Apex court refers entry tax issue to larger bench

Apex court refers entry tax issue to larger bench

New Delhi: A five-judge constitution bench of the Supreme Court ruled on Friday that the validity of entry taxes levied by states would have to be decided by a larger bench.

The case will decide an issue that has led to conflicting judgements by various high courts, even as the Union government has said that it wants a goods and services tax to be imposed across the country on 1 April 2011 to rationalize state levies such as entry tax.

While some high courts have held the entry tax to be unconstitutional, others have upheld it, leading to appeals and cross appeals by the states and companies to the apex court.

Some high courts said the levy was unconstitutional as they considered it a violation of the freedom of trade and commerce.

“The apex court’s decision shows that more clarity was required on the issue and that earlier judgements may need to be revisited," said C.A. Sundaram, a senior Supreme Court advocate.

A bench headed by former apex court justice Arijit Pasayat had referred the matter to the five-judge bench in 2008.

Orissa and Uttar Pradesh are among the states that have appealed to the apex court against high court verdicts that held the entry tax to be unconstitutional. Orissa’s appeal came in 2008 after the Orissa Entry Tax Act, 1999, was called into question. A batch of cross appeals were filed by Tata Sponge Iron Ltd, Vedanta Aluminium, Bhushan Steel and Strips Ltd and others challenging the imposition of tax on goods entering Orissa.

The Orissa high court had given the verdict after Reliance Industries Ltd and others had in May 2006 challenged the levy for restricting the free flow of trade and because the state was not providing the required facilities in return.

Another batch of petitions was filed by the Uttar Pradesh government against firms including Honda Siel Cars India, Xpro India Ltd and LG Electronics. This was in challenge to the Allahabad high court judgement that asked the state to refund around Rs4,000 crore collected as entry tax. The state government had challenged the high court judgement, according to which there was no material to establish that the amount collected as tax was in proportion to facilities provided to the traders.

On the other hand, several firms challenged the Madhya Pradesh high court judgement that upheld the Entry Tax Act of 2006. Their contention was that the state hadn’t provided infrastructure and facilities in line with the taxes paid.