Discriminatory entry tax and denied set-off can make a compensatory levy unconstitutional for inter-State e-commerce goods.

Bihar entry tax amendments applied to e-commerce purchases for personal use or consumption were analysed under Part XIII of the Constitution. The scheme was considered discriminatory because the second proviso to Section 3(2) denied set-off where the ultimate consumer was not a dealer under the Bihar VAT regime, leaving imported goods with a higher cumulative burden than comparable local goods. The commentary states that a compensatory character does not by itself shield a levy from Article 304(a) scrutiny when its operation creates a fiscal barrier and hostile discrimination against inter-State goods.

---

---

Issues: Whether the amendments to the Bihar entry tax law, as applied to e-commerce transactions for personal use or consumption, imposed a discriminatory tax barrier in violation of Articles 301, 303 and 304(a) of the Constitution of India; and whether the fact that the levy was characterised as compensatory saved it from challenge.

Analysis: The constitutional scheme in Part XIII permits State taxation on imported goods only if it does not discriminate against goods imported from other States vis-a-vis locally manufactured or produced goods. A compensatory levy is not immune from scrutiny under Article 304(a), and the availability of set-off is material where it prevents multiple taxation and equalises treatment. On the facts, the second proviso to Section 3(2) of the Bihar entry tax law denied set-off to goods brought in through e-commerce for personal consumption, because the ultimate consumer was not a dealer liable under the Bihar VAT regime. That created a higher cumulative burden on imported goods than on comparable local goods and operated as a fiscal barrier. The amendments therefore resulted in hostile discrimination against goods imported from outside the State.

Conclusion: The impugned provisions were held discriminatory and unconstitutional, and the challenge succeeded.

Final Conclusion: The levy could not be sustained merely by describing it as compensatory, because the impugned scheme discriminated against interstate goods imported for personal use or consumption through e-commerce and directly offended the constitutional guarantee of non-discriminatory trade.

Ratio Decidendi: A State tax on imported goods, even if framed as compensatory, is unconstitutional when its operation creates a higher burden on out-of-State goods than on similar local goods and thereby produces discriminatory treatment contrary to Article 304(a).

---