Jindal Stainless Ltd. & Anr vs State of Haryana - Supreme Court Case

 Jindal Stainless Ltd. & Anr vs State of Haryana - Important Supreme Court Cases 2006

On 13th April, 2006, a Constitution Bench in Jindal Stainless Ltd. & Anr vs State of Haryana & Ors (Civil Appeal No.3453 of 2002) examined the concept of “compensatory tax”. Earlier in Automobile Transport (Rajasthan) Ltd. vs State of Rajasthan, AIR 1962 SC 1406, a working test had been enunciated for deciding whether a tax is compensatory or not. The working test is “to enquire whether the trade is having the use of certain facilities for the better conduct of its business and paying not patently much more than what is required for providing the facilities”. However, subsequently in M/s Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P and others, 1995 Supp. (1) SCC 673, the Court went on to widen the concept of compensatory tax by holding that “if there is substantial or even ‘some link’ between the tax and the facilities extended to dealers directly or indirectly the levy cannot be impugned as invalid.” Since by reason of the subsequent decision, the concept of compensatory tax got blurred, the matter was referred to this Constitution Bench to decide with certitude the parameters of the judicially evolved concept of “compensatory tax” vis-à-vis Article 301 of the Constitution.

This Bench held that the working test as propounded in Automobile Transport’s case “will continue to apply” and that the test of “some connection” (some link) as propounded in Bhagatram’s case which is “not only contrary to the working test” but also “obliterates the very basis of compensatory tax” is not good law.

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