Karnataka High Court Hears Challenge to Constitutional Validity of Section 2A(8-a) of Karnataka Tax on Entry of Goods Act, 1979, and Reassessment Orders Based on Change of Opinion. Petitioner Company, Engaged in Manufacture of Pan Masala Containing Tobacco, Asserts that Entry Tax on Stock Transfers Should Be Based on Stock Transfer Value, Not Prevailing Market Price, and that Reassessment After 14 Years Without Tangible Material is Invalid.

Constitutional challenge to definition of 'value of goods' under Karnataka Tax on Entry of Goods Act, 1979, and challenge to reassessment orders issued by tax authorities demanding differential entry tax based on prevailing market price instead of stock transfer value.

Declaration that the words 'prevailing market price of such goods into local area' in Section 2A(8-a) of KTEG Act are unconstitutional and beyond legislative competence; quashing of reassessment notices and orders for the years 2002-03 to 2009-10.

Respondent No.5, on directions from the Joint Commissioner, reassessed entry tax liability by applying the 'prevailing market price' definition and demanded differential tax between stock transfer value and sale price, contrary to original assessments that accepted stock transfer value.

Original assessments for the years 2002-03 to 2008-09 were finalized by the Deputy Commissioner of Commercial Tax (Respondent No.4) based on stock transfer value declared in returns. Subsequently, the Joint Commissioner initiated reassessment, leading to impugned notices and orders.

Whether the words 'prevailing market price of such goods into local area' in Section 2A(8-a) of Karnataka Tax on Entry of Goods Act, 1979, are unconstitutional being beyond the legislative competence of the State under Entry 52, List II of the Seventh Schedule to the Constitution. Whether for the purpose of levy of entry tax on goods brought into a local area by way of stock transfer, the value should be the purchase price (stock transfer value) or the prevailing market price as defined under Section 2A(8-a). Whether reassessment orders issued based on a change of opinion, without tangible material, are valid under Section 6(2) of the Karnataka Tax on Entry of Goods Act, 1979. Whether the writ petitions are maintainable in view of the availability of an alternative remedy of appeal, considering that the orders are alleged to be without jurisdiction and the petitions have been pending for 14 years.

The definition clause (Section 2A(8-a)) cannot override the charging section (Section 3(1)) and for stock transfers, entry tax should be levied on the purchase price or the value at the time of entry into the local area, not on a notional prevailing market price. The reassessment after 16 to 18 years is based on a mere change of opinion and not on any tangible material, making it invalid under Section 6(2) of the KTEG Act, relying on Commissioner of Income Tax v. Kelvinator India Ltd. The writ petitions are maintainable despite the statutory appeal remedy because the impugned orders are without jurisdiction and the petitions have been pending for 14 years, as held in Magadh Sugar & Energy Limited v. State of Bihar and Bal Krishna Agarwal v. State of UP. The expression 'prevailing market price' in Section 2A(8-a) is unconstitutional as it travels beyond the State's legislative competence under Entry 52, List II, and sale price cannot form the basis of entry tax levy as per several Supreme Court and High Court decisions.

The captioned petitions are filed by the petitioner/company challenging the Constitutional validity of Section 2A(8-a) of the Karnataka Tax on Entry of Goods Act, 1979 and assailing the assessment notices dated 13.10.2010 and 19.03.2014 issued by respondent no.5 proposing to pass reassessment orders and orders levying penalty for the years spanning from 2002 to 2009. The grievance of the petitioner/company is that respondent No.5, on instructions and assignment by Joint Commissioner of Commercial Tax, inspected the petitioner’s premises and while reversing the original assessment order has come to the conclusion that the entry tax paid by the petitioner company on the stock transfer value was not in compliance with the provisions of The Karnataka Tax on Entry of Goods Act, 1979. Learned Senior Counsel... would vehemently argue and contend that for the purpose of levy of entry tax, the value should be the purchase price of such goods entered into the local area and any subsequent rise or fall in price is of no consequence and has no relevancy.

Petitioner filed writ petitions under Articles 226 and 227 of the Constitution challenging the constitutional validity of Section 2A(8-a) of the Karnataka Tax on Entry of Goods Act, 1979, and seeking quashing of assessment notices dated 13.10.2010, 19.03.2014, and assessment orders dated 31.03.2017. The matters were heard and reserved for orders on 23.04.2024, and the order was pronounced on 25.04.2024.

• Karnataka Tax on Entry of Goods Act, 1979: 2A(8-a), 3(1), 6(1), 6(2)
• Constitution of India: 226, 227, Entry 52, List II, Seventh Schedule
• Companies Act, 1956: