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Entry Tax not Violative of Freedom of Trade and Commerce, says Supreme Court

In a setback to business entities, the Supreme Court on Friday upheld the entry tax on goods coming into a state

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New Delhi, November 11, 2016: In a setback to business entities, the Supreme Court on Friday upheld the entry tax on goods coming into a state, holding that it was not in violation of the freedom of trade and commerce guaranteed under Article 301 of the Constitution and free trade does not mean “free from tax”.

By a majority verdict of 7:2, the Supreme Court held that “States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures if taken, would not contravene Article 304 (a) of the Constitution.”

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“Only such taxes as (which) are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 301”, the judgment said.

While majority verdict was by Chief Justice T.S. Thakur, Justice A.K. Sikri, Justice S.A. Bobde, Justice Shiva Kirti Singh, Justice N.V. Ramana, Justice R. Banumathi, Justice A.M. Khanwilkar; Justice D.Y. Chandrachud and Justice Ashok Bhushan in separate judgments dissented from the majority view.

The majority judgment said that “Article 304 (a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a).”

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Having said this, the majority judgment said that even though goods on which entry tax is being imposed are not being produced in the taxing State, yet a “tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state.”

However, the court left open the question to be decided at a later stage whether “the entire State can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country …”

The case is rooted in the challenge to the constitutional validity of the laws enacted by the 14 States providing for levy of a tax on the “entry of goods into local areas comprising the States”.

The challenge to these laws was on the grounds of their being violative of the constitutionally recognised right to free trade and commerce guaranteed under Article 301 of the Constitution.

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Haryana law – Haryana Local Development Act, 2000 – providing for the entry tax was assailed by the Jindal Stainless Ltd.

The High Courts of Assam, Arunachal Pradesh, Jharkhand, Kerala and Tamil Nadu struck down the levies imposed by their respective States on the ground that they were discriminatory in nature hence violative of Article 304(a) of the Constitution.

When these States approached the apex court challenging the decision of the High courts, the two judges’ bench referred the same to a Constitution Bench for an authoritative pronouncement on as many as ten questions framed by them. (IANS)

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Another Deadline Missed, No Draft Scheme on the Cauvery Dispute Till Now

On the expiry of the six-week deadline, the Centre sought extension of time till the completion of the electoral process in Karnata for submission of the Scheme.

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The court said that even if the Centre has not framed the scheme, Karnataka, under the Cauvery Water Dispute Tribunal award, was obliged to make monthly releases to Tamil Nadu.
Supreme Court of India. Wikimedia commons

The Centre yet again failed to submit a draft Scheme on the Cauvery river water dispute before the Supreme Court on the ground that the Prime Minister and other ministers were campaigning in Karnataka, which Tamil Nadu flayed as “brazen partisanship”.

Seeking 10 more days to finalize the scheme, Attorney General K.K. Venugopal told Chief Justice Dipak Misra, Justice A.M. Khanwilkar and Justice D.Y. Chandrachud: “A draft scheme has been placed before the Cabinet. Because of Karnataka elections, the Prime Minister and all other Ministers are in Karnataka. Before that the Prime Minister was abroad (in China).”

It also sought response from the Centre on the steps taken by it since the pronouncing of the judgement for putting in place a scheme for implementing its order on the sharing of Cauvery water among Karnataka, Tamil Nadu, Kerala and Puducherry.
Parliament of India, wikimedia commons

The Centre’s submission was countered strongly by senior counsel Shekhar Naphade, appearing for Tamil Nadu, who said: “Sorry to say, the Central government is politicizing the issue. They are worried about their electoral fate in Karnataka. Election in Karnataka is on May 12 and somehow they don’t want to do it till then. We have enough of it. It is brazen partisanship of the Union of India. It is the end of co-operative federalism.”

The apex court in its February 16 judgement had directed the Centre to frame a Scheme within six months in accordance with the recommendation by the Cauvery River Water Tribunal for constitution of the Cauvery Management Board (CMB) and Cauvery Regulatory Authority (CRA), which Karnataka opposes strongly.

On the expiry of the six-week deadline, the Centre sought extension of time till the completion of the electoral process in Karnata for submission of the Scheme. Tamil Nadu filed a contempt petition against the Centre for failure to act within the deadline.

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During Thursday’s hearing, the court directed the Karnataka government to respond on how much of the four TMC of water it can release by month end. It also sought response from the Centre on the steps taken by it since the pronouncing of the judgement for putting in place a scheme for implementing its order on the sharing of Cauvery water among Karnataka, Tamil Nadu, Kerala and Puducherry.

In the course of the hearing, the court asked Karnataka to release 4 TMC of water by Monday.

The court said that even if the Centre has not framed the scheme, Karnataka, under the Cauvery Water Dispute Tribunal award, was obliged to make monthly releases to Tamil Nadu.

The court directed the next hearing of the matter on Tuesday. (IANS)