Holding

The tax imposed under the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987 is a valid entry tax on the entry of a vehicle into a local area for use or sale, the term "local area" refers to an area administered by a local authority, and the tax does not violate any constitutional provision.

Summary

The petitioners, contractors and dealers of motor vehicles, purchased vehicles outside Maharashtra and brought them into the state, where they were levied an entry tax under the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987. They challenged the tax as unconstitutional, arguing that it exceeded the State's power under Entry 52 of List II, was a purchase tax, was vague because of the term "local area," amounted to double taxation with octroi, and violated Articles 301 and 286 of the Constitution. The High Court upheld the Act, holding that the entries in the Seventh Schedule are fields of power and that the tax was valid. On appeal, the Supreme Court held that the tax is a valid entry tax on the entry of a vehicle into a local area for use or sale, that "local area" means an area administered by a local authority and does not include the whole state, and that basing the tax on the purchase value does not render it invalid. The Court also ruled that the tax does not constitute double taxation nor infringe constitutional guarantees. Consequently, the appeals were dismissed and the tax was upheld.

Issues considered

Whether the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987 is within the legislative competence of the State under Entry 52 of List II of the Seventh Schedule.
Whether the expression "local area" in the Act can be interpreted to include the entire State of Maharashtra.
Whether the tax, being calculated on the purchase value of the vehicle, amounts to a purchase tax and is therefore invalid.
Whether the tax amounts to double taxation in violation of Article 286 of the Constitution.
Whether the tax infringes the freedom of trade guaranteed under Article 301 of the Constitution.

Legislation cited

Subjects

entry taxlocal areaconstitutional competenceArticle 301Article 286double taxationoctroiMotor Vehicles ActMaharashtra

Judgment

_,' -

A MIS SHAKTIKUMAR M. SANCHETI AND ANR.
v.
r
STATE OF MAHARASHTRA AND ORS.

NOVEMBER 25, 1994

B [KULDIP SINGH, R.M. SARAI AND B.L. HANSARIA, JJ.] r
Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act,
1987-Section 3-Tax on entry of vehicles into a local area-Validity-
Expression 'local area'-Meaning-Whether levy of tax was bad/or being

c
vague and contrary to concept of local area-Held, No-Levy being in
addition to octroi realised by local authorities-Whether it amounted to
r-,,
double taxation-Held, No-Whether levy can be said to be invalid merely
because measure of levy is to be purchase value ofvehicle-Held, No.

The appellants, contractors or dealers of motor vehicles who
purchased vehicles from outside the State and brought them in the
D State of Maharashtra, are aggrieved by levy of entry tax on such
vehicles under Maharashtra Tax on Entry of Motor Vehicles into Local
Areas Act, 1987. In writ petitions filed in the High Court, it was
claimed that the levy was a colourable exercise of the legislative power
of the State as Entry 52 of List II of the Vllth Schedule of the
Constitution of India did not permit imposition of such tax. It was also i=
E urged that the legislation impeded freedom of the appellants under
Article 301 of the Constitution. Dismissing the writ petitions, the High
Court held that the impugned Act was a valid piece of legislation as
various entries in the Vllth Schedule were merely fields and not the
powers of the legislation. It was held that the submission that the entry
tax being leviable in the local area it could have been levied on
F movement of goods from one local area to another local area in the
State only and not to more than one local area covering the entire State
was devoid of any merit. High Court did not' find that the provision
violated the constitutional guarantee under Article 301 or there was
any double taxation involved in it.
!------
G These appeals have been filed against judgment and order of the
High Court. In this Court the levy was challenged on the ground that
the incidence being on the purchase value of the motor vehicle it was in
nature of purchase tax. The tax on entry of vehicle in the State as such
was bad being vague and contrary to the concept of the local area as
understood. It was urged that the legislature in treating the entire State
H
98
S. M. SANCHETI v. STATE 99

as local area has gone beyond the permissible limits carved out of it by A
the Constitution. It was also urged that it being in addition to the tax
levied and collected as octroi by local authorities was violative of
Article 286 of the Constitution.

Dismissing the appeal, this Court
B
HELD : 1.1. Under the provisions of the Maharashtra Tax on
Entry of Motor Vehicles Into Local Areas Act, 1987, the charge is on
the entry of vehicle into a local area for use or sale and not on its
purchase. So long as the levy is on the entry of the vehicle into a local
area for use or sale therein it cannot be said to be invalid merely
because the measure of levy is the purchase value of the motor vehicle. C
(100 D, 102 F]

1.2. The expression 'local area' has been used in various Articles of
the Constitution, namely 3 (b), 12, 245 (1), 246, 277, 321, 323-A, and
37l(D). They indicate that the constitutional intention was to D
understand the 'local area' in the sense of any area which is
administered by a local body, may be corporation, municipal board,
district board etc. The High Court rightly held that the definition does
not comprehend entire State as local area; .the use of word 'a' before
'local area' in the section is significant. The taxable event, according to
High Court, is not the entry of vehicle in any area of the State but in a E
local area. It cannot, therefore, be struck down on that ground.
(103 C, E]

Diamond Sugar Mills Limited and Anr. v. State of U.P. and Anr., AIR
(1961) SC 652, distinguished.
F
State of Karnataka and Ors. v. Mis Hansa Corporation, AIR (1981)
SC 463, relied on.

1.3. Tax levied under different legislations enacted in exercise of
constitutional power are not rendered bad on assumption that it
amounts to double taxation. The taxable event for any entry tax is not G
same as for octroi; nor it is by the same authority for the same purpose
and for same period. (103 F]

Sri Krishna Das v. Town Area Committee, Chirgoan, (1990) 3 SCC
645, relied on. H
100 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5423-5427
of 1992 Etc.

From the Judgment and Order dated 7.8.92, 13.8.92, 17.8.92 of the
Bombay High Court in W~P. Nos. 527, 2349/90, 120, 19, 3134/91 and 1368
of 1992.
B S.B. Wad, H.N. Salve, A.K. Sen, S.K. Dholakia and G.L. Sanghi,
Ashish Wad, Mrs. J.S. Wad, Ms. Meenakshi Arora, R. Santhanam, C.S.S.
Rao, K.J. John, Sushil 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
c
R.M. SAHAI, J. Th.ese appeals are directed against judgment and
order of the High Court of Bombay. The appellants are either contractors or
are dealers of motor vehicles who have purchased vehicles from outside the
State and have brought them in the State of Maharashtra. They are
aggrieved by levy of entry tax on such motor vehicles under Maharashtra
D Tax on Entry of Motor Vehicles Into Local Areas Act, 1987. They
challenged it by way of writ petitions in the High Court. It was claimed that
the levy was a colourable exercise of the legislative power of the State as
Entry 52 of List II of Vllth Schedule of the Constitution of India did not
pennit imposition of such tax. It was also urged that the legislation impeded
freedom of the appellants under Article 301 of the Constitution. Another
E ground of challenge was that the imposition was double burden on the
appellants and in absence of any rational nexus between the levy of tax and
the constitutional objective it was violative of Articles 14 and 286 of the
Constitution of India. The High Court did not find any merit in any of these
submissions and held that the impugned Act was a valid piece of legislation
as various entries in the Vllth Schedule were merely fields and not the
F powers of the legislation. It was held that the submission that the entry tax
being ieviable in ~e local area it could have been levied on movement of
goods from one local .area to another focal area in the State only and not to
· more than one local area covering the entire State was devoid of any merit.
• The High Court did not find that the provision violated the constitutional
guarantee under Article 301 or there was any double taxation involved in it.
G
In this Courtthe levy was challenged basically for two reasons- one,
that the incidence of tax being on the purchase value of the motor vehicle it
was in nature of purchase tax. Further local area having a connotation of its
own and being understood as an area which was administered by a local
authority, the tax on entry of the vehicle in the State as such was bad for
H being vague and contrary to the concept of the local area as understood. It
S. M. SANCHETI v. STATE [R.M. SAHA!, J.] 101

was also urged that it being in addition to the tax levied and collected as A
octroi by a Municipal Corporation or other local authorities was violative of
Article 286 of the Constitution.

To comprehend the nature of levy it is necessary to extract the objects
and reasons appended to the ordinance which brought out clearly the reason
for the legislation: B
"From 1984 onwards some States and the Union Territories
adjoining the State of Maharashtra have reduced the rate of
Sales Tax on motor vehicles and chassis substantially. Such
reduction in tax rates by the neighbouring States have
resulted in diversion of trade to those areas and the C
manufacturers of motor vehicles in Maharashtra, for want of
market, had to resort to branch transfers to these areas and
cater to the needs of consumers in Maliarashtra, from those
areas. This resulted in the avoidable loss of legitimate sales
tax revenue to a large extent by the State of Maharashtra.
With a view to compensate such loss of legitimate revenue, D
the State Government has decided to levy with immediate
effect to tax on entry of motor vehicles purchased outside the
State and brought in the local areas of the State for use or
sale."

A very perusal of these objects and reasons would indicate that this E
legislation· was brought in order to avoid payment of the sales tax or
purchase tax on the vehicle payable in the State by purchasing it in another
State where the rate was lesser than the State or Maharashtra and then to
bring the vehicle inside the State. The legislature, therefore, clearly
intended to avoid any loss of legitimate sales tax revenue by the State. But
the levy cannot be held to be bad because the legislature intended to avoid p
any loss of sales tax in the State so long it is not found to be invalid either
because of any constitutional or statutory violation. It is not the intention or
propriety of a legislation but it is legality or illegality which renders it valid
or invalid. Section 3, the charging section is extracted below :

"3. Incidence of Tax- (I) Subject to the provisions of this G
Act and rules made thereunder, there shall be levied and
collected a tax on the purchase value of a motor vehicle, an
entry of which is effected into a local area for use or sale
therein and which is liable for registration in the State under
the Motor Vehicles Act, 1939, at such rate or rates as may be
fixed by the State Government by notification in the Official H
102 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A Gazette by not exceeding the rates prescribed for motor
vehicles in the Schedules appended to the Bombay Sales Tax
Act, or fifteen paise in the rupee whichever is less:

Provided that, no tax shall be levied and collected in respect
of a motor vehicle which was registered in any Union
B Territory or any other State under the Motor Vehicle Act,
1939 for a period of fifteen months or more before the date
on which it is registered in the State under that Act.

(2) The tax shall be payable and paid by an importer within
15 days from the entry of motor vehicle into the local area or
c before an application is made for registration of the vehicle
under the Motor Vehicles Act, 1988, whichever is earlier, in
the manner laid down under section l 0 of this Act.

(3) The tax shall be in addition to the tax levied and collected
as octroi by a Municipal Corporation, Municipal Council,
D Zilla Parishad, Panchayat Samiti or Village Panchayat or any
other local authority, as the case may be, within its local
areas."

This Section is an illustration of the charge or incidence of tax and the
measure of tax rolled in one. It creates liability on one hand for payment of
E tax on entry of any vehicle in a local area for use or sale therein and on the
other that the amount of tax shall be on the purchase value of the vehicle.
The latter part is what is commonly known as the machinery or procedural
part pertaining to calculation and realisation of tax. The charge is on the
entry of vehicle into a local area for use or sale and not on its purchase. The
submission founded on the expression, 'there shall be levied and collected a
F tax on the purchase value of a motor vehicle proceeded thus on a
misconception. Therefore, so long as the levy is on the entry of the vehicle
into a local area for use or sale therein it cannot be said to be invalid merely
because the measure of levy has been provided to be purchase value of the
motor vehicle.
G Sri Wad, the learned senior counsel vehemently urged that even
assuming that the motor vehicles were brought into State for use or sale the
tax could be levied only on the entry of vehicle into a local area. It was
urged that the legislation in treating the entire State as local area has gone
beyond the permissible limits carved out for it by the Constitution. The
learned c0unsel urged that the power under Entry 52 of List II of Vllth
H
S. M. SANCHETI v. STATE [R.M. SAHAI, J.] 103

Schedule is to tax goods when it enters into a local area which was A
managed or administered by the local authority and not by the State.
Reliance was placed on Diamond Sugar Mills Limited and Am'. v. State of
UP. and Anr., AIR (1961) SC 652 wherein the U.P. Sugarcane Cess Act,
1956 was held to be ultra vires as it empowered the imposition of a cess on
the entry of sugarcane into the premises of a factory. What is, therefore,
required to be examined is, how the word 'local area' should be B
understood? In the Diamond Sugar Mills (supra), the question whether
entire area of the State was an area administered by State Government and
was covered in the phrase 'local area', was not decided. The expression
'local area' has been used in various Articles of the Constitution, namely,
3(b), 12, 245 (1), 246, 277, 321, 323-A and 371(0). They indicate that the
constitutional intention was to understand the 'local area' in the sense of C
any area which is administered by a local body, may be corporation,
municipal board, district board etc. The High Court on this aspect held, and
in our opinion rightly that the definition does not comprehend entire State
as local area as the use of word 'a' before 'local area' in the Section is
significant. The taxable event according to High Court, is not the entry of
vehicle in any are of the State but in a local area. The High Court explained D
it by giving an illustration that if a motor vehicle was brought from Jabalpur
(Madhya Pradesh) for being used or sold at Amravati (in Nagpur District of
Maharashtra), which was the border area, taxable event was not the entry in
Nagpur District but entry in area of Amravati Municipal Corporation. ·The
levy, therefore, is not, as urged by the learned counsel for appellant, on E
entry of vehicle in any part of the State but in any local area in the State. It
cannot, therefore, be struck down on this ground. [See State of Karnataka
and Ors. v. Mis Hansa Corporation, AIR (1981) SC 463 = [1981] 1 SCR
823 = [1980] 4 sec 697.

Feeble attempt was made to submit that the tax being in addition to
octroi realised by the local body it amounted to double taxation. Tax levied F
under different legislations enacted in exercise of constitutional power are
not rendered bad on assumption that it amounts to double taxation. The
taxable event for entry tax is not the same as for octroi. Nor it is by the
same authority for the same purpose and for same period. See Sri Krishna
Das v. Town Area Committee, Chirgoan, [1990] 3 SCC 645.
G
In the result the appeals and the writ petition fail and are dismissed. But
there shall be no order as to costs.

A.G. Appeals dismissed.