Entry tax issue referred to a much larger bench of Supreme Court

The issues relating to competence of the State Governments to levy a tax on the entry of goods and vehicles within the territorial bounds of their States is nowhere to be seen as attaining a finality in near future. In what has the implications of over 30,000 crores of Rupees in taxes due to the various States, the issue are now to be decided by a much larger bench. A two judge bench of the Supreme Court in end of 2008 had raised doubts over the correctness of reasoning in a five judge bench decision of the Supreme Court of 2005 which had in turn followed the time-tested law by another five judge and a seven judge bench decided almost five decades back.

Now that the present five judge bench, constituted to look into the doubts raised by the two judge bench was hearing the issue, was faced with the earlier decisions and thought wiser to reconsider the law which was delivered fifty years back. The five judge bench accordingly has referred the matters to the Chief Justice of India to constitute an appropriate bench (of seven or may be even nine judges of the Supreme Court) to decide the validity and competence of the States. 

In the referral order, authored by the designate Chief Justice of India Justice S.H. Kapadia, the Bench noted inter alia as under;

When the hearing commenced before the Constitution Bench, we found that the assessees (original petitioners in the High Courts) are heavily relying upon the tests propounded by a 5-Judge Bench of this Court in Atiabari Tea Co. Ltd. v. The State of Assam and Ors., (1961) 1 SCR 809, which tests subject to the clarification, stood reiterated in the subsequent judgment delivered by a larger Bench of this Court in the case of The Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan and Ors., (1963) 1 SCR 491. In fact, it may be stated that the Constitution Bench of this Court delivered the judgment in Atiabari Tea Co. Ltd. (supra) on 26th September, 1960. Soon thereafter, on 4th April, 1961, after hearing arguments in full, a 5-Judge Bench of this Court came to the conclusion that the matter needs to be referred to a larger Bench. In the circumstances, a 7-Judge Bench of this Court decided the matter in Automobile Transport (Rajasthan) Ltd. (supra) on 9th April, 1962 reiterating the tests laid down in Atiabari's case (supra) subject to one clarification. 

The question, therefore, which we need to answer, in the first instance, before going into the validity of each of the State Laws impugned before us is Whether after 49 years, this Court should revisit the tests propounded in the earlier decisions in the case of Atiabari Tea Co. Ltd. and Automobile Transport (Rajasthan) Ltd. (supra)? At this stage, it may be mentioned that the States whose Entry Tax Laws have been challenged have contended before us that the tests propounded in Atiabari Tea Co. Ltd. and Automobile Transport (Rajasthan) Ltd. (supra) have failed to strike a balance between the "freedom of trade and commerce" under Article 301 of the Constitution and the States' authority to levy taxes under Articles 245 and 246 of the Constitution read with the appropriate Legislative Entries in the Seventh Schedule to the Constitution of India. The states, therefore, sought revisiting of the aforestated two decisions in Atiabari Tea Co. Ltd. and Automobile Transport (Rajasthan) Ltd. (supra) by a larger Bench. 

In Keshav Mills Co. Ltd. v. Commissioner of Income-tax, Bombay North, (1965) 2 SCR 908 at p. 921, a Constitution Bench of this Court enacted circumstances in which a reference to the larger Bench would lie. It was held that in revisiting and revising its earlier decision, this Court should ask itself whether in the interest of the public good or for any other valid and compulsive reasons, it is necessary that the earlier decision should be revised? Whether on the earlier occasion, did some patent aspects of the question remain unnoticed, or was the attention of the Court not drawn to any relevant and material statutory provision, or was any previous decision bearing on the point not noticed? What was the impact of the error in the previous decision on public good? Has the earlier decision been followed on subsequent occasions either by this Court or by the High Courts? And, would the reversal of the earlier decision lead to public inconvenience, hardship or mischief?

According to the judgment in Keshav Mills case these and other relevant considerations must be born in mind whenever this Court is called upon to exercise its jurisdiction to review and revisit its earlier decisions. Of course, in Keshav Mills case a caution was sounded to the effect that frequent exercise of this Court of its power to revisit its earlier decisions may incidentally tend to make the law uncertain and introduce confusion which must be avoided. But, that is not to say that if on a subsequent occasion, the Court is satisfied that its earlier decision was clearly erroneous, it should hesitate to correct the error. In conclusion, in Keshav Mills case, this Court observed that it is not possible to lay down any principles which should govern the approach of the Court in dealing with the question of revisiting its earlier decision. It would ultimately depend upon several relevant considerations.

In the case of Central Board of Dawoodi Bohra Community and Anr. v. State of Maharashtra and Anr., (2005) 2 SCC 673, a Constitution Bench of this Court observed that, in case of doubt, a smaller Bench can invite attention of Chief Justice and request for the matter being placed for hearing before a Bench larger than the one whose decision is being doubted. 

Applying the tests laid down in the aforestated two cases, i.e., Keshav Mills Co. Ltd. and Central Board of Dawoodi Bohra Community (supra), we find that on number of aspects a larger Bench of this Court needs to revisit the interpretation of Part XIII of the Constitution including the various tests propounded in the judgments of the Constitution Bench of this Court in the aforestated two cases, namely, Atiabari Tea Co. and Automobile Transport (Rajasthan) Ltd. (supra). 

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In conclusion, we may also mention that though the judgments in Atiabari Tea Co. Ltd. and Automobile Transport (Rajasthan) Ltd. (supra) came to be delivered 49 years ago, a doubt was expressed about the tests laid down in those two judgments even in the year 1975 in the case of G.K. Krishnan and Ors. v. State of Tamil Nadu and Ors., (1975) 1 SCC 375 by Mathew, J., vide para 27, which reads as under: "Whether the restrictions visualized by Article 304(b) would include the levy of a non-discriminatory tax is a matter on which there is scope for difference of opinion. Article 304(a) prohibits only imposition of a discriminatory tax. It is not clear from the article that a tax simpliciter can be treated as a restriction on the freedom of internal trade. Article 304(a) is intended to prevent discrimination against imported goods by imposing on them tax at a higher rate than that borne by goods produced in the State. A discriminatory tax against outside goods is not a tax simpliciter but is a barrier to trade and commerce. Article 304 itself makes a distinction between tax and restriction. That apart, taxing powers of the Union and States are separate and mutually exclusive. It is rather strange that power to tax given to States, say, for instance, under Entry 54 of List II to pass a law imposing tax on sale of goods should depend upon the goodwill of the Union Executive." 

For the aforestated reasons, let this batch of cases be put before Hon'ble Chief Justice of India for constituting a suitable larger Bench for reconsideration of the judgments of this Court in Atiabari Tea Co. and Automobile Transport (Rajasthan) Ltd. (supra). 

Have a look at the referral order.