ENTRY TAX ON GOODS IMPORTED FROM OUT OF INDIA

Introduction

A burning issue prevailed
about levy of Entry tax on goods imported from out of India.

The State tax on Entry of
Goods into Local Areas is levied by State Governments by enacting respective
State Acts. The Act is enabled by Entry 52 of List II of Schedule VII of
Constitution of India.

Different State Governments
have enacted such Acts including Maharashtra. The Act generally provides for
levy of entry tax on goods, which entered into the State from outside the State
for consumption, use or sale therein. The question for consideration herein is
what is the meaning of words ‘from outside the State’?    

Controversy

There were contradictory
judgments about scope of ‘outside the State’.

In case of Fr.
William Fernandez vs. State of Kerala (115 STC 591) (Ker), the Hon.
Kerala High Court held that the scope of entry of goods from outside the State
will be restricted to goods brought from outside State but from place within
India. In other words, when the goods are imported from out of India there is
no intention to levy Entry Tax by State Act. The judgment was based on overall
scheme of Constitution that imported goods are immune from levy of State tax
and that the State Governments are intending to tax goods coming from other
States and not from out of India.

There are contrary
judgments from other High Courts also like in Reliance Industries Ltd.
vs. State of Orissa (16 VST 85) (Ori), the Orissa High Court justified
levy of Entry Tax even on goods imported from out of India.

The above controversy
ultimately came before the Hon. Supreme Court.

The
Supreme Court has given its judgment in case of State of Kerala vs. Fr.
William Fernandez (54 GSTR 21)(SC).

The main issues raised for
non-levy of goods imported from outside India are rejected by the Hon. Supreme
Court. The main principles observed by the Hon. Supreme Court can be noted as
under: –

(i) The law provides for
entry into local area from “any place” outside State “Any Place” has wide
extent and need not be restricted to place within India.

(ii) Entry 52 permits tax
on entry of goods into local area for consumption, use or sale and has nothing
to do with origin of goods.      

(iii)
When the charging section is clear, provisions cannot be read narrowly to mean
that the imported goods coming from outside country are excluded from charge of
entry tax.

(iv) Even in some State
Entry Tax Acts, specific words are used to include goods imported from outside
the country, and that is by abandon caution thus cannot affect scope in other
State Acts.

(v) The entries in Schedule
VII are regarding field of legislation and not only power of legislation.

(vi) There is no over
powering between State and Union in respect of entries in the field of
Legislation.

(vii) There cannot be said
any intrude of State power into Union power, by levying entry tax on goods
imported from outside India.

(viii) Restriction by
Article 286 on levy of tax on sale/purchase covered by section 5 of CST Act as
sale in course of import/export cannot be brought in, while interpreting Entry
52 in List II.

(ix) The custom duty provisions
also do not hit levy of entry tax as entry tax is levied after import is over.
Import continues till goods are cleared for home consumption. Once so cleared,
they are part of common mass and hence eligible to tax by States.

(x) Though in the concept of
valuation, custom duty is not included in State Entry Tax Act, it is
inconsequential for deciding validity of law.

(xi) Even if, name suggests
levy by local authorities, State is empowered to levy such tax.

(xii)  Other grounds about validity like user of tax
collection etc., were rejected, as they have nothing to do with validity of
levy.

Thus, holding as above the
Hon. Supreme Court upheld entry tax on goods imported from outside India. 

Some relevant observations
of the Hon. Supreme Court are as under: 

“58. The plain and literal construction when
put to section 3 read with section 2(d) clearly means that goods entering into
local area from any place outside the State are to be charged with entry tax.
Foreign territory would be a place which is not only outside the local area but
also outside the State. The writ petitions are trying to introduce words of
limitation in the definition clause. The interpretation which is sought to be
put up is that both the phrases be read as:

(1)  “from any place outside that local area but
within that State”;

(2)  any place outside the State but within
India.

59. It is well known rule of statutory
interpretation that be process of interpretation the provision cannot be
rewritten nor any word can be introduced. The expression ‘any place’ the words
‘outside the State’ is also indicative of wide extent. The words ‘any place’
cannot be limited to a place within the territory of India when no such
indication is discernible from the provisions of the Act.

60. The entry tax legislations are referable to
entry 52 of List II of the Seventh Schedule to the Constitution. Entry 52 also
provided a legislative field, namely, ‘taxes on the entries of goods into a
local area for consumption, use or sale therein’. Legislation is thus concerned
only with entry of goods into a local area for consumption, use or sale. The
origin of goods has no relevance with regard to chargeability of entry tax…”

Further:

“75. The distribution of power between Union and
States is done in a mutually exclusive manner as is reflected by precise and
clear field of legislation as allocated under different list under the Seventh
Schedule. No assumption of any overlapping between a subject allocated to Union
and State arises. When the field of legislation falls in one or other in Union
or State Lists, the legislation falling under the State entry has always been
upheld.”

The Hon.
Supreme Court also observed as under: –

“83. As
noted above, although, Nine Judges Constitution Bench had left the question
open of validity of entry tax on goods imported from countries outside the
territories of India, the two Hon’ble Judges, i.e. Justice R. Banumathi and
Justice Dr. D.Y. Chandrachud while delivering separate judgment have considered
the leviability of entry tax on imported goods in detail. Both Hon’ble Judges
have held that there is no clash/overlap between entry levied by the State
under Entry 52 of List II and the custom duty levied by the Union under Entry
83 List I. We have also arrived at the same conclusion in view of the foregoing
discussions. We thus hold that entry tax legislations do not intrude in the
legislative field reserved for Parliament under Entry 41 and under Entry 83 of
List I.

The State Legislature is fully competent to impose tax on the entry of
goods into a local area for consumption, sale and use. We thus repel the
submission of petitioner that entry tax legislation of the State encroaches in
the Parliament’s field.”

Conclusion

The law
about levy of Entry tax has now become clear. The interpretation on many
Legislative aspects by
the Hon. Supreme Court will be useful for guidance in future.