M-S. GEO MILLER AND CO. PVT. LTD. AND ORS. v. STATE OF M.P. AND ORS

Citation: [2004] SUPP. 2 S.C.R. 27

Court: Supreme Court of India

Bench: S. RAJENDRA BABU, G.P. MATHUR

Case summary

M-S. GEO MILLER AND CO. PVT. LTD. AND ORS. v. STATE OF M.P. AND ORS.pdf

Judgment text

MIS. GEO MILLER AND CO. PVT. LTD. AND ORS. v. STATE OF M. P. AND ORS. MAY 5, 2004 [S. RAJENDRA BABU, CJ. AND G. P. MATHUR, J. ] Constitution ofIndia-Articles 301, 304 (b) and 366 (29-A); Entries 52 and 54 of List 11 to Seventh Schedule-M P. Enlly Tax Act, 1976- Sections 2 (2) and 3 (1) (b)-Levy of Enlly Tax on goods brought ji·om another State for use in works contract-Constitutional validity of-Held, the Act is constitutionally valid-The Act is compensato1y in nature and does not impede ji-ee flow of trade, commerce and intercourse-Act specifically excludes 'execution ofworks contract' ji-0111 the definition of 'sale'-M P. Sales Tax Act, 1958. ) Appellants-assessees are carrying on business of execution of works contract and are registered dealers ·under the M. P. General Sales Tax Act, 1958. The appellants challenged the assessment of Entry Tax on goods brought for purpose of works contract under the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (M. P.

Entry Tax Act, 1976) before the Revenue on the ground that the goods are subjected to sales tax under the Sales Tax Act. The Revenue rejected the contention of the respondents. The High Court dismissed the appeal of the appellants. In appeal to the Court, the appellants contended that the M. P. Entry Tax Act, 1976 is violative of Article 301 of the Constitution of India since it impedes movement of goods from one barrier to the other; that the Act is unconstitutional since the conditions laid down under Article 304(b) of the Constitution of India have not been complied with; that Section 3(1)(b) of the Act does not permit levy of any entry tax on goods consumed or used in works contract as these amount to 'sale' by virtue of Article 366(29A); that the term 'sale' in.

Entry 52 of List II and Entry 54 of List II of the Constitution of India are the same except deriving from the expression 'tax on the sale or purchase of goods' as defined in Article 366(29-A) of the Constitution of India; that the M. P. Entry Tax Act does not provide a definition of 'sale' and hence the definition as provided in Article 366(29-A) must be imported; and that by virtue of exception (vi) to proviso to section 3(1)(b) of the Entry Tax Act, the goods specified in Schedule III to the Act and imported from outside the State for consumption, are completely exempted from tax. Respondent-Revenue contended that the Entry Tax imposed is compensatory in nature since the revenue is passed over to the local bodies to compensate them for the loss incurred due to abolition of octroi. Dismissing the appeals, the Court HELD: I. I.

Only such restrictions or impediments which directly or immediately impede the free flow oftrade, commerce and intercourse fall within the prohibition ofArticle 301 ofthe Constitutilfn of India. Not all taxes, whether or not their impact on trade is immediate or mediate, direct or remote should be governed by Article 301. The mere fact that Entry Tax is imposed under the M. P. Entry 'Tax Act, 1976 does not automatically bring Article 301 into play. Taxes which would otherwise interfere with the unfettered freedom under Article 301 will be protected from becoming unconstitutional if they are compensatory. The M. P. Entry Tax Act is compensatory in nature and it is not open to challenge under Article 301 of the Constitution of India and there is no need to venture into the argument based on Article 304(b). Accordingly, the constitutionality of the Entry Tax Act is upheld. 131-G-H; 32-A-B, GI Atiahari Tea Co. l1J. v. The S1a1e ofAssam & Ors.

, 1196111 SCR 809; Automobile Transporl (Rajaslhan) ltd. v. The Stale of Rajasthan & Ors, 1196311 SCR 491 State ofKera/av. A. B. Abdul Kadir & Ors. , 119691 2 SCC 363 and Mis Bhagalram Rajeevkumar v. Commissioner of Sales Tax, MP. & Ors.. 119951 Supp. 1 sec 673, referred to. 1. 2. The appellants effected entry ofgoods specified in Schedule Ill ofthe Act in the local area for use in execution ofworks contract. Hence, they are liable to ta:1. as per Section 3(1)(b) of the Act. The Act makes clear distinction between 'sale' and 'execution ofworks contract' and GEO MILLER AND CO. PVT. LTD. v. STATE 29 specifically excludes the latter from the purview of the former. The Act has specifically excluded the definition of 'goods' and 'sale' which is utilised in the M. P. Sales Tax Act, 1958. The exclusion is justifiable considering the fact that the M. P. Entry Tax Act, 1976 has been enacted by virtue of Entry 52 of List II of Schedule VII of the Constitution of India.

It need not be circumscribed by the definition provided in Article 366(29-A) of the Constitution of India. [35-C-D; 36-C) 1. 3. Article 366(29-A) does not define the term 'sale' but enlarges its scope by including transfer of goods in the execution of works contract within this definition of sale. Therefore, 'sale' as it appears in Article 366(29-A) is with reference to the Sales Tax Act. The M. P. Sales Tax Act, 1958 indeed adopts the same. However, Section 2(2) of the M. P. Entry Tax Act has expressly not imported the definition of 'sale' from the Sales Tax Act. Therefore, the intention of the legislature in excluding 'execution of works contract' from the definition of 'sale' is manifest and this reflects clearly in the letter of the law. [36-D-E) 1. 4. M. P. Sales Tax Act, 1958 is covered by Entry 54 of List II and M. P. Entry Tax Act, 1976 is covered by Entry 52 of List II to the Seventh, Schedule of the Constitution. The incidence of taxation in both cases are different.

Under the Sales Tax Act enacted by virtue of Entry 54, the incidence of taxation is on the sale and purchase of goods whereas in the case of the Entry Tax Act, the incidence of taxation is on the entry of the goods specified in the Entry Tax Act. The M. P. Entry Tax Act does not adopt the expression of 'goods' and 'sale' under the M. P. Sales Tax Act. [36-F-H; 37-AJ 1. 5. [n interpreting taxing statutes, one must have regard to the strict letter of the law. Section 3(l)(b) of the Entry Tax Act leaves out 'execution of works contract' from the definition of'sale'. By expressly not adhering to the definition of'sale' in the M. P. Sales Tax Act [which includes, transfer of property in goods involved in the execution of works contract within the definition of 'sale' as required by Article 366(29-A)j, the section clearly requires the appellants to pay the entry tax. Accordingly the appellants are liable to pay entry tax under the M. P. Entry Tax Act, 1976. [37-A-C) 1. 6.

Eventhough the Entry Tax Act does not define 'sale', it does not provide a negative definition by clearly leaving out 'execution of works contract' from the definition of 'sale'. It cannot to be a 'sale' for the purpose of the M. P. Entry Tax Act, 1976. (37-E( I. 7. There is no ambiguity in the proviso which clearly states that tax shall not be levied only on those goods which have been imported from outside and are meant for use or consumption as raw materials, incidental goods as packing material or in the execution of works contract, but only if after being brought in for such purpose are disposed of in some other manner. (38-A-B( CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6223- 6224 of 1997. From the Judgment and Order dated 25. 9. 96 of the Madhya Pradesh High Court in W. P. No. 687 of 1996. P. P. Rao, Kavin Gulati, S. K. Chauhan and G. Balaji Iyer for the Appellant. R. P. Gupta for lntervenors. Satish K. Ag~ihotri and Anil K. Pandey for the Respondent.

The Judgment of the Court was delivered by RAJEDERA BABU, CJ. : The appellants are dealers registered under the M. P. General Sales Tax Act, 1958 and were also assessed to the Entry Tax during the period from 1. 1. 1986 to 11. 12. 1986 under the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (hereinafter referred to as the 'M. P. Entry Tax Act'). The appellants a~e carrying on the business of execution of works contract. Before the authorities below, it was the appellants' contention that since the goods were brought for purpose of works contract and they have been subjected to sales tax under the Sales Tax Act, the appellants were not liable to pay the entry tax on goods. The appellants had unsuccessfully challenged the assessment of tax before the Appellate Deputy Commissioner of Sales Tax and the Board of Revenue and thereupon appellants preferred Misc. Petition No. 3960 of 1991 before the High Court of Madhya Pradesh.

The appellants contended that by virtue of the definition of sale as defined under Article 366(29-A) of the Constitution, the activity involved was a transfer of goods in works contract, it amounted to a 'sale' and as such the goods are not exigible to the entry tax. The High Court vide judgment dated 18. 09. 1996, did not accept this contention and dismissed their prayer. Hence these appeals by Special ,Leave. In view of the High Court's judgment the Madhya Pradesh Buildings Association has also joined the present petitions for special leave to appeal as the judgment affects the entire community of contractors. The questions that arise for consideration herein are : (i) Whether the M. P. Entry Tax Act, 1976, is unconstitutional as it is hit by Article 301 of the Constitution for not satisfying the conditions laid down in Article 304 (b)? > (ii) Whether in any event the goods used by the appellants are subject to Entry Tax by virtue of Section 3 of the M. P. Entry Tax Act, 1976?

It is the submission of the appellants that the M. P. Entry Tax Act, 1976 is unconstitutional is it offends Article 301 owing to non-compliance of the conditions laid down in Article 304(b). The appellants relied on the cases of Atiabari Tea Co. Ltd. v. The State of Assam & Ors. , [1961] 1 SCR 809 and Automobile Transport (Rajasthan) Ltd. v. The State ofRajasthan & Ors. , [1963] l SCR 491, to state that taxation may impede the movement of goods from one barrier to the other and would accordingly bring Article 301 into play. 1hey then contend that the conditions of Article 304(b) have not been complied thereby rendering the M. P. Entry Tax Act, 1976 unconstitutional. This argument ofthe appellants does not seem to be correct. It is well settled by the decision in Atiabari Tea Co. (supra) at p. 860, that only such restrictions or impediments which directly or immediately impede the free flow of trade, commerce and intercourse fall within the prohibition imposed by Article 30I.

This Court did not accept the argument that all taxes whether or not their impact on trade is immediate or mediate, direct or remote should be governed by Article 301. This view was further upheld in the Automohile Transport Case and in State of Kera/a v. A. B. Abdul Kadir & Ors.. [1969] 2 SCC 363. Hence, the mere fact that a tax is imposed does not automatically bring Article 30 I into play. In fact the concept of ··compensatory taxes" was propounded in the Automobile Transport Case. By virtue ofthis, taxes, which would otherwise interfere with the unfettered freedoms under Article 30 I, will be protected • from becoming unconstitutional if they are compensatory. Thus, the reliance placed by the appellants on the observations made in the Atiabari case and the Rajas1ha11 Automobile Case that taxation may impede the movement of goods from one barrier to the other and accordingly submitting that the M. P. Entry Tax Act, 1976 is hit by Article 30I is not properly founded.

In fact, Section 3 of the said Act was under challenge in the case of • Mis. Bhagatram Rajeevkumar v. Commissioner ofSales Tax. MP. & Ors. , [1995] Supp. I SCC 673. A three Judge Bench of this Court, found that the levy oftax under the M. P. Entry Tax Act, 1976 was constitutional. since the nature of revenue earned was compensatory, as it was handed over to the local bodies to compensate them for the loss caused. In the present case too, the respondents have reiterated that the tax being imposed is compensatory in nature as the revenue earned therefrom passes over to the local bodies to compensate them for the loss incurred due t distinction between 'sale' and 'execution ofworks contracts' and specifically excludes the latter from the purview of the former. The appellants contention that the definition of 'sale' under Article 366 (29-A) of the Constitution which includes transfer of goods in execution of works contract, should be adopted into the M. P.

Entry Tax Act, 1976 is not well founded. The M. P. Entry Tax Act has been enacted by the Legislature by virtue -of Entry 52 of List II of the VIlth Schedule. It reads as under : "Entry 52 : Taxes on entry of goods into a local area for consumption, use or sale therein. " Article 366(29-A) on the other hand seeks to define 'tax on the sale or purchase of goods'. This phrase is used in Schedule VII, List 1, Entries 92 and 92-A and Schedule VII, List II Entry 54. Hence, it can be seen that the said meaning cannot be imported for the purposes of Entry 25 of . List II. On the other hand, it is evident that the M. P. General Sales Tax Act, 1958 has been enacted in relation to Entry 54 of List II, and it indeed includes transfer or goods in the execution of works contract within the definition of 'sale' as required by Article 366(29-A). However the M. P. Entry Tax Act has specifically excluded the definition of'goods' and 'sale' which is utilised in the M. P.

Sales Tax Act Section 2(2) of the M. P. Entry Act, 1976 reads as under : "Section 2(2) : All those expressions, other than expression 'goods' and 'sale· which are used but are not defined in this Act and are defined in the Sales Tax Act shall have the meanings as assigned to them in that Act. " (Emphasis supplit! d) The exclusion is justifiable considering the fact that the M. P. Entry Tax Act, 1976 has been enacted by virtue ofEntry 52 ofList II of Schedule VII. It need not be circumscribed by the definition provided in Article 366(29-A). Article 388(29-A) does not define the term 'sale', but enlarges its scope by including transfer of goods in the execution of works contract within this definition of sale. Therefore, 'sale' as it appears in Article 366(29-A) is with reference to the Sale Tax Act. The M. P. Sale Tax Act indeed adopts the same. However Section 2(2) of the M. P. Entry Tax Act has expressly not imported the definition of 'sale' from the Sales Tax Act.

Therefore, the intention ofthe legislature in excluding 'execution of works contract' from the definition of 'sale' is manifest and this reflects clearly in the letter of the law. Further, the contention that the term 'sale' utilised in Entry 52 of List II and Entry 54 of List II are the same concept deriving from the expression 'tax on the sale or purchase of goods' as defined in Article 366(29-A) seems to be incorrect. The High Court has observed rightly that the M. P. Sales Act, 1958 is covered by Entry 54 whereas the M. P. Entry Tax Act, 1976 is covered by Entry 52. Therefore, both these Acts are covered by different entries in the Constitution and hence, the incidence of taxation in both cases is different. Under the Sales Tax Act enacted by virtue of Entry 54 the incidence of taxation is on the sale and purchase of goods whereas in the case of the Entry Tax Act, the incidence of taxation is on the entry of the goods specified in the Entry Tax Act. Accordingly, the M. P.

Entry Tax Act does not adopt the expression of "goods" and 'sale' under the M. P. Sales Tax Act. It is a well-settled position of law that in interpreting taxing statutes, one must have regard to the strict letter of the law. Ifthe person/ entity sought to be taxed comes within the letter of the law he must be taxed. In the instant case, the letter ofthe law, i. e. Section 3(l)(b) ofthe M. P. Entry Tax Act, 1976 leaves out "execution of works contracts" from the definition of "sale". By expressly not adhering to the definition of 'sale' in the M. P. Sales Tax Act (which includes, transfer of property in goods involved in the execution of works contract within the definition of 'sale' as required by Article 366(29-A)(b) their can be no doubt that the section clearly requires the appellants to pay the entry tax. Accordingly the appellants are liable to pay entry tax under the M. P. Entry Tax Act, 1976. It is true that the M. P.

Entry Tax Act, 1976 does not provide a definition of 'sale'. The appellants contend that in the absen<-e of such definition the Constitutional definition as provided in Article 366(29-A) must be imported. However, even though the Act does not define 'sale' it does provide a negative definition by clearly leaving out 'execution of works contract' from the definition of 'sale'. Thus, there is no ambiguity at least with regard to 'execution of works contract'. It cannot be said. to be a 'sale' for the purposes of the M. P. Entry Tax Act, 1976. The appellants further contend that under Section 3(1)(b) ofthe Entry Tax Act, 1976, the goods specified in Schedule III if are imported from outside the State for consumption are completely exempted by virtue of exception (vi) to proviso attached to Section 3(1)(b).

The relevant proviso is extracted herein : "(vi) in respect of goods specified in Schedule III imported from outside the State for consumption or use as (raw materials or incidental goods) or as packing materials or in the execution of works contract but which have been disposed ofin any manner. " (Emphasis supplied) The appellants submit that a plain reading of Section 3 would indicate that all those goods falling in Schedule IJJ which are imported from outside the State for consumption ane not subject to entry tax. This submission is incorrect. There is no ambiguity in the proviso which clearly states that tax shall not be levied only on those goods which have been imported from outside and are meant for use or consumption as raw materials, incidental goods as packing material or in the execution of works contract, but only if after being brought in for such purpose are disposed of in some other manner. The interpretation ofthe appell:!

nts fails to consider the final part ofthe proviso, which has been emphasised in the reproduction ofthe same above. Hence it can be seen that the Entry Tax imposed by the respondents is justifiable. These appeals are accordingly dismissed. • B. S. Appeals dismissed.