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2020 (3) TMI 699 - HC - VAT and Sales TaxVires of Notification dated 15th February, 2010 - sub-section (1A) of section 3 of the Gujarat Tax on Entry of Specified Goods into Local Areas Act, 2001 - in the impugned notification, State Government while amending the schedule added Entry 9 pertaining to stainless steel plates, flats, sheets and coils and specified the maximum rate of tax as four percent. It is the case of the petitioners that while the State Government reduced the applicable rate of tax under the VAT Act on stainless steel flats and sheets to 1% it did not correspondingly reduce the rate of entry tax applicable to the same goods and thus, while the rate of tax under the VAT Act for stainless steel flats and sheets is reduced to 1%, the rate of entry tax on the same goods continues to be four percent. HELD THAT - The validity of the Entry Tax Act was challenged before this court in the case of EAGLE CORPORATION PVT. LTD. VERSUS STATE OF GUJARAT AND OTHERS 2006 (10) TMI 395 - GUJARAT HIGH COURT , on which heavy reliance has been placed by the learned advocate for the petitioners. In the said case, this court considered as to whether by enacting the Entry Tax Act, is there any discriminatory treatment and/or such levy is discriminatory? In the said context, this court while upholding the validity of the Entry Tax Act held that considering the Statement of Objects and Reasons in juxtaposition with the provisions of the Entry Tax Act, it cannot be said that the provisions of the Entry Tax Act and consequent levy of the entry tax on the specified goods are violative of Article 304 of the Constitution of India. This court further held that entry tax is not discriminatory between the goods so imported and goods so manufactured, produced in a local areas and the challenge to the constitutional validity of the Entry Tax Act and the levy of entry tax thereof fails - While upholding the validity of the provisions of the Entry Tax Act, it has been held by this court that when there is a reduction in the effective rate of sales tax under the erstwhile Gujarat Sales Tax Act, there will automatically be a corresponding reduction in the maximum rate of entry tax prescribed in the schedule so that the goods brought from out side the State are not discriminated against the goods manufactured within the State, from the point of view of ultimate burden of tax. Thus, in absence of any special circumstances pointed out by the State Government either in its affidavit or during the course of the submissions made by the learned Assistant Government Pleader, it can be safely concluded that neither there exist any circumstances for redressal of an inequitable situation nor was there any sufficient and reasonable cause which weighed with the State Government for removing the discrimination between the goods entering into the local areas from any place outside the State. Clearly, as is discernible from the aforesaid well established principles, the Entry Tax Act is aimed at achieving a level playing field so as to obviate any chance of discrimination. Further, considering the provisions of the Entry Tax Act, in juxtaposition with the provisions of the VAT Act further read with the provisions of Article 304(a) of the Constitution of India, it is abundantly clear that if rates of a specified goods are reduced by the State Government in exercise of the powers conferred under the VAT Act, there has to be a corresponding reduction of the rates of entry tax by the State Government by issuing a notification under the Entry Tax Act; proportionately reducing the rate of tax. Not doing so and continuing with the notification specifying the rate of entry tax on the higher side as compared to the rates specified by the State Government in the notification under the VAT Act, would be in the teeth of the aforesaid well established principles enunciated by this court in the aforesaid judgment. The continuation of the notification dated 15th February, 2010 prescribing the rate of tax as 4%, after the issuance of the notification dated 3rd October, 2012 is discriminatory and is directly hit by the provisions of Article 304(a) of the Constitution of India and thus, cannot be sustained. Thus, the notification dated 15th February, 2010 insofar as it prescribes the rate of tax as 4% is illegal and not in sync with the provisions of the Entry Tax Act so also the VAT Act and hence, it is impermissible to the State Government to charge tax in excess of the rate of tax prescribed under the notification dated 3rd October, 2012. Since the notification dated 15th February, 2010, has been held to be illegal and bad in law insofar as it prescribes a higher rate of entry tax vis- -vis the rate of tax provided in the notification dated 3rd October, 2012 issued under the provisions of the VAT Act, the consequential notices dated 23rd January, 2017 (Annexure 'B' collectively) also cannot be sustained. The impugned notification dated 15th February, 2010 (Annexure A) to the extent it prescribes a higher rate of entry tax vis- -vis the rate of tax provided in the notification dated 3rd October, 2012 issued under the provisions of the VAT Act is hereby held to be illegal and bad in law - petition allowed.
Issues Involved:
1. Validity of the notification dated 15th February, 2010 prescribing a 4% entry tax. 2. Discrepancy between the entry tax rate and VAT rate on stainless steel products. 3. Compliance with Article 304(a) of the Constitution of India. 4. Requirement for maintaining a link between VAT and entry tax rates. 5. Legality of consequential notices demanding entry tax. Issue-wise Detailed Analysis: 1. Validity of the Notification Dated 15th February, 2010 Prescribing a 4% Entry Tax: The petition challenged the notification dated 15th February, 2010, which imposed a 4% entry tax on stainless steel plates, flats, sheets, and coils. The petitioners argued that this rate was discriminatory and violated the provisions of the Entry Tax Act, particularly after the VAT rate on similar goods was reduced to 1% by a notification dated 3rd October, 2012. The court held that the notification prescribing a higher rate of entry tax was illegal and not in sync with the provisions of the Entry Tax Act and VAT Act. The court emphasized that the State Government must ensure that the entry tax rate aligns with the VAT rate to avoid discrimination. 2. Discrepancy Between the Entry Tax Rate and VAT Rate on Stainless Steel Products: The petitioners contended that while the VAT rate on stainless steel flats and sheets was reduced to 1%, the entry tax continued to be levied at 4%, creating a discriminatory situation. The court noted that the Entry Tax Act aimed to provide a level playing field and prevent discrimination between goods entering the state and those produced locally. The court found that the continuation of the higher entry tax rate, despite the reduced VAT rate, was discriminatory and violated the principles of the Entry Tax Act. 3. Compliance with Article 304(a) of the Constitution of India: The petitioners argued that the higher entry tax rate violated Article 304(a) of the Constitution, which prohibits discriminatory taxes on goods imported from other states. The court referred to previous judgments, including the Apex Court's ruling in Jindal Stainless Ltd. vs. State of Haryana, which emphasized that taxes on imported goods should not discriminate against similar goods produced within the state. The court held that the higher entry tax rate was discriminatory and violated Article 304(a). 4. Requirement for Maintaining a Link Between VAT and Entry Tax Rates: The court highlighted that the State Government must maintain a link between the VAT rate and the entry tax rate to ensure a level playing field. The Entry Tax Act's objective was to levy entry tax at rates equal to the VAT rates to avoid discrimination. The court noted that the State Government's failure to reduce the entry tax rate in line with the reduced VAT rate was contrary to the Act's objectives and principles. 5. Legality of Consequential Notices Demanding Entry Tax: The petitioners received notices demanding entry tax based on the higher rate prescribed in the 2010 notification. The court held that since the notification was found to be illegal and discriminatory, the consequential notices demanding entry tax were also unsustainable. The court quashed the notices, emphasizing that the petitioners should not be required to pay the higher tax and then seek a refund. Conclusion: The court allowed the petition, declaring the notification dated 15th February, 2010, prescribing a 4% entry tax as illegal and discriminatory. The court also quashed the consequential notices demanding entry tax. The judgment reinforced the principle that entry tax rates must align with VAT rates to avoid discrimination and comply with Article 304(a) of the Constitution. The court emphasized the need for the State Government to maintain a link between VAT and entry tax rates to ensure a level playing field for goods entering the state and those produced locally.
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