Background
In its recent decision of Mineral Area Development Authority v. SAIL1, a 9-Judge Bench of the Supreme Court of India crystallised the legal position in respect of taxing power of the States qua land and mineral rights. In the process of delineating the law on the subject, the Supreme Court revisited and reaffirmed a number of existing legal propositions, particularly those in context of fiscal legislations. Addressing the issue relating to limitations (if any) on the right of States to adopt distinct provisions for quantification of tax, the Supreme Court inter alia approved its earlier decisions which held that “incidence of tax” and “measure of tax” are distinct and the latter does not control or influence the former. In particular, the Supreme Court declared that: (a) “pith and substance or true nature and character of the legislation must be determined with reference to the legislative subject-matter and the charging section”2; and (b) “measure of tax is not a true test of the nature of tax”.3 On that account, the Supreme Court laid down the following test dwelling upon the relationship between “incidence” and “measure” of tax:
290. The discussion above indicates that the nexus between the measure and levy of tax need not be “direct and immediate”. The nexus has to be “reasonable” and must have some relationship with the nature of levy. The reasonability of the nexus will largely depend upon the nature of the tax and the means available with the legislature to design the measure of the tax. Since the measure of the levy is a matter of legislative policy and convenience, the reasonability of the nexus between the measure and tax has to be determined by the courts on a case-to-case basis. While doing so, the Court will bear in mind the fundamental principle that the legislature possesses a broad discretion in matters of fiscal levies.4
Indeed, this decision has not propounded this test for the first time and, instead, this legal position has remained in vogue for decades. However, the fact that a 9-Judge Bench has reaffirmed this legal position implies that the law on the subject is settled for good for long, if not posterity. Thus, it is perhaps an appropriate occasion to examine the consequences of the legal proposition that there is no requirement for a direct nexus between the incidence and measure of tax.
A survey of jurisprudential elocution on the proposition
The legal position declared by the Supreme Court has critical implications. This is in part because of a related declaration that tax is a “compulsory exaction of money by a public authority” being “imposed under statutory power without the consent of the tax payer”, and the tax “demand is enforceable by law” irrespective of “any special benefit to be conferred on the payer of the tax”.5 It is thus clear that it is not a choice of the person, but instead, it is a mandate of the law that a particular amount of liability is to be discharged in the wake of a taxing statute by the subject taxpayer identified in such statute. For illustration, in the context of income tax law, the person earning the income is required to discharge income tax without choice. Similarly, as another illustration, a person importing goods into India is required to discharge applicable customs duty. Thus, payment of tax is mandatory in law.
In this background, the question is, if the legislature has the freedom to choose the measure of tax, can it choose such a measure which is distinct and far removed from the aspect on which the tax is levied. Indian courts have faced many such challenges, particular in the last few decades, wherein in most cases the challenge has been rejected to the detriment of the taxpayer. It is expedient to examine few such challenges to appreciate the extent and contours of the judicial leeway to the legislature and flexibility in designing the measure of tax.
In Union of India v. Bombay Tyre International Ltd.6, one of the challenges before the Supreme Court was the correctness of the valuation provision of the central excise law which inter alia provided for levy of central excise duty on the “manufacture” of goods but entailed the valuation of the goods (for the purpose of computing the duty liability) on the basis of the sale price of the goods. Appearing as counsel before the Supreme Court, renowned jurist, Nani Palkhivala inter alia made the following submissions to challenge the “measure” (i.e. sale price of goods) contending it to be unrelated to the “incidence” of tax (i.e. manufacture of goods):
8. Mr N.A. Palkhivala, learned counsel for the assessees, has propounded three principles which, he contends, form the essential characteristics of a duty of excise. Firstly, he says, excise is a tax on manufacture or production and not on anything else. Secondly, uniformity of incidence is a basic characteristic of excise. And thirdly, the exclusion of post-manufacturing expenses and post-manufacturing profits is necessarily involved in the first principle and helps to achieve the second. Learned counsel urges that where excise duty is levied on an ad valorem basis the value on which such duty is levied is a “conceptual value”, and that the conceptual nature is borne out by the circumstance that the identity of the manufacturer and the identity of the goods as well as the actual wholesale price charged by the manufacturer are not the determining factors.… Considerable emphasis has been laid on the submission that as excise duty is a tax on the manufacture or production of goods it must be a tax intimately linked with the manufacture or production of the excisable article and, therefore, it can be imposed only on the assessable value determined with reference to the excisable article at the stage of completed manufacture and to no point beyond. To preserve this intimate link or nexus between the nature of the tax and the assessment of the tax, it is urged that all extraneous elements included in the “value” in the nature of post-manufacturing expenses and post-manufacturing profits have to be off-loaded. It is pointed out that factors such as volume, quantity and weight, which enter into the measure of the tax, are intimately linked with the manufacturing activity, and that the power of Parliament under Schedule VII List I Entry 84 to the Constitution to legislate in respect of “value” is restricted by the conceptual need to link the basis for determining the measure of the tax with the very nature of the tax.
It was, thus, argued that the valuation mechanism must be linked to the charging mechanism, so much so that the measure of tax should have a direct nexus with the incidence of tax. However, observing that “it has long been recognised that the measure employed for assessing a tax must not be confused with the nature of the tax, the Supreme Court rejected the challenge”.7 Referring to past precedents,8 the Supreme Court imperatively declared that “the measure adopted could not be identified with the nature of the tax” and further made it “clear that the levy of a tax is defined by its nature, while the measure of the tax may be assessed by its own standard. It is true that the standard adopted as the measure of the levy may indicate the nature of the tax but it does not necessarily determine it”.9 In fact, the Supreme Court went on to the extent of declaring it as a settled legal proposition that “the form in which the levy was imposed was held to be an impermissible test for defining in itself the character of the levy”.10 For this reason, the Supreme Court rejected the challenge to the validity of the valuation mechanism inter alia concluding, as under:
8.
(14) … It is apparent, therefore, that when enacting a measure to serve as a standard for assessing the levy the legislature need not contour it along lines which spell out the character of the levy itself. Viewed from this standpoint, it is not possible to accept the contention that because the levy of excise is a levy on goods manufactured or produced the value of an excisable article must be limited to the manufacturing cost plus the manufacturing profit. We are of opinion that a broader based standard of reference may be adopted for the purpose of determining the measure of the levy. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy.11
The correctness of the propositions emanating from this decision were doubted and the matter was referred to a larger Bench. Subsequently, a 5-Judge Bench of the Supreme Court confirmed the same view in its decision in CCE v. Grasim Industries Ltd.12 wherein it was categorically declared that “the measure of the levy contemplated in Section 4 of the Act will not be controlled by the nature of the levy. So long a reasonable nexus is discernible between the measure and the nature of the levy both Sections 3 and 4 would operate in their respective fields as indicated above”. In doing so, the Supreme Court followed another 5-Judge Bench decision in R.C. Jall Parsi v. Union of India wherein it had been famously declared that the “method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience”.13
Pithily put, therefore, the legal position which emerges is that the measure of tax need not correspond exactly to the incidence of tax, and it is sufficient (in law to sustain validity of such measure) that the measure of tax has a “reasonable” nexus with the nature of levy.
Pragmatic implications and consequences of the judicial declaration
There are severe implications of the legal declaration that there is no need for a “direct and immediate” nexus between the measure of tax and the incidence of tax. Take the case of the controversy before the 9-Judge Bench of the Supreme Court itself to appreciate this aspect. In this case there were two distinct taxation powers of States in consideration — taxation of mineral rights and taxation of land and building. The 9-Judge Bench declared that both were distinct powers and thus limitations on one could not be read into another. On this account, the limitations under the Constitution on the power of the States to levy taxes on mineral rights did not extend to the power of the States to levy taxes on lands and building, which power could be exercised standalone by the States. On account of this declaration, as a natural corollary, the 9-Judge Bench rejected the argument that “the State cannot be allowed to use minerals produced as the measure to tax mineral-bearing land”14 and specifically declared that “if the State Legislature has classified mineral bearing land as a separate unit for the purposes of levy of tax on land, the minerals produced or any other measure directly connected to the minerals produced can be used as a measure to quantify the tax”.15 In other words, the Supreme Court permitted that States could adopt such a measure of tax on land which includes the value of minerals located on such land notwithstanding the fact that could already exist a distinct taxes levied by the States qua such minerals.
It is not that the aforesaid implication was a sub silentio consequence of the decision. In fact, the Supreme Court in concluding so was well aware of the implications of its decision (to dehyphenate the incidence and measure of tax) and as noted in the decision, was presented with the contention “that since Entry 50 of List II is a special entry, the use of minerals produced or mineral value as a measure of tax under Entry 49 of List II will lead to overlap between the two entries”.16 However, the Supreme Court specifically rejected the argument, thereby permitting inclusion of minerals (which were separately taxed) again in the value of tax for the purpose of land tax, inter alia observing as under:
340. There may arise situations where two taxes levied under different legislative entries may be based on the same measure. In Federation of Hotel & Restaurant Assn. of India v. Union of India17 it was held that the fact that two different taxes use the same measure does not make them identical.
341. In view of the above discussion, we conclude that mineral value or mineral produce could be used as a measure of the tax on land under Entry 49 of List II. The fact that Entry 50 of List II pertains to taxes on mineral rights would not preclude the State Legislature to use the measure of mineral value or mineral produce under Entry 49 of List II. The State Legislature has legislative discretion to determine the appropriate measure for the purposes of quantifying taxes, so long as there is a reasonable nexus between the measure and the nature of the tax. The measure does not determine the nature of the tax. The words “lands” under Entry 49 of List II includes mineral bearing land. The mineral produce is the yield from a mineral bearing land. Since royalty is determined on the basis of the mineral produce, royalty can also be used as a measure to determine the tax on royalty. The fact that the State Legislature uses mineral produce or royalty as a measure does not overlap with Entry 50 of List II.18
Thus, inter alia the Supreme Court, consciously, has approved levy of a tax based on a measure which may conflate with another tax-base. The rationale for this legal position is that there being distinct taxation powers, each power should be allowed to be exercised by the State to the fullest.
Need for a revisit: The citizenry perspective
On a constitutional plane, the decisions of the Supreme Court may perhaps be right — there is a need to preserve the fiscal space to the States and the courts cannot micromanage the policy considerations and pragmatic realities which States alone are privy to while designing the measure of tax. The question however is, is preserving the State’s fiscal realm the only variable in the inquiry or is there a more fundamental constitutional tenet which requires to be preserved i.e. the probity of governance and impact on citizens of the State’s fiscal policies. While the citizens are already burdened with a wide variety of fiscal exactions at every stage of their societal interaction, is it fair to burden them with such levies which do not correspond to the object of their imposition? This aspect requires a deep dive to appreciate the intertwined variables which exemplify the impact of tax vis-à-vis what should be ordinary due.
To illustrate, by permitting levy of excise duty (which is on manufacture) with reference to the sale price of the goods, as was approved in the Bombay Tyre International case19, the citizens are effectively made to bear the burden of two sales taxes i.e. one actual sales tax and another a shadow sales tax being excise duty levied on basis of sale price. Those defending the latter may argue that abatement and other computation niceties limit the levy of excise duty and is not equivalent to sales tax. However, the fact remains that the computational mechanics are only ad hoc thumb-rules which do not rule out levy of excise duty on post-manufacturing value addition, which is the remit of the sales tax. In short, by allowing the measure to be divorced from the charge of tax, economic burden of tax goes much beyond what the collection would have been had the measure of tax being limited to the intrinsic feature of the tax.
The burden on the common man is further accentuated if cascading effect of tax is reckoned. This happens, in this example, because the State levying the sales tax includes the excise duty for the purpose of computing the sales tax. Thus, conceptually speaking, the citizen is short charged twice by the taxing system, in this one illustration alone.
One may argue that with the introduction of Goods and Services Tax (GST) these issues have been resolved. However, that is not the case. First, the concept of excise duty and sales tax continues qua petroleum products, etc. Thus, the ramifications of the extended arm of the tax system (owing to an exalted measure) continue. Second, and more crucially, the GST law is no different. Section 15(2) of the Central Goods and Services Tax Act, 2017, while delineating the “value of taxable supply”, specifically declares that “any taxes, duties, cesses, fees and charges levied under any law for the time being in force” shall be additionally included in the value on which applicable GST will be determined. Thus, even the measure of GST law extends to levying GST on other taxes being charged.
The other illustration, of measure of land taxes, leads to a similar precarious situation for the citizen. By allowing the tax on land to be levied by factoring the value of minerals embedded in the land, as approved in the Mineral Area Development Authority case20, the State is allowed to have a second stab at the tax because, in the first go the tax on the mineral is payable under the law governing taxation of mineral right and thereafter, second time, the same mineral is included in the value of land to result into collections twice over to the State. If the fact that the mining lease holder is, additionally, required to pay royalty to the State is also included in this prism of inquiry, the State has actually enriched the exchequer thrice basis the same value of mineral which it only parts once. This fiscal burden will, eventually, be borne by the citizens in the form of exalted prices on account of the excessive collections by the State.
What is critical to note is that the aforesaid discussion is based only on two illustrations, excise duty and land taxes. However, the Constitution of India is replete with taxation subjects. To exemplify, within the scope of indirect tax paradigm, despite the advent of GST, inter alia the following indirect taxes still continue to remain within the limits of States’ empowerment — electricity duties, goods and passenger taxes, vehicle taxes, entertainment taxes, etc. This is besides the fact that there are many other taxation subjects reserved for the Union Parliament and States in direct and indirect tax paradigm. In other words, the already burdened citizen would bear additional and disproportionate tax burden owing to such large number of tax laws in the fray, even if a few of them enact an extended “measure” to ascertain the tax liability.
It is also important to dislodge the impression that the aforesaid concerns are at best theoretical and the State, while designing the tax measure, is mindful of the impact on the citizens. A quintessential reflection to this account is the decision of the Supreme Court in R.R. Engg. Co. v. Zila Parishad, Bareilly21 where the Court was concerned inter alia with the determination of the true nature of “circumstances and property tax” levied by a Local Authority. The Court concluded that the tax was a composite one referable to three distinct taxing powers.22 In this decision the Supreme Court cautioned the authorities to remain within the constitutional prescriptions while levying the tax and the declaration of its validity should not be “construed as conferring an unlimited charter on the local authority to impose disproportionately excessive levies on the assessees who are subject to their jurisdiction”. It is, thus, ironical that R.R. Engg. case23 decision is now relied upon by the Supreme Court to approve a distinct measure vis-à-vis the incidence of tax. There are certain other judicial prescriptions as well, some of which are enumerated below:
(a) In Valley Hotel & Resorts v. CCT24, the Uttarakhand High Court grappled with a situation of a restaurant which faced overlapping demands under both service tax and sales tax law. It required a judicial declaration to save the petitioner from double taxation, but only by way of a declaration that one tax be reduced to the extent of overlap by the other.25
(b) In State of Rajasthan v. Rajasthan Chemists Assn., the Supreme Court was concerned with a situation wherein the State levied sales tax on a transaction between the wholesaler and the retailer based on the maximum retail price (MRP) i.e. the resale price charged by the retailer to the ultimate consumer. Finding that the measure of tax (i.e. MRP) was far removed from the transaction being taxed (i.e. the transaction between wholesaler and retailer), the levy was annulled on the ground that there was “no nexus between the measure of levy and subject of levy”.26
(c) In Goodyear India Ltd. v. State of Haryana, the Supreme Court accepted the contention of the taxpayer that the State was levying a consignment tax “camouflaged as a purchase tax” inter alia in view of the distinctions in the incidence and measure of tax in that case.27
Thus, the courts have acknowledged State practice to the effect that there is: (a) “overlapping” amongst different taxes;28 (b) affixation of excessive tax liability by artificial expansion of the “measure” to compute the tax liability; and (c) levy of confiscatory29 and camouflaged taxes, etc. These aspects clearly document that excessive tax collection by the State by inflating the measure of tax is not a figment of imagination and is instead a distinct reality which needs to be perpetually guarded against to shield the citizen from bearing undue tax liability.
Conclusion
Weighing the scales, the judicial interventions in favour of taxpayers are rare. Furthermore, the currency and correctness of those decisions is now doubtful given the contrary declaration by the 9-Judge Bench. In any case, the courts have refused to engage themselves with the consequences of such expansive leeway to the States in designing the measure of tax by holding that “ultimate economic results” do not matter.30 The courts have, in fact, gone ahead to reject challenges even on account of: (a) double taxation, famously observing that “bad economics may be good law and vice versa”;31 and (b) taxation on basis of “notional” income,32 etc. Thus, in a majority of the cases, challenges of excessive taxation are not entertained in view of self-imposed judicial restraint which restricts the inquiry to testing the constitutional validity of the tax measure and not beyond. Hence, faced with economic hardships, the citizen is left with no other forum to ventilate its grievances. It is, therefore, suggested that the doctrine that the “incidence” and “measure” of tax need not have a “direct and immediate” nexus, be revisited.
*Advocate, Supreme Court of India; LLM, London School of Economics; BBA, LLB (Hons.) (Double Gold Medalist) National Law University, Jodhpur. The author can be reached at: mailtotarunjain@gmail.com.
2. Mineral Area Development Authority case, 2024 SCC OnLine SC 1796, para 285, following Federation of Hotel & Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634.
3. Mineral Area Development Authority case, 2024 SCC OnLine SC 1796, para 286, following R.R. Engg. Co. v. Zila Parishad, Bareilly, (1980) 3 SCC 330.
4. Mineral Area Development Authority case, 2024 SCC OnLine SC 1796.
5. Mineral Area Development Authority case, 2024 SCC OnLine SC 1796, para 104.
6. (1984) 1 SCC 467, 477-478, para 14.
7. Following Ralla Ram v. Province of East Punjab, 1948 SCC OnLine FC 9.
8. Atma Ram Budhia v. State of Bihar, 1952 SCC OnLine Pat 24; Sainik Motors v. State of Rajasthan, 1961 SCC OnLine SC 15; D.G. Gose and Co. (Agents) (P) Ltd. v. State of Kerala, (1980) 2 SCC 410.
9. Following A Reference under the Government of Ireland Act, 1920, In re, 1936 AC 352 : (1936) 2 All ER 111; R.R. Engg. Co. v. Zila Parishad, Bareilly, (1980) 3 SCC 330.
10. Following Hingir-Rampur Coal Co. Ltd. v. State of Orissa, 1960 SCC OnLine SC 60.
11. (2016) 6 SCC 391, 394.
13. 1962 SCC OnLine SC 62. Summarising the legal position, in this case the following observations were inter alia made by the Supreme Court:
7. … With great respect, we accept the principles laid down by the said three decisions in the matter of levy of an excise duty and the machinery for collection thereof. Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. Therefore, subject always to the legislative competence of the taxing authority, the said tax can be levied at a convenient stage so long as the character of the impost, that is, it is a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case the tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on a fair construction of the provisions of a particular Act. (Mark as RI1)
14. Mineral Area Development Authority case, 2024 SCC OnLine SC 1796, para 325.
15. Mineral Area Development Authority case, 2024 SCC OnLine SC 1796, para 332.
16. Mineral Area Development Authority case, 2024 SCC OnLine SC 1796, para 335.
18. Mineral Area Development Authority case, 2024 SCC OnLine SC 1796.
21. (1980) 3 SCC 330. This decision holds that a tax on circumstances and property “is not a tax on income but is a tax on a man’s financial position, his status as a whole, depending upon his income from trade or business”, approving the view in R.R. Engg. Co. v. Zila Parishad, 1969 SCC OnLine All 138.
22. I.e. “tax on land and building” (List II Entry 49), professional taxes (List II Entry 60), and “taxes on animals and boats” (List II Entry 58).
25. See also, CST v. Quick Heal Technologies Ltd., (2023) 5 SCC 469 holding that no service tax can be imposed when value added tax has been paid on the entire transaction.
26. (2006) 6 SCC 773 inter alia observing as under:
43. … There being statutory prohibition against the wholesalers to charge MRP from their buyers, the maximum retail price fixed on the packet has no rational connection with the taxable sale effected by the wholesalers and which becomes the subject-matter of charge as a first point tax. In such event, there exists no nexus between the measure of levy and subject of levy.
44. In the context of the meaning assigned to the expression “sale of goods” or price or consideration element of such “sale of goods” as taxable event, the conclusion that can fairly be reached is that for the taxing event of sale, if the price is to be the basis for measuring tax, it must relate to actual transaction of sale that becomes the subject of tax and not to a different transaction that may take place in future at a price.
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50. Applying the principles enunciated above, the inevitable conclusion is that when the wholesaler sells any formulation to a retailer in bulk quantity, taxable event of sale of goods takes place where the wholesaler and retailers are the parties to the contract, the goods in question are the formulations and the consideration is one which is agreed to between the parties to that transaction within the limits permissible by law. By substituting the assumed quantity of goods or a price which is not the subject-matter of that contract of completed sale for the purpose of measuring tax, the legislature assumes existence of contract of sale of drugs by legal fiction which has not taken place and which cannot be considered to be a sale in the manner stated in the Sales Act, which alone can be the subject of tax under Entry 54 in List II. Substitution of assumed price or the assumed quantity in place of actual price/quantity in a completed sale transaction, for the purpose of levy of tax on the subject-matter of tax results in taking away from it the character of “sale of goods” as envisaged under the Sales Act.
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55. If the legislation can provide for a measure of tax on the subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax, viz. sale of goods, then the fact that it is related to MRP loses its significance altogether. If this is permitted to be done, the legislation can provide for any measure the purpose of applying the rate of tax, whether it is founded on MRP or any other fixed value which the legislature may provide will make little difference. It is not contended by the appellant that even if the measure is not relatable to MRP, it can substitute any value as a measure of tax. Subject of tax is not the goods or goods sold, but a transaction of “sale of goods” as defined under the Sales Act.
27. (1990) 2 SCC 71 inter alia observing as under:
81. The question raised in these appeals is a fairly ticklish one. Simply stated, Section 9 of the Haryana General Sales Tax Act, 1974 as well as Section 13-AA of the Bombay Sales Tax Act, 1955, purport only to levy a purchase tax. The tax, however, becomes exigible not on the occasion or event of purchase but only later. It materialises only if the purchaser: (a) utilises the goods purchased in the manufacture of taxable goods; and (b) despatches the goods so manufactured (otherwise than by way of sale) to a place of business situated outside the State. The legislation, however, is careful to impose the tax only on the price at which the raw materials are purchased and not on the value of the manufactured goods consigned outside the State. The States describe the tax as one levied on the purchase of a class of goods, viz. those purchased in the State and utilised as raw material in the manufacture of goods which are consigned outside the State otherwise than by way of sale. On the other hand, according to the respondents assessees, this is nothing but a tax on consignment of goods manufactured in the State to places outside the State, camouflaged as a purchase tax, by quantifying the levy of the tax with reference to the purchase price of the goods purchased in the State and utilised in the manufacture. To me it appeared as plausible to describe the levy as a tax on purchase of goods inside the State (which attaches itself only in certain eventualities) as to describe it as a tax on goods consigned outside the State but limited to the value of the raw material purchased inside the State and utilised therein. I, therefore, had considerable doubts not only during the arguments but even some time thereafter as to whether so long as the tax purports to be a tax on purchases and has a nexus, though a little distant, with purchase of goods in the State, the State Government’s competence to impose such a tax should not be upheld. But, on deeper thought, I am inclined to agree with the conclusion of my learned brother. It is one thing to levy a purchase tax where character and class of goods in respect of which the tax is levied is described in a particular manner (vide, Andhra Sugar Ltd. v. State of A.P., 1967 SCC OnLine SC 74) and a case like the present where the tax, though described as purchase tax, actually becomes effective with reference to a totally different class of goods and, that too, only on the happening of an event which is unrelated to the act of purchase. The “taxable event”, if one might use the expression often used in this context, is the consignment of the manufactured goods and not the purchase. I also agree with my learned brother that the decision in State of T.N. v. M.K. Kandaswami, (1975) 4 SCC 745, though rendered in the context of an analogous provision, does not touch the issue in the present case.
82. The above distinction becomes significant particularly in the background of the constitutional amendments referred to in the judgment of my learned brother. These indicate that there were efforts at sales tax avoidance by sending goods manufactured in a State out of raw materials purchased inside to other States by way of consignments rather than by way of sales attracting tax. This situation lends force to the contention of the assessees that the States, unable to tax the exodus directly, attempted to do so indirectly by linking the levy ostensibly to the “purchases” in the State. (emphasis supplied)
28. For illustration, see Bharti Telemedia Ltd. v. State (NCT of Delhi), 2011 SCC Online Del 3742 approving simultaneous levy of service tax (by Parliament) and entertainment tax (by States) on direct-to-home (DTH) services, having found existence of both “aspects” therein. The Delhi High Court inter alia observed as under:
46. Even if we assume that the concepts are intertwined, the strands can easily be separated by employing the aspect theory. The DTH system had two aspects — (1) a service aspect; and (2) an entertainment aspect. The former is taxed as a service under the service tax regime and the latter is subjected to tax as an entertainment under the said Act read with Entry 62 of List II. They are two separate and distinct taxable events in respect of each of the two aspects. In respect of the service aspect, the taxable event is flow of content through the DTH system, whereas, in respect of the entertainment aspect, the taxable event is the entertainment from the content.
29. Kunnathat Thatehunni Moopil Nair v. State of Kerala, 1960 SCC OnLine SC 7.
30. Federation of Hotel & Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634, para 37.
31. Avinder Singh v. State of Punjab, (1979) 1 SCC 137, para 4.
32. Express Hotels (P) Ltd. v. State of Gujarat, (1989) 3 SCC 677, para 26.
