Constitution of India

— Art. 301 — Taxes when violative of — Permissibility of compensatory taxes — ``Compensatory tax'' — What is — Reasonable relationship between tax levied and cost of regulation/services made available in lieu thereof — Cardinal/necessity of — Origin and development of the concept, traced — Held, compensatory tax is a compulsory contribution levied broadly in proportion to special benefits derived to defray costs of regulation or to meet outlay incurred for some special advantage to trade, commerce and intercourse — It may incidentally bring in net revenue, but that is not essential — Working proportionality test laid down in Automobile Transport case, (1963) 1 SCR 491, 536 : AIR 1962 SC 1406, para 19 (set out in para 10 herein), affirmed — ``Some connection'' test laid down in Bhagatram, 1995 Supp (1) SCC 673 and Bihar Chamber of Commerce, (1996) 9 SCC 136, overruled, (2006) 7 SCC 241-A

Constitution of India

— Art. 301 — Compensatory tax — Tax whether compensatory — Reasonable relationship between tax levied and cost of regulation/services made available in lieu thereof — Necessity for empirical data to substantiate — Held, to test an impugned law, court has to see whether it facially or patently indicates quantifiable data on basis of which the tax is sought to be levied — Impugned statute must facially indicate the benefit which is quantifiable or measurable and broadly indicate proportionality to the quantifiable benefit — If provisions are ambiguous or impugned statute does not indicate facially the quantifiable benefit, burden will be on the State as service/facility provider to place material before court to show that payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided or to be provided to its payer(s), (2006) 7 SCC 241-B

Constitution of India

— Art. 301 — Nature and scope of freedom under — When violated — Held, when impugned law chooses any activity of trade and commerce and effect of such law is to impede the same, such law is a restriction under Art. 301 — However, if the law in question is to enforce discipline or conduct under which the trade has to perform or if payment is for regulation of conditions or incidents of the trade, then the levy is regulatory and not violative of Art. 301 — Instance discussed, (2006) 7 SCC 241-C

Taxation

Generally

— Tax — What is — Basis of tax — Relationship with benefit, if any — Held, tax is levied as part of common burden — Basis of a tax is ability or capacity of taxpayer to pay — There is no identification of a specific benefit — A particular advantage, if it exists at all, is incidental to the State's action, (2006) 7 SCC 241-D

Taxation

Generally

— Taxing and regulatory powers — Distinction and reason for frequent confusion between, explained — Working test to determine where impugned law is in exercise of regulatory power or taxing power, laid down — Held, if impugned law seeks to control conditions under which an activity is to take place, then such law is regulatory — Payment for regulation is different from payment for revenue and must be broadly in proportion to the special benefits derived to defray the costs of regulation — Instance given, to illustrate difference, (2006) 7 SCC 241-E

Constitution of India

— Art. 301 — Compensatory tax — Nature of — Compared and contrasted with fees and taxes per se — Principle of equivalence, highlighted — Held, compensatory tax is sub-class of fees — Compensatory taxes like fees, always have to be proportional to benefits and not progressive, and must amount to a recompense/reimbursement of cost or expenses incurred or incurrable for providing services/facilities based on principle of equivalence — Compensatory tax is by nature hybrid, but it is more closer to fees than to tax, (2006) 7 SCC 241-F

Constitution of India

— Pt. XIII — Freedom of trade and commerce — History of Pt. XIII traced — Position compared with Australian and US Constitutions, (2006) 7 SCC 241-G

Constitution of India

— Art. 301 — Nature and scope of freedom under — Held, is not freedom from all laws but freedom from such laws which restrict or affect activities of trade and commerce amongst the States — It refers to freedom from laws which go beyond regulations which burden, restrict or prevent trade between States and also within States, (2006) 7 SCC 241-H

Constitution of India

— Arts. 301 to 304 — Scheme of working of, explained in detail — Exceptions and restrictions on Parliament and State Legislatures, explained, compared and contrasted, (2006) 7 SCC 241-I

Constitution of India

— Art. 301 — Compensatory tax — Scope — Ad valorem tax, whether can be compensatory — Question left open, (2006) 7 SCC 241-J