Entry tax set-off against sales tax and exemption withdrawal upheld where classification served accounting and anti-evasion purposes.

Entry tax on marble slabs imported into Kerala was treated as an advance collection adjustable against sales tax, because the Act allowed credit of entry tax against the dealer's sales tax liability on the same goods. The notification withdrawing exemption for specified goods was upheld, as the classification between exempted and taxed goods had a rational nexus with proper accounting and prevention of tax evasion and was not arbitrary or discriminatory under Article 14.

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Issues: Whether the entry tax demanded on marble slabs imported into Kerala was liable to be quashed on the ground that it was only an advance collection adjustable against sales tax, and whether withdrawal of the exemption by notification was arbitrary or discriminatory and violative of Article 14 of the Constitution of India.

Analysis: Section 3 of the Kerala Tax on Entry of Goods into Local Areas Act, 1994 levies entry tax on scheduled goods brought into a local area for consumption, use or sale. Marble was a scheduled item. Section 4 of the Act provides that where the importer is a dealer and becomes liable to sales tax on sale of the same goods, the tax payable under the sales tax law is reduced by the amount of entry tax already paid. On that basis, the entry tax collected at the check-post was treated as advance payment of sales tax, with credit available against the sales tax liability on the same class of goods. The notification withdrawing exemption for specified goods was issued under Section 12 of the Act, which authorises exemption for specified classes of importers or goods. The classification between exempted goods and goods subjected to entry tax was held to be a permissible distinction connected with the object of ensuring proper accounting and preventing tax evasion. No arbitrariness or hostile discrimination was found.

Conclusion: The challenge to the entry tax demand and the amended exemption notification failed; the demand was upheld and the notification was held not to offend Article 14.

Final Conclusion: The petition was dismissed, and the impugned demand and notification were sustained.

Ratio Decidendi: Where an entry tax statute provides credit of the amount paid towards the dealer's sales tax liability on the same goods, collection of entry tax from a registered dealer for resale may operate as advance sales tax and a classification of goods for exemption purposes will not be invalid if it bears a rational nexus to the object of tax collection and prevention of evasion.

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