2012 (2) TMI 491 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative competence of the State of U.P. in enacting the U.P. Tax on Entry of Goods into Local Areas Act, 2007.
2. Violation of freedom of trade, commerce, and intercourse under Article 301 of the Constitution of India.
3. Retrospective application of the Act.
4. Nature of the entry tax as compensatory tax.
5. Validity of notices, assessments, rebates, exemptions, and liability of traders and manufacturers.

Summary:

Legislative Competence:
The petitioners challenged the legislative competence of the State of U.P. in enacting the U.P. Tax on Entry of Goods into Local Areas Act, 2007. The High Court held that the State of U.P. did not lack legislative competence in enacting the Act. The provisions of the Act indicate sufficient guidelines and guarantees for ensuring that the entry tax collected is utilized for facilitating trade, commerce, and industry.

Violation of Article 301:
The petitioners argued that the Act violated the freedom of trade, commerce, and intercourse guaranteed under Article 301 of the Constitution and was not saved by Article 304(b). The High Court dismissed this contention, stating that the levy of entry tax under the Act is not discriminatory, unreasonable, or against public interest, and does not violate Article 301.

Retrospective Application:
The petitioners also challenged the retrospectivity of the Act, which was effective from 1.11.1999. The High Court upheld Section 17 of the Act, validating the entry tax levied, assessed, realized, and collected under the U.P. Tax on Entry of Goods Act, 2000, and authorized the State to keep the entire amount for facilitating trade, commerce, and intercourse in local areas.

Compensatory Tax:
The petitioners contended that the entry tax was not compensatory as the benefits were not quantifiable or measurable. The High Court found that the entry tax collected is by way of reimbursement to the trade, commerce, and industry, providing quantifiable/measurable benefits to its payers.

Validity of Notices, Assessments, Rebates, Exemptions, and Liability:
The High Court clarified that the judgment was confined to the constitutional validity of the U.P. Tax on Entry of Goods into Local Areas Act, 2007, and whether the entry tax is compensatory in nature. Other issues such as the validity of notices, assessments, rebates, exemptions, and liability of traders and manufacturers were left open to be considered by competent authorities under the Act.

Directions:
1. Petitioners to deposit 50% of the accrued tax liability/arrears under the U.P. Act, 2007, and furnish a bank guarantee for the balance amount within a month.
2. Petitioners to continue paying the tax at prevailing rates in the future.
3. Petitioners to submit replies to notices within six weeks and file appeals against assessment orders within six weeks, with appellate authorities deciding on merits within six weeks thereafter.
4. Petitioners to claim adjustment/refund of amounts deposited in accordance with the final verdict of the Supreme Court.
5. Petitioners to avail statutory remedies within six weeks, with authorities deciding on merits within six weeks thereafter.
6. Department to take steps to recover dues in case of violation of directions.
7. Interim orders granted earlier to stand vacated.

With these directions, the writ petitions were disposed of.