The Supreme Court on Friday sought a response from the Maharashtra government on Tata Power Company’s (TPC) appeal against the levy of entry tax to the tune of R845 crore on furnace oil and low sulphur waxy residue oil, imported from abroad and used for generating electricity.
A bench led by justice Madan B Lokur sought a response from the state government as to why it should not set aside the levy of entry tax on imported goods.
Tata Power has been using furnace oil and low sulphur waxy residue oil, raw materials imported from abroad and used for generating electricity. Maharashtra has been levying entry tax on these materials brought to the state from outside under the provisions of the Maharashra Tax On Entry of Goods to Local Areas Act, 2002.
Actual demand raised by the department is for R282 crore for two assessment years, 2005-06 and 2008-09, but after adding penalty and interest it has swelled to over R800 crore.
Challenging the Bombay High Court’s judgment in August this year that upheld the Maharashtra Sales Tax Tribunal’s order on the levy of entry tax, TPC, represented by senior counsel Kapil Sibal, argued that a portion of the entry tax demand (R76 crore), not available as set-off/refund, has already been paid by TPC under protest. The balance tax demand is entirely revenue-neutral, he added.
TPC, being a generator of electricity, is exempted from paying sales tax/VAT under the MVAT Act, the petition said, adding that the company can claim set-off of entry tax paid by it subject to a retention of 3% of the purchase price of the goods.
According to the company, the applicable rate of sales tax on these goods post-February 2008 notification is 4% and hence the tax demand for assessment year 2008-09 must be at the rate of 4%, and not at the rate of 12% as demanded by the assessing authority. The object of the entry tax was to negate the difference in the sales tax paid on goods originating from other states as compared with the sales tax paid on goods originating from Maharashtra, TPC’s counsel Ranjana Roy said.
“This is clearly evidenced by the first and second provisions to Section 3, which mandate that the entry tax payable can never exceed Maharashtra value added tax payable on the same goods in the state and the importer must necessarily be given set-off of the sales tax paid by him in other state or Union territory. Hence, the term ‘outside the state’ as used in the entry tax Act would refer to outside Maharashtra but within the territory of India,” the appeal stated.