Calcutta High Court has declared the entry tax introduced by the Mamata Banerjee government last year “unconstitutional”, thereby striking down the biggest single revenue stream of the government which is reeling under a financial crisis.
On Monday, justice Indira Banerjee held that the entry tax was unconstitutional because it was in contravention of the Constitution, not in public interest and also did not have the assent of the President.
If the verdict is not challenged, or if eventually upheld by appeal benches, or higher courts, the government would face the perilous possibility of not only foregoing this income, but also returning the tax already collected.
The tax was introduced by state finance minister Amit Mitra in the 2012 budget and was levied at 1% of the value of the goods crossing into Bengal. According to the budget papers, the tax was an outand-out success, garnering Rs. 1,250 crore for the exchequer. With the help of this tax, the government beat the Rs. 31,222- crore revenue earning projection in 2012-’13 and collected Rs. 32,405 crore. In the current financial year (2013-’14), Amit Mitra hopes to collect Rs. 1,437 crore as entry tax.
The verdict will hit the Mamata Banerjee government hard as it comes against the backdrop of a debt trap, where the state is forced to raise fresh debts to pay off old ones, and is left with no funds for development after meeting expenditure on salary, pension and repayment of debts. Challenging its constitutional validity, about 30 companies, including Tata Steel, Bharti Airtel, Godrej and Usha Martin, moved the high court through advocate Atish Ghosh and Dipak Dey on three points: First, entry tax on goods imported to India the Parliament’s prerogative.
Some of the items being taxed in Bengal are imported. Second, imposition of both intra-state and inter-state tax at the same rate is discriminatory and creates disincentives for companies in producing the item in the state. And third, freedom to trade is being affected by the tax.
The Left Front government had abolished a similar tax in 1995, since it was found to be choking checkposts and stoking corruption. But, after a few years, the government again passed a Bill to introduce an account-based entry tax and sent it for the Centre’s concurrence, which is still pending. However, the Mamata government named the tax “local area entry tax”, probably to steer clear of the legal tangle over inter-state issues. The court then passed an interim order that the companies would be assessed for tax, but they would not have to pay until the case was finally disposed of.
While introducing the entry tax Bill in the Assembly on March 30, 2012, Mitra said the tax was in the public interest to facilitate trade and industry by creating such infrastructure as roads, bridges and cold-storage chains. Since she came to power in March 2011, the chief minister has been campaigning for a three-year moratorium on the interest payable on the state’s loans, but to no avail. There is not a single public rally that goes without her blaming the Centre for financially maiming the state.
In 2013-’14, Bengal is supposed to have a debt burden of almost Rs. 2.5 lakh crore that will squeeze out more than Rs. 28,000 crore towards repayment of old debts.