Entry Tax: Section 5 & Section 6 of West Bengal Finance Act, 2017 are ultra-vires & unconstitutional

Tata Steel Ltd. Vs The State of West Bengal (West Bengal Taxation Tribunal)

1. Prelude

The above bunch of cases have been heard analogously. West Bengal Tax On Entry of Goods into Local Area Act. 2012 (hereinafter referred as Entry Tax Act) was introduced w.e.f 01.04.2012 in purported exercise of the power conferred under Article 246 read with Entry 52 of the list II of the 7th Schedule of the Constitution of India. The subject matter of taxation under Entry Tax Act was only goods which were imported from outside of state of West Bengal. The vires of this Act was challenged and Hon’ble Single Bench of Hon’ble High Court Calcutta struck down this enactment on 24.06.13 mainly on two grounds – it is violative of Article 301 & 304(a) of the Constitution since the levy was found not to be in the nature of a compensatory tax and Presidential sanction as contemplated under Article 304(b) of the constitution was not obtained. This verdict was challenged by the State before the Hon’ble Division Bench of the Hon’ble High Court Calcutta and the same is still pending. The Constitution (One Hundred and First amendment) Act 2016 came into force with effect from 16.09.16. By virtue of Section 17(b) of this Constitution Amendment Act the Parliament has omitted Entry no. 52 from the State list II of the Seventh Schedule of the Constitution.

1.1. Meanwhile, Hon’ble Supreme Court in Jindal Stainless Steel and Anr. Vs. State of Haryana [(2017) 12 SCCI] have been pleased to opine on 11.11.2016 that the Judicially evolved compensatory Tax Theory in Automobile Transport case and subsequently modified in Jindal case has no juristic basis. It is also opined that “a tax on entry of goods into local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing State”. Hon’ble Supreme Court has further opined that “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. Such measures if taken would not contravene Article 304(a) of the Constitution. The question whether the levies in the present case indeed satisfy this test is left to be determined by regular Benches hearing the matters”. It is further held that “the questions whether the entire State can be notified as a local area …………………………………. are left open to be determined in appropriate proceedings.” and clause (a ) and (b) of Article 304 have to be read disjunctively.

Section 19 of the 101st of Constitution Amendment Act has authorised a State to amend or repeal any provision of any liability relating to tax on goods or services or both in force immediately before commencement of the Act which is inconsistent with the provision of the Constitution as amended by this Act within one year from such commencement. The State of West Bengal has introduced West Bengal Finance Act 2017 (hereinafter referred as Amending Act of 2017) w.e.f 6th March, 2017. Section 5 of this Amending Act of 2017 has made some amendments in the Entry Tax Act with retrospective effect and section 6 of the Amending Act 2017 has purported to validate the said Entry Tax Act. This Amending Act has also amended Rules 6, 7 and 11 of West Bengal Tax on Entry of Goods into Local Areas Rules 2012 retrospectively.

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