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Entry tax levy upheld by the Supreme Court

Value Added Tax - VAT and CST - By: - Bimal jain - Dated:- 16-11-2016 Last Replied Date:- 17-11-2016 - Dear Professional Colleague, May the name of Waheguru Ji, be enshrined in your heart.. May Guru Ji s divine love and blessings be with you always… Heartiest wishes on this auspicious occasion….Happy Gurpurab!! The Hon ble Supreme Court on November 11, 2016, has upheld the constitutional validity of Entry tax imposed by States. A nine-judge Constitution Bench, overruling 'compe .....

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Issues: Can the levy of a non-discriminatory tax per se constitute infraction of Article 301 of the Constitution of India? If answer to question above is in the affirmative, can a tax which is compensatory in nature also fall foul of Article 301 of the Constitution of India? What are the tests for determining whether the tax or levy is compensatory in nature? Is the Entry tax levied by the States is violative of Article 301 of the Constitution and in particular have the impugned State enactment .....

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e powers under Entry 52 of List II of the Seventh Schedule to the Constitution, several States in the country, at least 14 of whom are parties to these proceedings, have enacted laws that provide for levy of a tax on the entry of goods into local areas comprising the States . The constitutional validity of these levies was questioned in the different High Courts by assesses/dealers aggrieved of the same, inter alia, on the ground that the same were violative of the constitutionally recognised ri .....

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itution of India. Absence of Presidential sanction in terms of Article 304(b) of the Constitution of India was also set-up as a ground of challenge to the levies imposed by the respective State legislatures. Article 304 of the Constitution of India is reproduced hereunder for ease of reference: 304. Restrictions on trade, commerce and intercourse among States: Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other St .....

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e without the previous sanction of the President. Writ Petition (Civil) No. 8700 of 2000 filed before the High Court of Punjab and Haryana was one such petition that assailed the constitutional validity of the Haryana Local Development Act, 2000. Relying upon the decisions of the Hon ble Supreme Court in the case of Atiabari Tea Co. Ltd. Vs. State of Assam & Ors. [ 1960 (9) TMI 94 - SUPREME COURT]( Atiabari case ), Automobile Transport (Rajasthan) Ltd. etc. Vs. State of Rajasthan & Ors. .....

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mpensatory in character hence outside the purview of Article 301 of the Constitution. The correctness of the said order was assailed before the Court in Jindal Stripe Ltd. and Anr. Vs. State of Haryana and Ors. [ 2003 (9) TMI 345 - SUPREME COURT OF INDIA ] ( Jindal Stripe case ). A two-Judge Bench of the Court, however, referred the matter to a larger Bench as it noticed an apparent conflict between the pronouncements of the Court in Atiabari and Automobile Transport cases on the one hand and Bh .....

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ge Bench in Bhagatram case. The Court held that the test of some connection as propounded in Bhagatram case had no application to the concept of compensatory tax. The Court, accordingly, overruled the decisions rendered in Bhagatram and Bihar Chamber cases and held that the doctrine of direct and immediate effect of the impugned law on trade and commerce under Article 301 as propounded in Atiabari case and the working test enunciated in Automobile Transport case for deciding whether a tax is com .....

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rther found that in the absence of relevant data before the High Courts, the issue whether the levies were compensatory could not have been considered and accordingly referred the matter back to the High Courts to decide the said aspect. The appeals were, in the meantime, adjourned to await the finding from the High Courts on the question whether the levies were indeed compensatory in nature having regard to the decisions of this Court in Atiabari and Automobile Transport cases. The matters were .....

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ies imposed by their respective States also on the ground that they were discriminatory in nature hence violative of Article 304(a) of the Constitution. All these judgments and orders of the High Courts, passed after the remand, then, challenged by the States concerned in the appeals filed against the same. These appeals initially came-up before a two-Judge Bench of the Court comprising Justice Arijit Pasayat and Justice S.H. Kapadia. Their Lordships referred the same to a Constitution Bench for .....

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text of tax on vehicles in contradiction to taxes on entry of goods. The Court was of the view that while the Constitution Bench in Jindal Stainless case had dealt with some aspects of the matter, certain other important constitutional issues remained to be examined especially because a conceptually and contextually different approach may be required vis-à-vis transport cases on the one hand and cases of entry tax on goods on the other. The matter was accordingly placed before a five-Judg .....

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ken in the said two cases had been doubted as early as in the year 1975 in G.K. Krishnan Vs. State of Tamil Nadu [ 1974 (11) TMI 96 - SUPREME COURT ]. The reference order briefly set out some of the questions that required consideration by a larger Bench. Held: By 7:2 majority, the Hon ble Supreme Court answered the reference in the following terms: Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word Free used in Article 301 does not mean free f .....

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omobile Transport case and subsequently modified in Jindal Stainless case has no juristic basis and is therefore rejected. Decisions of this Court in Atiabari, Automobile Transport and Jindal Stainless cases and all other judgments that follow these pronouncements are to the extent of such reliance over ruled. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing State. Article 304(a) of the Constit .....

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