Entry tax on imported goods was struck down for discrimination and lack of compensatory nexus under constitutional trade freedom rules.

Entry tax on goods imported into the State was held discriminatory because similar locally produced goods were not subjected to a like tax on intra-State movement, creating preference for local goods and disadvantaging imported goods under Article 304(a). The levy also failed the compensatory and regulatory tests: the State showed only that the tax was meant to raise general revenue and support welfare and development, not to provide measurable trading facilities or a quantified benefit to traders as a class. On that basis, the charging provision was declared unconstitutional and quashed to the extent it imposed entry tax.

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Issues: (i) whether the levy of entry tax on goods imported into the State, while similar goods produced or manufactured within the State were not similarly taxed on movement within the State, was discriminatory and violative of Article 304(a) of the Constitution of India; (ii) whether the levy was a compensatory or regulatory measure so as to survive under Articles 301 and 304(b) of the Constitution of India.

Issue (i): whether the levy of entry tax on goods imported into the State, while similar goods produced or manufactured within the State were not similarly taxed on movement within the State, was discriminatory and violative of Article 304(a) of the Constitution of India

Analysis: Article 304(a) permits a State to tax goods imported from other States only if similar goods manufactured or produced in the State are also subjected to a like tax, without discrimination. The Act treated the entire State as a local area and levied entry tax on goods brought from outside the State for consumption, use or sale, but did not impose a corresponding entry tax on similar locally produced goods moving within the State. The State's own stand showed that the levy was intended to discourage import of outside goods and encourage local purchases. That differential treatment created a direct preference for local goods and a disadvantage to imported goods, bringing the levy within the mischief of discrimination.

Conclusion: the levy was held to be discriminatory and unconstitutional under Article 304(a), and was against the petitioners.

Issue (ii): whether the levy was a compensatory or regulatory measure so as to survive under Articles 301 and 304(b) of the Constitution of India

Analysis: A tax affecting the movement of goods can survive Article 301 only if it is regulatory or compensatory, or if a restrictive law satisfies Article 304(b) with Presidential sanction. The governing test required the State to show a quantifiable or measurable benefit to the trading community and a broadly proportional link between the levy and facilities provided for trade. The Act and the State's affidavits showed that the tax was imposed to augment general revenue and fund general welfare and developmental activities, not to provide specific trading facilities. No material was produced to establish that the levy was reimbursement for measurable benefits to traders as a class. On that footing, the levy was neither regulatory nor compensatory, and it could not be sustained as a reasonable restriction under Article 304(b).

Conclusion: the levy failed the compensatory and regulatory tests and was against the petitioners.

Final Conclusion: the entry tax provisions, especially the charging provision, were declared unconstitutional and were quashed to the extent they imposed entry tax.

Ratio Decidendi: a State entry tax that discriminates against imported goods and is imposed primarily for general revenue, without a quantifiable nexus to trading facilities for the taxed class, violates Articles 301 and 304(a) and cannot be upheld as compensatory or regulatory.

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