Entry tax on excavators as motor vehicles was struck down for discrimination and breach of Article 304(a).

Entry tax must preserve parity between imported goods and similar locally taxed goods; a higher levy that breaks this nexus is discriminatory under Article 304(a). Excavators were separately classified and taxed at 4% under the VAT regime, so treating them as motor vehicles to impose 12.5% entry tax imposed a heavier burden on imported goods than on comparable local goods. The Gujarat HC held this unlawful and unconstitutional. It also rejected the argument that input tax credit could later offset the burden, since a levy invalid at inception cannot be cured by a post-payment adjustment mechanism.

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Issues: Whether entry tax at 12.5% could validly be levied on excavators by treating them as motor vehicles, and whether such levy was discriminatory and violative of Article 304(a) of the Constitution of India.

Analysis: The levy of entry tax under the Entry Tax Act was examined in light of its object, legislative history, and the scheme of corresponding local tax rates under the sales tax and VAT laws. The tax was intended to maintain a level playing field by aligning the burden on imported goods with the tax burden on similar locally manufactured goods. Excavators had always been covered under a separate entry and were taxed at 4% under the VAT regime, whereas motor vehicles attracted a higher local rate. Treating excavators as motor vehicles for imposing 12.5% entry tax would sever the required nexus between entry tax and the local tax rate, resulting in a heavier burden on imported goods than on similar local goods. That would create discrimination forbidden by Article 304(a). The contention that input tax credit could later neutralize the burden was rejected because an otherwise illegal levy cannot be justified by a post-payment refund mechanism.

Conclusion: The levy of entry tax at 12.5% on excavators as motor vehicles was held illegal, discriminatory, and unconstitutional. The State was held not entitled to levy entry tax on excavators beyond the VAT rate applicable to such goods.

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