ENTRY TAX : U.P. NARENDRA SHARMA ADVOCATE

Transcription

1 ENTRY TAX : U.P. NARENDRA SHARMA ADVOCATE 9/76 Arya Nagar, Kanpur Phone No. & (Off.) (Off.) narendra.advo@rediffmail.com Dated : 12th May State Government is competent to levy Entry Tax under entry 54 of the State list of Annexure IInd of the Constitution of India, is a settled issue. In exercise of this power the Government of U.P. has levied and realised the tax from and the law after taking many Avtar, is in operation. These levies were successfully challenged in the respective State High Courts. Never before in 60 years history of Sales Tax/Trade Tax/ Commercial Tax there was a such challenging job before the practitioners as has been posed by the Uttar Pradesh Tax on Entry of Goods Into Local Areas Act, law. (A) Firstly, we must have a look on history and background of this Legislative History Ordinances/Acts/Amending Acts S.No. Date Particulars Ordinance No. 21 of Ordinance No. 3 of 2000 : repealed Ordinance No. 21 of U.P. Tax on Entry of Goods (Amendment) Ordinance No. 6 of The U.P. Tax on Entry of Goods Into Local Areas Act, 2007 (U.P. ACT No. 30 of 2007) The U.P. Tax on Entry of Goods Into Local Areas (Amendment) Act, 2008 (ACT No. 7 of 2008) The U.P. Tax on Entry of Goods Into Local Areas (Amendment) Act, 2009 (ACT No. 8 of 2009) w.e.f. (B) Rules/(Amendment) Rules Rules published The Uttar Pradesh Tax on Entry of Goods (Amendment) Rules 2001

2 The U.P. Tax on Entry of Goods into Local Areas Rule, 2008 Judicial History Jindal Stripe Ltd. Vs. State of Haryana 2003 (8) S.C.C. 60 Two Judges Bench referred the matter to a Constitution Bench of the Supreme Court Indian Oil Corporation Ltd. & Another Vs. State of U.P. & Others (2004, UPTC 170) : Entry Tax Act declared Ultra-vires Jindal Stainless Steel Ltd. & Another Vs. State of Haryana & Ors (4) S.C Indian Oil Corporation Ltd. & Another Vs. State of U.P. & Others (2007, UPTC 258) : Entry Tax Act declared Ultra-vires (i) Finding / Abstract of the Judgements on U.P. Entry Tax Act. M/s. Indian Oil Corporation Ltd. and Another Vs. State of U.P. and Others [2004 U.P.T.C. 170] - Para 106. For the reasons given above this petition and all the connected/ similar petitions are allowed. The impugned Act is declared violative of Articles 301 and 304 of the Constitution and is hence ultra vires. Para 107. Any amount collected under the said Act shall be refunded to the petitioners with 10 per cent per annum interest from the date of realisation to the date of refund and the refund shall be made within two months from today. However, if the burden of the tax has been passed on by the petitioners to the consumers then the refund shall not be given to the petitioners of the tax realised as it will amount to unjust enrichment. (ii) Entry Tax is a Compensatory Tax When matter finally came before the Constitution Bench of 5 Judges of the Supreme Court, in Jindal Stainless Steel Ltd. & Another Vs. State of Haryana & Ors (4) S.C. 611 laid down that it is not like, tax or fee but is a compensatory tax and therefore State is bound to justify it s realisation vis-a-vis facilities provided to the trade and industry and among others some of the parameters laid down are as under :- (b) (c) tax is levied on the principle of ability to pay whereas compensatory tax is converse. benefits, under a compensatory tax, are quantifiable and measurable. it is broadly-proportional and not progressive;

3 (d) (e) (f) (iii) it is based on the principle of pay for the value ; it is based on the concept of reimbursement; to the cost incurred by the provider of the services/facilities; and it is compulsorily charged in proportion to the special benefits or facilities of special advantages provided to the trade in question; Indian Oil Corporation Ltd. & Another Vs. State of U.P. & Others (2007, UPTC 258) : FINDING There is not even an iota of evidence/material on record to give required data/statistics to prove/establish that the amount collected as tax and its expenditure on providing additional/ specific advantage/ facility provided to trade/s in particular mentioned under the Schedule of the Act. In absence of such a data it is not possible for this Court to hold that entry tax is compensatory tax. We hold accordingly. Promises of the Government of Uttar Pradesh (A) Act of 2007 : Section 14 It declares the process of Utilisation of the proceeds of the levy. (b) (c) (d) (e) (f) (g) (B) (i) (ii) construction, development and maintenance of roads and bridges for linking the market and industrial areas; providing finance, aids, grants and subsidies to financial, industrial and commercial units; creating infrastructure for supply of electricity and water to industries, marketing and other commercial complexes; creation, development and maintenance of other infrastructure for the furtherance of trade, commerce and industry in general; providing finance, aids, grants and subsidies for creating developing and maintaining pollution free environment in the concerned areas; any other purpose connected with the development of trade commerce and industry or for facilities relating thereto which the State Government may specify by notification; providing finance, aids, grants and subsidies to local bodies and government agencies for the purposes specified in Clauses, (c), (d), (e) and (f). In White Paper White Paper claimed that VAT, benefits will be as follows : a set-off will be given for input tax as well as tax paid on previous purchases other taxes, such as turnover tax, surcharge, additional

4 (iii) (iv) (v) (vi) surcharge, etc. will be abolished overall tax burden will be rationalised prices will in general fall there will be self-assessment by dealers (vii) transparency will increase (viii) there will be higher revenue growth Para 2.16 The States that have already introduced entry tax and intend to continue with this tax should make it vatable. If not made vatable, entry tax will need to be abolished. However, this will not apply to entry tax that may be levied in lieu of octroi. Clarification by the Government In the Aims and Objects appended to Act, 2008 the State Government has admitted that the Indian Oil Corporation Ltd. is claiming refund of more than Rs. 3 thousand crores, therefore, obviously balance amount collected in the respective years is the amount to be refunded to those who have paid it. The levy of Entry Tax was on the manufacturers and importers and single levy point, therefore, this is a clear case where every person who has paid the tax is entitled for refund of the amount illegally realised by the State Government without authority of law under the guise of Entry Tax which has been held ultra-vires, not once but twice. Theory of unjust enrichment not applicable in Entry Tax The theory of unjust enrichment shall also not be applicable in view of the fact that the entry tax was not having the mechanism and permission to pass on to subsequent purchasers. Therefore, in this background every trader and industrialist who has contributed towards entry tax beginning from 1st Nov till Notification U.P. Tax on Entry of Goods into Local Areas Act in 2007 are entitled for refund of its contribution to the exchequer i.e. if they have not realised Entry Tax. The Hon ble Supreme Court in the case of M/s. Jindal Stainless Steel s has laid down the parameters of the compensatory tax and on this anvil once again the Hon ble Allahabad High Court in the case of Indian Oil Corporation (2007) has held that the details submitted by the State Government of Uttar Pradesh has failed to satisfy that the amount collected has been spent in the manner required, and, therefore held the Act ultra vires, the trade and industry should be vigilant about the expenditure of Entry Tax on the one hand and on the other must act upon directly or by the Judicial process so that State must make expenditure only for development of that area for trade and industry, as declared u/s 14 and not otherwise, that too on pro rata basis and now it is for the people of trade and industry to wisely use this judicial lever. As could be noted on going through the Judgement in the Indian

5 Oil s case (2007 UPTC 258), Page- 4 the State Govt. has submitted a detail of Revenue collected and accordingly till May 06, 2006 (excluding Agra) a sum of Rs. 20, lacs was collected. Since the Entry Tax Act, 2007 was passed by the legislature on 19th Nov. 2007, therefore, whatever the State Government has collected under the head Entry Tax beginning from to by virtue of the law being declared ultra vires is liable to be refunded to the dealers, along with 10% per annum. The Act, 2007 has been retrospectively enacted i.e , for which the legislature is undoubtedly competent but because of the peculiar nature of this Compensatory Tax, two things are liable to be considered in depth and in wider perspective. Section 14 of the Act provides for the utilisation of the proceeds of levy under this Act for welfare of the cause of trade and industry, which is not possible to take care retrospectively. The Judgements in the India Oil s case, 2007 (supra) clearly holds that this amount has not been spent for the cause of trade and industry and hence ultra-vires therefore, this amount cannot be retained by the State Government. Now there being no chance of winning the sale as it failed to satisfy the Allahabad High Court that enactment in question meets the acid test laid down for it being a compensatory tax. (b) In view of this the following three situations arises : This all amount ought to be refunded to the dealers, who has paid it since essentially this levy was single point levy and was to be paid by the manufacturers or importers, therefore, in my opinion and by and large is not a case of unjust enrichment, prima-facie. District Level bodies to be formed with an Apex State Level body, giving adequate representation to the trade and industry including the M.L.A. of the area so that the utilisation of funds may be monitored according to the declared Aims and Objects. Rules framed suffers vires of excessive delegation The Uttar Pradesh Tax on Entry of Goods Into Local Areas Act, 2007 (hereinafter referred to as The Entry Tax Act, 2007) and the Uttar Pradesh Value Added Tax Act, 2008 (hereinafter referred to as The VAT Act ), both were drafted, executed and administered by the same Department, namely, the Commercial Tax Department and its authorities on the same class of people, i.e. the dealer as defined in the respective Enactments. However, there appears to be a marked difference between the two Acts in the field of Rule Making. Section 16 of the Entry Tax provides regarding the Rule Making Power :- 16. Power to make Rules- The State Government may make Rules

6 for carrying the purposes of this Act. Whereas the VAT Act, 2008 in Section 79 provides as below : Section 79- Power to make rules- (1) The State Government may make rules to carry out the purposes of this Act. (2) In particular and without prejudice to the generality of the foregoing powers, such rules may provide for (b) (c) (d) (e) (f) (g) (h) (i) all matters expressly required or allowed by this act to be prescribed; the registration of persons engaged in the sales or purchase of goods and the imposing of condition in respect of the sale for the purpose of enforcing the provisions of this Act; the determination of the turnover for the purpose of assessment of tax under this Act; compelling the submission of tax returns and the production of documents and enforcing the attendance of a person and examining them on oath or affirmation; the appointment, duties and powers of the officers appointed for the purpose of enforcing the provisions of this Act; generally regulating the procedure to be followed and the forms to be adopted in proceedings under this Act; refunds of amounts deposited under sub-section (1) of Section 40 or 41, the procedure for such refunds and the period within which they may be made; the custody of the goods seized under this Act; and the matters which are to be or may be prescribed; (3) The power to make rules conferred by section shall be subject to condition of the rules being made after previous publication for a period of not less than four weeks : PROVIDED that if the State Government is satisfied that circumstances exist which render it necessary for it to take immediate action, it may make any rule without such previous publication. (4) All rules made under this section shall be published in the Gazette and upon such publication shall have effect immediately as if enacted in this Act. In Entry Tax Act there is provision for applicability of certain provisions of the Uttar Pradesh Trade Tax Act, 1948 but there is no mention of the relevant Rule Making Provision. Thus, in the Entry Tax Act, the State Government has taken the liberty :- From publication of the rules and inviting objections, if any, prior

7 (b) to notifying it. To lay down the Rules before the House. In the case of Rule Making Power such a discrimination has been made and approved by the Legislature to the same department, to the same authorities to execute it. If we closely trace out the history of Rule made by the State Government under Section 79 of the VAT Act or Section 24 of the U.P. Trade Tax Act, 1948, then, it clearly emerges that in the last 15 years, on 90% occasions the State Government has not observed the formality of previous publication of the Rules and inviting objections, if any. Thus, it shows the trend in the executive to minimise and finally exclude the participation of those for whom the law is made. It also apparently reflects the tendency of the executive to incarnate itself over the Legislature. The No. 3 has got a vital importance in the Hindu Dharma as well as the Constitution of India. The balance is required whether in the case of Dharma among Brhama, Vishnu, Mahesh respectively the Gods of creation, maintenance and destruction, again in Darshan there are three levels Sat, Tam Raj ¼lr]re]jt½. The Ayurved lays more emphasis on the three, i.e. VAAT, PITTA, COUGH ¼okr]fiRr]dQ½. So it is our Constitution which is based on theory of check and balance among the three wings namely Judiciary, Legislature and Executive. Any disbalance or close proximity among the two, is bound to decline and undermine the power of the third. We are witnessing it daily in our national life. The Executive because of its funds and resources and having effective power over the entire machinery, either in the State or Central, is able to device means to defacto by-pass legislature and, of course not dejure. Then, because of this ABHED SAMBNDHA, due to either silence of legislature or over smartness of the Executive, we, the people of the Republic are virtually striped of the rights and power which are enshrined in the Constitution. The Legislature cannot delegate uncanalised and uncontrolled power, the power delegated must not be unconfined and vagrant, but must be canalised within banks that keep it from overflowing. The banks, that set the limits of the power delegated, are to be constructed by the Legislature by declaring the policy of the law and by laying down standards for guidance of those on whom the power to execute the law is conferred. So the delegation is valid only when the legislative policy and guidelines to implement it are adequately laid down and the delegate is only empowered to carry out the policy within the guidelines laid down by the Legislature. If the Legislature keeps control over the delegate e.g. by requiring that the delegated legislation be laid before the Legislature, want of guidelines may not be fatal; N.K. Papiah & Sons Vs. Excise

8 Commissioner, A.I.R S.C : (1975) 1 S.C.C In re, Article 143, Constitution of India, supra; Rajnarain Singh Vs. Chairman, Patna Administration Committee, A.I.R S.C. 569 pp. 574; Ramesh Birch Vs. Union of India, A.I.R S.C. 560, p : Conclusions : Entry Tax realised from to i.e. must be refunded along with 10% to the dealer in view of Allahabad High Court Judgement dt All pending cases of assessment or realization of tax upto should be stopped and demands should be withdrawn. Law should be declared effective from date of the Act, Local District bodies be constituted giving representation to local trade and industry so that thy may suggest and watch expenditure under section 14 of the Act. Representation from trade & industry be provided in the State body. State body should meet quarterly and the district bodies on monthly basis. For the purpose of transparency Government should declare / notify how much fund it intends to allocate to district bodies and it should be on pro rata basis based on contribution of the area. Till Entry Tax continues, as per promise in para 2.16 of the White Paper, it must be made Vatable. Law making should be made more transparent and there should be adequate participation of the people.