INDIAN OIL CORPORATION LIMITED Vs. STATE OF UTTAR PRADESH

JUDGEMENT

(1.) Background in brief The petitioners filed writ petitions challenging constitutional validity of the U.P. Tax on Entry of Goods Act, 2000 (referred as 'the Act') on the ground that tax levied under it was not 'compensatory' and hence violative of Articles 301 and 304, Constitution of India (called 'the Constitution') relying upon the apex court judgments in the case of Atia -bari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 (7 Judges) wherein apex court, dealing with the case of 'motor vehicles', observed:.it seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities....

(2.) THE respondents, on the other hand, contended that 'tax' levied as 'entry tax' under the Act, was not ultra vires of the Constitution, the traders (enumerated in the Schedule framed under Section 4 of the Act) were the beneficiaries and hence was compensatory in nature as explained by the apex court in the case of Bhagatram Rajeev Kumar v. Commissioner of Sales Tax [1995] 96 STC 654 ; [1995] Supp 1 SCC 673 (3 Judges), later followed in the case of State of Bihar v. Bihar Chamber of Commerce : [1996]2SCR184 , wherein the apex court observed (page 8 of 103 STC):.that for the purpose of establishing the compensatory character of the tax, it is not necessary to establish that every rupee collected on account of the entry tax should be shown to be spent on providing the trading facilities. It is enough if some connection is established between the tax and the trading facilities provided. The connection can be a direct one or an indirect one, as held by this court in Bhagatram Rajeev Kumar v. Commissioner of Sales Tax : 1994(4)SCALE1103 ..

(3.) STATE of U.P., being aggrieved, filed special leave petitions before the apex court. Those appeals (with other connected matters) were initially heard by two -Judge Bench of the apex court which doubted the correctness of the views expressed in State of Bihar v. Bihar Chamber of Commerce : [1996]2SCR184 and Bhagatram Rajeev Kumar : 1994(4)SCALE1103 and referred the case to a Constitutional Bench vide judgment and order dated September 26, 2003 Reported as Jindal Stripe Ltd. v. State of Haryana : (2003)8SCC60 in the case of jindal Stainless Ltd. v. State of Haryana : [2006]283ITR1(SC) .