2016 (12) TMI 1428 - HC - VAT and Sales Tax

Legality of the imposition of tax of entry on goods as inserted by way of an amendment in the Uttar Pradesh Tax on Entry of Goods into Local Areas Act 2007 and Uttar Pradesh Tax on Entry of Goods into Local Areas (Amendment) Act 2016 (UP Act No.18 of 2016) notified on 16th September 2016 Held that - amendment inserted by way of U.P. Act No.18 of 2016 is completely beyond the authority and competence of the State Legislature as it ex facie introduces the levy of tax which was not existing under the old Act and therefore could not be introduced by way of the amendment as has been done now. Consequently Clause 19 of Constitution (One Hundred and First Amendment) Act 2016 does not in any way prima facie saves the imposition of the tax through Online Purchase or E-Commerce particularly for personal use. Thus there is a complete lack of legislative competence as such the impugned provisions are rendered unconstitutional. Interim relief granted during the pendency of writ petition - as an interim measure the petitioner shall be entitled to trade through E-Commerce and on Online Purchase system but for the said purpose the petitioner in order to secure the interest of the State shall furnish Bank Guarantee to the satisfaction of the authorities concerned by mentioning in the form prescribed for the said purpose in respect of such transactions - matter on remand.

Summary

Issues:
1. Legality of the imposition of tax on entry of goods as per an amendment in the Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007.
2. Constitutionality and validity of the imposition of tax on specified goods brought from outside the State through e-commerce or online purchase.
3. Legislative competence regarding the imposition of tax under an incompetent legislation.
4. Discrimination in the imposition of tax and its impact on trade and commerce between States.
5. Excessive delegation of powers to the Commissioner Commercial Tax without proper legislative authority.

Issue 1: Legality of the imposition of tax on entry of goods:
The petition questions the legality of the tax imposition on goods brought from outside the State through an amendment in the Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007. The primary contention is that the imposition of tax on specified goods is discriminatory, particularly for goods brought through e-commerce or online purchase. The argument is based on the foundation that the mode of transaction should not be the basis for such imposition, as it violates constitutional provisions under Articles 14, 286, and 304(a) of the Indian Constitution.

Issue 2: Constitutionality and validity of the imposition of tax:
The challenge is twofold - first, the imposition of tax is questioned based on the deletion of Entry 52 from List II of the VIIth schedule by the 101st amendment to the Constitution. The contention is that the State lacked legislative competence to introduce the tax under an incompetent legislation. Second, the petitioner argues that the introduction of Section 4-A under the impugned amendment goes beyond the authority of the State Legislature, rendering the provisions unconstitutional and invalid.

Issue 3: Legislative competence regarding tax imposition:
The State argues that the Legislature was competent to introduce the provisions of Section 4-A under the impugned notification, citing Clause 19 of the Constitution (One Hundred and First Amendment) Act, 2016, which saves existing provisions for a year until amended or repealed by a competent Legislature. The State justifies the tax imposition as necessary for revenue replenishment, asserting no lack of legislative competence.

Issue 4: Discrimination and impact on trade and commerce:
The petitioner contends that the imposition of tax creates unlawful fiscal barriers, impacting trade and commerce between States. The argument emphasizes that such discrimination and imposition would lead to price hikes and burden traders and the public. The petitioner argues that the amendment is not only unconstitutional but also against public interest.

Issue 5: Excessive delegation of powers:
The petitioner argues that the introduction of Section 4-A confers excessive powers on the Commissioner Commercial Tax without proper legislative authority. The petitioner asserts that the Legislature was denuded of its authority in legislating such an amendment, introducing a new taxing procedure beyond its competence.

In the judgment, the Court found the amendment introduced by U.P. Act No.18 of 2016 to be beyond the authority and competence of the State Legislature. The Court held that the imposition of tax through online purchase or e-commerce, particularly for personal use, was unconstitutional due to a lack of legislative competence. As an interim measure, the petitioner was granted the right to trade through e-commerce and online purchase, subject to furnishing a Bank Guarantee to secure the State's interest. The Court directed the filing of a counter affidavit within three weeks and set a date for admission to dispose of the matter promptly.