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Judgment
These petitions involving similar nature of controversy shall stand disposed of vide this common order.
A challenge has been made to the tax liability created by the State vide SRO 80 of 2000 issued on 1st April 2000. This is a notification issued in
the exercise of power conferred on the State Government Under Section 3(5) of the Jammu and Kashmir Levy of Tolls Act Samvat 1995. For
facility of reference, this notification is being reproduced below :
In exercise of powers conferred by subsection (5) of Section 3 of the Jammu and Kashmir Levy of Tolls Act Samvat 1995 (XIII of 1995) and in
supersession of notification SRO 184 dated 30.05.1997 the Government hereby direct that additional toll on the following goods brought into and
taken out of the State shall be levied on advaloram at the rate of 4 percent on the goods namely :
Edible oils
Cigarettes
Tobacco
This notification supercedes earlier notification SRO 184 of 1997.
The challenge to the validity of notification impugned is that this contravenes Articles 301 and 304 (a) of the Constitution of India in as much as
on account of enforcement of the notification, there would be a clear discrimination between the items which are already in the State of Jammu and
Kashmir and the items which are imported and which items have been indicated in the notification, referred to above. It is submitted that earlier, the
State government made an attempt to levy similar tax and validity of that notification i.e. SRO 184/97 was challenged. This notification, it is
submitted was declared violative of Articles 301 and 304 of the Constitution. Reference in this regard is made to a decision given in the case of
M/s Shakti Traders vs. State of J&K and others, 2000 Srinagar Law Journal 108. In the aforementioned case the Division Bench came to the
conclusion that the notification in question is discriminatory in as much as 4 percent additional toll tax is being charged on items which are brought
within the State and are sold. It was observed that so far as edible oil manufactured in the State is concerned, when it is sold, there is no levy of tax
@ 4 % but on account of notification SRO 184, there would be additional levy of tax on edible oils imported in the State.
Thus it was accordingly held that there is a different treatment being given to the edible oil manufactured in the State and the edible oils which are
imported in the State, it was on this basis, the notification in question was set aside. Petitioners submit that what was said by the Division Bench
would apply to the facts of this case also. It is accordingly submitted by the petitioners;
i. That what is being levied by way of notification impugned is the toll tax;
ii. That there can be no discrimination between the goods which are imported and those which are manufactured;
iii. That even though, the Divisional Bench was dealing with SRO 184/97, which dealt with the case of resale, nevertheless, what was said in para
15 of the judgement would cover the case of sale also.
The learned counsel for the petitioners also place reliance on a Full Bench decision of this court in Girdhari Lal Anand Saraf vs. State of J&K,
AIR 195S J&K 113.
The above judgement was also taken note of by the Division Bench in the case of M/s Shakti Traders (Supra). What was observed at page 7 of
the judgement is being reproduced below :
The further contention of the appellants is that the additional toll under the Levy of Tolls Act is not a free but a tax and that the issue is no more res
Integra in view of the Full Bench decision of this Court in Girdhari Lal Anand Saraf vs. State of J&K AIR 1969 J&K 113 (which has been
followed in another Full Bench decision in M/s Mehta Food Pvt. Ltd. vs. State of J&K (Writ petition No. 660/82 decided on 23.08.1999)
wherein has been held that the levy of toll under the said Act is not a free but a tax. Learned counsel for the appellants submits that the present
case is squarely covered by the decision of the Supreme Court in Shree Mahavir Oil Mills (supra) and the levy of additional toll at the rate of 4
percent on the imported edible oil by the State Government is in gross violation not only of the constitutional mandate of Articles 301 and 304 (a)
but also in blatant disregard to the decision of the Supreme Court in the above case and hence the impugned SRO is liable to be set aside and
quashed. Another contention of the learned counsel for the appellants is that though the levy under SRO 184 is on the edible oil imported into the
State for resale in the State, the authorities are levying tax on oil imported by the manufacturers for first sale in the State and not 'resale'.
After taking note of the above observations, the question which was considered was as to whether notified discriminatory is discriminatory and
hit by ratio of various decisions given by the Supreme Court. These decisions have been noticed in para 12 of the judgement. This para is also
being reproduced below:
Articles 301 and 304 (a) had come up for consideration before the Supreme Court in Atiabari Tea Co. Ltd. vs. State of Assam AIR 1961 SC
809; Automobile Transport (Rajasthan) Ltd. vs. State of Rajasthan AIR 1962 SC 1406; A.T.B. Mehtab Majid & Co. vs State of Madras, AIR
1963 SC 928; H. Anraj vs, Govt. of T.N. (1986) 1 SCC 414; Indian Cement vs State of A.P. AIR 1988 SC 567; Weston Electronics vs. State
of Gujarat (1998) 2 SCC 268; Video Electronics (P) Ltd. vs State of Punjab, AIR 1990 SC 820; State of Mysore vs. H. Sanjeeviah AIR 1967
SC 1189; Kalyani Stores vs. State of Orissa AIR 1996 SC 1686 and a large number of cases. The ratio of the decisions, so far as Article 304 (a)
is concerned, was summed up by the Supreme Court in Shree Mahavir Oil Mills (supra) as under:
Now, what is the ratio of the decisions of this court so far as clause (a) of Article 304 is concerned? In our opinion, it is ... the Slates are certainly
free to exercise the power to levy taxes on goods imported from other States/Union Territories but this freedom, or power, shall not be so
exercised as to bring about a discrimination between the imported goods and the similar goods manufactured or produced in the State. The clause
deals only with discrimination by means of taxation; it prohibits it. The prohibition cannot be extended beyond the power of taxation. It means in
the immediate context that States are free to encourage and promote the establishment and growth of industries within their states by all such
means as they think proper buy they cannot, in that process, subject the goods imported from other States to a discriminatory rate of taxation, i.e.
a higher rate of sales tax visavis similar goods manufactured/produced within the State and sold within that State. Prohibitions is against
discriminatary taxation by the States. It maters not how this discrimination is brought about. A limited exception has no doubt been carved out in
Video Electronics but, as indicated herein above, that exception cannot be enlarged last it eat up the main provision.
A perusal of above paragraph an moreso, an equation in case of Shree Mahavir Oil Mills vs. State of J&K (1996) 11 SCC 39, which was
taken note of by the Division Bench in case M/s. Shakti Traders on which reliance has been placed by the petitioners, makes it apparent that the
case of discrimination would arise when the tax structure deals differently between imported goods and similar goods manufactured or produced in
that State. So far as the judgement in M/s. Shakti Traders (Supra) is concerned, that discrimination, according to the Division Bench was writ large
because when the edible oils manufactured in the State were sold, there was no levy of 4 % tax advalorem as was sought to be imposed in the
case of imported edible oil. It was this factor, which led to the quashing of notification the above case. Now, that voice stands removed. The edible
oil which is imported in the State has to bear additional toll tax @ 4 percent whether it is for sale or resale.
The other argument which has been raised is that when tax is levied on the sale, even then, this would be in conflict with Article 301 and 304
(a) of the constitution of India. For this, as indicated above, reliance is placed on the judgement in the case of M/s. Shakti Traders (Supra).
Before considering this aspect of the matter, it would be apt to keep in mind that taxes may and sometimes do amount to restrictions but it is
only such taxes as directly and immediately restrict trade that would fall within the mischief of Article 301. However, regulatory measures or
measures imposing compensatory taxes for using trading facilities do not come with the preview of restrictions contemplated under Article 301. If a
particular measure is not regulatory but a taxing enactment and the tax is levied upon the entry of goods into local area i.e. upon the movement of
goods, then the position may be different. The toll taxes which are imposed are compensatory in nature. This aspect of the matter was noticed by
the Full Bench of this Court in the case of Mehta Food Pvt. Ltd. vs. State of J&K and ors. OWP 660/82, referred to above. At page 36 of the
judgement the Full Bench observed that the petitioners are not merely using the national highway but they are making use of State highways and
other roads which are being maintained out of State funds. It was also observed that the ""State authorities are providing other facilities, therefore,
element of quid pro quo is there. It was on this basis and also other basis concluded that the tool tax can be levied. Thus, even though, the levy
which was under consideration before the Full Bench was considered to be in the nature of tax nevertheless, observations were made that this levy
is also being used for the purposes of providing other facilities also. If this be the position, then a tax which is levied on the entry of goods into local
areas for consumption, use or sale therein can be held intravires of Article 301. This question was considered by the Supreme Court of India in the
case of State of Bihar and others vs. Bihar Chamber of Commerce and others, (1996) 9 SCC 136. In the above case, the Bihar Legislature
enacted the Bihar (Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein) Act. 1993. This provided for levy of tax on
entry of scheduled goods into a local area for Consumption, use or sale at a rate not exceeding five percent. The items on which this was imposed
have been noticed in para 2 of the judgement.
The validity of this tax was challenged on the ground that this comes in conflict with Article 301. This argument was repelled by making following
observations:
Though not stated in the counter affidavit, we can take notice of the fact that the State does provide several facilities to the trade including laying
and maintenance of roads, waterways and markets, etc. As matter of fact, since the levy is by the State, we must also look to the facilities
provided by the State for ascertaining whether the State has established the compensatory character of the tax. On this basis, it must be held that
the State has established that the impugned tax is compensatory in nature. This finding is by itself sufficient to negative the attack based on Article
301 but even if we assume that the State has not established the said fact, even so the result is no different....
Similar view has been expressed yet in another decision reported as 1995 Supp (1) SCC 673, M/s Bhagat Ram Rajeev Kumar vs.
Commissioner of Sales Tax. M.P. and others. The challenge in the above case was made to levy of entry tax on goods such as sugar under
Section 3(1) (a) of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976. The argument raised was that this tax is
in the nature of purchase tax. This argument was repelled. It was observed that tax on entry of goods is compensatory in nature. What was said in
paragraph 8 of the judgement is being reproduced below:
Even the submission on Article 301 of the Constitution is not well founded. The article came up for interpretation by this Court in Atiabari Tea Co,
Ltd. vs State of Assam, AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. vs. State of Rajasthan. AIR 1962 SC 1406. A combined
reading of the two decisions indicate that so long as a tax is regulatory and compensatory it is not within the mischief of Article 301. In the counter
affidavit filed on behalf of the State which was not disputed the nature of levy has been demonstrated to be compensatory. The appellants did not
dispute the figure furnished by the State. It is settled by now that if the tax is compensatory then it is immune from challenge under Article 301(See
Khyerbari) Tea Co. Ltd, vs State of Assam. AIR 1964 SC 925 and State of Karnataka vs. Hansa Corporation, (1980) 4 SCC 697. The
submission of Shri. Ashok Sen, learned Senior Counsel that compensation is that which facilitates the trade only does not appear to be sound. The
concept of compensatory nature of tax has been widened and if there is substantial or even some link between the tax and facilities extended to
such dealers directly or indirectly the levy cannot be impugned as invalid. The stand of the Stale that the revenue earned is being made over to the
local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable
them to provide municipal services more efficiently, which would help or ease free flow of trade and commerce, because of which the impost has
to be regarded as compensatory in nature, impost has to be regarded as compensatory in nature, in view of what has been stated in the aforesaid
decisions, more particularly in Hansa Corpn. case.
The aforementioned two judgements clearly lay down that if a particular tax on sale or Consumption is made, that tax is compensatory in
nature and this would be protected by Article 301 of the constitution. The judgement given in Bhagat Ram's case supra is a judgement given by
three Members Bench and I am of the opinion that as indicated above, the ratio of two decisions noticed above fully covers the issue involved in
these petition. As indicated above, the Full Bench in Mehta Foods's case, referred to above, had made an observation that under the levy, the toll
tax is being used for maintaining State highways and providing other facilities, judicial note can also be taken of the fact that there is no octroi in the
State of Jammu and Kashmir and the collection which is being made at the barriers is for the benefit of local units also.
In view of the detailed discussions above, the notification in question is held to be intravires of Article 301 of the Constitution of India. These
petitions are accordingly found to be without merit and are dismissed.