SC upholds entry tax on goods; states may gain Rs 35,000 crore

The court declared that tax did not restrict freedom of trade or other constitutional provisions on inter-state trade

A nine-judge constitution bench of the Supreme Court on Friday upheld the demand of entry tax by states for allowing goods and raw materials to their territories. 

The court declared that it did not restrict freedom of trade or other constitutional provisions on inter-state trade. However, the taxing measure should not be discriminatory and restrict entry of goods from other states. 

The state governments will be richer by thousands of crore rupees following this judgment as a large number of companies have to pay past dues which were caught in litigation in various forums in the country. 

Some estimates put the gain for the states around Rs 35,000 crore. Though the Attorney General had submitted to the bench headed by Chief Justice T S Thakur that the Goods and Services Tax (GST) law would take care of the issue in future, the bench went ahead with the hearing, which lasted two months, because of the huge amounts involved in cases pending in several high courts. 

The Attorney General later defended the demand of entry tax as the states were exercising sovereign legislative power in this matter. The bench dealt with some 2,000 appeals, involving several states, among them Haryana, TamilNadu, Bihar, and Uttar Pradesh. Jindal Steels Ltd was the first to challenge the entry tax levied by Haryana in 2002. Later other manufacturing companies like Vedanta, Reliance, SAIL, and Hindalco joined in. 

According to the firms, it was beyond the power of the states to impose entering its territory. This was negative by the court. The state governments argued that they have power to impose the tax under the 'State List'and the 'Concurrent List' of the Constitution. 

The court delivered seven separate judgments, two of them dissenting from the majority decision. After ruling on the main issues, the bench let smaller benches of the court to go into certain legal issues like the interpretation of 'local area' — whether it would cover the entire state or parts of it. It also laid down certain guidelines for resolving certain disputed issues.