of nine Judges of this Court in Re Sea Customs 112 , distinguished the taxable event in the case of a duty of excise, which is the manufacture of goods, with a sales tax where thetaxable event is the B act of sale. Dealing with customs duties, the Bench of nine Judges speaking through Sinha, CJ held as follows :

"Similarly in the case of duties of customs including export duties though they are levied with reference to goods; the c taxable event is either the import of goods within the customs barriers or their export outside the customs barriers. They are also indirect taxes like excise and cannot in our opinion be equated with direct taxes on goods themselves. Now, what is the true nature of an import of an import duty? D Truly speaking, the imposition of an import duty, by and large, results in a condition which must be fulfilled before the goods can be brought inside the customs barriers, i.e. before they form part of the mass of goods within the country." (Id. at. p. 543) E

Entry of goods into a local area for consumption, use or sale therein attracts the charging provision of entry tax legislation. The levy which is referable to Entry 52 of List II is attracted the moment the goods enter a local area for consumption, use or sale. The Customs Act, 1962 has made a beneficial provision for allowing goods to be deposited in public or private warehouses and for the clearance of goods for home consumption. These provisions cannot and do not detract from the power of the state legislatures under Entry 52 nor do they denude the states from levying an entry tax once the taxable event under state law has occurred.

258Copy pinpoint258. In the present case, the grievance of the states is that the

""(1983) 4 sec 45 '" (2004) 10 sec 2011 H 112 (1963) 3 SCR 787

JINDAL STAINLESS LTD. v. STATE OF HARYANA 665

[DR. D. Y. CHANDRACHUD, J.]

petitioners have not stated in the pleading that there is any warehousing station in their factory units or in the local area where they are located. Hence, the contentions are stated to have been advanced without any basis in the pleadings or facts. Moreover, it has been submitted that the petitioners have not produced any evidence that the bill of entry is filed in the factory units or in a land customs station located in the same local area as the petitioner's units.

259Copy pinpoint259. For the purposes of this reference, it is not appropriate for the court to conclusively adjudicate upon the issues raised relating to the facts of the above cases. Hence, it is only appropriate and proper that all the facts are fully established before the regular bench adjudicating upon c the cases relating to goods imported from abroad. However, the constitutional position in respect of Entry 83 of List I and Entry 52 of List 11 has been clarified above. The taxable event for theimposition of a duty of customs is distinct from the taxable event in respect of an entry tax, which is the entry of goods into a local area for consumption, use and sale therein. D

M Direct and inevitable effect test 2'50. Whether taxes per se constitute an impediment upon the freedom of trade, commerce and intercourse is an issue which has resulted in two contrary positions, neither of which has been subscribed to in this judgment. At one end of the spectrum is the theory that all taxes impede the freedom of .h·ade, commerce and intercourse. If this theory were to be accepted, the entire tax regime and the state taxing power would be controlled by Part Xlll of the Constitution. The states which are sovereign within their own sphere would in the exercise of their constitutional power to raise revenues by way of taxation be subject to the rigours of Part XIII. Such an extreme view is not acceptable either from the stand point of textual construction or from its consequence for the federal structure of the Constitution. All taxes do not impede the freedom of trade, commerce and intercourse. lnfact, as discussed earlier, taxes provide the means by which revenues can be raised under a regime oflaw made by law making bodies at the federal and state level. Absent a taxing power, the states would be bereft of revenues needed for maintaining order and governance. Trade, commerce and intercourse H

666 SUPREME COURT REPORTS [2016] 10 S.C.R.

A cannot survive in the abstract and without conditions of stability and order created by the state. Moreover, the revenues which are made available to the state provide the basis for creating infrastructure and amenities, both direct and incidental, through which trade and commerce can effectively be transacted and can flourish. Hence, the extreme B proposition that all taxes constitute a restriction or impediment upon trade has been eschewed.

261Copy pinpoint261. At the other end of the spectrum lies the view that taxes do not constitute a restriction upon the freedom of trade, commerce and intercourse. If this view were to be accepted, Part XIII would have no c role as a constitutional limitation on taxing legislation save and except for discriminatory taxes of the kind that are prohibited by Article 304(a). The position thatArticle 304(a) constitutes the entire universe of taxation for the purpose of Part XIII has been rejected by this judgment on the ground that it suffers from fundamental fallacies and is contrary to the text of Part XIII.To recapitulate, the grounds for so holding are : D

(i) Laws for the purposes of Paii XIII must mean all laws and not to the exclusion of taxing legislation; (ii) TI1e constitutional validity of Parliamentary legislation imposing sales tax has been upheld on the basis of the provisions of Atiicle 302 which enables Parliament to impose restrictions on the freedom of trade and commerce in the public interest. If taxing legislation is regarded as a restriction for the purposes of Article 302, there is no reason to exclude the same interpretation for the purposes of Article 304; (iii) Atiicle 304(a) deals with a specific area of taxation-taxation of goods. The legislative powers of the state legislatures in List II of the Seventh Schedule enables them to tax persons, activities or things (Godfrey Phillips India Ltd. v. State of G U P 113). Article 304(a) covers only the last category namely a tax on goods. It does not cover taxes on persons (profession taxes or luxury tax) or taxes on activities (betting a11d gambling); (iv) Article 30 I guarantees free trade, commerce and intercourse

"'Supra note 109 H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 667

[DR. D. Y. CHANDRACHUD, J.]

throughout the territory of India. Inter-state trade as well as trade and commerce within a state is guaranteed. Aiticle 304(a) covers only taxes imposed on goods imported from other states. Article 304(a) in other words does not cover imposts on goods traversing within a state; (v) Aiticle 306 of the Constitution, as it stood prior to its repeal contemplated that restrictions could take the fonn of duties and imposts; and (vi) The expression 'restrictions' has been utilized in Part Xlll of the Constitution, as the provisions of Articles 302, 303, 304 and 306 would indicate in a manner that would not exclude taxing legislation. The consistent view of Constitution Benches of this Court has been that taxes may under certain circumstances amount to a restriction on the freedom of trade and commerce. The position has been lucidly summarized in the erudite judgment of Justice MN Venkatachaliah (as the learned Chief D Justice then was) in Express Hotels Pvt. Ltd. v. State of Gujarat 114 • After reviewing the position of law, the learned judge held thus:

"Taxes can and do sometimes, having regard to their effect and impact on the free flow of trade constitute restrictions on the freedom under Article 301. But the restriction must stamp from the provisions of the law imposing the tax which could be said to have a direct and immediate effect of restricting the free flow of "trade, commerce and intercourse". lt is not all taxes that have this effect." (Id. at p. 697)

262Copy pinpoint262. Nearly, five decades of jurisprudence having developed in support of the above principle, there is neither any rationale of constitutional principle or law that should leave this Court to make a departure from the position and to hold that taxes can in no circumstances constitute a restriction on the freedom of trade and commerce. Moreover,

"' (1989) 3 sec 677 H

668 SUPREME COURT REPORTS [2016] 10 S.C.R.

A it has been accepted even as a matter ofjudicial precedent that taxation serves not only the purpose of raising revenues but is also a powerful instrument of social control. The states and the Union in the exercise of their legislative powers, utilise taxation not only as a means of raising revenues to support their developmental activities but also as a measure of achieving social objects. Whether the pursuit of those social objects B or the pursuit of social regulation infringes upon the area of free trade and commerce cannot be decided a priori. The power of taxation is capable of being used in a manner which can constitute, in a given case, a restraint or impediment on the freedom of trade and commerce.

263Copy pinpoint263. In determining as to when taxes can constitute a restriction c on the freedom of trade and commerce, the direct and immediate effect test (as refined subsequently) provides a judicially manageable framework. The test of direct and immediate effect was enunciated in the judgments in Atiahari and Automobile Transport. The test is firmly entrenched as a part of our jurisprudence. In RC Cooper v. Union of lndia 115, a Bench of eleven Judges of this Court while adjudicating upon the validity of a law providing for bank nationalization overruled the judgment in AK Gopalan v. The State of Madras' 10 which had taken the view that it was the object of the action of the state in relation to the fundamental right of the individual and not the effect of the action that was relevant. This Court held that:

"49 ..... But it is not the object of the authority making the law impairing the right of a citizen, nor the form of action that determines the protection he can claim: it is the effect ofthe law and of the action upon the right which attracts the jurisdiction of the Court to grant relief. If this be the true view, and we think it is, in determining the impact of State action upon constitutional guarantees which are fundamental, it fol lows that the extent of protection against impairment of a fundamental right is determined not by the object of the Legislature nor by the form of the action, but by its direct operation upon the individual ·s rights:' (Id at p. 288) '" (1970J 1 sec 248 H "'·(1950) I SCR88

JINDAL STAINLESS LTD. v. STATE OF HARYANA 669

[DR. D. Y. CHANDRACHUD, J.)

In Bennett Coleman & Co. v. Union of lndia 11 7,the same A principle was formulated in the following statement oflaw:

" .. First, it is not the object of the authority making the law impairing the right ofthe citizen nor the form of action that B detem1ines the invasion of the light. Secondly, it is the effect of the law and the action upon the right which attracts the jurisdiction of the court to grant relief. The direct operation of the Act upon the rights fonns the real test." (Id at p. 799) c

264Copy pinpoint264. In Maneka Gandhi v. Union of Indiarn, this Court refined this test to mean the "direct and inevitable effect" of the action impugned. The direct and inevitable effect is that which necessarily must be intended by the state legislature, or, in other words, what may be described as the doctrine of intended and real effect. This Court held that : "20. It may be recalled that the test fonnulated in R.C. Cooper case merely refers to "direct operation" or 'direct consequence and effect' of the State action on the fundamental right of the petitioner and does not use the word "inevitable" in this connection. But there can be no doubt, on a reading of the relevant observations of Shah, J., that such was the test really intended to be laid down by the Court in that case. If the test was merely of direct or indirect effect, it would be an open-ended concept and in the absence of operational criteria for judging "directness", it would give the Court an unquantifiable discretion to decide whether in a given case a consequence or effect is direct or not. Some other concept-vehicle would be needed to quantify the extent of directness or indirectness in order to apply the test. And that is supplied by the criterion of "inevitable" consequence or effect adumbrated in the

'" (1972) 2 sec 788 "' (1978) 1 sec 248 H

670 SUPREME COURT REPORTS [2016) 10 S.C.R.

A Express Newspapers case. This criterion helps to quantify the extent of directness necessary to constitute infringement ofa fundamental right. Now, if the effect of State action on fundamental rights is direct and inevitable, then a fortiori it must be presumed to have been intended by the authority B taking the action and hence this doctrine of intended and real effect." · (Id. at p. 299)

265Copy pinpoint265. ln order to determine whether a law providing for the imposition of a tax constitutes a restriction on the freedom of trade, c commerce and intercourse, the principle that must be applied is whether the direct and inevitable effect or consequence of the law is to impede trade and commerce. The burden must lie on the person who alleges that such is the effect of the tax to plead and establish to the satisfaction of the com1 that the consequence which is alleged does in fact exist. The D direct and inevitable consequence for the purposes of Part Xlll of the Constitution is not the same as an infringement of the fundamental right to carry on an occupation trade or business under Article 19( 1)(g). Under Article 19 ( 1)(g), it is the individual's right to carry on trade or business which is guaranteed as a fundamental freedom. When a legislative measure seeks to cm1ail that freedom, the test is whether the right of the individual has been infringed or eviscerated. In the context of Part Xlll,the matter is looked at from the perspective of trade and commerce as a whole. Henc'e, in a case which falls under Part Xlll of the Constitution it is for the petitioner to demonstrate and establish that the direct and inevitable effect of the law imposing a tax is to impede or restrict the flow of trade and commerce.

266Copy pinpoint266. The mere fact that the activity which is taxed is related to the flow or movement of trade and commerce is not sufficient in itself to lead to the inference that a tax on that activity impedes or restricts it. Businessmen and traders must and do necessarily factor in the requirement of tax compliance as a part of an ,overall business plan. Hence, the mere fact that the tax is imposed with reference to an activity or thing which constitutes an aspect of trade or commerce is not sufficient in itselflead to the consequence that it is a restriction or impediment of trade and commerce. The petitioner with such a grievance must cross the threshold of establishing in cogent tenns before the Court that the H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 671

[DR. D. Y. CHANDRACHUD, J.]

direct and inevitable effect of the tax law is to constitute an impediment A of trade and commerce.

267Copy pinpoint267. In the context of entry tax, it is said on behalf of the petitioners that, there cannot be an entry into alocal area of goods for consumption, use or sale unless the tax is paid. If the tax is not paid there can be no entry of goods. This is the basis for urging that entry tax constitutes a B direct impediment or restriction on the freedom of trade and commerce. This approach to the issue cannot be accepted. In the regulatory sphere, adhc;ence to a regulatory statute may be made a condition precedent to engaging in a particular line of activity involving business, trade or commerce. However, the requirement of compliance does not by itself render the statute an impediment of trade and commerce. Similarly,in the fiscal arena,the fact that a tax liability has to be discharged as an incident of or a pre-condition for engaging in a line of activity does not by itself-and without actual proof of impediment or restraint-constitute a restriction. A conclusion that the inevitable consequence and effect of the legislation is to impede or restrict trade and commerce can be drawn only on the basis of demonstrable material that establishes that the impact of the tax is to result in that consequence. The burden to establish this is on the person who seeks to do so as a ground for relief.

268Copy pinpoint268. In a regulatory area as well as in a fiscal context, the legislature may prescribe the fulfilment of certain requirements subject to which a E line of business, trade or commerce may be pursued. The fulfilment of those requirements may be set down as a condition precedent. A statutory regulator may for instance stipulate requirements of licencing or registration before a commercial activity which it regulates can be undertaken. Licencing or registration nom1s may stipulate financial and other requirements which need to be fulfilled as a pre-condition for carrying on an activity or business. The fact that a statute allows for or prescribes such nonns which constitute a condition precedent is not reason enough to hold that they constitute restrictions in themselves or an impediment of trade and commerce. The right to carry on trade and commerce is not a right to be free from regulation that ensures orderly conditions for the pursuit of the activity. Nor can a right be exercised in such a manner as would create chaos through unregulated actions of numerous participants. In other words, the fact that a requirement operates as a pre-condition is not sufficient in itself to hold that it impedes H

672 SUPREME COURT REPORTS [2016] 10 S.C.R.

A or restricts trade. In order to constitute an impediment, the condition must be demonstrated to cause, as a direct and inevitable consequence of its operation a restriction of trade or commerce. Every regulatory requirement does not restrict or impede trade and commerce even if at the threshold, its fulfilment is a condition enabling a person or entity to engage in a regulated activity. B

269Copy pinpoint269. ln a fiscal context, the payment ofan impost or levy is attracted when the taxing event occurs. The tax may be on persons, activities or things.It is the taxing event which incurs the charge or liability to tax. The charge may be associated with an aspect of an activity or thing. c The mere fact that this aspect is connected with the flow or movement of trade or commerce does not in itself lead to the conclusion that the. tax constitutes an impediment or restriction. The impediment does not lie in the aspect of the activity or thing which is the subject of the tax but in its consequence. Every tax or movement on entry does not impede trade or commerce. The volume of trade in a commodity is detem1ined D by numerous variables including the nature of the product, availability of raw material, transportation and infrastructure, the nature and extent of competition, market cycles as well as the elasticity of demand and supply. The tax structure is one ingredient which has a bearing on the allocation of resources. For a tax to constitute a restriction, there must be demonstrable material to indicate that its direct and inevitable effect or consequence is to obstruct or impede trade or commerce. Before the tax is held to be a restriction, the threshold must be crossed by demonstrating that the immediate and necessary consequence is to restrict impede or obstruct trade as a whole. Unless the impact of the financial levy is demonstrated, in tenns ofits direct and inevitable consequence, to restrict trade or commercethe provisions of Article 304 (b) would not be attracted. For, there has to a restriction in the first place before the issue of its reasonableness arises. Consequently, it is not possible to hold that the mere fact that the charge of the tax is associated with an aspect of the movement of trade and commerce indicates that it is a restriction in every case. The burden lies upon the individual or entity asserting the existence of a restriction to demonstrate its impact in tenns of the direct and inevitable effect test as adopted abo~e. Hence, there canbe no a priori assumption that an entry tax constitutes a restriction or impediment to trade and commerce. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 673

[DR. D. Y. CHANDRACHUD, J.]

N Conclusion A

The conclusions of this judgment are, in summation, fonnulated below:

270Copy pinpoint270. The freedom guaranteed by Article 301 enables goods, B services, persons and capital to engage in trade, commerce and commercial intercourse throughout the territory of India. The expression 'throughout' extends the ambit of the freedom across and within state boundaries. Article 301 subserves the constitutional goal of integrating the nation into an economic entity comprising of a common market for goods and services. c

271Copy pinpoint271. The freedom guaranteed by Article 301 is not absolute but is subject to legislative control by Parliament and the state legislatures. A1ticles 302, 303 and 304 define the ambit of the restrictions which Parliament and the state legislatures may impose by laws enacted in pursuance of their legislative powers under Articles 245 and 246. Besides providing for pennissible restrictions, those aiticles lay down the limits which govern the law making authority. 2·72. Articles 245 and 246 together constitute the source of the legislative power of Parliament and the state legislatures. Article 245 is subject to the provisions of the Constitution. Every constitutional authority is subject to its provisions. No arm of the Constitution is vested with absolute power. Every institution created by the constitution operates subject to the governing piinciples of the written constitution and is subject to the limitations which it prescribes. Constitutional limitations on legislat:vepower originate in the necessity that the enacting body must possess legislative competence on the subject on which it enacts law, that the law which it enacts must not infringe fundamental rights and that it must abide by other norms prescribed by the Constitution.

273Copy pinpoint273. Part Xlll of the Constitution enunciates a set of constitutional limitations on the legislative power to regulate trade, commerce and commerce.

274Copy pinpoint274. The federal structure is one of the basic features of the Constitution. Judicial interpretation of Part XIII must factor in the necessity of ensuring that the carefully crafted balance between the H

674 SUPREME COURT REPORTS [2016] 10 S.C.R.

A Union and the States is preserved.

275Copy pinpoint275. Taxation is a sovereign power entrusted by the Constitution to the Union and the States. The Seventh Schedule distributes legislative power, including the power to tax, between Parliament and the state legislatures. The interpretation of Part Xlll must ensure that the autonomy of the states in the fields assigned to them is not eroded.

276Copy pinpoint276. While recognising sovereignty in the fields assigned to the centre and the states, the Constitution subjects its sovereign arms to constitutional limitations which are designed to preserve the balance which it has created. Hence all legislative power, including of a fiscal nature has to abide by the norms of the written constitution. Judicial review of fiscal legislation however recognises the wide latitude which inheres in the legislatures both at the national and state level to classify persons, objects and things for the purpose of raising revenues.

277Copy pinpoint277. The concept of compensatory taxes was judicially evolved in the decision in Automobile Transport to exclude certain regulatory measures and fiscal exactions from the operation of Part Xlll. The concept has created doctrinal inconsistencies and uncertainty in the application of legal standards. The decision in Automobile Transport is to that extent overruled.

278Copy pinpoint278. The proposition that taxes do not constitute a restriction on the freedom of trade and commerce (save and except for a discriminatory tax which violates A1iicle 304(a)) does not reflect a valid constitutional principle. Article 304(a) does not constitute the entire universe of taxation for the purpose of Part XIII. Aiiicle 304(a) deals with a species ofnon- F discriminatory taxes : non-discriminatory taxes on goods imported from other states.

279Copy pinpoint279. As a statement of constitutional principle, neither of the two positions which lie at the extreme ends of the spectrum is valid : at one end is the position that all taxes are restrictions and at the other end, is G the position that no tax (except a discriminatory tax on goods) is a restriction. All taxes do not constitute restrictions. Some taxes may impede trade and commerce.

280Copy pinpoint280. A tax may amount to a restriction where its direct and inevitable effect is to restrict the freedom of trade, commerce and H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 675

[DR. D. Y. CHANDRACHUD, J.]

intercourse. The burden to establish this is on the person who seeks to A assail the validity of a particular tax on the ground that it amounts to a restriction on the freedom guaranteed by Article 301. Unless this threshold is crossed, the proviso to Article 304(b) will have no application for, it is only when there is a restriction that the question of its reasonableness can arise. B

281Copy pinpoint281. The expression 'may' in Article 304 has to be read in conjunction with the expression 'and' which separates clauses (a) and (b ). The true construction of the expressions is in the sense of a joint and several "and/or".

282Copy pinpoint282. Article 304(a) does not require that in order to impose a tax c on goods imported from other states, similar goods must be actually produced or manufactured within the taxing state. The object of the provision is to prevent states from following protectionist policies by discriminating against goods produced or manufactured by other states. Article 304(a) does not import the concept of a countervailing duty. D

283Copy pinpoint283. Article 304(a) does not prevent a reasonable classification. The provision comprehends both formal and substantive notions of equality. Formal equality would be met when the same rate of tax i.s prescribed for goods imported from other states as is levied on goods produced and manufactured within. Apart from the rate of tax, other E significant aspects include procedural provisions such as licensing and registration, the machinery for assessment and set-offs and exemptions. Substantive equality recognises the need for the development of underdeveloped areas of the country. A balance has to be struck between the concerns of both formal and substantive equality. The decisions in Video Electronics and Mahavir must be understood in that context. F

284Copy pinpoint284. The expression "any tax" in Article 304(a) does not mean a tax which is referable to only one subject of legislation falling under a taxing entry in List 11 of the Seventh Schedule. When a legislature legislates, the full range of its plenary powers is available to it. ln India, the legislatures are not confined to imposing a tax under one entry while G fonnulating a fiscal law. Hence, Article 304(a) does not fetter the state legislatures from ensuring an equality of tax burden between goods that are imported from other states and goods manufactured or produced within. H

676 SUPREME COURT REPORTS [2016] 10 S.C.R.

285Copy pinpoint285. While enacting entry tax legislation referable to Entry 52 of List II, it is pennissible for the state legislature to have regard to the equalisation of tax burdens between goods imported from other states and goods manufactured or produced within. The legislature may have regard to the tax burden under value added tax/sales tax law as well as entry tax, considered as a composite whole. Whether the scheme of B exemptions and set offs has achieved an equalisation of tax burdens as between goods domestic to a state and those imported from other states is an issue to be considered in each case having due regard to the provisions of state legislation.

c 286. A "local area" for the purposes of Entry 52 of List II is not the entire state. Local area postulates an area within a state administered by a local body under relevant state legislation. ASHOK BHUSHAN, J. 1. Before this Constitution Bench of Nine Judges of the Apex Court of this country which have time and D again, when there arose serious debates and doubts on the Constitutional provisions of our country, authoritatively concluded the debates and quenched the doubts, a galaxy oflawyers by their illuminating arguments engaged the Court for long twenty one days hearing. Now, it is our tum to respond.

E 2. In preparing my judgment I had advantage of going through thoughtful & well reasoned judgment of My Lord the Chief Justice. I deeply regret my inability to share the views ofleamed Chief Justice on Question No. I & 4 as framed by us, although I agree with the conclusion of His Lordship on Question No. 2 & 3. The views of Dr. Justice D. Y. Chandradmd in his scholarly judgment are fairly near my own except F on few subjects on which I have expressed different opinion. Looking to the vital Constitutional issues having a far reaching impact on economic unity of the country, I consider it my duty to express my views in my own way on all issues raised before us. I begin my task in following manner.

G 3. This larger Bench has been constituted on a reference made by a Constitution Bench of this Court in Jindal Stainless Ltd & another Vs. State of Haryana & Other, 2010 (4) SCC 595, expressing doubts on correctness of Constitution Bench Judgment in Atiabari Tea Co. Ltd, 1961 (1) SCR 809 and 7 Judges Bench Judgment in Automobile H

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[ASHOK BHUSHAN, J.]

Transport case, 1963 (1) SCR 491, on interpretation of Pait XIII of the Constitution of India. Part Xlll of the Constitution was engrafted by framers of the Constitution to attain the goal of economic unity of the country. Large number of issues ranging from principles of constitutional interpretation, federalism, sovereignty of states, limitation on legislative powers of the States, freedom of trade, commerce and intercourse as envisaged by Constituent Assembly, to the interpretation of various articles of Constitution including Article 301 - 306 contained in Part XIII, have arisen before us in this bunch of cases.

4. For answering the questions which have arisen before us, various aspects related to the issues noticed above are to be deliberated with reference to relevant precedents. We have thus identified certain broad steps for our discussion before attempting to answer the specific questions.

5. On the above subjects, learned eminent counsel appearing before us have thrown different shades oflight to illuminate the topics, which we are sure, shall make our task easy to discharge our constitutional responsibility of interpreting the Constitution. The Constitution, not only, contains the goals and aspirations set by Constituent Assembly for our country, but it is also a guiding star for the future generations to attain the highest standards of social, political, economic and individual life. We have divided our discussion into parts which are; firstly, the facts leading to this reference. Secondly, two Constitution Bench judgments in Atiabari Tea Company and Automobile Transport. Thirdly, submissions made before us by learned counsel appearing for various parties. Fourthly, the discussion on the subjects relevant on questions falling for our considerations. Fifthly, our conclusions, and sixthly, our answers. Fourth part contains following subjects:-

A. LEGISLATIVE HISTORY AND DEBATES IN CONSTITUENT ASSEMBLY ON FREEDOM OF TRADE, COMMERCE AND INTERCOURSE. G

B. NATURE OF FEDERALISM IN CONSTITUTION OF INDIA. C. LIMITATIONS ON THE LEGISLATIVE POWER OF H

678 SUPREME uJURT REPORTS [20!6J IO S.C.R.

A THE STATE UNDER THE CONSTITUTION. D. WHETHER PART XIII O.F THE CONSTITUTION INCLUDES "TAX LEGISLATION'' AN]) WORD "RESTRICTION" USED THEREIN INCLUDES TAX LEGISLATION. B E. LEGISLATIVE HISTORY AND CONSTITUENT ASSEMBLY DEBATES RELATING TO ARTICLE 304(a) AND ARTICLE 304(b). F. INTERPRETATION, SCOPE AND AMBIT OF ARTICLE 304(a) AND ARTICLE 304(b). c G. ENTRY 52, LIST II OF VIITH SCHEDULE. H. MEANING OF RESTRICTION AS USED IN PART XIII. I. WHETHER DIRECT AND IMMEDIATE EFFECT TEST AS LAID DOWN IN ATIABARI & APPROVED IN D A UTOMOB/LE TRANSPORT IS NO LONGER A CORRECT TEST. J. COMPENSATORY TAX THEORY.

E PART I FACTS ANn EVENTS LEADING TO REFERENCE TO THIS NINE .JUDGES BENCH

F 6. For fully appreciating the issues and questions raised in this batch of cases, certain facts and events preceding the Reference to this larger Bench need to be noted. The challenges to various State Legislations were laid before different High Courts on various grounds including the ground that levy of Entry Tax violates the freedom of trade, commerce and intercourse as guaranteed by Article 30 I of the Constitution oflndia and Legislations are not saved under Article 304.

7. One of the State Legislations, namely, Haryana Local Area Development Tax Act, 2000 came to be challenged before Punjab and Haryana High Court. The High Court by its judgment dated 21.12.200 l H

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upheld the validity of the Act which judgment came to be challenged in A Civil Appeal No.3453 of2002 with connected matters; Jindal Stainless Ltd. &Am: vs. StateofHaryana & Ors. In the above appeals, appellants were Industries or Association oflndustries manufacturing their products within the State of Haryana. T\le raw materials for their respective products were brought from outside the State. The above 2000 Act was B enacted to provide for levy and collection of tax on the entry of goods into the local area of the State of Haryana for consumption and use therein and matters incidental thereto and connected thereto. One of the grounds of challenge was that 2000 Act is violative of Article 301 and not saved under Article 304. The Pubjab and Haryana High Court repelled the challenge holding that Entry Tax being compensatory in nature is c outside the purview of Article 301 as has been held by the Constitution Bench judgment in Atiabari Tea Co. Ltd. vs.The State of Assam& Ors., (1961) 1 SCR 809, and larger Bench judgment of Seven Judges in Automobile Transport (Rajasthan) Ltd. vs. The State ofRajasthan and Ors., (1963) 1 SCR 491. D

8. In Atiabari Tea Co.Ltd.(supra) the Assam Taxation(on goods carried by Roads and Inland Waterways) Act, 1954 was challenged. The Assam High Court upheld the validity of that Act against which the matter was taken to this Court, the appellant contended that Act violated the freedom of trade and it was without previous President's Sanction E as required by A11icle 304(b). The majority rejected the argument raised on behalf of the State that Tax Laws are outside Part XIII. It was held that the Tax Laws can and do amount to restriction freedom from which is guaranteed to trade under Part Xlll. It was held that a rational and workable test to be applied for finding out is; whether the impugned F restrictions operate directly and immediately on trade or its movement.

9. The above decision of the Constitution Bench came for consideration before larger Bench in Automobile Transport (supra). ln which case Rajasthan Motor Vehicles Taxation Act, 1951 came to be challenged on the ground that it violates Article 301. The Rajasthan High G Court has upheld the validity of that Act. The larger Bench in the Automobile Tramport case by majority approved the ratio of Atiabari Tea Co.Ltd. Subject to an exception which was judicially crafted that compensatory taxes are not hindrance to any body's freedom. It was held that regulatory measures or measures imposing compensatory taxes H

680 SUPREME COURT REPORTS [2016) 10 S.C.R.

A for the use of trading facilities do not come within the purview of the restrictions contained inArticle 301 and such measures need not comply with the requirement of the proviso to Article 304(b ).

10. It was further held that a working test for deciding whether a tax is compensatory or not is to enquire whether the traders people are B having the use of certain facilities for the better conduct of their business and paying not much more than what is required for providing the facilities.

11. The above two judgments, around which discussion before us has centered shall be noted hereinafter in some detail including the views c expressed by the majority and minority.

12. What is compensatory tax came for consideration by this Court in the context of M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 in Mis. Bhagatram Rajeevkumar vs. Commissioner of Sales Tax, M.P. and others, (1995) Supp.(1) SCC 673. The Three D Judge Bench in the above case held. 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 dealers directly or indirectly the levy cannot be impugned as invalid. The above Three Judge Bench judgment was followed by a Two Judge Bench in State of E Bihar and others vs. Bihar Chamber of Commerce and others, (1996) 9 SCC 136, which was in the context ofBihar (Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein) Act,

1993. Two Judge Bench reiterated the position that "some connection" between the tax and the trading facilities is sufficient to mention it as compensatory tax. F

13. Now reverting back to Jindal Stripe Ltd.and another vs. State of Hayana and others, (2003) 8 SCC 60, before the Two Judge Bench of this Court, submissions on behalf of State ofHaryana that tax is compensatory in nature and submissions by the appellant that the Act violates Article 301 was noted. The Two Judge Bench also referred to G Aitabari Tea Co. Ltd. And Automobile Transport (Rajasthan) Ltd. and noted the working test for finding out a compensatory tax as laid down in Automobile Transport. Two Judge Bench expressed its doubt regarding the correctness of tests laid down by Bhagatram Rajeevkumar and Bihar Chamber of Commerce to find out whether H

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the tax is compensatory or not. Two Judge Bench expressed its doubt and observed that interpretation of Article 301 vis-a-vis compensatory tax need to be laid down by a Constitution Bench. Following was laid down in paragraph 26 and 27: "26.The decisions in Bhagat Ram and Bihar Chamber of Commerce now say that even if the purpose of imposition of the tax is not merezv to confer a special advantage on the traders but to benefit the public in general including the traders, that levy can still he considered to he compensatory. According to this view, an indirect or incidental benefit to traders by reason of c stepping up the developmental activities in various local areas of the State can he legitimate~v brought within the concept of compensatory tax, the nexus between the tax known as compensatory tax and the trading facilities not being necessarily either direct or specific. D 27.Since the concept of compensatory tax has been judicialzv evolved as an exception to the provisions of Article 301 and as the parameters of this judicial concept are blurred particularly by reason of the decisions in Bhagat Ram(rnpra) and Bihar Chamber of Commerce(supra), we are of the view that the E interpretation of Article 301 vis-a-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench under Articlel45(3)."

14. Consequent to Reference made to the Constitution Bench in Jindal Stripe Ltd.(supra), a Five Judges Bench answered the Reference F by its judgment dated 13 'h April, 2006 reported in Jindal Stainless Ltd. (2) and another vs. State of Haryana and others, (2006) 7 SCC 241, the Constitution Bench overruled judgments of Bhagatram Rajeev kumar and Bihar Chamber of Commerce and recorded their views in paragraph 52-53 to the following effect: G "52. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case.followed by the judgment in the case of Bihar Chamber of Commerce was well- .founded. H

682 SUPREME COURT REPORTS [2016] 10 S.C.R.

A 53. 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 and the working test enunciated in Automobile Transport (Rajasthan) Ltd. B v. State of Rajasthan for deciding whether a tax is compensatory or not vide para 19 of the report, will continue to apply and the test of "some connection" indicated in para 8 of the judgment in Bhagatram Rajeevkumar v. Commiss.ioner of Sales Tax, M.P. and followed in the case of State of Bihar v. Bihar Chamber c of Commerce, is, in our opinion, not good law. According(v, the constitutional validity of various local enactments which are the subject matters of pending appeals, special leave petitions and writ petitions will now he listed.for heing disposed of in the light of this judgment." '

15. After judgment of the Constitution Bench all the matters including the matters of Jindal were again listed before a Two Judge Bench. Two Judge Bench noticed that basic issues revolve around the concept of compensatory tax and the High Courts concerned had not examined the issues in the proper perspective as they were bound by the judgments of Bhagatram Rajeevkumar and Bi/tar Chamber of Commerce. Referring to the Constitution Bench judgment in Jindal Stainless Ltd.(2) (supra) this Court in Jindal Stainless Ltd.(3) and another vs. State of Haryana and others, (2006) 7 SCC 271, permitted the parties to place the data in the writ petitions before the F High Court and the High Courts were requested to decide the aforesaid issues within five months. Following was stated in paragraphs 5 & 6:

"5. Since relevant data do not appear to have heen G placed he/ore the High Courts, we permit the parties to place them in the concerned Writ Petitions within two months. The concerned High Courts shall deal with the hasic issue as to whether the impugned levy was compensatory in nature. The High Courts are requested to decide the aforesaid issue within .five months from H

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the date of receipt of our order. The judgment in the A respective cases shall he placed on record by the concerned parties within a month from the date of the decision in each case pursuant to our direction. "6. Place these matters for further hearing in third week of January, 2007." B

16. Different High Courts in consequence to directions by this Court in Jindal Stainless Ltd.(3) (supra) decided the matter one or other way. Some of the High Courts held the Act, which were under challenge, compensatory in nature whereas other High Courts relying on the Constitution Bench judgment in Jindal Stainless Ltd.(2), held c the respective Acts as not compensatory. The judgments of the different High Courts consequent to directions in Jindal Stainless Ltd.(3) came to be challenged by different assessees and the State before this Court. A batch of SLPs came for consideration before Two Judge Bench. Two Judge Bench observed that though some of the factors have been D addressed to by the Constitution Bench in Jindal Stainless (2)(supra) whereas certain other constitutional issues are involved. Two Judge Bench opined that considering the importance of the issues relating to Articles 301 and 304 and Part Xlll of the Constitution, it is necessary to refer the matter to a larger Bench in tenns of Article 145(3) of the Constitution. In Reference order following was stated in paragraphs 8 E and9: "8. The concept of compensatory tax is judicially evolved and in a way provides a balancing factor between federal control and State Taxing Board. The F concept really had its matrix in transportation cases and does not apply to general notion of Entry Tax. Therefore, considering the importance of the issues relating to Articles 301 and 304 and Part XIII of the Constitution, we consider it necessary to refer the matter to a larger Bench in terms of Article 145(3) of the G Constitution.

9. The .following questions are referred for the aforesaid purpose:

684 SUPREME COURT REPORTS [2016] 10 S.C.R.

A (1) Whether the State enactments relating to levy of Entry Tax have to he tested with reference to hath Clauses (a) and (h) of Article 304 of the Constitution for determining their validity and whether Clause (a) of Article 304 is conjunctive with or separate from Clause (h) of Article 304? B (2) Whether imposition of Entry Tax levied in terms of Entry 52 List II of 7th Schedule is violative of Article 301 of the Constitution? if the answer is in the affirmative whether such levy can he protected if Entry c Tax is compensatory in character and if the answer to the aforesaid question is in the affirmative what are the yard~tich to he applied to determine the compensatory character of the Entry Tax.

(3) Whether Entry 52, List II, 7th Schedule of the D Constitution like other taxing entries in the Schedule, merely provides a taxing .field for exercising the power to levy and whether collection of Entry tax which ordinarizy would he credited to the Consolidated Fund of the State being a revenue received by the Government E of thi' State and would have to be appropriated in accordance with law and for the purposes and in the manner provided in the Constitution as per Article 266 and there is nothing express or explicit in Entry 52. List 11, 7th Schedule which would compel the State to spend the tax collected within the local area in which it was collected?

(4) Will the principles of quid pro quo relevant to a fee apply in the matter of taxes imposed under Part XIII?

(5) Whether the Entry Tax may he levied at all where the goods meant.for heing sold, used or consumed come to rest (standstill) after the movement of the goods ceases in the 'local area'?

(6) Whether the Entry Tax can be termed a tax on the movement of good1· when there is no bar to the entry of H

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[ASHOK BHUSHAN, J.]

good5 at the State harder or when it passes through a A local area within which they are not sold, used or consumed?

(7) Whether inte1pretation of Articles 301 to 304 in the context of Tax on vehicles (commonly known as 'transport') cases in A ti a hart '.s case (supra) and B Automohile Transport :1· case (.mpra) app~y to Entry Tax cases and i/so, to what extent.

(8) Whether the non discriminatory indirect State Tax ·which is capable of being passed on and has been passed on hy traders to the consumers infringes c Article 301 of the Constitution?

(9) Whether a tax on goods within the State which directly impedes the trade and thus violates Article 301 of the Constitution can he saved hy reference to Article 304 of the Constitution alone or can he saved hy any other Article?

(10) Whether a levy under Entry 52, List II, even if held to be in the nature of a compensatory levy, it must, on the principle of equivalence demonstrate that the value of the quantifiable benefit is represented hy the costs incurred in procuring the facility/services (which costs in turn become the basis of re- imbursementlrecompense for the provider of the services/facilities) to he provided in the concerned 'local area' and whether the entire F State or a part thereof can he comprehended as local area for the purpose of Entry Tax?"

17. Consequent to the above Reference order dated 18'h December, 2008 in Jaiprakash Associates Limited vs. State ofMadhya Pradesh and others, (2009) 7 SCC 339, the matter again came to be G listed before a Constitution Bench of Five Judges. The Constitution Bench again heard the entire batch of cases including the appeals against the judgment dated 21.12.2001 of the Punjab and Haryana High Court where the validity of2000 Act was upheld. The Constitution Bench by its order dated April 16, 2010, reported in Jindal Stainless Ltd. and another vs. H

686 SUPREME COURT REPORTS [2016] IO S.C.R.

A State of Haryana and others, (2010) 4 SCC 595, decided to make a Reference for constituting a suitable larger Bench for reconsideration of the judgments of this Court in Atiabari Tea Co. Ltd. and Automobile Tranposrt (Rajasthan) Ltd. The Constitution Bench in its order noted the following in paragraphs 1, 2 and 3: B "]. On l81h December. 2008, when some of the cases in the present hatch came for hearing before a Division Bench of this Court to which one of us, Kapadia, J., was a party, the Division Bench of this Court found c that some of the High Courts before which the State Entry Tax stood challenged had taken the view that Clause (a) and Clause (h) of Article 304 of the Constitution of India are independent of each other and that if the impugned law stood saved under D Article 304(a) then it need not be tested with reference to Clause (b) for determining its validity.

2. Accordingly, on l 8 h December, 2008, the Division 1

Bench of this Court referred to the Constitution Bench I 0 questions, the most important of which being - E whether the State enactments relating to levy of entry tax have to be tested with reference to both Article 304(a) and Article 304(b) of the Constitution and whether Article 304(a) is conjunctive with or separate from Article 304(b)? Consequently, the matter stood referred to the Constitution Bench of this Court. F

3. Accordingly, on l 61h March, 2010, the entire hatch of cases caine for hearing before the Constitution Bench in which the lead matter is Jindal Stainless Ltd. and Anr. v. State of Haryana and Ors. When the hearing commenced before the Constitution Bench, we found G that the assessees (original petitioners in the High Courts) are heavily reZving upon the tests propounded by a 5-Judge Bench of this Court in Atiabari Tea Co. Ltd. v. The State ofAssam and Ors•. which tests subject to the clar(fication, stood reiterated in the subsequent H

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judgment delivered by a larger Bench of this Court in the case of 111e Automobile Tran~port (Rajasthan) Ltd. v. The State of Rajasthan and Ors. "

18. The Constitution Bench was of the view that on a number of aspects a larger Bench of this Court needs to revisit the interpretation of Part XIII of the Constitution including the various tests propounded in the judgments of the Constitution Bench of this Court in Atiabari Tea Co. and Automobile Transport (Rajasthan) Ltd. Some of these aspects which need consideration by a larger Bench of this Court were enumerated in Paragraphs 11, 12 and 13 & 14 which are relevant, are to the following effect:

"11. Some of these aspects which need consideration by larger Bench of this Court may he briefly enumerated. D Interplay/interrelationship between Article 304(a) and Article 304(h). The sign(ficance of the word "and" between Article 304(a) and 304(h). The significance of the non obstante clause in Article 304. The balancing of.freedom of trade and commerce in Article 301 vis-a- vis the States' authority to levy taxes under Article 245 E and Article 246 of the Constitution read with the appropriate legislative Entries in the Seventh Schedule, particularly in the context of movement of trade and commerce.

12. Whether Article 304(a) and Article 304(h) deal F with different subjects? Whether the impugned taxation law to he valid under Article 304(a) must also fu(fil the conditions mentioned in Article 304(b}, including Presidential assent? Whether the word "restrictions" in Article 302 and in Article 304(b) includes tax laws? G Whether validity of a law impugned as violative of Article 301 should be judged only in the light of the test of non-discrimination? Does Article 303 circumscribe Article 301? Whether "internal goods" would come under Article 304(b) and ''external goods" under Article H

688 SUPREME COURT REPORTS [2016] 10 S.C.R.

A 304(a)? Whether "per se test" propounded in Atiabari:~ case (rnpra) should or should not be rejected? Whether tax simpliciter constitutes a restriction under Part XIII of the Constitution? Whether the word "restriction" in Article 304(b) includes tax laws? Is taxation justiciable? B Whether the "working test" laid down in Atiabari makes a tax law per se violative of Article 301? Inter- relationship between Article 19(J)(g) and Article 301 of the Constitution? These are some of the questions which warrant reconsideration of the judgments in Atiabari Tea Co. Ltd and Automobile Transport (Rajasthan) Ltd. c (supra) by a larger Bench of this Court.

13. Jn conclusion, we may also mention that though the judgments in Atiabari Tea Co. Ltd. and Automobile Transport (Rajasthan) Ltd. (supra) came to be delivered 49 years ago, a doubt was expressed about the tests D laid down in those two judgments even in the year 1975 in the case of G.K. Krishnan and Ors. v. State of Tamil Nadu and Ors. by Mathew, J., vide para 27, which reads as under: "2 7. Whether the restrictions visualized by E Article 304(b) would include the levy of a non- discriminatory tax is a matter on which there is scope for difference of opinion. Article 304(a) prohibits only imposition of a discriminatory tax. It is not clear from the article that a tax simpliciter can be treated as a restriction on the freedom of internal trade. Article 304(a) is intended to prevent discrimination against imported goods by imposing on them tax at a higher rate than that borne by goods produced in the State. A discriminatory tax against outside goods is not a tax simpliciter but is a barrier to trade and commerce. Article 304 itse(f makes a distinction between tax and restriction. That apart, taxing powers of the Union and States are separate and mutually exclusive. It is rather strange that power to tax given to States, say, for instance, under Entry 54 H

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[ASHOK BHUSHAN, J.]

of List II to pass a law imposing tax on sale of goods should depend upon the goodwill of the Union Executive. " (emphasis supplied)

14. For the aforestated reasons, let this batch of cases he put before Hon 'hie Chief Justice of India for constituting a suitable larger Bench for reconsideration of the judgments of this Court in Atiabari Tea Co. and Automobile Transport (Rajasthan) Ltd. (rnpra). "

19. In pursuance of Reference made by the Constitution Bench by its order dated 16'h April, 2010 Hon'ble the Chief Justice has constituted this Nine Judges Bench to hear the matter.

20. Although in paragraphs 11 and 12, as extracted above, certain questions were noted by the Constitution Bench, when the hearing began D in the present batch of cases this Bench with the assistance of learned counsel appearing for the parties have re-framed the questions to be considered. Four main issues which have been framed by this Bench are as follows: E I. Can the levy of a non-discriminatory tax per se constitute infraction of Article 301 of the Constitution of India?

2. If answer to Question No. I is in the affirmative, can F a tax which is compensatory in nature also fall foul of Article 30I of the Constitution of India.

3. What are the tests for determining whether the tax or levy is compensatory in nature?

4. Js the Entry Tax levied by the States in the present G hatch of cases violative ofArticle 30I of the Constitution and in particular have the impugned State enactments relating to Entry Tax to he tested with reference to both Articles 304(a) and 304(h) of the Constitution for determining their validity? H

690 SUPREME COURT REPORTS [2016) 10 S.C.R.

A 21. With regard to Question No. l nine incidental questions have also been framed which are as follows:

1. Is levy of taxes an attribute of a sovereign State?

2. ff the answer to Question No. I is in the affirmative, B does Article 246 of the Constitution of India recognise the sovereign power of States to make laws including laws levying taxes on subject matters enumerated in Entry JI of 7'h Schedule?

3. l5 the power to make laws and levy taxes reserved in c favour of the States under Article 246 read with List-fl subject to Part-XllJ of the Constitution?