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SC Upholds The Constitutional Validity Of Entry Tax by 7:2 Majority [Read Judgment]

LiveLaw News Network
11 Nov 2016 5:57 AM GMT
SC Upholds The Constitutional Validity Of Entry Tax by 7:2 Majority [Read Judgment]
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A Nine Judge Constitution Bench of Supreme Court of India Today upheld the constitutional validity of Entry Tax imposed by States on goods coming in from other states.

The Bench has also directed the three Judge Bench to decide whether the States' entry tax laws on the basis of Guidelines issued by this Bench.

The nine-judge constitution bench  of Chief Justice T S Thakur and justices  A K Sikri, S A Bobde, Shiva Kirti Singh (Justice Singh is retiring today), N V Ramana, R Banumathi, A M Khanwilkar, D Y Chandrachud and Ashok Bhushan was examining the validity of separate entry taxes on goods, mandated by statutes, by various state governments.

It has a bearing on a whopping 2,000 cases filed by several companies against the states levying tax on the movement of goods.

The companies challenged them on the ground that they are “against the concept of free trade and commerce under Article 301 (Freedom of trade commerce and intercourse) of the Constitution”.

Entry tax is imposed by many state governments on the movement of goods from one state to another. It is levied by the state that receives goods.

During the long drawn hearing the bench took into consideration arguments on whether states have the power to impede free trade by taxing movement of goods.


The jist of the argument of Attorney General Mukul Rohatgi was that now that GST bill has been passed, future entry tax issues will be resolved using those rules and the apex court need not interfere in the issue.

But the Chief Justice was of the view that “lakhs of cases are pending across courts so what we feel is that past issues should be resolved first”.

Being the first company to challenge an entry tax levied by Haryana in the Supreme Court, in 2002,

Jindal Steel Ltd. contended it was beyond the power of states to impose tax on the inter-state movement of goods. Several companies filed similar petitions thereafter. All major companies including Vedanta, Hindalco, Adani, Reliance Industries, SAIL later joined the bandwagon.

In their arguments, counsels representing companies told the Supreme Court that striking down entry tax laws would pave the way for the much awaited Goods and Services Tax (GST) and smooth implementation of it


However, states refuted these arguments by saying their sovereign powers should not be diluted as the right to levy and entry tax is essential to the division of tax powers between the Centre and states. Hence, the states argued, that they have the constitutional right to pass laws on issues placed in the ‘State List’ and ‘Concurrent List’ defined under the Constitution, including the movement of goods.

During the course of arguments the Chief Justice of India had observed that the constitution does not see tax as a barrier but it should not be imposed in such a way that it acts as a “barrier and obstruction to free movement of goods.”

Read the Judgment here.

This article has been made possible because of financial support from Independent and Public-Spirited Media Foundation.

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