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The issue came before the bench along with a series of writ petitions filed before several High Courts regarding the applicability of the BOCW Act and the Welfare Cess Act to those premises which are registered under the Factories Act, 1948 (Factories Act).
In the present case, the Petitioner construction companies were issued various show cause notices for failing to register under the BOCW Act and for payment of cess under the Welfare Cess Act. The validity of these notices were challenged in several writ petitions before various High Courts on the ground that BOCW Act and the Welfare Cess Act were not applicable to these construction companies as they were registered under the Factories Act. The central question was the interpretation of the exclusion clause, being Section 2(1)(d) of the BOCW Act, which defines "building or other construction work" and excludes any building or other construction work to which the provisions of the Factories Act or the Mines Act, 1952 apply.
On the basis of the above stated exclusion, it was argued by the Appellant/Petitioner construction companies which are engaged in construction activities, that once the undertaking or the establishment had obtained a license for registration under the Factories Act, the BOCW Act was not applicable on account of the exclusion under Section 2(1)(d) of the BOCW Act. Therefore, the construction companies interpreted the clause and further argued that this exclusion is even applied to the stage of civil construction of registered factory premises. However, the Respondents on the other hand, called for a more beneficial interpretation to the exclusion clause on the ground that the legislation was a beneficial legislation and must cater to the benefit of construction workers.
JUDGEMENT BY THE SUPREME COURT
On the basis of the facts of the case, the Apex Court decided that the establishments / premises which are registered under the Factories Act and employees construction application of the BOCW Act in terms of the above mentioned exclusion clause. The Supreme Court passed its judgment in support of a reason that an establishment / premise would become a factory under Section 2(m) of the Factories Act only when the manufacturing process as defined under Section 2(k) of the Factories Act commenced. As a result, the provisions of the Factories Act would apply only when the manufacturing process commences, and even upon commencement of the manufacturing activity, it only covered those workers who are engaged in such manufacturing activity under the Factories Act and not the construction workers. Further, the Court held that the workers who are constructing a factory would not be understood as workers within Section 2(l) of the Factories Act and therefore are not entitled to claim the benefits of the Factories Act. This leads to a clear conclusion that a premise / establishment registered under the Factories Act would not constitute a factory by itself in the absence of any manufacturing activity. Hence, the construction activities which are carried out in relation to establishments / registered premises / licensed under the Factories Act would not attract the exclusion clause of the BOCW Act by itself.
Constitutional Validity of Entry Tax
JINDAL STAINLESS LTD. & ANR. Vs. STATE OF HARYANA & ORS. (Civil Appeal No. 3453/2002)
Jindal Stainless Steel Ltd. is a part of a product manufacturing industry within the state of Haryana. It imports the raw materials for the purpose of production and exports the finished goods to other states.
According to The Haryana Local Area Development Act, 2000, it provides for levy and collection of entry tax (supposed to be compensatory), i.e., tax levied on the entry of goods in the states for the consumption or use therein. As amended in 2003, Section 22 of the act provided for the collection of a tax for utilization and facilitating the nationwide free flow of trade and commerce. However, this section initially provided for utilization for the development of local areas instead of the utility.
The petitioner challenged the constitutional validity of the Haryana Local Area Development Act, 2000 before a Division Bench of the Supreme Court which was further referred to a nine-judge Constitution Bench before headed by Chief Justice T. S. Thakur and Justices A. K. Sikri, S. A. Bobde, Shiva Kirti Singh, N. V. Ramana, R. Banumathi, A. M. Khanwilkar, D. Y. Chandrachud and Ashok Bhushan.
Before 1995, the essential test for deciding the validity of a compensatory tax laid down by the Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan (Hereinafter called “The Automobile Case”) was to check whether the amount of tax paid and the facilities which the trader can use is proportional or not.
But after 1995, in the case of Bhagatram Rajeevkumar v. Commissioner of Sales Tax (hereinafter called “The Bhagatram case”) it was suggested that the working test was to check if there is any substantial or some other link between the tax paid and the facilities enjoyed by the traders.
Therefore, because of the Bhagatram case, according to the referral order, the factor on which the concept of compensatory tax evolved judicially is ambiguous in nature. Thus, the interpretation of the article 301 vis-a-vis compensatory tax was required to be laid down by the constitution bench under Article 145(3).
The working test laid down in automobile case for the first time, by a majority view, became a precedent which explained the principle of compensatory taxes which goes parallel with the Part-XIII of the Constitution. The essence of the compensatory tax is that the service which are rendered or facilities provided should be more or less in proportion with the tax levied, even though some amount may not be used to provide any facility. By this view, a tax law which does not serve its purpose of free trade and commerce cannot be designated as a compensatory tax. Thus, this can be taken as a correct test to differentiate a ‘compensatory tax’ from a regular ‘tax’.
On the other hand, the Bhagatram case holding has abolished the difference between a tax and a compensatory tax. and instead of evolving the concept of compensatory tax laid down by the SC seven-judge Bench in the Automobile Case, it went in the opposite direction. Thus, it needs to be overruled.
Whenever an impugned law is brought under the purview of Article 301, the Courts are required to examine the effects of the provisions which has on the inter-State and the intra-State movement of goods as it is an integral part of a trade.
The primary purpose of a tax law is collecting revenue while a regulation has to produce some regulative effects on trade and commerce. If a law charges a levy and in return, it seeks to control the conditions under which an activity such as trade must be carried on, then such law is in essence a regulatory one while if it operates to obstruct the activity, then the law is a restraint and is therefore brought under the purview of Article 301.
The principle behind levy of a tax is “ability or capacity” of a taxpayer. It is levied as a part of the common burden for generating general revenue. The benefit that we receive as a result of paying tax is common good. Thus, it does not have any measurable benefits. On the other hand, in the cases of fees and compensatory taxes, the well-known “principle of equivalence” is to be applied. The cost paid by us for obtaining a facility becomes the basis of compensation for the provider of the facilities. In other words, we pay for what we get. Thus, there is a measurable advantage. It must however be noted that a compensatory tax is levied on a class of persons while fees are to be paid by individuals.
In the Automobile case, one had to check if there is any substantial or other link between the tax paid and the facilities enjoyed by the traders. But, in the words of Justice Kapadia,“the test of ‘some connection’ enunciated in Bhagatram’s case is not only contrary to the working test propounded in Automobile Transport’s case, but it obliterates the very basis of compensatory tax.” Therefore, the working test laid down by the Bhagatram case stood overruled while the automobile case’s test holds fit.
Sudha Mishra vs. Surya Chandra Mishra( R.F.A 299 of 2014
The Hon'ble High Court of Delhi in Sudha Mishra vs. Surya Chandra Mishra (R.F.A 299 of 2014)has ruled that a woman has a right over the property of her husband but she cannot claim a right to live in the house of her parents-in-law
The Lok Sabha or the lower house of Parliament passed the 122nd Constitutional Amendment (GST) Bill, which was earlier modified and passed by the Rajya Sabha.