Entry tax on imported fuel oils failed constitutional scrutiny where local purchases enjoyed refund or set-off and no compensatory nexus was shown.

Entry tax on furnace oil and low sulphur waxy residue oil under the Maharashtra Entry Tax Act was examined against the effective sales tax burden on comparable local purchases under the Bombay Sales Tax Act and Rules. Because local goods could receive refund or set-off under section 42 and rule 41D, while imported goods were subjected to 15% entry tax, the levy created an unequal tax burden and a barrier to trade. The Court also found no established direct nexus between the tax collected and any corresponding benefit to the taxpayers, so the levy was not compensatory or regulatory and could not be justified as an exception to Article 301.

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Issues: Whether entry tax under the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 could be levied on furnace oil and low sulphur waxy residue oil when similar goods purchased within the State effectively bore no sales tax because of refund or set-off under the Bombay Sales Tax Act, 1959 and the Bombay Sales Tax Rules, 1959, and whether such levy violated the constitutional guarantee of free trade and was discriminatory.

Analysis: The rate cap in section 3(1) of the Entry Tax Act had to be read with the effective sales tax burden on the corresponding goods under the Bombay Sales Tax Act, 1959. Where the local purchase of the same goods attracted refund or set-off under section 42 and rule 41D, the effective tax burden within the State was nil or substantially reduced, while imported goods entering the local area were subjected to entry tax at 15 per cent. The levy therefore created a tax barrier and treated imported goods and locally sourced goods unequally. The Court held that the entry tax was not compensatory or regulatory, because no clear nexus was established between the tax collected and any direct benefit conferred on the persons from whom the tax was collected, and the State failed to justify the levy as a valid exception to the freedom of trade under Article 301.

Conclusion: The impugned entry tax on furnace oil and low sulphur waxy residue oil was held to be unauthorised and unconstitutional.

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