J. Venkatesan

State justifies the Act that allows tax collection

High Court held that collection of entry tax

was unauthorised

New Delhi: The Supreme Court on Wednesday issued notice to ITC Ltd on a special leave petition filed by the Tamil Nadu Government against a Madras High Court judgment that declared “illegal and unconstitutional,” the collection of entry tax under the Tamil Nadu Tax on Entry of Goods into Local Areas Act, 2001.

Acting on about 1,000 writ petitions challenging the validity of the Act, the High Court on March 22 held that the collection of entry tax was unauthorised.

A Bench of Justice Arijit Pasayat and Justice P. Sathasivam issued notice to ITC after hearing senior counsel T.R. Andhyarujina who sought stay on the impugned judgment, and senior counsel Harish Salve opposing it. The Bench directed that the SLP be tagged with similar matter relating to some other States.

In its SLP, the State said the Act was introduced to augment revenue for compensating expenditure on providing trading facilities, including laying and maintenance of roads and provision of markets and welfare measures. For this purpose, the Act empowered the State to levy and collect taxes on goods entering into local areas of the State from outside the State for consumption, use or sale within the State.

It said for the years 2002-03 to 2005-06, nearly Rs. 1,126 crore by way of entry tax was collected. During the period Rs. 4,297 crore was spent on maintenance of roads and construction of bridges.

It said a Constitution Bench of the apex court in the Jindal Stainless Ltd case had only held that for a tax to be compensatory there must be some link between the quantum of tax and the facilities/services provided.

The SLP stated that at this juncture if the judgment was not stayed, the State’s revenue would be seriously hit as huge refunds would have to be made to dealers (petitioners before the High Court) who were already demanding refund.