M/S. GEO MILLER AND CO. PVT. LTD. AND ORS.versusSTATE OF M.P. AND ORS.

            MIS. GEO MILLER AND CO. PVT. LTD. AND ORS.                        A
                                       v.
                         STATE OF M.P. AND ORS.

                                 MAY 5, 2004
                                                                              B
            [S. RAJENDRA BABU, CJ. AND G.P. MATHUR, J.]

         Constitution of India-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 C
    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 of works contract' ji-0111 the definition of
     'sale'-M P. Sales Tax Act, 1958.
)                                                                             D
         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 E
    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.
                                                                              F
    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 G
    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 H
                                       27
    28                 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.
A 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
B 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.
c
         Dismissing the appeals, the Court

          HELD: I.I. Only such restrictions or impediments which directly
    or immediately impede the free flow of trade, commerce and intercourse
D   fall within the prohibition of Article 301 of the 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
E   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
F   constitutionality of the Entry Tax Act is upheld. 131-G-H; 32-A-B, GI

         Atiahari Tea Co. l1J. v. The S1a1e of Assam & Ors., 1196111 SCR
    809; Automobile Transporl (Rajaslhan) ltd. v. The Stale of Rajasthan &
    Ors, 1196311 SCR 491 State of Kera/av. A.B. Abdul Kadir & Ors., 119691
    2 SCC 363 and Mis Bhagalram Rajeevkumar v. Commissioner of Sales
G   Tax, MP. & Ors .. 119951 Supp. 1 sec 673, referred to.

          1.2. The appellants effected entry of goods specified in Schedule Ill
    of the Act in the local area for use in execution of works contract. Hence,
    they are liable to ta:1. as per Section 3(1)(b) of the Act. The Act makes
H   a clear distinction between 'sale' and 'execution of works contract' and
             GEO MILLER AND CO. PVT. LTD. v. STATE                    29

specifically excludes the latter from the purview of the former. The Act A
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 B
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 C
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 D
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 E
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' F
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 G
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)                                        H
    30                SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A        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(

B        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
C   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
D   High Court in W.P. No. 687 of 1996.

        P.P. Rao, Kavin Gulati, S.K. Chauhan and G. Balaji Iyer for the
    Appellant.

E        R.P. Gupta for lntervenors.

         Satish K. Ag~ihotri and Anil K. Pandey for the Respondent.

         The Judgment of the Court was delivered by

F         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
G   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
H   assessment of tax before the Appellate Deputy Commissioner of Sales Tax
        GEO MILLER AND CO. PVT. LTD. v. STATE [RAJENDRA BABU. CJ.]           31

    and the Board of Revenue and thereupon appellants preferred Misc.              A
    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      B
    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 C
    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)?                                                                   D
>
         (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,       E
    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 of Rajasthan & Ors., [1963] l SCR 491, to        F
    state that taxation may impede the movement of goods from one barrier
    to the other and would accordingly bring Article 301 into play. 1 hey then
    contend that the conditions of Article 304(b) have not been complied
    thereby rendering the M.P. Entry Tax Act, 1976 unconstitutional.
                                                                                   G
          This argument of the 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 30 I. This Court did not accept the argument that all H
    32                 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A 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.
B
         In fact the concept of ··compensatory taxes" was propounded in the
    Automobile Transport Case. By virtue of this, taxes, which would otherwise
    interfere with the unfettered freedoms under Article 30 I, will be protected    •
    from becoming unconstitutional if they are compensatory.

c         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
    30 I is not properly founded.
D
          In fact, Section 3 of the said Act was under challenge in the case of     •
    Mis. Bhagatram Rajeevkumar v. Commissioner of Sales Tax. MP. & Ors.,
    [1995] Supp. I SCC 673. A three Judge Bench of this Court, found that
    the levy of tax under the M.P. Entry Tax Act, 1976 was constitutional. since
E   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
F   passes over to the local bodies to compensate them for the loss incurred
    due t<ll abolition of octrc;

         Augmentation of their finance would ~r ·;. !,, them to promote Municipal
    Services more efficiently helping in the free flow of trade and commerce.

G        The Act being compensatory in nature it is not open to challenge
    under Article 30 I and there is no need to venture into the argument based
    on Article 304(b). Accordingly, the constitutionality of the Act is upheld.

          In the case of Jindal S1ripe Ltd. v. State of Ha1yana, [2003] 8 SCC
H   60. a division bench of this court, raised doubts over the legal proposition
        GEO MILLER AND CO. PVT. LTD. v. STATE [RAJENDRA BABU, CJ.]               33

    laid down in the aforementioned Bhagatram case (which upheld the A
    validity of the M.P. Entry Tax Act, 1976) and refers the matter to a
    Constitution Bench over the interpretation of Article 301 vis-a-vis
    compensatory tax. In Bhagatram 's case, although it was demonstrated by
    the appellant State and not disputed by the respondents that the levy was
    compensatory, the Court goes on to make an observation that compensation B
    need not be that which facilitates the trade only. It observes that "the
    concept of compensatory nature of tax has been widened and if there is
    substantial or even some link befll'een the tax and the facilities extended
    to such dealer directly or indirectly the levy cannot be impugned as
    invalid". In the Jindal Stripe Case, the division bench noted that the above C
    observation would mean that "an indirect or incidental benefit to traders
    by reason ofstepping up the developmental activities in various local areas
    ofthe State can be legitimately brought within the concept ofcompensatory
    tax". Accordingly it refers the matter to a constitution Bench to decide what
    exactly would fall under the ambit of"compensatory tax", and thereby fall D
•   outside the purview of Article 30 I. Inasmuch as the Act in question has
    been upheld on the basis that it had been demonstrated by the State and
    not disputed by the dealers that the levy was compensatory it may not be
    necessary for us to dilate on this aspect any further.

         It is the contention of the appellants that Sec. 3(1 )(b) of the M.P. Entry
                                                                                       E
    Tax Act, 1976 does not permit levy of any entry tax on the entry in the
    course of a business of a dealer of goods specified in Schedule Ill into a
)   local area for consumption or use of such goods in the execution of works
    contracts, as these amount to 'sale'. They contend that owing to the 46th
    Amendment transfer of property in goods involved in the execution of a F
    works contract amounts to 'sale'.

         The relevant part of Section 3 of the M.P. Entry Tax Act is reproduced
    herein;
                                                                                       G
             "Section 3 : Incidence of Taxation; ( 1) There shall be levied an
             entry tax.

             (a)   .......... .
                                                                                       H
    34                   SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A            (b) on the entry in the course of business of a dealer of goods
             specified in Schedule III, into each local area for consumption or
             use of such goods (raw material or incidental goods) or as packing
             material or in the execution of works contracts but not for sale
             therein.............. "
                                                           (Emphasis Supplied)
B
          The relevant portion of Article 366 of the Constitution is as
    follows:                                                                         •
             "Article 366 : In this Constitution, unless the context otherwise

c            requires, the following expressions have the meaning hereby
             respectively assigned to them, that is to say -



             (29-A) "tax on the sale or purchase of goods" includes -
D            (B) a tax on the transfer of property in goods (whether as goods
                                                                                     '
             or in some other form) involved in the execution of a works
             contract."

         Accordingly, the appellant contends that Section 3(l)(b) of the M.P.
E Entry Tax Act, 1976, no longer permits levy of entry tax on goods
    consumed or used in works contract as these amount to 'sale' by virtue
    of Article 366(29-A).

          The question that arises for consideration is whether the definition of
    "tax on the sale or purchase of goods" as provided by the 46th amendment
F   through Article 366(29-A) applies to the M.P. Entry Tax Act.

          It is evident from the section 3(l)(b) of the M.P. Entry Tax Act, 1976,
    that if a dealer effects the entry of goods specified in Schedule III into any
    local area and those goods are meant for

G            (a)   consumption or

             (b)   to be used as

                   (i)   raw materials or

H                  (ii) incidental goods or
         GEO MILLER AND CO. PVT. LTD. v. STATE [RAJENDRA BABU, CJ.]         35

                  (iii) as packing material or                                    A

                  (iv) in the execution of works contract,

                  Such dealer would come within the ambit of the charging
                  section and hence, liable to pay tax on the entry of those B
                  goods.

          The section goes on to make it clear that goods specified in Schedule
    III if they are imported for the purpose of sale then they are not subject
    to tax.
                                                                                  c
         Admittedly, the appellants, a dealer, has effected entry of goods
    specified in Schedule III in the local area for use in execution of works
    contract, and is hence liable to tax as per Section 3(1 )(b) of the Act.

          It is hence evidence that the M.P. Entry Tax Act, 1976 makes as clear D
>   distinction between 'sale' and 'execution of works 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 E
    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            F
             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 G
     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 H
    36                  SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A 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 :

B
             "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)
c
         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. It need not be circumscribed by the definition provided in Article
    366(29-A).
D
          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
E   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.

F         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,
G   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
H   the entry of the goods specified in the Entry Tax Act.
     GEO MILLER AND CO. PVT. LTD. v. STATE [RAJENDRA BABU, CJ.]              37
     Accordingly, the M.P. Entry Tax Act does not adopt the expression A
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. If the person/
entity sought to be taxed comes within the letter of the law he must be B
taxed.

      In the instant case, the letter of the law, i.e. Section 3(l)(b) of the 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' C
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.                                                                     D

     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' E
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) of the Entry
                                                                                  F
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 :
                                                                                  G
         "(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 of in any manner. "
                                                         (Emphasis supplied) H
    38                 SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R.

A       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
B 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 of the appell:!nts fails to consider the final part
  of the proviso, which has been emphasised in the reproduction of the same
  above.
c
          Hence it can be seen that the Entry Tax imposed by the respondents
    is justifiable.

           These appeals are accordingly dismissed.
D
    B.S.                                                    Appeals dismissed.     •