Entry tax parity and Article 304(a): higher levy on similar goods was treated as discriminatory after VAT was reduced.

Entry tax legislation intended to maintain parity between imported goods and similar locally sold goods must be applied consistently with Article 304(a). When VAT on the same goods was reduced to 1%, continuation of entry tax at 4% without a valid, non-discriminatory justification was treated as hostile discrimination. The Court noted that section 3(1A) permitted additional goods only to remove inequity or discrimination, and that the State had shown no special circumstances to preserve the higher rate. Input tax credit or refund could not cure an otherwise discriminatory levy. The impugned entry tax demand was therefore held invalid and the notices were quashed.

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Issues: Whether the continuation of entry tax at 4% under the notification dated 15 February 2010, after the rate of VAT on the same goods was reduced to 1% by the notification dated 3 October 2012, was valid under the Entry Tax Act and Article 304(a) of the Constitution of India.

Analysis: The Entry Tax Act was designed to maintain parity between goods imported into the State and similar goods manufactured or sold locally, so as to secure a level playing field and avoid discrimination. Section 3(1A) of the Entry Tax Act enabled the State to specify additional goods only to redress an inequitable situation or remove discrimination. The reduction of VAT on stainless steel flats and sheets to 1% created a direct comparison with the entry tax rate, and no special circumstances were shown to justify retaining the higher entry tax rate. A tax structure that keeps the entry tax higher than the local VAT burden on similar goods, without a justifiable basis, becomes discriminatory and falls foul of Article 304(a). The availability of input tax credit or refund does not validate an otherwise illegal levy.

Conclusion: The continuation of entry tax at 4% was held invalid and discriminatory, and the impugned notices demanding tax on that basis were quashed.

Ratio Decidendi: Where an entry tax statute is intended to neutralise discrimination and maintain parity with local tax on similar goods, a subsequent reduction of the local VAT rate requires a corresponding reduction in the entry tax rate unless the State shows a valid, non-hostile justification consistent with Article 304(a).

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