JINDAL STAINLESS LTD. AND ANR. versus STATE OF HARYANA AND ORS.

Citation: [2006] 3 S.C.R. 1095 · Decided: 13-04-2006 · Supreme Court of India · Bench: RUMA PAL · Disposal: Reference answered

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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JINDAL STAINLESS LTD. AND ANR. 
v. 
STATE OF HARYANA AND ORS. 
APRIL 13, 2006 
[MRS. RUMA PAL, B.N. SRIKRISHNA, S.H. KAPADIA, TARUN 
CHATTERJEE AND P.P. NAOLEKAR, JJ.) 
A 
B 
Constitution of India, 1950-Articles 301, 302, 303 and 304--Constitution 
Bench of this Court in Automobile Transport (Rajasthan) Ltd. v. State of C 
Rajasthan held a compensatory tax for use of trading facilities is not hit by 
Article 301 and propounded a working test to determine whether the tax 
under an impugned enactment is compensatory in nature by enquiring whether 
there is any proportional benefit/facility received by trade on payment of such 
tax-A smaller Bench later in Bhagatram Rajeevkumar v. Commissioner of 
Sales Tax MP. and Ors. took a view that a tax is compensatory in nature even D 
if there is some connection between the tax and the facilities extended to the 
trade either directly or indirectly-Reference to a Constitution Bench doubting 
the correctness of the view in Bhagatram case-Held, the view held in 
Bhagatram case is not only contrary to the working test propounded in 
Automobile Transport but also obliterates the ve1y basis of compensatory E 
tax-Hence, the view held in Bhagatram case is overruled-Distinction 
between tax, fee and compensatory tax explained. 
In Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, AIR 
(1962) SC 1406 (CB); [1963[ 1 SCR 49l(CB), a Constitution Bench of this 
Court held that regulatory measure or measures imposing compensatory F 
taxes for the use of trading facilities did not hamper trade, commerce or 
intercourse, rather facilitated them and therefore were not hit by the 
freedom declared by Article 301 of the Constitution of India. This Court 
took the view that compensatory taxed constitute an exception to Article 
301. This Court laid down a working test for deciding whether a tax is 
compensatory or not by enquiring whether th.e trade is having the use of G 
certain facilities for the better conduct of its business and paying not 
patently much more than what is required for providing the facilities. 
In Mis Bhagatram Rajeevkumar v. Commissioner a/Sales Tax, MP. and 
1095 
H 
1096 
SUPREME COURT REPORTS 
[2006) 3 S.C.R. 
A Ors., (19951 Supp 1 sec 673, a Bench of three judges of this Court took 
the view that even if there is 'some connection' between the tax and the 
trading facilities extended to dealers directly or indirectly, the tax would 
be characterised as a compensatory tax and hence cannot be held unvalid 
under Article 301 of the Constitution. The decision was relied on by this 
B Court by a Bench of two judges in State of Bihar and Ors. v. Bihar Chamber 
of Commerce and Ors., [19961 9 SCC 136. 
A Bench of two judges of this Court, while deciding a case regarding 
constitutional validity of levy of entry tax by State under the Haryana 
Local Area Development Tax Act, 2000, doubted the correctness of the 
C views taken by this in Bhagatram and Bihar Chamber of Commerce cases 
and hence referred the case to a Constitution Bench to decide with 
certitude the parameters of the judicially evolved concept of compensatory 
tax in Automobile Transport case vis-a-vis Article 301 of the Constitution 
of India. 
D 
Answering the question referred to it the Court 
HELD: 1. Article 301 of the Constitution of India, though positively 
worded, in effect is negative as freedom correspondingly creates general 
limitation on all legislative power to ensure that trade, commerce and 
intercourse throughout India shall be free. Article 301, therefore, refers 
E to freedom from laws which go beyond regulations which burdens, restricts 
or prevents the trade movement between States and also within the State. 
Article 301 is not only an authorization to enact laws for the protection 
and encouragement of trade and commerce amongst the States but by its 
own force creates an area of trade free from interference by the State and, 
F therefore, Article 301 per se constitutes limitation on the power of the 
State. [1119-A-DJ 
2.1. The primary purpose of a taxing statute is collection of revenue. 
On the other hand, regulation extends to administrative acts which 
produces regulative effects on trade and commerce. Payment for 
G regulation is different from payment for revenue. If the law enacted is to 
enforce discipline or conduct under which the trade has to perform or if 
the payment is for regulation of conditions or incidents of trade or 
manufacture, then the levy is regulatory.

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