LBt – In the Scheme of the Constitution of India
P. C. Joshi, Advocate
LBT – In the Scheme of the Constitution of India
The Constitution of India is the fountain source of
all the legislative powers conferred upon both the
Parliament as well as the State Legislatures.
Article 246 provide for subject matter of laws that
may be enacted by either of the law framers. While
the Parliament possess the exclusive power over
the matters speciied in List I i.e. Union List, List
II i.e. State List contain the matters for the State
Legislatures. Both the Lists I and II form part of 7th
Schedule appended to the Constitution along with
List III which is known as Concurrent List.
The power to levy tax is provided only under
List I and II while the concurrent lists have no
matter relating to tax. As far as the List I and II
are concerned, both are mutually exclusive. In
other words if the tax is levied on a matter by the
Parliament under its plenary powers, the State
cannot provide for such a levy. Similar is the
position for matters in List II over which Parliament
cannot levy tax. The topical example of that nature
is the levy of sales tax by States and services by
Parliament. The GST could not be implemented
only because of the aforesaid limitations.
While considering the legislative competence of
a particular enactment, the doctrine of ‘pith and
substance’ is normally applied by the courts.
In other words the effect of the enactment and
the true nature and character of the levy, would
govern the proper legislative area.
Article 265 provide that the tax levied and collected
have to be by the authority of law i.e. the law
framed by the appropriate legislative forum.
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Another aspect to the matter while considering the
scope of an enactment is its impact on fundamental
rights contained in Articles 14, 15 and 19. In case
any law is found to be inconsistent with any of the
fundamental rights, the same can be declared to
be ultra vires.
The Constitution also provide for other restrictions
through Article 286 which provide that the State
will not be competent to levy tax on transactions of
sale or purchase which take place outside the State
or in the course of import/export or in the course
of inter-State trade or commerce.
In exercise of the powers provided in Article 269
(3), the Parliament enacted the Central Sales Tax
Act, 1956 providing for the principles governing
the aforementioned categories of transactions in the
nature of inter-State trade/import export.
Under Article 251 any law framed by the State
legislature cannot be inconsistent with the
provisions of the Constitution as well as the law
made by the Parliament. Article 254 expressly
treats the law made by the State legislature as void
to the extent of its repugnancy to the Parliamentary
law.
With the above Constitutional background we
may safely conclude that under the Constitution,
the power of framing a law is with either the
Parliament or the State legislature. In other words
the Municipal Corporations have no power to levy
any tax on its own.
The Chamber's Journal August 2013
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Special Story – Service tax Voluntary Compliance encouragement Scheme 2013 and LBt – A Perspective
By 74th amendment to the Constitution, Part IX
A was inserted w.e.f. 1st June, 1993. The said part
provide for the matters relating to Municipalities
and its Constitution in each State. Article 243-X
provide for the authorisation by a law framed by
State legislature, to Municipalities to levy collect
and appropriate such taxes, duties, tolls and
fees in accordance with the rules framed by the
State Government. Such a power of levying tax
have to be exercised subject to the Constitutional
restrictions and limitations. In other words the levy
of tax by a Municipal Corporation cannot provide
for levying tax on transactions that take place in
the course of import or in the course of inter-State
trade or commerce.
In India except the State of Maharashtra all
other States absorbed the octroi with the levy
of VAT. The State of Maharashtra however
enacted the Local Body Tax (hereinafter referred
to LBT) without repealing the levy of entry tax
by a separate enactment. Entry 52 of State list,
applicable to LBT as well as Entry tax (List II) read
as under:
‘Taxes on the entry of goods into a local area for
consumption, use or sale therein’. In juxtaposition
with that entry, entry 54 enable the State legislature
to levy tax on the sale or purchase of goods subject
to the provisions of entry 92 A of List I. That entry
in List I provide for the Parliamentary power in
respect of transactions in the course of inter-State
trade or commerce.
The nature of the entry tax have been the subject
matter of several matters before the High Courts
as well as the Supreme Court. The courts have
uniformly considered the parameters of the levy,
by considering as to whether the entry tax happens
to be compensatory or regulatory. While Entry Tax
levy by some of the State enactments have been
held to be ultra vires; wherever the State was able
to establish the compensatory nature its legality
was upheld. As far as the State of Maharashtra
is concerned the Bombay High Court in the case
of Eurotex Industries and Export Ltd vs. State of
Maharashtra & Ors. 135 STC 25 struck down the
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validity of the entry tax. Along with the said case
the case of another petitioner M/s. Tata Power Co.
Ltd., was also tagged. The facts in Tata Power case
involved the import of certain goods from other
country and not from other State.
The Maharashtra Act 27 of 2009 w.e.f. 31st
August, 2009 inserted Chapter XI B to the Bombay
Provincial Municipal Corporation Act, 1949. Under
the said Chapter section 152T empowered the State
Government to make rules for the purpose of levy
of local body tax and accordingly by notiication
dated 23rd March, 2010 various rules were framed
so as to provide for levy of LBT within the State of
Maharashtra.
The Municipal Labour Union, Pune and Others
challenged the legality of those rules on various
grounds. Though the said Writ Petition No. 2720
of 2013 (on Appellate Side) have been admitted, no
ad-interim relief have been granted by observing
that the alternative system of levying LBT was
introduced in lieu of octroi in the Municipal
Corporation areas as per the persistent demand
from the traders.
While we await the inal disposal of the said Writ
Petition, it can safely be concluded that the LBT
cannot be levied on goods imported from other
country or from other States, being contrary to
Article 286 of the Constitution. Secondly the term
‘importer’ as deined in section 28A cannot cover
an importer of goods from other countries.
The term ‘goods’ in section 27 inter alia include
animals however the definition of the said term
in Article 366(12) would prevail. According to
that definition the term includes all materials,
commodities and articles; in other words it does
not cover livestock. Therefore to that extent the
deinition under LBT would be ultra vires.
Rest of the provisions under LBT follow the
Scheme of MVAT Act, therefore the professionals
will have a very wide scope for expanding their
area of practice. I wish all my younger Brothers
and Sisters will keep themselves abreast with the
developments in that regard.
The Chamber's Journal August 2013
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