Tractors cannot be treated as motor vehicle under Gujarat Entry / VAT Tax

HC held that Levy of Entry Tax at the rate of 15% treating Tractors as “motor vehicles” and/or at par with the “motor vehicles” is  illegal, discriminatory, violative of Article 304(a) of the Constitution of India and against the object and purpose of the levy of Entry Tax under the Entry Tax Act. It is held that the respondents –State cannot levy / charge Entry Tax on Tractors beyond Value Added Tax under the VAT Act i.e. beyond 5%.

Detailed Legal Analysis is as follows:-

1.00. As common question of law and facts arise in both these petitions, they are disposed of by this common judgement and order.

2.00. In both these petitions, the respective petitioners have prayed for an appropriate writ, order and/or direction to quash and set aside levy of Value Added Tax (hereinafter referred to as “VAT” for short) at the rate of 15% on the import / sale of Tractors within the State of Gujarat. The respective petitioners have also prayed for an appropriate writ, order and/or direction to quash and set aside the consequential orders passed by the appropriate authorities to levy VAT at the rate of 15% on sale of Tractors by the respective petitioners within the State of Gujarat.

 3.00. For the sake of convenience, facts in Special Civil Application No. 1560 of 2016 are narrated and considered and the said Special Civil Application be treated and considered as lead matter.

4.00. Facts leading to the present Special Civil Application, in nutshell are as under :-

4.01. That Tractors and Farm Equipments Ltd. -petitioners of Special Civil Application No. 1560 of 2016 is engaged in the manufacture of Tractors. The petitioners have manufacturing unit in Madurai and Banglore. That the depots of the petitioners are located in various States of the country including the State of Gujarat.

4.02. That the petitioners are duly registered under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as “the VAT Act”. That on sale of Tractors within the State of Gujarat, the State Government levies entry tax on import / entry of Tractors into the State of Gujarat under the provisions of the Gujarat Tax on Entry of Specified Goods into the Local Areas Act, 2001 (hereinafter referred to as “Entry Tax Act”). That the entry tax has been levied at the rate of 15% under Entry 1 of Schedule to the entry Tax Act. That the appropriate authority has, therefore, while framing the Assessment Orders has levied entry tax at the rate of 15% on the import / entry of the Tractors into the State of Gujarat. That penalty has also been imposed at the rate of 20% under section 17(1) of the Entry Tax Act.

4.03. It is the case on behalf of the petitioners that to levy entry tax on import / entry of Tractors into the State of Gujarat at the rate of 15% is unconstitutional, illegal and contrary to the objects and purpose for which Entry Tax Act has been enacted and therefore, the petitioners have preferred the present Special Civil Application challenging levy of entry tax on import / entry on Tractors into the State of Gujarat at the rate of 15% treating the same as “motor vehicles” and/or at the rate at which the entry tax is being levied with respect to motor vehicles.

5.00. Mr.Uchit Sheth, learned advocate has appeared on behalf of the petitioners and Ms.Maithili Mehta, learned Assistant Government Pleader has appeared on behalf of the respondents – State of Gujarat and others.

6.00. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has vehemently submitted that levy of Entry Tax on the Tractors at the rate of 15% by considering them and/or treating them at par with “motor vehicles” under Entry 1 of the Schedule to the Entry Tax Act, is absolutely illegal, unconstitutional and contrary to the scheme and object and purpose of the Entry Tax Act and also contrary to the legislative intention of enacting Entry Tax Act.

6.01. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that in the speech and Statement by the Finance Minister and Object and Reasons of the Entry Tax Act and the purpose of incorporating Entry Tax Act was to prevent loss of Sales Tax revenue due to diversion of trade as a result of lower Sales Tax rates in other Sates as compared to State of Gujarat. It is submitted that entry tax was thus sought to be levied on import of goods from outside the State at the applicable rate of sales tax in the State of Gujarat.

6.02. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that the legislative history of the Entry Tax Act as well as the amendments to the Entry Tax Act made from time to time show that a clear nexus is maintained between the Entry Tax rates and the applicable rates to the goods under the Sales Tax Act / VAT Act.

6.03. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that only those motor vehicles which were falling under Entry 128(1) of the Sales Tax Act attracting 12% Sales Tax rate and which now attract 15% tax rate under the VAT Act are covered under Entry 1 of the Schedule to the Entry Tax Act.

6.04. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that Tractors were always covered by a separate entry under the Sales Tax Act as well as under the VAT Act for which the applicable rate of tax under the Sales Tax Act was 4% and the applicable rate of tax under the VAT Act now is 4%+1% additional tax. It is submitted that thus, levy of Entry Tax at the rate of 15% on Tractors by considering them as motor vehicles under the Entry Tax Act is dehors the objects and scheme of the Entry Tax Act and contrary to the legislative intention, bad and illegal.

6.05. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that in the original Schedule to the Entry Tax Act, there was specific column containing reference to the relevant entry in the Gujarat Sales Tax Act, 1969 (hereinafter referred to as “the Sales Tax Act”). It is submitted that in respect of the first entry relating to motor vehicles, reference was made to Entry 128 of Schedule IIA to the Sales Tax Act and maximum rate of Entry Tax was stipulated at 12% which was equal to the rate applicable to motor vehicles classifiable under Entry 128 of Schedule IIA of the Sales Tax Act. It is submitted that at that time there was a separate entry for Tractors contained in Entry 178 of Schedule IIA to the Sales Tax Act for which the applicable rate of Sales Tax was 4%. It is submitted that thus, the Tractors were never sought to be included in the Schedule of specified goods contained in the Entry Tax Act. Thereafter when the Sales Tax was replaced by the VAT Tax Act, 2003 and consequential change was made in the Entry Tax Act w.e.f. 1/4/2006. It is submitted that since there was no specific entry for motor vehicles under the VAT Act, reference to Schedule entry of Sales tax Act was removed in the new Schedule. Motor Vehicles which were falling under Entry 128 of the Sales Tax Act would now fall under residuary entry 87 of Schedule II of the VAT Act for which the stipulated rate of tax was 12.5%. It is submitted that therefore, maximum rate of Entry Tax for motor vehicle was correspondingly revised from 12% to 12.5%. While the specific entry for motor vehicles under the Sales Tax Act was dropped under the VAT Act, the specific entry for Tractors was retained in Entry 77 of Schedule II of the VAT Act and for which the rate of tax continued to be 4%. It is submitted that thus, the amendment of the Entry Tax Act w.e.f. 1/4/2006 was only consequential to replacement of the Sales Tax Act by the VAT Act and only those motor vehicles were sought to be taxed under the Entry Tax Act which were earlier classifiable under Entry 128 of Schedule IIA to the Sales Tax Act and later on under residuary Entry 87 of Schedule II of the VAT Act attracting local rate of 12.5%.

6.06. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that  thereafter, additional tax was introduced under section 7(1A) of the VAT Act w.e.f. 1/4/2008. It is submitted that in so far as the goods covered under residuary entry 87 of Schedule-II of the VAT Act are concerned, the rate of additional tax was 2.5%. Thus, the effective rate of VAT on such goods was 15%. Correspondingly the Schedule to the Entry Tax Act was amended. It is submitted that in the Statement of Object and reasons of amending Act it was again noted that the purpose of the Entry Tax Act was not to levy additional tax but to provide “level playing field” between the goods entering into the local areas from any place outside the Stat and the goods manufactured or produced in the State. It is submitted that it was further noted that the entry tax rates are having direct linkage with the VAT rates on the same goods and hence change in the VAT rates necessitated change in the Entry Tax Act. Thereafter it was observed that to obviate the need to maintain the Entry Tax Act consequent to change in the VAT rates it was considered necessary to revise the maximum rates of tax on specified goods as mentioned in the Schedule.

 6.07. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that maximum rate of Entry Tax in respect of motor vehicles was revised to 20% while the notification rate at which the Entry Tax was actually payable was revised to 15% i.e. again equal to the applicable rate of VAT to motor vehicles covered under residuary entry 87 of Schedule II to the VAT Act.

 6.08. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that thereafter from 1/4/2016 new Schedule entries were introduced under the VAT Act for “Luxury Cars, luxury SUVs and luxury two wheelers” (Entry 49C of Schedule-II of the VAT Act) and for “motor vehicles” (except school buses, college buses, passenger buses and goods carrier trucks sold to companies, firms ….” (Entry 80A of Schedule II of the VAT Act) for which the rate of tax was stipulated at 17.5%+2.5% additional tax. Correspondingly the rate notification under the Entry Tax was also amended and the entry tax rates in respect of such goods was revised to 20%. It is submitted that in this very notification a new entry was introduced for e-commerce transactions wherein the rate stipulated was at such rate including the rate of additional tax applicable under the Gujarat Value Added Tax Act, 2003 on sale or purchase of such  goods.

6.09. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that the entire legislative history of the Entry Tax Act as well as object and reasons behind the introduction as well as amendments of the Entry Tax Act establish that Entry Tax was always sought to be levied at the rates prescribed for such goods under the Sales Tax Act / VAT Act. It is submitted that in other words, there is a nexus between the entry tax rates and local sales tax / VAT rates on similar goods. It is submitted that thus only those motor vehicles which were covered under Entry 128 of Schedule-IIA to the Sales Tax Act and which are now covered under residuary Entry 87 of Schedule-II to the VAT Act which attract 15% tax under the VAT Act would be covered under the entry of motor vehicles under the Entry Tax Act.

6.10. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that the levy of entry tax at the rate of 15% on Tractors by treating them as falling under Entry for motor vehicles even though Tractors have always been covered by separate entry under the Sales Tax Act and the VAT Act and for which rate of tax under the VAT Act is 5%, is dehors the entire scheme of the Entry Tax Act as countenanced by the legislative history as well as objects of the Entry Tax Act.

6.11. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that the levy of entry tax on Tractors in excess of 5% has been exempted subsequently by notification dated 12/5/2016. It is submitted that the legislative history and the objects and reasons of the Entry Tax Act as enumerated hereinabove shows that the Tractors are not excisable to Entry Tax and hence question of “exemption” does not arise.

6.12. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that subsequent exemption notification only shows that the Government realized that levy of Entry Tax on Tractors at the rate of 15% by treating them as motor vehicles even though the local VAT rate on tractors is 5% was contrary to the object and scheme of the Entry Tax Act and such interpretation would make the levy of the Entry Tax vulnerable under Article 304(a) of the Constitution of India. It is submitted that the subsequent exemption notification therefore reinforces the submission on behalf of the petitioners that the Entry Tax was never intended to be levied on Tractors under Entry for “motor vehicles”.

6.13. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that the levy of entry tax at the rate of 15% on tractors by considering them as motor vehicles even though the rate of tax for tractors under the VAT Act is 5% is clearly violating Article 304(a) of the Constitution of India.

6.14. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that Article 304(a) of the Constitution of India provides that the Legislature of a State may by law impose on goods imported from other States or Union territories any tax to which similar goods manufactured or produced in that State are subject, so however, not to discriminate between goods so imported and goods so manufactured or produced. It is submitted that when the constitutional validity of the Entry Tax Was challenged before this Court in the case of Eagle Corporation Vs. State of Gujarat, reported in (2007) 6 VST 56 (Guj.) inter-alia on the ground that it is violative of Article 304(a) of the Constitution of India, this Court upheld the constitutional validity of the Entry Tax Act by holding that there would not be any discrimination as contemplated under Article 304(a) of the Constitution of India since the rate of entry tax would always be equal to the rate of applicable Sales Tax in the State of Gujarat. It is submitted that it was further held that the provisions of the Entry Tax Act and the Sales Tax Act were to be read together. It is submitted that in fact example of motor vehicles itself was cited to show that the ultimate tax burden on motor vehicles produced within the State as well as motor vehicles imported from outside the State would be 12%. It is submitted that entry tax is levied at the rate of 15% on tractors even though the local VAT rate on tractors is 5%, such levy demolishes the levy basis on which the constitutional validity of the Entry Tax Act was upheld.

6.15. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that Nine Hon’ble Judges Bench of the Hon’ble Supreme Court in the recent decision in the case of Jindal Stainless Ltd. Vs. State of Haryana, rendered in Civil Appeal No.3453 of 2002 and other connected matters has held that while Tax may not be a barrier to free trade and commerce under Article 301 of the Constitution of India, the power to levy tax on goods imported from outside the State is subject to the restrictions and conditions of Article 304(a) of the Constitution of India. It is submitted that in other words, Tax can be imposed on entry of goods from outside the State only if there is no discrimination between goods imported from outside the Sate and similar goods manufactured in the State. It is submitted that thus, levy of entry tax on tractors at the rate of 15%% even though the local VAT rate is 5% would be violation of Article 304(a) of the Constitution of India even as per the law laid down by the Hon’ble Supreme Court in the case of Jindal Stainless Ltd. (supra).

6.16. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that the levy of entry tax at the rate of 15% on tractors, even though local VAT rate on tractor is 5%, is contrary to Statement of the State Government through learned Advocate General before this Court in the case of Eagle Corporation Pvt. Ltd. (supra). It is submitted that in the said case, the State of Gujarat through the learned Advocate General had specifically submitted before this Court that levy of Entry Tax would never exceed the sales tax rate on similar goods in the State. It is submitted that therefore, levy of Entry Tax at the rate of 15% on tractors even though the local VAT rate on tractors is undisputedly 5%, is contrary to the statement of the State Government before this Court on the basis of which the constitutional validity of Entry Tax Act was upheld. It is submitted that therefore, levy of Entry Tax at the rate of 15% treating as “motor vehicles” or considering at par with “motor vehicles” is absolutely illegal and in violation of Article 304(a) of the Constitution of India.

6.17. Mr.Uchit Sheth, learned advocate appearing on behalf of the petitioners has further submitted that the rate of VAT on Tractors in the State of Tamilnadu, where the petitioners have a manufacturing unit is 5%. It is submitted that rate of VAT on tractors in the State of Karnataka where the petitioners have another unit is 5.5%. It is submitted that the rate of VAT on Tractors in the State of Punjab where the petitioner has manufacturing unit is 5.5%+0.55% surcharge. It is submitted that thus, the object of the Entry Tax Act was to prevent the loss of revenue in case of goods where rate of tax in other States was lower than the State of Gujarat also does not hold good in respect of Tractors since the local rate of tax on tractors in the exporting States is either 5% or slightly higher, while the local rate of tax on tractors in the State of Gujarat is 5%. It is submitted that therefore also Entry Tax was never contemplated to be levied on Tractors by the State of Gujarat.

Making above submissions, and relying upon above decisions, it is requested to quash and set aside the impugned orders passed under the Entry Tax Act levying Entry Tax on Tractors at the rate of 15% as being without jurisdiction, illegal, contrary to the provisions of the Scheme and legislative intent of the Entry Tax Act and violative of Article 304(a) of the Constitution of India.

 7.00. Both these petitions are opposed by Ms.Maithili Mehta, learned AGP appearing on behalf of the respondents – State and another.

 7.01. Ms.Maithili Mehta, learned AGP appearing on behalf of the State has vehemently submitted that the contention of the petitioners that the “Tractor” is not a “motor vehicle”, does not hold good in light of the definition of term “motor vehicle” as provided under section 2(44) read with section 2(28) of the Motor Vehicles Act, 1988.

 7.02. Ms.Maithili Mehta, learned AGP appearing on behalf of the State has also relied upon the decision of the Hon’ble Supreme Court in the case of Natvar Parikh and Company Vs. State of Karnataka, reported in 2005(7) SCC 364 as well as decision of the Division Bench of this Court in the case of Reliance Entries Ltd. Vs. State of Gujarat, rendered in Special Civil Application No.11848 of 2005, in support of her submission that “Tractor” is a “moor vehicle” and therefore, on entry / import of Tractors in the State of Gujarat Entry Tax is leviable at 15%.

7.03. Now, so far as reliance upon the Government Resolution dated 12/5/2016 by which the rate of tax between 15% and 5% is exempted, it is submitted by Ms.Maithili Mehta, learned AGP appearing on behalf of the State that the said Government Resolution would have a prospective applicability and therefore, the petitioners would be liable to pay 15% tax for the period prior to the said Government Resolution.

7.04. Ms.Maithili Mehta, learned AGP appearing on behalf of the State has further submitted that even otherwise by levy of 15% Entry Tax on entry / import of Tractors in the State of Gujarat, petitioners are not likely to be affected. It is submitted that by way of Rule 15(7) read with section 11 of the Gujarat Value Added Tax Act, the petitioners can claim refund by way of Input Tax Credit i.e. whatever the amount of tax paid, such as Entry Tax etc. It is submitted that thus, the petitioners would not be affected in any manner.

By making above submissions, it is requested to dismiss both these petitions.

8.00. Heard the learned advocates appearing on behalf of the respective parties at length.

8.01. At the outset, it is required to be noted that in both these petitions, the respective petitioners have challenged levy of entry tax at the rate of 15% on entry / import of Tractors into the State of Gujarat, inter-alia on the grounds that the same is discriminatory, in violation of Article 304(a) of the Constitution of India and contrary to the objects and purpose of enactment of Entry Tax Act under which Entry Tax is levied.

8.02. While considering the challenge to the levy of Entry Tax on Tractors at the rate of 15%, legislative intent of Entry Tax Act and the Statement and Objects of the Entry Tax Act are required to be considered. The Statement and objects of the Entry Tax Act and Preamble of the Entry Tax Act as elaborately dealt with and considered by the Division Bench in the case of Eagle Corporation Pvt. Ltd. (supra), are as under :-

“Statement of Objects and Reasons
(Bill No.36 of 2001):