2004 (1) TMI 651 - HC - VAT and Sales Tax

Levy entry tax on entry of furnace oil and low sulphur waxy residue oil into any local area in the State of Maharashtra for consumption, use or sale therein - Constitutional validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 - violation of articles 14, 19(1)(g), 301, 304 and 286 of the Constitution of India - Discrimination between Goods Imported from Outside the State and Locally Manufactured Goods - HELD THAT - In the present case, although a rate of entry tax levied on the goods is equivalent to the rate of sales tax leviable on such goods under the BST Act, in view of refund/rebate/set-off granted under the BST Act, effectively, there is no tax if the goods are brought into the local area from within the State, whereas entry tax is levied on the said goods if brought from outside the State. In other words, even though the goods entering the local area from within the State do not bear sales tax, the goods entering the local area from outside the State are subjected to entry tax. Whether, entry tax under the Entry Tax Act can be levied on a commodity on which there is no sales tax levied under the BST Act? - The answer to the above question has to be in the negative because the proviso to section 3(1) of the Entry Tax Act clearly provides that the rate of entry tax shall not exceed the rate of tax specified for that commodity under the BST Act. Therefore, if there is no sales tax leviable on a commodity under the BST Act, then entry tax cannot be levied on that commodity. In our opinion, the words rate specified in section 3(1) of the Entry Tax Act have to be construed to mean the effective rate of sales tax payable on the said commodity under the BST Act. If the effective rate of sales tax is nil, then the entry tax has to be nil. If the entry tax exceeds the sales tax leviable on a commodity after taking into account the exemption granted under the BST Act, then it would be in violation of the proviso to section 3(1) of the Entry Tax Act, because the said proviso clearly provides that the entry tax on a commodity shall not exceed the sales tax leviable on that commodity under the BST Act. In this view of the matter, where the goods entering the local area from within the State do not bear sales tax, levy of entry tax on goods entering the local area from outside the State would be unauthorised. In the present case, refund of sales tax paid on the raw materials used in the manufacture of a final product is a rule and not an exception. Where the State policy is not to tax the raw materials which are used in the manufacture of final products in a local area within the State, then, subjecting the raw materials which enter the local area from outside the State to tax to the exclusion of the raw materials entering the local area from within the State would be arbitrary. Where the raw materials entering the local area from outside the State are only subjected to tax, then such levy directly discriminates between the imported goods and the goods which enter the local area from within the State. By taxing the imported goods while exempting the local goods, the State has sought to treat equals unequally which is not permissible in law. It is true that what should be the quantum of tax is the prerogative of the State and the same cannot be questioned in a court of law. However, when the State Legislature provides that the entry tax on a commodity shall not exceed the rate specified for that commodity under the BST Act, it would be open to the court to find out whether, effectively any sales tax is levied on that commodity. In the present case, the furnace oil and low sulphur waxy residue oil entering the local area from within the State do not bear sales tax and therefore, entry tax on those goods when enter the local area from outside the State cannot be levied. On the date on which entry tax was introduced on the goods in question, the general exemption granted on those goods under the BST Act and Rules made thereunder were in existence. Therefore, it cannot be said that the levy of entry tax was to ensure that all goods entering the local area bear either the entry tax or the sales tax. Thus the entry tax on furnace oil and low sulphur waxy residue oil instead of striking a balance, in fact creates imbalance between the imported goods and the local goods and in fact has defeated the very purpose of enacting Entry Tax Act. Thus, we hold that entry No. 13 to the Schedule to the Entry Tax Act in so far as it purports to levy entry tax on furnace oil and low sulphur waxy residue oil is unauthorised and unconstitutional. Petitions are allowed in the above terms and rule made absolute accordingly, with no order as to costs. Writ petition allowed.

Summary

Issues Involved:
1. Constitutional Validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002.
2. Violation of Articles 14, 19(1)(g), 301, 304, and 286 of the Constitution of India.
3. Discrimination between Goods Imported from Outside the State and Locally Manufactured Goods.
4. Compensatory and Regulatory Nature of the Entry Tax.
5. Levy of Entry Tax on Goods Imported from Outside India.

Summary:

1. Constitutional Validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002:
The petitions challenged the constitutional validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002, specifically regarding the levy of entry tax on furnace oil and low sulphur waxy residue oil. The legislative competence of the State to levy entry tax was initially raised but not pressed during the final hearing.

2. Violation of Articles 14, 19(1)(g), 301, 304, and 286 of the Constitution of India:
The petitioners argued that the entry tax violates Articles 14, 19(1)(g), 301, 304, and 286 of the Constitution. They contended that the tax creates a barrier to the free flow of goods, discriminates against goods imported from outside Maharashtra, and imposes unreasonable restrictions on trade.

3. Discrimination between Goods Imported from Outside the State and Locally Manufactured Goods:
The petitioners highlighted that under the BST Act, manufacturers receive a refund or set-off for sales tax paid on raw materials purchased within the State, making local purchases cheaper by 12-15%. However, no such refund is available for entry tax on goods imported from outside the State, creating a discriminatory tax barrier. The court agreed, stating that the entry tax on goods entering from outside the State, while similar goods from within the State do not bear sales tax, violates Article 301.

4. Compensatory and Regulatory Nature of the Entry Tax:
The State argued that the entry tax is compensatory, aimed at augmenting State revenue and providing facilities like roads and markets. However, the court found no clear nexus between the tax collected and the benefits conferred upon the taxpayers. The court held that the entry tax is not compensatory or regulatory in nature, as it primarily aims to augment general revenue.

5. Levy of Entry Tax on Goods Imported from Outside India:
The petitioners contended that the entry tax should not apply to goods imported from outside India, as the term "outside the State" refers to places within India. The court did not specifically address this issue in detail but focused on the broader discrimination and constitutional violations.

Conclusion:
The court held that the entry tax on furnace oil and low sulphur waxy residue oil is unauthorized and unconstitutional. The petitions were allowed, and the rule was made absolute with no order as to costs. The entry tax was found to create an imbalance between imported and local goods, violating the constitutional mandate for free trade and non-discrimination.