By R. P. Shah B.S.C.
Atul R. Shah
ENTRY TAX IN GUJARAT
THE GUJARAT TAX ON ENTRY OF SPECIFIED
GOODS INTO LOCAL AREAS ACT, 2001
A brief summary of “the Gujarat Tax on Entry of Specified Goods into Local Areas Act, 2001”, (herein after referred to as the “Entry Tax Act”) is given below for reference.
1. CONSTITUTIONAL POWERS
1.1 The Constitution of India empowers under Article 246(3), the
State Legislature, to make Laws with respect to matters enumerated in List II, called the “State List”, in the VII Schedule to the Constitution. Entry 52 of the State List relating to Entry Tax, reads as under:
“52. Taxes on the entry of goods into a local area for consumption, use, or sale therein.”
“Goods” are defined in Article 366(12) as under.
“12. “Goods” includes all materials, commodities and articles.”
Thus, if any “goods” are brought within a local area for consumption or use or sale therein, Entry Tax can be levied by a State Legislature.
The Gujarat State Legislature had not levied Entry Tax so far, but had empowered the Local Authorities to levy and collect such a tax by law. Such tax levied by the Local Authorities, is known as “Octroi”, and is collected at Octroi Naka, set up by the local authorities. The Octroi so levied in the Local areas of the
Municipalities and the Panchyats was abolished w.e.f.01.05.2001 and was substituted by levy of Cess on the turnover of sales of Motor sprit, under the Gujarat Motor Spirit Cess Ordinance, 2001. However Octroi continues to be levied in the areas of Municipal Corporations in Gujarat.
The Entry Tax, now levied on the scheduled goods under the Entry Tax Act, is in addition to the Octroi, being levied by the local authorities, viz. the Municipal Corporations.
1.2 LEVY OF ENTRY TAX
Entry Tax is levied on and from 01.09.2001 and it extends to the whole State of Gujarat. Entry Tax is levied on seven commodities called “specified goods”, viz. (i) Motor Vehicles, (ii) Cement, (iii) Marble or Granite (raw or polished), (iv) Kota Stones, (v) Naphtha, (vi) Light Diesel Oil & (vii) High Speed Diesel Oil, specified in column 2 in the “Schedule” to the Entry Tax Act. Entry tax is levied on the entry of any of these seven commodities into a Local Area of Gujarat from any place outside Gujarat but in India. The column 4 of the Schedule specifies the maximum rate of Entry Tax. Government has powers to notify the rate of Entry Tax, subject to the said maximum rate of Entry Tax. The rate at which Entry Tax is payable w.e.f. 1.9.2001 is notified by Government under its Notification No.(GHN-34) E&T-2001-(S.3)(1) dt. 1.9.2001. However, as provided in Sections 4(1) & (2), the actual amount of Entry Tax payable is an amount equal to the difference in the amount of Entry Tax leviable under the Entry Tax Act and the amount of Local Sales Tax paid under the Local Sales Tax Law of the other State or the amount of Central Sales Tax Act paid, on their purchases in other State, from where the entry of the specified goods takes place in the Local area of Gujarat. The Entry Tax is levied to compensate loss of State revenue in view of lower rates of tax under the local Sales Tax Act or the Central Sales Tax Act, prevalent in the neighbouring States.
1.3 NOT A SUBSTITUTE OF OCTROI.
The Entry Tax levied is neither a substitute for the octroi abolished in the local areas of the municipalities and the panchayats nor a substitute for the contemplated abolition of Octroi, in the areas of municipal corporations, but as clarified in Section 3(3), the Entry Tax is in addition to the Octroi being levied by Municipal Corporations in Gujarat.
2. LIABILITY TO PAY TAX UNDER GUJARAT ENTRY TAX ACT
Liability to pay tax under Section 3:
2.1 What is the Taxable Event?
The taxable event for the levy of Entry tax is,
(i) the “Entry
(ii) of any of the “Specified Goods”
(iii) into a “Local Area” of State of Gujarat
(iv) from any place in India “outside the Gujarat State” and
(v) for “Consumption, Use or Sale” therein.
All the five ingredients have to be simultaneously satisfied for the levy of Entry Tax. If any one or more of the five ingredients is not fulfilled, Entry Tax is not leviable.
Entry Tax is not leviable on,
(a) goods other then any of the specified goods, or
(b) entry from one local area to other local area of Gujarat State, or
(c) entry on import of goods from a foreign country (say import at Kandla from Pakistan), or
(d) entry otherwise than for Consumption, Use or Sale (say if entry is from Rajasthan into Kandla for Export, Entry Tax is not leviable)
2.2 Who is the tax person ? Who is liable to pay Entry Tax ?
Entry Tax is levied on an “Importer”, defined in Section 2(e) and Rule 2 (d), who brings any of the specified goods into a local area of Gujarat State from a place in India outside Gujarat State, for consumption, use or sale therein.
Importer may be a person such as an individual, company, HUF, a firm, an association, body of individuals, a society, a club or an institution. Importer need not be a dealer. Importer can be a consumer. Importer may be a dealer either an unregistered dealer or a registered dealer. Importer can be a non-trading corporation or a trading Organisation. Importer can also be a Local Authority, the Central or any State Government.
Any one who imports i.e. brings in any of the specified goods into a local area of Gujarat from outside Gujarat State but in India, for consumption use or sale therein, irrespective of the Quantum, Volume or frequency is liable to Entry Tax. Thus liability to Entry Tax can arise even on first rupee of a first import transaction in specified goods.
An importer is not required to be registered under the Entry Tax Law,
even though he is liable to pay Entry Tax
2.3 What is the subject of tax?
Entry Tax is leviable not on entry of one and all goods. But Entry Tax is leviable only on the entry into a local area of Gujarat State from outside Gujarat State but in India, only of Seven Commodities Called “Specified Goods” namely, (1) Motor vehicles including chassis or bodies built there on, (2) Cement, (3) Marbles or Granite (raw or polished), (4) Kota Stones, (5) Naphtha, (6) Light Diesel Oil, and (7) High Speed Diesel Oil, Specified in the Schedule to the Entry Tax Act. These seven commodities are the subjects for the levy of Entry Tax.
2.4 What is the measure of Tax?
The measure of Entry Tax is the “Purchase Value” of the Specified Goods. The purchase value as defined in section 2(i) means the invoice value including insurance, excise duty, counter veiling duty, sales tax, transport tax, octroi, freight, and other incidental charges levied on the purchase of the specified goods. In case of motor vehicles they also include the value of accessories fitted therein. If the purchase value is not available or is proved to be false, or if the specified goods are not purchased but are acquired or obtained otherwise than by way of purchase then the purchase value is to be taken as the value or price at which the specified goods of the like kind or quality are available in the open market in the local area. In short the “Purchase Value” is the price or value of the specified goods at the point of their entry in the local area of Gujarat.
The definition of Purchase Value incidentally gives power to question the invoice value and (if the invoice value is proved to be false) the purchase value can be determined by the Entry Tax authorities. This is likely to lead to abuse and a source of litigation. No such power to question the correctness of invoice value exist even in the Sales Tax Act. At this stage, we hope that power will not be abused.
2.5 What is the rate of Tax?:
Rate of Entry Tax on each of the “Specified Goods” is such as may be fixed by Government by notification. But such a rate is not to exceed the maximum rate specified in the Schedule. Different rates can be fixed for different specified goods. The maximum rate specified is the prevalent schedule rate of Sales Tax under the Sales Tax Act or the Motor Spirit Act. If, however, whole or part of tax payable is exempted by a Notification u/s 49(2) of Gujarat Sales Tax Act or u/s 35 of Motor Spirit Tax, the maximum rate specified will stand reduced to the extent of such exemption. For example, maximum rate for Cement at Sr.No.2 is specified at 15%. However, by Entry No.132 of notification u/s 49(2), rate of Sales Tax in excess of 8% is exempted on Ordinary Portland Cement. As such, the maximum rate for this category of Cement will stand reduced to 8%.
2.6 Rates of Entry Tax
Rates of Entry Tax prevalent as from 1.9.2001 as notified by Government, are as under.
Specified Goods - Details in
Rate of Entry Tax
(i) Motor Vehicles – 2A 128(1)
(ii) Motor Scooters etc. - 2A 128(2)
(iii) Chasis of Motor Vehicle - 2A 128(4)
(iv) Body built on chasis of motor vehicle – 2A 128(5)
Marble or Granite - 2A 124
Kota Stones - 2A 163(1)
Naphtha - 2A 40
Light Diesel Oil - 2A 34
High Speed Diesel Oil - M.S.T. Act.
2.7 Set off : Effective Incidence.
A. Local Tax paid on O.G.S. purchase to be set off
It is provided in Section 4(1) that the amount of Entry Tax, subject to prescribed conditions, is to be reduced to the extent of Local Sales Tax, if any, paid by the importer under the Local Sales Tax Law of other State/Union Territory on its purchases there. Thus, the amount of Local Sales Tax paid on his O.G.S. purchase is to be set off against the Entry Tax payable by the importer.
B. Central Sales Tax Paid on inter-State purchases to be set off
Similarly, it is provided in Section 4(2) that the amount of Entry Tax, subject to prescribed conditions, is to be reduced to the extent of Central Sales Tax paid, if any, under the Central Sales Tax Act, on his inter-State purchases.
C. Thus, effective incidence of Entry Tax payable by the importer, will be the amount of Entry Tax, less Local Sales Tax, or Central Sales Tax paid on his O.G.S. purchase.
D. Reduction in tax liability
As for the prescribed conditions mentioned in (A) or (B) above, Rule 5 provides that either the amount of tax payable under the law relating to Sales Tax in the State, or the Union Territory, or as the case may be, the Central Sales Tax need be charged by the vendor in the purchase invoice, or the vendor need give a declaration declaring interalia that he had included the amount of such tax in the price charged by him, in the purchase invoice, in order to enable the importer to claim reduction thereof u/s 4(1) or 4(2).
E. Goods acquired or obtained otherwise than by purchase:
If goods are manufactured or acquired, or obtained, by the importer, otherwise than by way of purchase, the question of set off of Local Sales Tax, or Central Sales Tax, will not arise, and on entry of such specified goods, the importer will be liable to pay the full amount of Entry Tax.
2.8 Entry Tax to be set off against Sales Tax payable on
It is provided in Section 4(3) of the Entry Tax Act, that the amount of Sales Tax payable, if any, under the Gujarat Sales Tax Act, or under the amount of Motor Spirit Tax, payable if any, under the Motor Spirit Act, on resale, of the specified goods imported from outside Gujarat State, is to be reduced to the extent of Entry Tax paid. Thus, amount of Entry Tax paid on Entry in Gujarat, of the Specified Goods from outside Gujarat State, is to be set off against the Local Sales Tax, or Local Motor Spirit Tax, on Local resale in Gujarat State.
This provision in Section 4(3), in our view, means that the importer, on entry of specified goods in a local area, has first to pay Entry Tax, and on reselling the specified goods, so imported, he attracts liability to Sales Tax and has to pay Sales Tax as per provisions of Section 7 of the Gujarat Sales Tax Act. As provided for in Section 4(3), since such liability to pay Sales Tax gets reduced by the amount of Entry Tax paid, while paying the Sales Tax, the importer is eligible to offset the amount of Entry Tax paid by him on initial entry.
Provision do not exist for set off of Entry Tax against the Central Sales Tax payable by the importer on his inter-State sale of the specified goods so imported.
Provision do not exist for refund of Entry Tax paid initially on entry into a local area of Gujarat State from a place in India outside Gujarat, either (i) if the goods so imported are consigned outside Gujarat State for sale there, or (ii) if goods so imported, are exported outside India, or (iii) if goods so imported are returned back to the Vendor as Goods Returned.
2.9 Provision contrary to Budget Speech of Finance
The Finance Minister, while presenting his Budget Proposal in the Legislative Assembly, in para 22 relating to “Entry Tax”, had stated:
“The proposed Entry Tax will not be levied on import of goods from other States, effected by a dealer registered in Gujarat, who resells such goods in the
On the basis of the above policy statement of the Hon’ble Finance Minister in his Budget Speech, local traders believed that an importer of specified goods who is a pure reseller, will not have to pay Entry Tax, and that he will, as usual, have to pay Sales Tax on his resales. As against this, the effect of the provisions of Section 4(3) appear to be that the importer will have to pay the Entry Tax on entry of the specified goods and the amount of Entry Tax so paid, will get blocked up till the time of resale, when only he can set it off against his Sales Tax liability.
2.10 Net effect of Entry Tax on a manufacturer.
A manufacturer importing specified goods from other State, and using it as a raw material, processing material, or consumable stores, in the manufacture of his product, will have to pay Entry Tax on the Entry of the specified goods imported from other State. The amount of Entry Tax so payable, as provided in Section 4(1) or 4(2), will be amount of Entry Tax reduced by Local Sales Tax or Central Sales Tax paid in other State on his purchases. The Entry Tax so paid, will not be available as set off, eventhough the specified goods imported are “non-prohibited goods”. This will thus enhance his cost of production. He can possibly avoid this if he purchases the specified goods locally.
2.11 Specified Goods.
1. Motor Vehicles
Motor Vehicles covered under Entry 128(1) and (2) are designated as Specified Goods. Tractors, Power Tillers, Mini Tractors, or Hand Tractors, covered under Entry 178 in Schedule 2A, will therefore, not be the specified goods. Motor vehicles are also notified as specified goods for the purpose of Section 59AAA of the Sales Tax Act. As such a registered dealer, or any other person who intends to import the Motor Vehicles from any other State, for sale, use, consumption, or any other disposal in the State, will have to make a declaration in Form 45C (Form to be obtained from Sales Tax department) and cause such declaration to be carried alongwith other documents required u/s 59A(3) and produced before the Check Post Officer.
2. Cement, Marble, Kota Stone
Cement, Marble, Granite, and Kota Stone, are also notified as specified goods, for the purposes of Section 59AAA of the Sales Tax Act. As such a registered dealer, or any other person who intends to import these goods from any other State, for sale, use, consumption, or any other disposal in the State, will have to make a declaration in Form 45C (Form to be obtained from Sales Tax department) and cause such declaration to be carried alongwith other documents required u/s 59A(3) and produced before the Check Post Officer.
1. Motor Vehicles.
It is provided in Section 12(1) that Entry Tax will not be levied if a Motor Vehicle registered in any other State or Union Territory of India, under the Motor Vehicles Act, for a period exceeding 15 months, enters into a local area of the State.
2. Powers of Exemption
Section 12(2) gives power to the State Government to exempt, in public interest, any class of importers from payment of the whole or any part of Entry Tax payable under the Act.
3. TAX AUTHORITIES:
As stated in the Financial Memorandum attached to the Bill, the implementation of the Entry Tax Act, is to be entrusted to the Sales Tax Department. As such it appears that authorities under the Sales Tax Act, will be appointed as authorities under the Entry Tax Act.
4. RETURNS, PAYMENT OF TAX, ASSESSMENT, RE-ASSESSMENT
A. Provision is made in Section 7 that every person liable to pay the Entry Tax has to furnish a return in the prescribed form for the prescribed period, by the prescribed time limit, to the prescribed Entry Tax authority. If the importer is an individual consumer, or an unregistered dealer, he will have to furnish return occasionally when he imports specified goods from other State. However, a registered dealer importing specified goods will be regularly importing the specified goods and he will have to file the return of Entry Tax regularly, to the Sales Tax Officer, with whom he is registered.
B. Rule 6 provides that the importer shall furnish a return cum chalan in Form 1 to the Assessing Authority, within whose jurisdiction the specified goods are brought for consumption, loose or sale. It further provides that an importer who is not a registered dealer, shall furnish the return cum chalan in form 1, within 3 days of entry of specified goods in to a local area. An importer who is a registered dealer, has to furnish a return cum chalan in Form 1, monthly, within a period of one month and 15 days succeeding the month to which the return relates.
4.2 Revised Return.
A revised return in Form-1 can be filed, if the person discovers any omission or incorrect statement in the return filed by him. Such a revised return has to be filed before the expiry of 3 months from the last date prescribed for furnishing the return.
4.3 Payment of Entry Tax
Entry Tax payable by the importer, has to be paid before furnishing the return. The payment has to be made in the Government Treasury in the prescribed chalan. Similarly, before furnishing a revised return, payment of any additional amount of Entry Tax due, has to be made.
Rule 3 provides that an importer who is not a registered dealer, has to pay in to Government Treasury, the Entry Tax payable by him within 2 days of the entry of specified goods into a local area. Similarly, an importer who is a registered dealer, has to pay into Government Treasury, the Entry Tax payable by him during a month within a period of one month and three days, from the end of the month to which it relates. The payment of Entry Tax has to be made in a return cum chalan in Form 1, in quadruplicate. The copies marked “Original” and “Duplicate”, will be returned to the importer, duly receipted by the Treasury. A copy marked “Duplicate, is to be submitted by the importer, to the Assessing
Provision similar to one under Sales Tax Act, is made regarding issuance of a notice, in Form 3, if the return is filed without full payment, or if any amount is due on assessment or re-assessment, or if penalty is imposed. The amount specified in the demand notice has to be paid not later than 30 days from the date of service of the demand notice.
Provision is made in Section 8 for assessment of Entry Tax. Assessment can be made by accepting the return or after calling the importer by a notice in Form 2. If the importer fails to attend in compliance with the notice, then he can be assessed to the best of judgment. The assessment has to be completed within a period of 3 years from the last date prescribed for furnishing of returns for the particular period.
However, no time limit is prescribed for completion of fresh assessment, if required to be made as per Remand Order of the appellate authority.
No provision is made in S.8 for assessment of an importer who, though liable, has failed to furnish the return. Since every importer liable to pay Entry Tax need be assessed, he will have to be assessed. Notice in Form 2 has to be issued for assessment of such an importer who has failed to furnish the return.
Provision is made for re-assessment if the authority has reason to believe that any purchase value or part thereof has in respect of a particular period escaped assessment, or has been under assessed, or assessed at a lower rate. The re-assessment has to be made within 5 years from the date of the order of assessment of the particular period. It may be noted that the time limit of completing re-assessment, is different than the one in the provisions under the Sales Tax Act.
Provision is made in Section 11, for refund of amount paid by a person in excess. An application is required to be made for getting the refund. No provision is made for payment of interest if there is delay in grant of the refund.
Rule 9 provides that an application for refund is to be made in Form 4 to the assessing authority, within a period 30 days, to which the refund relates. The assessing authority, after getting the particulars as he considers necessary, and on being satisfied, will give refund by issuing a refund payment order.
Machinery for Redressal
Entry Tax Law, also contains a self contained machinery for redressal of grievances against any order passed by the authority. The machinery consists of First Appeal against every original order to be made to the appellate authority. A Second Appeal, against an order passed in appeal by the appellate authority, has to be filed with the appellate Tribunal. The time limit for filing the First Appeal or the Second Appeal is 30 days from the date of receipt of the order. Under the Sales Tax Law, the time limit for appeal is 60 days from the date of order. This variation in the time limit may please be noted.
Rule 10 requires that a memorandum of appeal has to be in writing. No form is prescribed, but details stated in Rule 10 need be specified. The memorandum of appeal has to be accompanied by a certified copy of the order appealed against. In case of an appeal against assessment order, a certificate from the assessing authority, that the tax assessed is paid up, has also to be attached. It is provided that the failure to produce the copy of the order or the certificate of payment, may be explained, to the appellate authority, at the time of presentation of the appeal. If the appellate authority asks for a security to be furnished for entertaining the appeal u/s 13(3), the security to be so furnished, has to be in Form
No provision is made for filing a Reference Application to the High Court, if party is aggrieved against the order of the Appellate Tribunal.
Appellate authority is given wide powers. In an appeal against the order of assessment, the appellate authority can reduce, enhance, or annel the assessment or remand the case back. The corresponding provision in the Sales Tax Law provide that the appellate authority may pass such orders on appeal as its deems just and proper.
No provision is made for rectification of mistakes, or for revision by a superior authority.
6.1 Penalty for Breach of Provisions.
Section 17(1) provides that if any person liable to pay Entry Tax fails to comply with any of the provisions of the Entry Tax Act, then the assessing authority can, after issuing a Show Cause and giving a reasonable opportunity for hearing, impose penalty not exceeding twice the amount of tax.
6.2 Penalty for Non-Payment of Tax
Unlike Sales Tax Law, Entry Tax Act, does not contain provision for charging of interest for delay in making payment of tax by the due date, or for non-payment of tax. Instead, provision is made in Section 17(2) that if a person does not, without reasonable excuse, pay the tax within the time he is required to pay it, the assessing authority may after giving such person a reasonable opportunity of being heard, impose by way of penalty, a sum equal to 18% per annum for the period of delay.
6.3 Breach of Rules.
Provision is also made for imposition of Penalty for breach of rules.
7. ENTRY TAX – CONSTITUTIONAL VALIDITY.
When a new legislation is enacted, a question is always raised regarding its Constitutional validity. To consider the Constitutional Validity of the Gujarat Entry Tax Act, we may review some judicial decisions on the subject.
I. MAHARASHTRA ENTRY TAX ACT HELD AS VALID.
“Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987” (42 of 1987), was challenged in the case of M/s. Jaika Automobiles Pvt. Ltd. vs State of Maharashtra (1994) 92 STC 248 (Bom), decided on 7.8.92.
The challenge was on following grounds.
1) Want of legislative competence.
2) Colourable Exercise of legislative power.
3) Violation of freedom of inter-State Trade under Article 301 of the Constitution.
4) Vice of Double Taxation.
Want of Legislative Competence:
As for want of legislative competence, the challenge was on two counts:
(a) Entry Tax is levied on sale or purchase of goods which take place outside the State or in the inter-State trade, which cannot be levied by State under Article 286.
(b) In Entry 52 of the State List, “Local Area” means local area administered by a local authority, and cannot mean the entire State administered by State Government. The Entry Tax levied under the Entry Tax Act is meant to augment the State revenue and not the revenue of the local authority.
In connection with contention (a), it was held by the Bombay High Court, that the Entry Tax levied under Maharashtra Entry Tax Act, is not a tax either on sale or purchase of goods outside the State, or in the course of inter-State trade, but is a tax of entry of motor vehicles in a local area of the State.
The contention (b) relates to the meaning of “Local Area” in Entry 52 of the State List. This point is concluded by the following two decisions of the Supreme Court, viz.
i) Diamond Sugar Mills Ltd. vs State of U.P., AIR 1961 SC 652, and
ii) Gopal Sugar Industries Ltd. vs State of M.P., AIR 1979 SC 537
The Supreme Court, keeping in view the ordinary meaning of the expression “Local Area” and the historical background of the Entry 52, has ruled that it means the area administered by a local body and not the area of the factory premises within that area.
However, it was held that entry into “a” local area does not mean entry into one local area. It may mean any local area, or more than one local area, which together covers the entire area of the State.
The above view is based on the decision of Supreme Court, in the case of “State of Karnataka vs Hansa Corporation, AIR 1981 SC 463. In that case, the challenge was to “Karnataka Tax on Entry of Goods into Local Areas, for consumption, use, or sale therein Act, 1979”, Supreme Court held that “Local Area” did not also necessarily exclude “all” or “every” local area and that, the State Government could, if it so chose, apply provision to every or all local areas as well.
As for the contention regarding colourable legislation, Bombay High Court has observed that the doctrine of colourable legislation is based upon the maxim that “you cannot do indirectly what you cannot do directly”. If the legislature is competent to do a thing directly, then the mere fact that it has done it in disguised manner, cannot make the Act invalid.
Free Flow of Trade under Article 301
Freedom of Trade guaranteed under Article 301 is not absolute and is subject to reasonable restrictions imposed in public interest. There is violation of freedom guaranteed under Article 301 only when a legislative or executive Act operates to restrict trade, commerce, or intercourse directly and immediately.
But only such taxes as directly or immediately restrict trade will fall within the purview of Article 301. By Article 304(a) & (b), freedom of inter-State Trade and Commerce, declared by Article 301, is subordinated to the State power of taxing goods imported from sister States, provided (i) no discrimination is made in favour of similar goods of local origin and (ii) restrictions are reasonable and in public interest.
It was therefore held that the Maharashtra Entry Tax is not discriminatory. Restrictions imposed thereby are reasonable and in public interest. In the matter of discriminatory legislation, the decisions of Supreme Court in the cases of (i) Anraj vs Govt. of Tamil Nadu (61 STC 165 SC) and (ii) Western Electronics vs State of Gujarat (70 STC 52 SC) were cited, but it was held that these decisions do not apply because in Anraj’s case, levy of Sales Tax was only on Lotteries of other States while granting exemptions to its own Lottery tickets, and hence it was held to be discriminatory. In Western Electronics’ levy of Sales Tax at different rates on goods imported in the State and goods manufactured in the State was held to be discriminatory. As such, these two decisions were held as not applicable.
To repel the contention 4, regarding double taxation, reliance was placed on the decision of Supreme Court, in the case of Sri Krishna Das vs Town Area Committee 77 STC 395 (SC), in which it was observed as under :
“Double Taxation” in the strict legal sense, means, taxing the same property or subject matter twice, for the same purpose for the same period, and in the same territory. To constitute double taxation, the two or more taxes must have been (1) levied on the same property or subject matter (2) by the same Government or authority, (3) during the same taxing period, and (4) for the same purpose.
Where more than one legislative authority such as a State Legislature and a local or municipal body possess the power to levy a tax, there is nothing in the Constitution to prevent the same person or property being subject to both the State and municipal taxation or the same Legislature exercising its power twice for different purposes”.
As for contention 5 relating to arbitrariness, Bombay High Court held that the exemption of Motor Vehicles 15 months old, and taxing new one, is not arbitrary. This was held as classificatory and not arbitrary. Second contention that Section 12 permits exemption to “specified class of importer” and hence bonafide genuine import in an individual case, cannot be exempted, and therefore, the provision is arbitrary. This contention was negatived on the ground that though Section 12 refers to specified class of Importer that does not mean that individual cases cannot be considered on merits. Even one case may form a specified class.
Supreme Court Upholds Bombay High Court Decision
The above decision of the Bombay High Court was upheld by the Supreme Court in the case of “Shaktikumar M. Sancheti vs State of Maharashtra” (1994) 96 STC 659. Supreme Court, upholding the validity of the levy, under Maharashtra Entry Act, held
i) that the levy could not be held to be bad because the legislature intended to avoid any loss of Sales Tax in the State, so long as it was not found to be invalid because of any Constitutional or statutory invalidity. It was not the intention or propriety of the legislation, but its legality, or illegality that rendered it valid or invalid;
(ii) that the charge under Section 3 was on the entry of a vehicle into a local area for use or sale and not on the purchase of the vehicle; and so long as the levy was on the entry of the vehicle into a local area for use or sale therein, it could not be said to be invalid, merely because the purchase value of the vehicle was provided as a measure of the levy;
(iii) that the levy was on the entry of a vehicle not in any part of the State, but in any local area of the State;
(iv) that the taxes levied under different legislations enacted in exercise of Constitutional power, are not rendered bad on the assumption that they amount to double taxation. The taxable event for entry tax is not the same as for Octroi. Nor is it by the same authority, for the same purpose, for the same period.
In view of the above decision of the Bombay High Court, upheld by the Supreme Court, and in view of the fact that Maharashtra Entry Tax Act, and Gujarat Entry Tax Act, are similar, it can be said that the Gujarat Entry Tax Act, is Constitutionally valid, at least so far as the contentions referred to above are concerned.
Challenge under Article 304 of the Constitution:
However, it may be stated that the Maharashtra Entry Tax Act was enacted after obtaining assent of the President under Article 304 proviso. Under Article 304, clause (a) State Legislature can by law impose on goods imported from other States or Union Territories, any tax to which similar goods manufactured or produced in the State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced in the State. And under clause (b), Legislature of a State may, by law, impose such reasonable restrictions on the freedom of trade, commerce, or intercourse with or within the State as may be required in the public interest. Proviso to Article 304 require that no Bill or Amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State, without previous sanction of the President.
As stated above, the Mahrashtra Entry Tax Act was enacted after it received the President’s assent under Article 304(b) (Proviso). It is presumed that the Gujarat Entry Tax Act has received the President’s assent. If President’s assent is received, it cannot be challenged for want of assent. The statement of objects and reasons state that it is considered necessary to levy a tax on entry of certain specified goods purchased outside the State and brought into the local areas of Gujarat, for use, consumption or sale therein, with a view to compensate the loss of Sales Tax revenue. In view of this, perhaps, President’s assent may not be necessary. Otherwise it may constitute a possible grey area. This is because, Entry Tax is levied on entry of the specified goods into a local area of Gujarat State from a place outside Gujarat State, but in India, whereas similar goods manufactured in Gujarat are not liable to Entry Tax. This may perhaps be viewed as discriminatory offending Article 304 (a). Similarly, levy of Entry Tax, eventhough may be construed as imposing reasonable restrictions on the freedom of trade and in public interest, yet the requirement of the proviso to Article 304 (b) is a Presidential assent.
II. OTHER IMPORTANT DECISIONS ON THE SUBJECT OF ENTRY TAX, ARE AS UNDER
Word “use” meaning of
1) J.S. Auto Machine Shop vs State of Karnataka (1993) 90 STC 121 (KAR) decided on 9.11.90.
Word “use” did not necessarily mean “used up”. Industrial Machine brought in a local area for use in the repair job, though does not get “used up”, yet is a “use” of the said machine, and therefore, Entry Tax is payable.
Challenge as violating Article 301
2) i) Attabari Tea Co. Ltd. vs State of Assam - AIR 1961
ii) Automobile Transport (Rajasthan) Ltd. vs State of Rajasthan – AIR 1962 SC 1406.
iii) State of Karnataka vs Hamsa Corporation – AIR 1981 SC 463
So long as tax is regulatory or compensatory, it is immune from challenge under Article
3) Bhagatram Rajeevkumar vs Commissioner of Sales Tax, Madhya Pradesh (1995) 96 STC 654 (SC) decided on 25.11.94.
The concept of compensatory nature of tax has been widened and if there is substantial or even some link, between the tax and the facilities extended to such dealers, directly or indirectly, the levy of Entry Tax cannot be impugned as invalid.