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TMI Blog2020 (3) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacturing unit at Haryana and from the unit the goods are dispatched by way of branch transfer to various branches located in different States across the country including the State of Gujarat and thereafter such goods are sold locally in the respective States. According to the petitioners, the petitioners duly disclose all the transactions of goods entered into the State as well as sales made in the State of Gujarat in the returns filed under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as the "VAT Act"). The petitioners duly pay tax at the applicable rate under the VAT Act. 2.2 As is discernible from the record of the captioned writ petition, the Deputy Commissioner of Commercial Tax, in exercise of powers conferred under sections 67, 70 of the VAT Act read with Rule 48 of the Gujarat Value Added Tax Rules, 2005 (hereinafter referred to as "the Rules") issued notice dated 15th September, 2016 calling upon the petitioners to furnish all the details viz. purchase invoices, purchase register and proof of payment of entry tax, failing which the petitioners would be liable for an offence punishable under sub-section (2) of Section 85 of the VAT Act. In respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of the said Act, if necessary, in public interest, to redress an inequitable situation or for sufficient and reasonable cause for removing discrimination between the goods entering into the local area from any place outside the State but not being a place outside the territory of the Union of India for consumption, use or sale therein and goods manufactured or produced in the State. 3.2 On 15th February, 2010, the State Government, in exercise of powers conferred under the provisions of subsection (1A) of section 3 of the Entry Tax Act added Entry 9 in the Schedule to the said Act, specifying stainless steel plates, flats, sheets and coils as a specified goods and the maximum rate of tax was fixed at four percent. Subsequently, the State Government, in exercise of its powers conferred by clause (a) of sub-section (2) of section 5 of the VAT Act, while amending the Government Notification, Finance Department dated 31st March, 2006, issued a Notification dated 3rd October, 2012 introducing entry 93 relating to stainless steel flats, stainless steel sheets (patta or patti), specifying the rate of tax as 1%. 3.3 It is the case of the petitioners that while the State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied goods, does not mean that the State Government can levy any rate of tax. It is obligatory on the part of the State Government that the link is maintained between the rate of tax under the VAT Act vis-á-vis the rate of tax levied under the Entry Tax Act. Simultaneously, sub-section (1A) of Section 3 came to be added in the Entry Tax Act. The object and purpose of sub-section (1A) of section 3 of the Entry Tax Act is to see that the State Government, if it is necessary so to do in public interest; in order to redress an inequitable situation or for sufficient or reasonable cause for removing discrimination between the goods entering into the local area from anywhere outside the State, can levy the tax. 5.2 It is submitted that the State Government in its Finance Department, in exercise of its powers conferred under clause (a) of sub-section (2) of Section 5 of the VAT Act, has issued the notification dated 3rd October, 2012 amending the Schedule to the notification and thereby added Entry 93 viz. stainless steel flats, stainless steel sheets (patta or patti) providing for rate of tax at 1%. It is thus submitted that after the issuance of the notification dated 3rd October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the goods entering into the local areas from any place outside the State and the goods manufactured or produced in the State. It is submitted that the Division Bench, while declaring the action of the levy of tax by the State Government as illegal, held that the entire legislative history of the Entry Tax Act as well as Objects and Reasons behind the introduction so also the amendments in 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 and that there is a nexus between the entry tax rates and local Sales Tax / VAT rates on similar goods. 5.5 While referring to the judgment of the Apex Court in the case of Video Electronics Pvt. Ltd. & Anr. vs. State of Punjab & Anr. reported in 1990 (77) STC 82 (SC), it is submitted that the Apex Court, upheld the action of the State Government providing for higher rate of tax inasmuch as, the same was done in view of the peculiar circumstances. It is submitted that the Apex Court in the said case has categorically observed that there was difference in rate yet there was reason for such differentiation and that the notification was issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax credit. The action of the authorities to insist for payment of illegal tax and ask him to go for refund is also impermissible. It is submitted that the issue of input tax credit, is also covered by the judgment of this court in the case of Tractors and Farm Equipment Ltd. vs. State of Gujarat (supra). In support of the said contention, reliance has been placed on paragraph 8.12 of the said judgment and it is submitted that this court, while negating the contention of the State Government that owing to the levy of 15% entry tax on the tractors the petitioner therein were not likely to be affected and that they will be entitled for input tax credit under sub-rule (7) of Rule 15 read with Section 11 of the VAT Act, observed that once the levy is held to be illegal, unconstitutional and contrary to the object and purpose of the entry tax, there arises no question of first requiring the petitioner to pay such tax and thereafter, to go for refund by way of input tax credit. 5.9 It is submitted that consequent to the notification dated 15th February, 2010, various demand notices have been issued to the petitioners requiring the petitioners to pay the entry tax together with penal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be entitled for refund of unpaid input tax credit, is unfounded, rendering the whole Act nugatory. 6.1 The learned Assistant Government Pleader submitted that the petitioners have shown the same amount of entry tax payable and input tax credit receivable in the return filed under the provisions of VAT Act; however, the petitioners would be entitled to input tax credit under the provisions of section 11 only on the amount of tax paid and not on payable tax amount. It is thus urged that without payment of tax, the petitioners are not entitled to claim any input tax credit. It is further submitted that even the explanation to sub-rule (5) of Rule 15 of the VAT Rules would not come to the aid of the petitioners, for, the petitioners have not filed any returns under the Entry Tax Act and by not paying the tax, the petitioners have rendered themselves liable for penalty as prescribed under section 17 of the said Act. 6.2 It is next contended that the product "iron and steel" is covered under Entry 43 of Schedule II to the VAT Act and taxable at the rate of four percent for the period from 1st April, 2008 to 10th April, 2011 and further, additional tax at the rate of 1% is levied in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of sales tax between the State of Gujarat and neighbouring States, diversion of trade has taken place and in some cases sales tax payments are either avoided or evaded by various means; and that the said fact has resulted in the loss of sales tax revenue legitimately due to the State of Gujarat. Thus, it was considered necessary to levy tax on the entry of certain specified goods purchased outside the State and brought into the local areas of the State of Gujarat for use, consumption or sale therein. 11. Section 3 of the Entry Tax Act envisages incidence of tax. Sub-section (1) of section 3 provides for levy and collection on the entry of specified goods into a local area, a tax on the purchase value thereof at such rates as may be fixed by the State Government by notification in the official gazette but not exceeding the maximum rates specified in the column 3 of the schedule; and different rates may be fixed for different specified goods. Section 4 provides for reduction in tax liability. Sub-section (1) of section 4 is to the effect that the amount of tax leviable under the Entry Tax Act shall be subjected to such conditions as may be prescribed, be reduced to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the goods that has entered into the local areas from any place outside Gujarat. 14. Entry 9 came to be added by notification dated 15th February, 2010 issued by the State Government in exercise of powers conferred under sub-section (1A) of Section 3 of the Entry Tax Act. Though the maximum rate of tax has been specified to the extent of four percent, the column "rate by notification" does not specify any rate which, the State Government is otherwise obliged to specify as per the provisions of sub-section (1) of Section 3 of the Entry Tax Act. 15. Subsequently in the year 2012 the State Government in its Finance Department and in exercise of the powers conferred by clause (a) of sub-section (2) of Section 5 of the VAT Act, issued a notification dated 3rd October, 2012 amending the notification dated 31st March, 2006, whereby Entry 93 came to be added namely "stainless steel flats, stainless steel sheets (patta or patti)", prescribing the amount of tax at the rate of 1%. Issuance of this notification has given rise to cause of action to the petitioner inasmuch as, the rate of tax prescribed in the notification dated 15th February, 2010 vis-á-vis the rates of tax prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal area in the State, are, otherwise, paying the sales-tax at 12%. Thus, as stated hereinabove, on payment of Entry Tax by the importer, after deduction of sales-tax and/or C.S.T. already paid in another State, such an importer would be put at par with the local dealers. Thus, in sum and substance, the importers as well as the local dealers would be paying the tax at 12% in all. It can, therefore, be said that, on the contrary, the vice of discrimination would stand removed by payment of Entry Tax by an importer of specified goods. If the importer is not required to pay Tax on Entry he would stand on better footing because on one side the local person would be required to pay 12% Sales Tax while the o,porter would be paying 4% tax in other State, which would be discriminatory qua the local person. Not only that, such low tax would persuade local people to import specified goods from another State which shall adversely affect the local production. It is at this point we must see that in the name of free flow of trade the local economy of a State can't be sacrificed. The contention, therefore, on behalf of the petitioner, that the discrimination is required to be considered qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Syndicate Bank v. State of Karnataka [2000] 119 STC 155 upholding the challenge to the levy of tax on vehicles imported from outside the State alone while no tax was levied on vehicles manufactured in the State is concerned, it is required to be noted that in the said provisions there was no such provision like section 4 of the Gujarat Act and therefore the Karnataka High Court held that the said provision and levy ultra vires the articles 301 and 304(a) of the Constitution. In fact, while declaring the aforesaid provision as ultra vires the Constitution, the Karnataka High Court has observed that there could be a provision by which no discrimination between imported goods and locally manufactured goods is committed and the amount of entry tax is given adjustment in the total liability of the sales tax or the amount of sales tax already paid would be given adjustment under the provisions of the Entry Tax Act. It is undisputed that so far as the present Act is concerned, it provides for such a provision of adjustment, therefore, the judgment in the case of Syndicate Bank v. State of Karnataka [2000] 119 STC 155 (Karn), would not be of any assistance to the petitioner, rather the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Entry Tax under the Entry Tax Act. If the importer like the petitioners are required to pay entry tax higher than VAT levied on sale of goods in the State of Gujarat, in that case, such importers would be at a disadvantageous position and there shall not be "level playing field" which was the aim/goal for introducing the entry tax under the Entry Tax Act. Therefore, any levy of tax beyond the VAT required to be paid by the local dealer, shall be discriminatory and directly in violation of Article 304(a) of the Constitution of India. 8.10. Thus, 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." 19. Reliance has been placed by the learned advocate for the petitioners on the recent judgment of the Apex Court in the case of Jindal Stainless Ltd. & Anr. vs. State of Haryana & Ors. (supra). The Apex Court, upheld the proposition that the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds from other States is not by itself an impediment under the scheme of Part XIII or Article 301 appearing therein." 20. It is nobody's case that the notification dated 15th February, 2010, has been issued to redress an inequitable situation or has been issued for sufficient and reasonable cause for removing the discrimination between the goods entering into the local areas from other places outside the State. Besides, there is not a semblance of explanation coming forth for such differentiation in the prescription of rates of entry tax vis-à-vis rate of tax under the VAT Act. As observed and held by the Apex Court in the case of Video Electronics Private Limited (supra), differentiation is permissible only when there is a valid reason that is to say, if there are justifiable and rational reasons for differentiation. If there is none, it will amount to hostile discrimination. The only stand taken in the affidavit-in-reply filed by the State Government is in paragraphs 10 to 13 which are reproduced hereinbelow for ready reference: - "10. Accordingly in exercise of powers conferred by sub-section (1A) of Section 3 read with entry 9 of Schedule of the Entry Tax Act by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 judgments. In other words, the continuation of the notification dated 15th February, 2010 after the notification dated 3rd October, 2012 issued by the State Government under the VAT Act, without any justifiable reason, would run contrary to the Statement of Objects and Reasons of the Entry Tax Act so also the provisions of the VAT Act, rendering the action of the State Government violative of the provisions of the Article 304(a) of the Constitution of India. Under the circumstances, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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