Levy of entry tax illegal: HC

Kochi, Dec 18 (UNI) The Kerala High court today held that the demand and collection of entry tax under the Kerala Tax on Entry of Goods into Local Areas Act, 1994, is illegal, unauthorised and violative of Article 301 of the Constitution.

A Division Bench comprising Justice K S Radhakrishnan and Justice M N Krishnan passed the ruling while allowing the petitions filed by Tata Tele Service Ltd and others.

The Court also quashed the levy and demand notices issued against the petitioners.

The petitioners had challenged the constitutional validity of certain provisions of the Kerala Tax on Entry of Goods into Local Areas Act, 1994. A few of the writ petitions also sought a declaration that some of the provisions in the Act were discriminatory and ultra vires of the Constitution.

The Kerala Government, which was the respondent in all the petitions, maintained that the Act was within the legislative competence of the state since it was promulgated in exercise of its powers under the Constitution of India.

However, counsel for the petitioners submitted that the right of the state to impose entry tax under the Entry Tax Act had to be tested in the light of the decision of the Constitution Bench of the Supreme Court in Jindal Stainless Ltd vs State of Haryana and others, which was decided earlier this year.

The counsel for the petitioners also submitted that entry tax cannot be levied when motor vehicles and other goods are brought from other states as well as from abroad in the light of the principle laid down in the Supreme Court decision. They submitted that the tax was not compensatory in nature and also contended that the expenditure for roads was met from the Motor Vehicles tax revenue.

The court observed that the concept of compensatory tax is a judicially evolved principle and could be an exception to the provision of article 301 of the Constitution.

The court also observed that the Act had not indicated any benefit which is either quantifiable or measurable. If the provisions of the Act do not indicate the quantifiable benefit, the burden is on the state as a service/facility provider to show that the payment of compensatory tax is a reimbursement or recompensation.

The court found that the levy of entry tax was not compensatory in nature therefore discriminatory and the impugned levy was unconstitutional.

The court observed that the state could not prove that the Act imposed only a reasonable restriction on the freedom of trade and commerce and was required in public interest.

''There is nothing to show that the levy was made in public interest and that there is nothing on record to suggest that the levy of entry tax on goods introduced by the Amendment Act had the prior sanction of the President as required under the provision of Article 304(b),'' the bench observed.

UNI XR ARC RL KP2043