2019 (3) TMI 969 - HC - VAT and Sales Tax

Validity of Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 - case of petitioner is that the eventual fiscal burden may differ, despite the intention to equalise the same, since no set-off is granted in respect of tax paid outside the State - scope of Local Area. Held that - The issue or point raised by petitioners in these petitions is squarely covered by the recent judgment of the Supreme Court delivered by nine judges, in the case of JINDAL STAINLESS LTD. AND ANOTHER VERSUS STATE OF HARYANA AND OTHERS 2006 (4) TMI 120 - SUPREME COURT , where it was clarified that taxation does not amount to restriction on trade, commerce and intercourse. The levy of tax which is non discriminatory would not constitute an infraction of Article 301 - it was finally concluded that imposition of entry tax under Entry 52 of the State list would not violate Article 301 or 304(b) of the Constitution. The object and purpose of the Maharashtra Entry Tax Act is not to discriminate against goods from outside the State but instead is to bring about economic unity and parity by doing away with the discrimination visited by virtue of differing rates of tax in different States - There is no Constitutional burden on the State to equalize all inequalities of burden on goods even if such inequalities do not result from the State's taxation. No inequality results from any action /legislation attributable to the State of Maharashtra. Merely since the State of Maharashtra has allowed reduction for Central Sales Tax in the Maharashtra Tax on Entry of Motor Vehicle into Local Areas Act, 1987, does not mean that it is obligated to give a similar reduction for entry tax under the Maharashtra Entry Tax Act. Notably, other States also do not give any reduction for Central Sales Tax while levying entry tax. Therefore, local goods exported from Maharashtra to other States, which also bear Central Sales Tax, would incur a higher tax burden than just the VAT of the State to which they are exported. Under Entry 52 of List II of Seventh Schedule appended to the constitution, the State is empowered to levy and collect entry tax on the entry of the goods into local areas. Further, the imposition of tax on sale or purchase of goods is permissible under entry 54 of List II. Entry 52 and Entry 54 are two separate fields of legislations. Incidence of tax under these two entries is also independent. Merely because the rate of tax under both the taxing statutes is the same, it cannot be said that the state is levying VAT in the garb of Entry Tax. The State having taken a conscious decision to avoid discrimination has decided not to levy Entry tax in excess of VAT applicable on similar goods. The Act in no way makes any discrimination against the local purchases and importers much less any hostile discrimination. The importers are given input tax credit of Entry Tax Paid to the Government against the VAT liability and balance is payable or refundable as the case may be. Hence tax burden of Entry Tax not borne by the dealers who purchase locally within the State who get set off of the input tax credit u/s 48 r/w 52, is balanced in case of persons who suffer entry tax by making provisions in the MVAT Act that the entry tax can be adjusted against the MVAT liability thus in effect the dealers who import from other State or Country are at par with local manufacturers who purchase from local dealers so far as burden of tax is concerned since in effect there is no entry tax at all when rebate or set off or ITC is granted for the same - Thus the rebate is provided in second proviso of the Act that the tax payable by the importer under this Act shall be reduced by amount of tax paid, if any, under the law relating to General Sales Tax in force in the UT or the State in which the goods are purchased by the importer in effect takes care of the ground that the dealers who import goods are discriminated vis a vis the dealer who procure the goods from local sources. It is not a correct proposition of law that the scope of Entry in the Lists to the Constitution would be governed by the consistent legislative practice that has been followed prior to the enactment of the Constitution of India. The Legislative practice to enactment of Constitution and Government of India Act, 1935 framed by the then British Parliament has no binding limitation and practice under the Constitution of India in independent India. The Legislation is not ultra vires in any manner - the Constitutional validity of the Maharashtra Entry Tax Act is upheld. Petition dismissed.

Summary

Issues Involved:
1. Constitutionality of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002.
2. Discrimination against goods imported from outside the state.
3. Double taxation.
4. Legislative competence under Entry 52 of List II of the Seventh Schedule to the Constitution of India.
5. Validity of specific provisions and notifications under the Act.
6. Set-off and refund provisions under the MVAT Act and Entry Tax Act.
7. Interpretation of "local area" under Entry 52 of List II.

Detailed Analysis:

Constitutionality of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002:
The petitioners challenged the Act under Article 226 of the Constitution, claiming it violated Articles 14, 19, 245, 286, 301, and 304 of the Constitution. They argued that the Act imposed an unreasonable tax burden on goods imported from outside Maharashtra compared to those produced within the state, leading to hostile discrimination. The Court, however, upheld the constitutionality of the Act, finding it non-discriminatory and aimed at creating a level playing field between local and imported goods.

Discrimination Against Goods Imported from Outside the State:
The petitioners contended that the tax burden on imported goods was higher, causing hostile discrimination. The Court referred to the Supreme Court's decision in Jindal Stainless Steel Ltd. v. State of Haryana, which held that only discriminatory taxes are prohibited under Article 304(a). The Court found that the Maharashtra Entry Tax Act did not discriminate against imported goods as it aimed to equalize the tax burden between local and imported goods.

Double Taxation:
The petitioners argued that the Act led to double taxation as it imposed both entry tax and octroi on the same goods. The Court dismissed this argument, stating that double taxation is not unconstitutional per se and that the two taxes served different purposes. Octroi was for augmenting local body resources, while entry tax aimed to prevent loss of state revenue due to interstate sales.

Legislative Competence Under Entry 52 of List II:
The petitioners claimed that the Act was ultra vires Entry 52 of List II, which allows the state to levy taxes on the entry of goods into local areas. They argued that the entire state could not be considered a local area. The Court rejected this argument, citing the Supreme Court's decision in State of Bihar v. Bihar Chamber of Commerce, which held that the state is a compendium of local areas, and the tax can be levied on goods entering any local area within the state.

Validity of Specific Provisions and Notifications:
The petitioners challenged specific provisions and notifications under the Act, arguing they were ultra vires the Constitution. The Court found no merit in these arguments, stating that the provisions aimed at equalizing the tax burden and were within the state's legislative competence.

Set-off and Refund Provisions:
The petitioners argued that the Act's provisions for set-off and refunds were discriminatory and protectionist. The Court held that the set-off provisions under Rule 52 of the MVAT Rules and Section 3(5) of the Entry Tax Act were designed to prevent double taxation and ensure a level playing field. The set-off was granted to avoid cascading effects of tax and was not discriminatory.

Interpretation of "Local Area":
The petitioners contended that the entire state could not be deemed a local area under Entry 52. The Court referred to previous judgments, including Diamond Sugar Mills and Burmah Shell Oil Storage, to interpret "local area" as any area administered by a local authority. The Court upheld the state's interpretation, stating that the Act was within the legislative competence of the state.

Conclusion:
The High Court dismissed the petitions, upholding the constitutionality of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002. The Court found that the Act did not violate Articles 14, 19, 245, 286, 301, or 304 of the Constitution, and that it aimed to create a level playing field between local and imported goods without causing hostile discrimination. The provisions for set-off and refunds were found to be non-discriminatory and designed to prevent double taxation. The interpretation of "local area" under Entry 52 was upheld, allowing the state to levy entry tax on goods entering any local area within the state.