Supreme Court on Friday upheld the validity of tax levied by various States on goods entering their territory, saying they are “well within their right” to design their fiscal legislations.
In a majority verdict of 7:2, a Constitution Bench headed by Chief Justice TS Thakur said the compensatory tax theory as evolved in earlier judgements has no juristic value and is over-ruled.
“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 question whether the levies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters,” Justice Thakur, who penned down the judgement for Justices AK Sikri and AM Khanwilkar, said.
Justices SA Bobde, Shiva Kirti Singh, NV Ramana and R Bhanumathi also concurred with the findings of Chief Justice.
Separate minority judgements were delivered by Justices DY Chandrachud and Ashok Bhushan which held as unconstitutional the power of the States to legislate their entry tax laws.
Justice Bhanumathi preferred to write a separate judgement, saying she had difference of opinion on one or two points only, but otherwise was in agreement with the majority view.
She said while the majority verdict has left to a smaller bench to give a meaning to the term ‘local area’, she was of the view that it implied the entire territory of the state.
The majority verdict said if taxing law is non- discriminatory, it can be said to be constitutionally valid without the legislation having to go through the test or the process envisaged by Article 304(b).
“Constitutional validity of any taxing statute has, therefore, to be tested only on the anvil of Article 304(a) and if the law is found to be non-discriminatory, it can be declared to be constitutionally valid without the legislation having to go through the test or the process envisaged by Article 304(b),” the 911-page judgement, including both the dissenting judgements, said.
The majority verdict said “the compensatory tax theoryevolved in Automobile Transport case and subsequently modified in Jindal’s case has no juristic basis and is therefore rejected”.
It said that only such taxes as are discriminatory in nature are prohibited by Article 304(a) and it follows that levy of a non-discriminatory tax would not constitute an infraction of Article 301.
“The essence of the guarantee in Article 304(a) lies in the same or similar goods being treated similarly in the matter of taxation.
The question, therefore, is whether that guarantee is violated if the goods subjected to levy of entry tax are not produced or manufactured within the State levying the tax. Our answer is in the negative.