A nine-judge Bench of the Supreme Court on Tuesday commenced hearing on the validity of separate entry taxes on goods mandated by various State government statutes, without heeding to the plea of the Centre to wait for the passage of GST Bill in Parliament.
Entry tax is imposed by the State governments on movement of goods from one State to another. It is levied by the State that receives goods.
The Constitution Bench led by Chief Justice T.S. Thakur refused to put the hearing on hold when Attorney General Mukul Rohatgi pleaded that they should wait till the fate of the pending GST Bill is known.
It will have to reconsider two Constitution bench judgments delivered in 1961 and 1963, five- and seven-judge bench verdicts, respectively. The two cases laid down tests to determine if states have the power to levy taxes.
The Apex court while hearing the case relating to entry tax, including the very basic question as to whether the levy of tax per se can constitute an infraction of Article 301 of the constitution (Article 301 relates to freedom of trade, commerce and intercourse) raises the following four broad questions:
a) Can the levy of tax per se constitute an infraction of article 301 of the Constitution?
b) Does a tax which is ‘compensatory’ in nature violate article 301 of the Constitution?
c) If the answer to the above question is in the negative, what are the tests to determine if the tax / levy is compensatory in nature?
d) Is Entry Tax levied by States violate article 301 of the Constitution?
Representing various companies, senior advocate Harish Salve argued that states can’t levy unreasonably higher taxes. “States have increased the quantum of entry tax over the years when the whole concept started with levy of local tax to augment growth,” he said.
He urges the bench to reaffirm the ratio laid down by 7-judges bench in Automotive Transport (Rajasthan) ltd., in which it was held that entry tax is not a “Compensatory tax” and hence violate article 301 of the constitution, which enshrines freedom of trade, commerce and intercourse. Further, it was said by advocate Harish salve, that the argument of the state of levying entry tax, just because they are losing sales tax, is not correct.