9-judge bench upholds the validity of entry tax imposed on goods imported from other States

Supreme Court: Writing down a long judgment of 883 pages, the 9-judge bench, by a 7:2 majority, upheld the validity of the entry tax imposed by the States on goods imported from other States. It was held that taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India and that the word ‘Free’ used in Article 301 does not mean “free from taxation”.

T.S. Thakur, CJ and Dr.  A.K. Sikri, S.A. Bobde, Shiva Kirti Singh, N.V. Ramana, R. Banumathi and A.M. Khanwilkar, JJ, giving the majority view said that States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures if taken would not contravene Article 304(a) of the Constitution. Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 301. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state.

It was further explained that Clauses (a) and (b) of Article 304 have to be read disjunctively. A levy that violates 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso there under is satisfied. It was held that Article 304 (a) frowns upon discrimination of a hostile nature in the protectionist sense and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a). [Jindal Stainless Ltd v. State of Haryana, 2016 SCC Online SC 1260, decided on 11.11.2016]

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