CA Lalit Munoyat

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Just a thought for academic discussion:

Can SC judgement in the case of Jindal Stainless Ltd. & Anr. Vs. State of Haryana & Ors. (Supreme Court), be used as a tool to impose entry tax by the Union Government on the same lines as CST? Or as a stick to the traders to make them to agree to proposed CESS on GST?

The Supreme Court , on 11-11-2016 has upheld the constitutional validity of the powers of the State to  demand entry tax for allowing goods and raw materials into their territories. A nine-judge Constitution Bench declared 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.

 “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 States derived the power to levy entry tax  under Entry 52 of List II of Schedule VII of the Constitution of India.

“52. Taxes on the entry of goods into a local area for consumption, use or sale therein.”

It was  because of this entry no. 52, that the Union could not assume jurisdiction to levy Entry tax of goods into a local area for consumption, use or sale therein.”

However the above Entry 52 of the state list has been omitted by the Constitution (One Hundred and First Amendment) Act, 2016, w.e.f. 16.9.2016 popularly known as GST amendment. What is the effect? The Central Government can now levy entry tax  under the residuary entry 97 of  List I – Union List

“97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.”

Entry 52 of the State List having been so deleted, the powers to levy entry tax have now been unreserved and therefore the Union can assume jurisdiction to levy Entry Tax under Entry 97 above.

The States can now request the Union to frame a legislation under which this levy will be legislated by the Union but 100% collection of this tax will be appropriated by the State like what is being done now under The CST Act.  Presently The Central Sales Tax Act (CST Act) is legislated by the Union but 100% of the tax is retained by the State levying it.

The Union is thinking of imposing a Cess on the amount of GST to compensate the States for loss of their revenue due to shifting of the place of levy, presently the place is the State where the goods are manufactured while under GST the place of levy will be the State in which consumption takes place.

For example under the present scheme, goods manufactured in Maharashtra and sold in the course of inter-state sales, say to Bihar, the CST is levied and full amount of it is retained by Maharashtra and the State of Bihar gets nothing. Under the scheme of GST, reverse will be the scenario wherein Maharashtra will get nothing and full amount of GST will be retained by the State of Bihar. Read in the context of Mumbai, the scheme of GST will lead to heavy loss of revenue for Maharashtra. This revenue is used to fund BMC. Now BMC will be starved of funds. In order to avoid it, either Cess on GST will be imposed or , as an alternative, Entry tax may be imposed particularly when the Constitutional validity of Entry 52 has been upheld.

Compiled by: CA LALIT MUNOYAT, B.Com.(Hons.),CS,FCA, DISA, @ # 98201 93508

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4 responses to “Entry Tax in lieu of CESS on GST ?”

  1. Arvind says:

    Sir, referring to your example of Maharashtra and Bihar, imposing cess or Entry Tax by Mumbai (BMC)will only discourage inflow from other states and Maharashtra will lose the entire GST available to importing state. In view of this, will imposing Entry Tax not risk losing the entire GST?

  2. CA Lalit Munoyat says:

    However, this levy is in force due to the transitional provision as contained in Article 19 which is as under:

    19. Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.

  3. senthil says:

    Since the List 52 is deleted for levying entry tax by State Government under recent constitutional amendment, whether states can levy entry tax now. This is because even now the entry tax is being levied by the state governments for the goods entering into its territory

    • CA Lalit Munoyat says:

      Article 17 of the 101st Constitutional amendment Act has been notified on 16th Sep-16. The Article omits Entry 52 of the State List “Taxes on the entry of goods into a local area for consumption, use or sale therein.”

      In view of this the States have no power to levy Entry Tax w.e.f.16-09-16.

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