Case Note & Summary
Three writ petitions were heard together by the Bombay High Court, all challenging the constitutional validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002, and the rules framed thereunder. The petitioners included Hindusthan National Glass & Industries Limited, Deepak Fertilizers and Petrochemicals Corporation Limited, and Indus Towers Limited. They sought declarations that the Act and its provisions were ultra vires Articles 14, 19, 245, 286, 301 and 304 of the Constitution of India, and that specific entries in the Schedule (Entry No.16 and Entry No.13) were unconstitutional. Hindusthan National Glass, which purchased liquefied natural gas from Gujarat and paid Central Sales Tax at 2% against C-forms, argued that the levy of entry tax at 12.5% without full reduction of the CST already paid, as required by the second proviso to Section 3 of the Act, resulted in a discriminatory tax burden. The company further contended that denial of set-off under Section 48 of the Maharashtra Value Added Tax Act, 2002, and the reduced set-off for fuel under Rule 53(1) of the MVAT Rules, created a total tax liability of Rs.5,16,90,105 on imported LNG compared to only Rs.1,24,05,625 on locally produced LNG, thus violating the principle of fiscal equalization mandated by Article 304(a). The petitioners relied heavily on the Supreme Court's decision in Jindal Stainless Steel Ltd. v. State of Haryana, which held that only discriminatory taxes offend Article 304(a), and that States must ensure that the tax burden on goods imported from other States and goods produced within the State falls equally. The Supreme Court had left open for regular benches the question whether impugned state levies actually achieved such equalization. The petitioners also referred to the octroi provisions in the Mumbai Municipal Corporation Act, 1888, the Bombay Provincial Municipal Corporation Act, 1949, and the City of Nagpur Corporation Act, 1948, and to the Supreme Court's ruling in Commissioner of Income Tax v. McDowell & Co. Ltd. that octroi, though collected by local bodies, remains a tax under Entry 52 of List II. The judgment, as set out in the provided excerpt, records the submissions of the petitioners' senior counsel and the principles laid down by the Supreme Court, but does not yet contain the Court's analysis or final decision. The matter was reserved on 4 May 2018 and pronounced on 4 March 2019 by Justices S.C. Dharmadhikari and Prakash D. Naik.
Headnote
A) Constitutional Law - Article 304(a) Non-Discrimination - Discriminatory Taxes Prohibited - Constitution of India, Article 304(a) - The Supreme Court in Jindal Stainless Steel Ltd. v. State of Haryana held that only taxes that are discriminatory in nature are prohibited under Article 304(a); non-discriminatory taxes do not impinge Article 301; a levy violating Article 304(a) cannot be saved by Article 304(b); the theory of compensatory tax has no juristic basis and is rejected. The Court further observed that incentives, set offs granted to a specified class of dealers for a limited period to develop economically backward areas would not violate Article 304(a), and 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. (Paras 9-12) B) Indirect Taxation - Entry Tax - Reduction of CST Paid - Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002, Section 3 second proviso; Central Sales Tax Act, 1956, Section 8 - The petitioner contended that the second proviso to Section 3 requires reduction of the entry tax payable by the amount of Central Sales Tax paid on purchases from another State; however, the respondent passed an order dated 31 March 2017 demanding tax without allowing such reduction, thereby increasing the tax burden and resulting in discrimination against imported LNG. (Paras 7, 13) C) Indirect Taxation - Value Added Tax - Set Off of Entry Tax - Maharashtra Value Added Tax Act, 2002, Section 48; Maharashtra Value Added Tax Rules, 2005, Rule 53 - The denial of set off of entry tax under Section 48 of the MVAT Act and the reduced set off for fuel under Rule 53(1) led to a total tax burden of Rs.5,16,90,105 on imported LNG as against Rs.1,24,05,625 on locally procured LNG, placing imported goods at a substantial disadvantage and constituting hostile discrimination. (Paras 8, 13) D) Constitutional Law - Taxation - Octroi as Tax under Entry 52, List II - Constitution of India, Article 265, Article 366(28); Mumbai Municipal Corporation Act, 1888, Section 192; Bombay Provincial Municipal Corporation Act, 1949, Sections 127, 2(42); City of Nagpur Corporation Act, 1948, Section 114 - The Supreme Court in Commissioner of Income Tax v. McDowell and Co. Ltd. held that the term "tax" under Article 265 read with Article 366(28) includes imposts of every kind, including octroi; thus, octroi remains a tax on entry of goods under Entry 52 of List II of the Seventh Schedule, even if collected by local bodies. (Para 14)
Issue of Consideration
Constitutional validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 and whether levy of entry tax on goods imported from other States results in discriminatory tax burden violating Articles 14, 19, 245, 286, 301 and 304 of the Constitution of India.
Law Points
- Only discriminatory taxes prohibited under Article 304(a)
- non-discriminatory tax does not impinge Article 301
- levy violating Article 304(a) cannot be saved by Article 304(b)
- theory of compensatory tax rejected
- Article 304(a) frowns upon discrimination not mere differentiation
- incentives and set offs for limited period to develop backward areas not violate Article 304(a)
- States can design fiscal legislation to equalize tax burden
- tax burden on imported goods and locally produced goods must fall equally
- octroi is a tax under Entry 52 List II even if collected by local bodies
