2007 (11) TMI 557 - AT - VAT and Sales Tax

Constitutional validity of the West Bengal State Tax on Consumption of Goods Act, 2001 challenged - Held that - The provisions of the West Bengal State Tax on Consumption or Use of Goods Act, 2001 levying tax on entry of goods into any local area from outside the State is violative of article 301 read with article 304 of the Constitution of India and ultra vires. As the provisions of the impugned Act imposing tax on entry of goods imported from outside the State into local areas are declared ultra vires all impugned orders levying consumption tax on goods imported from outside the State by the petitioners in these applications and consequential demands are also set aside. Bank guarantees, if any, obtained from any of the petitioners in the present applications for securing consumption tax are directed to be released within one month from the date of communication of this order.

Summary

Issues:
Constitutional validity of the West Bengal State Tax on Consumption of Goods Act, 2001 under article 301 of the Constitution of India.

Detailed Analysis:

The judgment by the Appellate Tribunal of West Bengal Taxation Tribunal addressed the constitutional validity of the West Bengal State Tax on Consumption of Goods Act, 2001. The Act aimed to prevent trade diversion, increase revenue, and protect local dealers from unfair competition. It imposed a tax on goods brought into local areas for consumption or use. Similar Acts existed in other states, like the Haryana Local Area Development Tax Act, 2000. Challenges to these Acts led to the Supreme Court formulating principles regarding articles 301, 302, and 304 in the Jindal Stainless Ltd. case. The Tribunal noted that various High Courts had struck down similar state Acts, indicating a trend against such taxation laws.

The respondents in the case failed to defend the imposition of consumption tax under the West Bengal Act, especially on imported goods. The Tribunal highlighted that no state could discriminate against imported goods compared to locally produced ones. The concept of compensatory tax was discussed, emphasizing that the consumption tax in question did not qualify as such but rather as a general revenue-generating tax. The judgment referenced the Jindal Stainless Ltd. case and decisions by High Courts to declare the West Bengal Act as violative of articles 301 and 304 of the Constitution.

The Tribunal concluded that the provisions of the West Bengal State Tax on Consumption of Goods Act, 2001 were ultra vires and unconstitutional. Consequently, all orders imposing consumption tax on imported goods were set aside, and any related bank guarantees were to be released. The applications challenging the Act were allowed, with no costs awarded. The Technical Member and Judicial Member of the Tribunal concurred with the decision, leading to the final judgment in favor of declaring the Act as unconstitutional.