Summary
OCL India, SAIL and Hindalco challenged Orissa and Uttar Pradesh entry tax laws that defined "local area" to include industrial townships. Their townships had been excluded from municipal limits, in some cases by notification under the proviso to Article 243-Q(1). They argued that, under Diamond Sugar Mills, such areas were no longer local areas within Entry 52 of List II. On a reference to a larger bench, the Supreme Court upheld the levy. Part IX-A concerns democratic local self-government, not State taxation. Exclusion from it only relieves industrial areas of electoral and similar requirements. Large industrial areas with villages and housing, governed under State industrial-area laws, remain local areas. Diamond Sugar Mills concerned entry into factory premises only. The retrospective UP law validly cured the defect in earlier levies.
Issues
- Whether an industrial area excluded from municipal limits under State law or specified as an industrial township under the proviso to Article 243-Q(1) ceases to be a "local area" within Entry 52 of List II, so that entry tax cannot be levied on goods entering it.
- Whether the retrospective Uttar Pradesh entry tax law was arbitrary.
Provisions considered
- Entry 52, List II, Seventh Schedule, Constitution of IndiaThe power to tax entry of goods into a local area is construed liberally; industrial townships are local areas and the incidence of the tax is entry for consumption, use or sale there. (¶¶ 2, 45, 47, 48)
- Article 243-Q(1), proviso, Constitution of IndiaSpecification of an industrial township only exempts the area from constituting a municipality and from Part IX-A's democratic requirements; it does not take the area outside the description of a local area. (¶¶ 43, 44, 45)
- Section 2(f), Orissa Entry Tax Act, 1999The definition of local area including an industrial township constituted under Section 4 of the Orissa Municipal Act, 1950 was within legislative competence. (¶¶ 4, 41, 50)
- Section 4(1), proviso, Orissa Municipal Act, 1950Exclusion of industrial townships from municipal councils and corporations does not affect their character as local areas for entry tax. (¶¶ 4, 41, 45)
Held
- Part IX-A, inserted by the 74th Amendment, aims to strengthen democratic local self-government and has no relevance to State taxation; the proviso to Article 243-Q(1) merely exempts industrial areas providing municipal services from requirements such as elections. (¶¶ 43, 44, 45)
- Industrial areas administered under State industrial-area laws fall within the description of a body constituted for governing local affairs; the excluded areas here comprised villages and thousands of houses and are local areas. (¶ 45)
- Diamond Sugar Mills held only that factory premises are not a local area, and the decisions in Saij Gram Panchayat, MGR Industries and NOIDA concerned panchayat or municipal coverage or income-tax status, not entry tax, so none helps the appellants. (¶¶ 39, 40, 44, 46)
- The Uttar Pradesh law, enacted with retrospective effect to cure the defect for which earlier demands were quashed, is valid on the principles in Prithvi Cotton Mills. (¶ 49)
Result
Special leave petition and civil appeals dismissed; the judgments of the Orissa and Allahabad High Courts upholding the entry tax levies affirmed; no order as to costs.