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.
ADAG firms, Reliance Industries, Procter & Gamble, ITC, Gillette India, and NTPC 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.
