The Supreme Court on Monday asked a group of major companies — including Reliance Communications, Bharti Infratel, Ambuja Cement, Ultratech Cements, Reliance Infratel, Vodafone Essar South, Adani Wilmar and Dalmia Cements — to pay up 50% of the tax demanded by the Rajasthan government by way of entry tax for now.
The case will decide an issue that has led to conflicting judgements by various high courts, even as the Union government has said that it wants a goods and services tax to be imposed across the country to rationalise state levies such as entry tax. Earlier, in 2010, a five-judge constitution bench of the Supreme Court had ruled that the validity of entry taxes levied by states would have to be decided by a larger bench.
On Monday, a bench headed by Chief Justice HL Dattu directed all the companies to pay 50% of the tax and interest amounts demanded/assessed by the state and furnish a bank guarantee for the balance 50%. This necessitates payment of about R2,000 crore by them together.
The companies have challenged the Rajasthan High Court’s order that dismissed there petitions and also vacated the stay order on the payment of entry tax on the ground that the issue is pending before the apex court and it cannot hear the matter. The firms have challenged the Rajasthan Tax on Entry of Goods into Local Area Act 1999. More than 500 companies are likely to challenge the Rajasthan Act. “The levy of entry tax is a direct and immediate impediment to freedom of trade, commerce and intercourse guaranteed under Part XIII of the Constitution,” they said in their petitions. The companies said neither the Act showed that entry tax is compensatory nor did the state government bring any material on record to discharge its burden that the levy under the Act was compensatory as to be outside the purview of Article 301 of the Constitution since the very inception of the enactment of the Act.
Companies claim that the power to impose a cross-state levy only lies with the Centre and states have no power to impose them. While some high courts have held the entry tax to be unconstitutional and said it is a violation of the freedom of trade and commerce, others have upheld it, leading to appeals and cross appeals by states and companies to the SC.
Orissa and Uttar Pradesh had initially appealed to the apex court against high court verdicts that held the entry tax to be unconstitutional. Orissa’s appeal came in 2008 after the Orissa Entry Tax Act, 1999, was called into question. A batch of cross appeals were filed by Tata Sponge Iron Ltd, Vedanta Aluminium, Bhushan Steel and Strips Ltd and others challenging the imposition of tax on goods entering Orissa.
The Orissa high court had given the verdict after Reliance Industries and others had in May 2006 challenged the levy for restricting the free flow of trade and because the state was not providing the required facilities in return.