2017 (2) TMI 350 - HC - VAT and Sales Tax

Levy of entry tax - entry / import of Tractors into the State of Gujarat - the levy is discriminatory, in violation of Article 304(a) of the Constitution of India and contrary to the objects and purpose of enactment of Entry Tax Act under which Entry Tax is levied - Held that - the entire legislative history of the Entry Tax Act as well as object and reasons behind the introduction as well as amendments of the Entry Tax Act establish that Entry Tax was always sought to be levied at the rates prescribed for such goods under the Sales Tax Act / VAT Act. In other words, there is a nexus between the Entry Tax rates and local Sales Tax / VAT rates on similar goods. Thus only those motor vehicles which were covered under Entry 128 of Schedule-IIA to the sSles Tax Act and which are now covered under residuary Entry 87 of Schedule-II to the VAT Act which attract 15% tax under the VAT Act would be covered under the entry of motor vehicles under the Entry Tax Act. Levy of entry tax at the rate of 15% on Tractors by treating them as falling under Entry for motor vehicles even though Tractors have always been covered by separate entry under the Sales Tax Act and the VAT Act and for which rate of tax under the VAT Act is 5%, therefore is dehors the scheme of the Entry Tax Act as countenanced by the legislative history as well as objects of the Entry Tax Act. To levy Entry Tax at 15% on import of Tractors into the State of Gujarat by treating them as motor vehicles even though local VAT Tax on Tractors is 5%, would be contrary to the object and scheme of the Entry Tax Act, State of Gujarat has come out with a notification dated 12/5/2016 by which levy of entry tax on Tractor in excess of 5% has been exempted. However, once levy of entry tax on Tractors beyond / above 5% is held to be illegal, discriminatory and violative of Article 304(a) of the Constitution of India and contrary to the object and purpose of enactment of Entry Tax Act, there is no question of exemption. Once levy itself is held to be illegal, unconstitutional and/or contrary to the objects and purpose of Entry Tax Act, there is no question of first to pay such a tax and thereafter to get refund by way of Input Tax Credit. Why should importers be forced to first pay Entry Tax which otherwise is illegal and/or discriminatory and thereafter to go for refund by way of input Tax Credit. The respondents State cannot levy / charge Entry Tax on Tractors beyond Value Added Tax under the VAT Act i.e. beyond 5% - petition allowed - decided in favor of petitioner.

Issues Involved:
1. Levy of Entry Tax on Tractors at the rate of 15% treating them as "motor vehicles".
2. Constitutionality of the Entry Tax Act under Article 304(a) of the Constitution of India.
3. Legislative intent and object of the Entry Tax Act.
4. Discrimination between goods imported from other states and goods manufactured within the state.
5. Applicability of subsequent exemption notifications.

Issue-wise Detailed Analysis:

1. Levy of Entry Tax on Tractors at the rate of 15% treating them as "motor vehicles":
The petitioners argued that the levy of Entry Tax at 15% on Tractors by considering them as "motor vehicles" is unconstitutional, illegal, and contrary to the legislative intention of the Entry Tax Act. They contended that Tractors have always been covered by a separate entry under the Sales Tax Act and the VAT Act, attracting a lower tax rate of 5%, unlike motor vehicles which attract a higher tax rate. The court noted that the legislative history and amendments to the Entry Tax Act show a clear nexus between Entry Tax rates and the applicable rates under the Sales Tax Act/VAT Act. Therefore, treating Tractors as motor vehicles for the purpose of Entry Tax is dehors the scheme of the Entry Tax Act.

2. Constitutionality of the Entry Tax Act under Article 304(a) of the Constitution of India:
Article 304(a) prohibits states from discriminating between goods imported from other states and those manufactured within the state. The petitioners argued that levying Entry Tax at 15% on Tractors, while the local VAT rate is 5%, violates this provision. The court upheld this view, stating that such a levy would be discriminatory and contrary to the object of achieving a "level playing field" between imported goods and locally manufactured goods. The court referenced the decision in Eagle Corporation Pvt. Ltd., which upheld the constitutional validity of the Entry Tax Act on the basis that it did not discriminate against imported goods.

3. Legislative intent and object of the Entry Tax Act:
The court examined the Statement of Objects and Reasons of the Entry Tax Act, which aimed to prevent the loss of sales tax revenue due to trade diversion caused by differing tax rates between Gujarat and neighboring states. The court observed that the legislative history consistently linked Entry Tax rates with local Sales Tax/VAT rates. The object was to ensure that goods imported into Gujarat did not have a tax advantage over locally produced goods. Therefore, levying a higher Entry Tax on Tractors than the local VAT rate was contrary to the legislative intent.

4. Discrimination between goods imported from other states and goods manufactured within the state:
The court held that imposing a 15% Entry Tax on Tractors, while the local VAT rate is 5%, would place importers at a disadvantage, thereby violating Article 304(a). This discrimination would undermine the level playing field intended by the Entry Tax Act. The court cited the recent judgment of the Supreme Court in Jindal Stainless Ltd., which emphasized that state legislation cannot discriminate between imported goods and locally manufactured goods in the matter of levying taxes.

5. Applicability of subsequent exemption notifications:
The court acknowledged the notification dated 12/5/2016, which exempted the levy of Entry Tax on Tractors beyond 5%. However, the court clarified that once the levy of Entry Tax at 15% is held to be illegal and discriminatory, the question of exemption does not arise. The court emphasized that illegal and unconstitutional levies cannot be justified by subsequent exemptions. The court also rejected the state's argument that the petitioners could claim a refund through Input Tax Credit, stating that importers should not be forced to pay an illegal tax and then seek a refund.

Conclusion:
The court concluded that the levy of Entry Tax at 15% on Tractors, treating them as "motor vehicles," is illegal, discriminatory, and violative of Article 304(a) of the Constitution of India. The respondents were directed not to levy Entry Tax on Tractors beyond the local VAT rate of 5%. The petitions were allowed, and the rule was made absolute to the extent specified.

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