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Entry Tax - There is no clash between Entry 52 of State List and Entry 83 of Union List relating to Customs in Constitution of India: Supreme Court

By TIOL News Service

NEW DELHI, OCT 11, 2017: THE issue before the Apex Court is - Whether there is any clash between Entry levied by the State under Entry 52 and the Custom duty levied by the Union under Entry 83 of List I of the Seventh Schedule of the Constitution of India. NO is the verdict.

Facts of the case

The petitioners herein filed multiple appeals challenging the levy of Entry Tax on goods imported from different countries, and brought into local area of a State. The petitioners further challenged the legislative competence of the State Legislature to impose entry tax on the goods imported from outside the country entering into local area of the State. The State legislations were also questioned on the ground that the entry tax legislations did not contemplate levy of an entry tax on goods imported from outside the country. In the present appeals the relevant entry tax legislations related to the States of Orissa, Bihar, Kerala and Jharkhand. Although the Apex Court in its decision in Jindal Stainless vs. State of Haryana and another had addressed several issues pertaining to entry tax, however, the issue pertaining to levibility of entry tax on the imported or foreign goods was left to be answered by regular Bench.

On hearing the petitions, the Supreme Court held that,

++ the Entry tax legislations are referable to Entry 52 of List II of Seventh Schedule of the Constitution. Entry 52 also provided a legislative field, namely, 'taxes on the entries of goods into a local area for consumption, use or sale therein'. Legislation is thus concerned only with entry of goods into a local area for consumption, use or sale. The origin of goods has no relevance with regard to chargeability of entry tax. In this context reference is made to judgment of Federal Court reported in Miss Kishori Shetty v. The King, AIR 1950 FC 69 (1950 RLW 46). The question which was considered in the above case was as to whether Item No.31 of List II in the Seventh Schedule of Government of India Act, 1935 which provided "intoxicated liquor and narcotic drugs" whether included foreign liquors. The arguments that provincial legislature has no power to restrict or prevent the goods imported from foreign country, was repelled;

++ statutes which are in consideration are the statutes where clear charging provision has been enacted and charging of entry tax is on entry of the scheduled goods into a local area for consumption, use or sale. Thus, the charging event arises on entry of scheduled goods into a local area. Any goods which are entering into a local area of a State whether coming from another local area of State, any other State or outside the country, the charging event is same for all goods entering into local area. We, thus, are of the clear view that charging Section is clear, unambiguous and the provisions cannot be read to mean that the imported goods coming from outside the country are excluded from charge of entry tax. No such indication is discernible from any provision of the Act. Charging event is complete as and when goods enter into local area for use, sale or consumption irrespective of its origin. We, thus, are of the view that definition clause, Section 2(d) read with Section 3 does not exclude the charging of the entry tax on goods entering into local area for consumption, use or sale from outside the country;

++ in so far as reference of Section 2(c) of the Bihar Act, 1993 as amended in 2003 by adding an explanation and as amended in 2006 by inserting a new Section 2(c), Section 2(1) (c) of Uttar Pradesh Tax on Entry of Goods into Local Area Act, 2007, Section 2(1)(c) of the Uttarakhand Tax on Entry of Goods into Local Areas Act, 2009 as well as Section 2(1)(c) of the West Bengal Tax on Entry of Goods into Local Areas Act, 2012 which expressly includes entering into local area from any place outside the territory of India, we only say that the said inclusion of words 'from outside the India' is a provision made by way of abundant caution;

++ the Bihar Amendment Act, 2006 by which Section 2(c) was inserted by including clause (iii) is also by way of abundant caution and to provide it expressly which was already included in the definition of Section 2(c) read with Section 3. In Section 2(d) the word used is 'any place outside that local area or outside the State'. The word 'any' is a word of very wide meaning and use of word 'any' excludes any limitation. We, thus, are of the view that all the three legislations clearly did not exclude goods coming from outside the territory of India and the definition of entry of goods read with charging section clearly included all goods entering into a local area. Thus, the submissions of learned counsel for the petitioners that entry tax legislation did not include imported goods cannot be accepted;

++ considering the scopes of the aforementioned entries and the decisions in the cases of Godfrey Phillips India Ltd. & Anr. Vs. State of U.P. & Ors. and State of A.P. & Ors. Vs. Mcdowell & Co. & Ors. and that of the Privy Council in The Governor General in Council Vs. The Province of Madras and Jiyajeerao Cotton Mills Ltd., Birlanagar, Gwalior Vs. State of Madhya Pradesh and Jindal Stainless vs. State of Haryana and another, although, Nine Judges Constitution Bench had left the question open of validity of entry tax on goods imported from countries outside the territories of India, the two Hon’ble Judges, i.e. Justice R. Banumathi and Justice Dr. D.Y. Chandrachud while delivering separate judgment have considered the leviability of entry tax on imported goods in detail. Both Hon’ble Judges have held that there is no clash/overlap between entry levied by the State under Entry 52 List II and the custom duty levied by the Union under Entry 83 List I. We have also arrived at the same conclusion in view of the foregoing discussions. We thus hold that entry tax legislations do not intrude in the legislative field reserved for Parliament under Entry 41 and under Entry 83 of List I. The State Legislature is fully competent to impose tax on the entry of goods into a local area for consumption, sale and use. We thus repel the submission of petitioner that entry tax legislation of the State encroaches in the Parliament’s field;

++ there cannot be any dispute to the proposition as laid down by this Court in the above case that the scope and ambit of the Constitutional entries have to be given a wide meaning and scope. There is no inhibition on the Parliament in exercising its legislative power under Entry 41 List I to define customs frontiers and further legislate with regard to duties of customs. Even if we do not confine to the definition of imported goods as given in the Customs Act, 1962, the generally accepted meaning and definition of import as has been laid down in cases as noted above is that import commences when the goods leave the customs frontiers of the country from where the goods are imported and continue when the goods enters into the customs frontiers of imported country and ends when goods are released for home consumption. Till the event of import is over, Parliamentary Legislation, the control of Union continues for ensuring the realisation of the customs duties;

++ in view of the foregoing discussions, we are of the clear opinion that taxing event with regard to levy of customs duty by Parliament and levy of entry tax by States under Entry 52 List II are entirely different and separate. The taxing event pertaining to levy of entry tax occurs only after the taxing event of levy of customs duty is over. Thus, the State Legislation imposing entry tax in no manner encroaches upon the Parliamentary Legislation under Entry 41 and Entry 83. There is no invalidity in levy of entry tax by the States;

++ it is well settled that the nomenclature or form of a tax is not a decisive factor to find out the nature of the tax. It is the matter of legislative policy as to how the tax is to be collected. The definition of taxation as given in Article 266 (28) that tax includes general or local tax does not in any manner support the contention of the petitioner that tax under Entry 52 is only a local tax which ought to be collected through local bodies. It is the matter of legislative policy that whether a tax is collected as a general tax or a local tax. The nature of tax, measure of tax and machinery for tax collection are all different aspects. The submission of the petitioner that tax in Entry 52 should be collected by local authorities and State has no legislative competence to levy such tax is fallacious. It is well within the jurisdiction of the legislature to formulate its policy regarding levy of tax and its collection. Entry 52 of List II has to be given its wide and full meaning and no limitation in the legislative power of the State can be read as contended by counsel for the petitioner;

++ the Constitution framers have abandoned the use of word 'octroi' which has to be given a meaning and purpose. While interpreting a taxing entry no shackles can be put nor use of any expression in the Constitution of India, referring to a tax can be tied up to any preconstitutional tax or levy. Further, any preconstitutional tax practice cannot put any fetter on Constitution farmers to define any tax, to elaborate the concept of tax or to move away or forward from any kind of earlier levy;

++ thus, taxes which are to be used by the local authorities can be collected by the local authorities as well as by the State Government. It is the matter of legislative policy as to how the tax is collected and distributed. Under List II Entry 5, the State has legislative power to lay down powers of the Municipal Corporation by legislation. It is again legislative policy that as what machinery is to be provided by the State legislature regarding collection of taxes on the entry of goods into a local area for consumption, use or sale. No capital can be made on the submission that since tax is not being collected by local authorities it is beyond the power of the State under Entry 52 List II;

++ considering various precedent judgments of the United States Supreme Court and the decisions in State of Bombay & Anr. Vs. F.N. Balsara and Gramophone Company of India Ltd. Vs. Birendra Bahadur Pandey & Ors., it is clear that the U.S. Supreme Court itself has abandoned the Original Package theory and it has been held that imported goods are not immuned from nondiscriminatory ad valorem taxes imposed by the State;

++ we conclude that goods imported after having been released from Customs barriers are not immuned from any kind of State taxation, which fall equally on other similar goods and the submission of the learned counsel for the petitioner that immunity from State taxation shall continue till it reaches in the premises where it is to be taken for consumption, sale and use cannot be accepted.

(See 2017-TIOL-380-SC-MISC)