Holding

Entry tax is valid on the entry of goods specified in Schedule II by a dealer in the course of business, irrespective of sales‑tax liability, and the tax is compensatory and not violative of Article 301.

Summary

The appellants, dealers registered under the Madhya Pradesh Sales Tax Act, imported sugar and other goods listed in Schedule II of the Madhya Pradesh Entry Tax Act into the state for consumption, use or sale. They challenged the entry tax levied under Section 3(1)(a) of the Act, contending that because sugar attracts additional excise duty and not sales tax, the entry tax could not be imposed, and that the provision excluding dealers not registered under the Sales Tax Act was arbitrary, discriminatory and violative of Article 301 of the Constitution. The Supreme Court held that the taxable event is the entry of goods by a dealer in the course of business, irrespective of whether sales tax is payable, and that the phrase “liable to tax” merely identifies the person from whom the tax is to be realised. The exclusion of small dealers (turnover below Rs 1,000) was not arbitrary, and the tax was characterised as compensatory, rendering it immune from attack under Article 301. Consequently, the appeals were dismissed.

Issues considered

Whether entry tax under Section 3(1)(a) of the Madhya Pradesh Entry Tax Act can be levied on goods such as sugar on which sales tax is not payable because of additional excise duty.
Whether the provision that the tax shall be paid by dealers liable to tax under the Sales Tax Act is arbitrary or discriminatory.
Whether the entry tax violates Article 301 of the Constitution as an impediment to free trade, or is a compensatory tax immune from such challenge.

Legislation cited

Additional Duties of Excise Act, 1957
Constitution of Indias. Article 301
Madhya Pradesh Sales Tax Act
Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976s. 3(1)(a), s. 3(J)(a)

Subjects

entry taxsales taxcompensatory taxArticle 301free tradediscriminatory provisionSchedule IIsugaradditional excise dutyMadhya Pradesh

Judgment

MIS BHAGATRAM RAnv KUMAR A
v.
COMMISSIONER OF SALES TAX MADHYA PRADESH AND ORS.

NOVEMBER 25, 1994

[KULDIP SINGH, R.M. SAHAI AND B.L. HANSARIA, JJ.] B

Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar
Adhiniyam, 1976-Section 3 (1) (a) -Entry tax on goods-Nature of levy
and its ambit-Tax /eviable on all goods specified in Schedule II brought
for consumptions, use or sale-Whether entry tax on goods such as sugar
on which no sales tax is leviab/e, could be subjected to levy u!s 3 (1) (a) - C
Held, Yes.

Section 3(J)(a) -Entry tax on goods-Excluding dealers not
registered under Sales Tax Act-Whether arbitratory and discriminatory-
Held, No.
D

-- Constitution ofIndia-Article 301-Madhya Pradesh Sthaniya Kshetra
Me Mal Ke Pravesh Par Kar Adhiniyam, 1976-Section 3(J)(a)-Entry tax
on goods-Compensatory nature of tax-It is immune from challenge under
Article 301. ·

Appellants who were dealers registered under the Sales Tax Act of E
the State l:frought goods such as sugar which were specified in Schedule
II of th~ Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par
Kar Adhiniyam, 1976 from outside the State for consumption, use or
sale inside the State. They had attacked the validity of the levy
challenging legislative competence of the State legislature. F
In these appeals filed against judgment and order of the High
Court, the appellants had mainly challenged the nature of levy, its
ambit and whether it impeded free flow of trade and commerce in
violation of Article 301 of the Constitution of India.
G
The levy was described in substance to be purchase tax leviable
under the Sales Tax Act. It was submitted that the language of Section
3 (1) (a) was vague and discriminatory and it would result in excluding
those dealers who were not registered under the Sales Tax Act.
Reliance was placed on the expression 'liable to tax' used in the section
and it was urged that the liability being co-related with entry of goods H
91
92 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A the only reasonable construction of the section was to restrict the levy
on those goods on which the dealer was liable to pay tax under the Sales
Tax Act. Relying on the provisions of the Additional Duties of Excise
Act, 1957, it was urged that sugar was one of the goods on which
additional excise duty was leviable, therefore, no sales tax could be
levied on it.
B
The question for consideration in these appeals was whether entry
tax on goods such as sugar on which no sales tax was leviable, could be
subjected to levy u/s 3 (1) (a) of the Madhya Pradesh Entry Tax Act.

Dismissing the appeal, this Court
c HELD : 1.1. Under section 3 (1) (a) of Madhya Pradesh Sthaniya
Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, the taxable
event is the entry of goods in a local area of the State by a dealer in
course of business and not its purchase. To characterise it as purchase
tax is ignoring the nature of levy. [94 C, 95 BJ
D 1.2. If the legislature advertently or inadvertently omits to levy tax
on any class of persons that by itself cannot result in invalidating the
levy unless it is found to be discriminatory. Dealers with turnover of
Rs. 1,000 per annum can be considered to be class of small dealers. ·
Excluding such class of dealers is neither arbitrary nor discriminatory.
[95Dl
E
1.3. Liability to pay sales tax on the goods specified in Schedule II
is not an essential ingredient of levy. The expression 'liable to tax', has
been used to identify the person who shall pay the entry tax. If any
goods mentioned in Schedule II are brought from outside the State by a
person who is not liable to tax under the Sales Tax Act then entry tax
F shall not be realised from such person. The intention is to levy tax only
when the goods are brought inside the State by a dealer carrying on
business whose turnover is not less than Rs. 1,000 annually and not by
any other person. The tax is leviable on all goods specified in Schedule
II brought for consumption, use or sale; but it shall be realised only
from those persons who are dealers registered under the Sales Tax Act
G and are Hable to pay tax. The expression 'liability to tax' is
determinative of the person from whom the tax shall be realised and
not of the goods which could be subjected to levy. Any other
construction would militate against the clear language of the Section as
the levy being on goods specified in Schedule II, it would also result in
non-levy on those items on which additional excise duty is leviable.
H [96 B to DJ
B. R. KUMAR v. COMMNR OF SALES TAX 93

1.4. The goods were brought by the appellants who were dealers in A
course of business for consumption, use or sale therein. They were
liable to "pay tax under the Sales Tax Act, therefore, they were liable to
pay entry tax under this Section. The appellants claimed to be dealers
of sugar which was specified in Schedule II. The tax being on entry of
goods the taxing event was complete once sugar was brought into the
I~
local area by a dealer in course of business for consumption, use or sale D
therein. This could not be diluted or negatived by subjecting it to
another condition that such goods should have been liable to tax under
the Sales Tax Act. That would be misreading of Section 3. The charge
or incidence of tax is different from realisation of it. A levy may be
valid and good and yet it may remain ineffective if there is no
machinery provision. But the provision for realisation of tax from the C
dealer who effects the entry of goods does not make it a condition for
the levy of tax. Tax under Section 3 is on bringing of goods inside the
local area by a dealer for consumption, use or sale therein irrespective
of whether sales tax is payable on it or not. Therefore, sugar on which
-- no sales tax is leviable because additional excise duty is payable would
not be beyond the taxing net. [96 E to HJ D
1.5. So long as a tax is regulatory and compensatory it is not within
the mischief of Article 301. [ 97 BJ
Atiabari Tea Co. Ltd. v. The State of Assam and Ors., [1961J 10 SCR
809 and The Automobile Transport (Rajasthan) Ltd v. The State of
Rajasthan and Ors., [1963J 1 SCR 491. Khyerabari Tea Co. Ltd and Anr. E
v. The State ofAssam, [1964J 5 SCR 975 and State of Karnataka and Anr.
v. Mis Hansa Corporation, [1981J 1SCR823, relied on.

1.6. The stand of the State 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 F
would enable them to provide municipal services more efficiently,
which would help or ease free flow of trade and commerce, this stand is
well forwarded. [97 DJ

State of Karnataka and Anr. v. Mis Hans a Corporation, [1981 J 1 SCR
823, relied on. G
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2336 of
1994.
From the Judgment and Order dated 10.2.94 of the Madhya Pradesh
High Court in M.P. No. 4095 of 1989. H
94 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R '

A S.B. Wad, H.N. Salve, A.K. Sen, S.K. Dholakia arid G.L. Sanghi,
Ashis Wad, J.S. Wad, Ms. Meenakshi Arora, R. Santhanam, C.S.S. Rao,
K.J. John, Sushi! Kr. Jain, A.S. Bhasme, T.C. Sharma, S.K. Agnihotri,
Sakesh Kumar and Ashok K. Singh for the appearing parties.

The Judgment of the Court was delivered by
B ~ 1
R.M. SAHAI, J. The question that arises for consideration in these
appeals, directed against the judgment and order of the Madhya Pradesh
High Court, is whether entry tax on goods such as sugar on which no sales
tax is leviable, could be subjected to levy under Section 3(l)(a) of the
Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam,
c 1976 (hereinafter referred to as 'Entry Tax Act').
-
'-.
Even though legislative competence of the State Legislature was the
principal attack on the validity of the levy in the High Court but the main
thrust of challenge in this Court has been on the nature of levy, its ambit
· and whether it impedes free flow of trade and commerce in violation of
D Article 301 of the Constitution of India. Since there is no dispute on· facts
and the appellants who are dealers registered under the Sales Tax Act of the
State have brought goods such as sugar which are specified in Schedule II
of the Act from outside the State for consumption, use or sale inside the
State, it is ·appropriate to extract Section 3 of the Entry Tax Act to
E appreciate the rival submissions :

"3. Incidence of taxation.- (l) There shall be levied an entry
tax-

(a) on the entry in the course of business of a dealer of goods
F specified in Schedule II, into each local area for
consumption, use or sale therein; and

(b) on the entry in the course of business of a dealer of goods
specified in Schedule III, into each local are a for
consumption or use of such goods as raw material or
G incidental goods or as packing material or in the execution of
works contracts but not for sale therein;

and such tax shall be paid by every dealer liable to tax under
the Sales Tax Act who has effected entry of such goods:

H Provided ......................................... "
B. R. KUMAR v. COMMNR OF SALES TAX [SARAI, J.] 95

The levy was described in substance to be purchase tax leviable under A

.. the Sales Tax Act. But it appears to have been prompted by the latter part of
the Section which identifies the person who shall be responsible for paying
the tax. The Section is in two parts - one, levying the tax and other fixing
the person from whom it shall be realised. The latter is more a part of
machinery provision. It cannot control the main or the substantive part of
the Section. The taxable event is the entry of goods in a local area of the B
''
j

State by a dealer in course of business and not its purchase. To characterise
it as purchase tax is ignoring the nature of levy.

Nor there is any merit in the submission that the language of the
Section is vague and discriminatory and it would result in excluding those
dealers who were not registered under the Sales Tax Act. Registration under C
the Sales Tax Act is provided for every dealer whose turnover is Rs. 1,000
per year. Therefore, no dealer except of course hypothetically can be
excluded from operation of the Section. The apprehension that it may
exclude some dealer is not well founded. Even assuming for a moment it to
be so it does not render. the levy bad. If the legislature advertently or
inadvertently omits to levy tax on any class of persons that by itself cannot D
result in invalidating the levy unless it is found to be discriminatory.
Dealers with turnover of Rs. 1,000 per annum can be considered to be class
of small dealers. Excluding such class of dealers is neither arbitrary AOr
discriminatory.

Reliance was placed on the expression 'liable to tax' used in the E
Section and it was urged that the liability being co-related with entry of
goods the only reasonable construction of the Section was to restrict the
levy on those goods on which the dealer was liable to pay tax under the
Sales Tax Act. The submission was elaborated by relying on provisions of
(The) Additional Duties of Excise Act, 1957 and it was urged that sugar F
was one of the goods on which additional excise duty is leviable. Therefore,
no sales tax can be levied on it. Consequently, the dealer being not liable to
pay tax on such goods no entry tax could be levied on it. A bare reading of
the Section indicates that the tax is attracted under this Section if the
following conditions are satisfied :
G
(a) Entry of goods specified in Schedule II.

(b) The goods are brought in course of business by a dealer.

(c) The goods have been purchased outside the State but they have
been brought inside the State in a local area.
H
96 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R ~

A (d) For consumption, use or sale.

Liability to pay sales tax on the goods specified in Schedule II is thus ..
not an essential ingredient of levy. The expression 'liable to tax' has been
used to identify the person who shall pay the entry tax. To put it conversely
if any goods mentioned in Schedule II are brought from outside the State by
B a person who is not liable to tax under the Sales Tax Act then entry tax shall
/ J1
not be realised from such person. The intention is to levy tax only when the \
goods are brought inside the State by a dealer carrying on business whose
turnover is not less than Rs. 1,000 annually and not by any other person. In
other words, the tax is leviable on all goods specified in Schedule II
c brought for consumption, use or sale; but it shall be realised only from
those persons who are dealers registered under the Sales Tax Act and are
liable to pay tax. The expression 'liability to tax' is determinative of. the
person from whom the tax shall be realised and not of the goods which
could be subjected to levy. The construction suggested by the learned
counsel for the appellant militates against the clear language of the Section
D as the levy being on goods specified in Schedule II if the submission is
accepted then it would result in non-levy on those items on which
additional excise duty is leviable.

The goods were brought by the appellants who are dealers in course of
business for consumption, use or sale therein, was not disputed. Nor it is
E disputed that they are liable to pay tax under the Sales Tax Act. If that be
so, then there appears no escape from the conclusion that they are liable to
pay entry tax under this Section. The appellants claim to be dealers of sugar
which is specified in Schedule II. The tax being on entry of goods the
taxing event was complete once sugar was brought into the local are by a
F dealer in course of business for consumption, use or sale therein. This could
not be diluted or negatived by subjecting it to another condition that such
goods should have been liable to tax under the Sales Tax Act. That would
be misreading of Section 3. The charge or incidence of tax is different from
realisation of it. A levy may be valid and good and yet it may remain
ineffective if there is no machinery provision. But the provision for
G realisation of tax from the dealer who effects the entry of goods does not
make it a condition for the levy of tax. Tax under Section 3 is on bringing
of goods inside the local area by a dealer for consumption, use or sale
therein irrespective of whether sales tax is payable on it or not. Therefore,
sugar on which no sales tax is leviable because additional excise duty is
H payable would not be beyond the taxing net.
B. R. KUMAR v. COMMNR OF SALES TAX [ SAHAI, J.] 97

Even the submission on Article 30 l of the Constitution is not well- A
founded. The Article came up for interpretation by this Court in Atiabari
Tea Co. Ltd v. The State of Assam and Ors., [1961] l SCR 809 and The
Automobile Transport (Rajasthan) Ltd v. The State of Rajasthan and Ors.,
[1963] l SCR 491. 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 B
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 Khyerbair Tea Co. Ltd and Anr. v.
The State of Assam, [1964] 5 SCR 975 and State of Karnataka and Anr. v.
Mis Hansa Corporation, [1981] l SCR 823. The submission ofShri Ashok C
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 the facilities extended to such dealers directly or
indirectly the levy cannot be impugned as invalid. The stand of the State
that the revenue earned is . being made over to the local bodies to D
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, in view of what has been stated in the aforesaid E
decisions, more particularly in Hansa Corporation's case (supra).

In the result, these appeals fail and are dismissed. But there shall be no
order as to costs.

A.G. Appeals dismissed.