2013 (7) TMI 72 - HC - VAT and Sales Tax

Entry Tax Act Unconstitutional under Constitution Article 301 & 304(b)

Bharti Airtel Ltd. and others Versus The State of West Bengal and others

Bharti Airtel Ltd. and others Versus The State of West Bengal and others - [2014] 75 VST 497 (Cal) Issues Involved:1. Violation of Article 301 and 304 of the Constitution of India.2. Compensatory nature of the Entry Tax.3. Legislative competence of the State Legislature.4. Discrimination against goods imported from outside the State.5. Lack of prior Presidential sanction.Detailed Analysis:1. Violation of Article 301 and 304 of the Constitution of India:The petitioners argued that the West Bengal Tax on Entry of Goods into Local Areas Act, 2012 (impugned Entry Tax Act) violates Article 301, which guarantees free trade, commerce, and intercourse throughout the territory of India, and Article 304, which allows states to impose taxes on imported goods only if similar goods produced within the state are taxed equally. The petitioners contended that the impugned Entry Tax Act imposes a tax that does not align with these constitutional provisions, as it discriminates against goods imported from outside the state and lacks prior Presidential sanction required under Article 304(b).2. Compensatory Nature of the Entry Tax:The petitioners argued that the impugned Entry Tax Act is not compensatory in nature. They cited various judgments, including the Supreme Court's decision in Jindal Stainless Ltd. (2) & Ors. Vs. State of Haryana & Ors., which clarified that for a tax to be compensatory, it must provide specific, tangible, and measurable benefits to the taxpayers. The petitioners contended that the Act does not facially indicate the quantifiable benefits or proportionality of the tax to the benefits provided. The State failed to provide data showing that the tax is a recompense for specific benefits to the taxpayers, thus failing the test of a compensatory tax.3. Legislative Competence of the State Legislature:The petitioners challenged the legislative competence of the State Legislature to impose a tax on goods imported from outside the country, arguing that it transgresses the power of the Parliament. They referred to Article 286 of the Constitution, which restricts states from imposing taxes on the sale or purchase of goods in the course of import or export. The petitioners also cited relevant entries in the Seventh Schedule, which grant exclusive jurisdiction to the Parliament over import and export duties.4. Discrimination Against Goods Imported from Outside the State:The petitioners argued that the impugned Entry Tax Act discriminates against goods imported from outside the state, as it imposes a tax on these goods while exempting similar goods produced within the state. This discrimination violates Article 304(a), which mandates equal treatment of imported and locally produced goods. The petitioners cited various judgments, including ITC Limited Vs. State of Tamil Nadu & Anr., to support their contention that such discrimination is unconstitutional.5. Lack of Prior Presidential Sanction:The petitioners contended that the impugned Entry Tax Act was introduced without the prior sanction of the President of India, as required under Article 304(b) for any law imposing restrictions on free trade, commerce, or intercourse in public interest. They argued that the absence of Presidential sanction renders the Act unconstitutional.Judgment:The court held that the impugned Entry Tax Act violates Article 301 and 304(b) of the Constitution of India. The Act restricts free trade, commerce, and intercourse by imposing a tax on the entry of goods into local areas without providing specific, tangible, and measurable benefits to the taxpayers. The State failed to demonstrate that the tax is compensatory in nature, as it did not provide data showing the proportionality of the tax to the benefits provided. The court also found that the Act discriminates against goods imported from outside the state, violating Article 304(a). Additionally, the Act was introduced without the prior sanction of the President, as required under Article 304(b). Consequently, the court declared the impugned Entry Tax Act ultra vires the Constitution of India and disposed of the writ petitions accordingly.