SC narrows scope for inter-state goods tax

A five-judge Constitution Bench of the Supreme Court has handed down a judgement restricting the scope of entry tax, development tax and such levies imposed by a state on goods from other states.

The judgement, which reverses some of the court's earlier decisions, will especially benefit industries which have a national sales and distribution network.

The unanimous judgement ruled that a state can impose tax only if it provides certain facilities for the better conduct of business. Moreover, the rate of tax should be proportionate to the facilities provided. These levies are called "compensatory taxes".

They are not mentioned in Article 301 of the Constitution, which deals with inter-state trade. The idea was developed by the Supreme Court through various judgements.

The earlier view of the Supreme Court was that reasonable restrictions could be imposed on inter-state trade in the form of taxes on carriage of goods. The taxes must be compensatory, in the sense that the state must provide certain facilities before imposing them.

But in later decisions, the court deviated from its view.