Is Octroi Constitutional?

What was common in the British, American and French revolutions of 1688, 1776 and 1789 respectively? They all brought in their wake governments based on the principle 'No taxation without representation'. This cardinal principle of all representative governments has been adopted in the Indian Constitution too, though by a quirk of official (mis)interpretation its operation with respect to local governments has been dispensed with.

The principle has its roots in the fact that there cannot be a government without taxation. Hence, true democracies are only those in which imposition of and expenditure from taxes, right from the estimates called budgets, are made according to laws passed by the directly elected representatives of the people. That is because representatives who will have to go before the people for their votes again in the next elections, cannot be expected to burden the people with oppressive taxes that are beyond their capacity to pay. In keeping with their status of republican citizens, Indians can be taxed only by their representatives. But as far as accountability to the people is concerned the resourceful Indian mind has found a way out by which people can be taxed beyond their capacity and yet, the same people will vote for the same representatives who have imposed unbearable taxes. It is the resort to indirect taxation that keeps the people in utter ignorance of the taxes that they pay.

Almost 90% of the Indian tax revenue comes from the levy of indirect taxes of which proceeds from Customs and Excises go to the Central Government, from Sales Tax to the State Governments and from octroi to the local governments. But while the customs, excise and sales tax have the sanction of the Constitution, taxes of the sort of octroi are expressly prohibited. Part XIII of the Constitution titled 'Trade Commerce and Intercourse within the Territory of India' restricts legislative competence to create barriers to situations in which overriding public interest makes such barriers imperative. Otherwise there cannot be any fetters including taxes on inter-territorial trade, commerce and intercourse.

Part XIII is only an expanded form of the freedoms guaranteed under Article 19(1)(d), (e) and (g). An Indian citizen is, subject to reasonable restrictions, free to reside or move about in any part of the country and to carry on any business, trade or profession. A tax on the movement of citizens or their goods from one part of the country to another is not a reasonable restriction and, to boot, is prohibited by Part XIII.

So, the Octroi has been an aberration on the Indian Constitution. It has no champion in any of the Articles of the Constitution except 305 by which alone it has survived as a British legacy, a remnant of the colonial past. Article 305 saves the laws that existed on January 26, 1950, keeping them in force even if their continuing in force violates Articles 301 and 303, the substantive prohibitory articles of Part XIII.

Entry 52 of the State List, VII Schedule, which specifies tax on the entry of goods into a local area, the octroi, is also a remnant of the government of India Act, 1935. It cannot have any effective application against the provisions in Part XIII of the Constitution. The entries in the VII Schedule by themselves do not create any legislative competence. They only specify the fields in which that competence is to operate in accordance with the provisions of the Constitution.

Since such a tax as octroi is expressly disapproved by those provisions, the Entry is rendered ineffective in toto. Were it not so, from the Entry alone, 77 of List I, Parliament would have the power even to abolish the Supreme Court. That Entry has only partial efficacy.

Another such entry is Entry 81 of the Union List specifying 'inter-state migration'. had an entry any effectiveness against the provisions of the Constitution, an Indian citizen would have been required under this entry to hold permit, passport or visa, and immigration clearance certificates for crossing the state borders in the Indian Republic itself.

Since Article 305 relates only to laws that existed before January 26, 1950, octroi imposed after that date is obviously unconstitutional. Since the laws are saved against the flow of the Constitution, the term 'existing law' should have been in that context very strictly defined. Such laws cannot be given the status of parallel constitutions by which actions under those laws after January 26, 1950 can be tested for their constitutional validity. The Supreme Court erred when it upheld a change in favour of octroi in the Bangalore Corporation case in 1962. But the application of Article 305 by the court signifies that prohibition in Article 301 applies to octroi.

Continuance of such laws was envisaged as a temporary arrangement and, therefore, the President was empowered to withdraw such laws regard-less of their being in the Union or the State List. In the forty years of the Constitution, the President has never acted on his own to abolish octroi. It should be noted that a state legislature does not need assent of the President to do away with octroi, itself being fully competent to do so.

What applies to octroi, applies with double vigour to entry tax. Octroi has some justification as an independent source of revenue for local governments. Entry tax cannot be justified on any ground whatsoever. It is nothing but import duty in disguise, just as the Central Sales Tax is export duty, vis-a-vis the States. The unity and integrity of the Republic is equally put in jeopardy by both the taxes.

While the European nations are preparing to forget about their sovereign power and eliminate customs barriers to bring about economic fusion of their countries, we amend the Constitution to put the noose called consignment tax round the economic unity and integrity of the Republic. And that just for one reason, political shyness in approaching the voter directly for the pound of his flesh called tax.

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