SC to start hearing petitions against entry tax by states on goods

  • Bhadra Sinha, Hindustan Times, New Delhi
  • Updated: Jul 19, 2016 10:37 IST
A SC bench will start hearing petitions by corporate houses challenging the imposition of entry tax by state governments. (Sunil Saxena/HT Photo)

A nine-judge constitution bench of the Supreme Court headed by Chief Justice TS Thakur will start hearing petitions on Tuesday by corporate houses challenging the imposition of entry tax by state governments, arguing it violated their constitutional right to carry out free trade and commerce.

There are about 2,000 petitions pending in the apex court since 2002, awaiting a final decision. Manufacturers and associations have challenged the constitutional validity of entry tax laws enacted by the states. They claim that Entry Tax breaches Article 301 of the Constitution which provides for freedom of trade, commerce and intercourse within the country.

The other members of the bench are justice AK Sikri, justice SA Bobde, justice Shiva Kirti Singh, justice NV Ramana, justice R Banumathi, justice AM Khanwilkar, justice DY Chandrachud and justice Ashok Bhushan.

Entry Tax is levied on movement of goods from one state to into another and is charged by the recipient state to protect its tax base.

The core constitutional question before the top court is whether the states have a right to levy entry tax on goods entering their territories. Corporate major including Reliance and Vedanta have assailed the practice and submitted that no party can impede free movement of goods within the boundaries of a single nation.

The Supreme Court’s hearing comes at a time when the NDA government is all geared up to give a push to the Goods and Service Tax (GST) Bill in the monsoon session of Parliament. Should the bench agree with the petitioners and strike down the entry tax laws as unconstitutional, it will bring about large-scale changes in the taxation regime, making it more harmonious.

The judgement will also have huge financial ramifications. About Rs 30,000 crore is collected by states every year by way of entry tax. States such as Odisha earn around Rs 16,000 crore. Similarly the Municipal Corporation of Greater Mumbai collects around Rs 7,500 crore annually through octroi levy - another form of entry tax.

Jindal Stainless Limited (JSL) was the first company to approach the top court in 2002 when it challenged the validity of the Haryana Local Area Development Tax Act, 2000. In 2010, a bench headed by then chief justice SH Kapadia had referred the matter to a constitution bench for a final decree. However, the bench was never constituted.

JSL said the constitution provides that no law, which imposes reasonable restrictions on the freedom of trade in public interest, would be brought before the state assembly without President’s prior sanction.

The SC had on April 16, 2010 framed several questions, including the balancing of freedom of trade and commerce vis-à-vis the states’ authority to levy taxes under the Constitution.

Chief Justice Thakur had on May 17, while constituting the bench, observed: “These matters have lingered. The time has come we must discuss (this issue)...There is no way we can escape this.”

The court made it clear to the advocates that no adjournments will be given once the hearing starts. Lawyers have been advised to file their written submissions in the case in not more than 10 pages. The directions will ensure a speedy disposal of the petitions that have piled up in the top court over the years.

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