The Supreme Court has referred to a larger Bench the issue related to state governments imposing entry tax on goods coming into their areas of jurisdiction.
Over 2,000 petitions filed by state governments and companies all over the country are pending before the apex court, having financial implications of Rs 30,000 crore.
A bench headed by Justice Arijit Pasayat referred the matter to a larger Bench after high courts across the country viewed the tax matter differently and gave conflicting judgments on the issue.
Many companies had challenged the Madhya Pradesh High Court decision upholding the state government’s right to levy tax on raw materials and packaging goods used in the manufacture of the finished products at rates higher than those prescribed under the Entry Tax Act.
The high court had upheld the validity of the ‘Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam 1976 and 2006’ (Entry Tax Act) and the ‘(Sanshodhan) Adhiniyam, 2004’ on grounds that the levy, being “compensatory in nature”, was immune from the challenge.
But according to the companies, as the tax in question is ad valorem in nature, it cannot be compensatory because there can be no relation between the levy based on the value of goods coming into the state for consumption or use and the trading facilities purportedly proposed to be provided to traders.
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Along with appeals from Madhya Pradesh, the apex court also referred appeals from Orissa to the larger bench.
The Orissa governments had moved petitions against big firms, including Reliance Industries, Bharti Airtel, Tata Refractories, Hindalco Industries and others, challenging the Orissa High Court ruling that the levy of entry tax under the Orissa Entry Tax Act 1999 was unconstitutional.
A batch of cross appeals were also filed by Tata Sponge Iron Ltd, Vedanta Aluminium, Bhushan Steel & Strips and others challenging the imposition of entry tax on the goods entering the state.
The companies stated that the high court had erred in not declaring the Act as ultra vires of the Constitution after holding that the state had no jurisdiction to impose tax on imported goods.
According to the Orissa government, while the high court had sustained the validity of the Act, it had also concluded that the state had no jurisdiction to impose tax on such goods.
The Orissa High Court had given the verdict after RIL and others had in May 2006 challenged such levy on grounds that such legislation restricted the free flow of trade and the state was not providing required facilities.
Another batch of petitions filed by the Uttar Pradesh government against big firms, including Honda Siel Cars India, Xpro India and LG Electronics, have challenged the Allahabad High Court’s judgment that asked it to refund around Rs 4,000 crore collected as entry tax from traders.
The Uttar Pradesh government had challenged the high court judgment, according to which that there was no material to establish that the amount collected as tax was in proportion to facilities provided to the traders.