By TIOL News Service

MUMBAI, MAR 18, 2019: THE issue before the High Court in this case was - Whether imposition of Entry Tax under the relevant Entry 52 of the State List contravenes the provisions of Articles 301 or 304(b) of the Constitution, considering the settled position of law that imposing a tax is not tantamount to imposing restriction on trade or commerce. NO is the answer.

The bench also held that a State Government is not obliged to level all inequalities of burden on goods, where such inequalities are not a result of the State's taxation policy. Therefore, in the facts of the present case, merely because the State of Maharashtra allowed reduction for Central Sales Tax in the Maharashtra Tax on Entry of Motor Vehicle into Local Areas Act, 1987, such act did not impose an obligation to provide a similar reduction for Entry Tax under the Maharashtra Entry Tax Act.

Facts of the case

THE assessees filed the present writ petitions, challenging the validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 & the notifications issued thereunder. The assessees claimed that such Act was violative of Articles 14, 19, 245, 286 and Article 301 read with Article 304 of the Constitution of India. They also sought that Entry No.16 of the Schedule to the Act be declared as ultra vires of Article 304(a) of the Constitution. The assessees also sought for a declaration to the effect that the collection of Tax under Entry No.13 of Schedule I of the Local Areas Act, 2002 on air conditioning machines imported, be declared as illegal and void. It is also prayed that the provisions of the Maharashtra Tax on the Entry of Goods into Local Areas Rules 2002, are ultra-vires the Article 286 of the Constitution of the India.

In writ, the High Court was of the view that,

++ the matter at hand stands settled by the Apex Court in the case of Jindal Stainless Ltd -vs- State of Haryana. In this decision the Apex Court, while summarizing the majority decision by way of an order clarified that taxation does not amount to restriction on trade, commerce and intercourse. The levy of tax which is non discriminatory would not constitute an infraction of Article 301. It is further clarified that clauses (a) and (b) of the Article 304 have to be read disjunctively, consequently the tests required to be satisfied for Article 304(b) are not applicable to taxes imposed under Article 304(a). It is also observed that Article 304(a) expressly clarifies that the imposition of taxes by a State must not discriminate. Non discriminatory taxes do not violate Article 301 of the Constitution and only discriminatory taxes are forbidden. There is no impediment to trade, commerce and intercourse unless the tax visits hostile discrimination. In the light of observations, imposition of entry tax under Entry 52 of the State list would not violate Article 301 or 304(b) of the Constitution;

++ there is no Constitutional burden on the State to equalize all inequalities of burden on goods even if such inequalities do not result from the State's taxation. No inequality results from any action/legislation attributable to the State of Maharashtra. Merely since the State of Maharashtra has allowed reduction for Central Sales Tax in the Maharashtra Tax on Entry of Motor Vehicle into Local Areas Act, 1987, does not mean that it is obligated to give a similar reduction for entry tax under the Maharashtra Entry Tax Act. Notably, other States also do not give any reduction for Central Sales Tax while levying entry tax. Therefore, local goods exported from Maharashtra to other States, which also bear Central Sales Tax, would incur a higher tax burden than just the VAT of the State to which they are exported;

++ as per plain simple language of the Entry 52 of List II of VIIth Schedule to the Constitution of India, there are no restrictions or impediment put in specific words that the funds collected by levy under the Act shall be only for the area in which goods have entered. Moreover neither there is any specific restriction on levy that cannot be credited to Consolidated Fund of State but must be utilized by a separate fund for the specific local area in which goods have entered. There is no scope for reading such restrictions in the Entry Tax Act. The consistent theory of looking at pre-legislative practice, if at all has to be followed, has no basis. The judgments in case of Diamond Sugar Mills and Burmah Shell Oil Storage and Distribution Company has no application to such restrictions as contemplated by assessee since the same were decided in different context. The levy of Entry Tax is in addition to the octroi levied under local self governing bodies as per law applicable to them. It is not a correct proposition of law that the scope of Entry in the Lists to the Constitution would be governed by the consistent legislative practice that has been followed prior to the enactment of the Constitution of India. The Legislative practice to enactment of Constitution and Government of India Act, 1935 framed by the then British Parliament has no binding limitation and practice under the Constitution of India in independent India. The Legislation is not ultra vires in any manner. The Constitutional validity of the Act is upheld.

(See 2019-TIOL-631-HC-MUM-CT)