State Can't Legislate On Entry Tax After Deletion Of Entry 52 Of List II: West Bengal Taxation Tribunal

The West Bengal Tax on Entry of Goods into Local Area Act, 2012 was introduced w.e.f. 01.04.2012 in a purported exercise of the power conferred under Article 246 read with Entry 52 of List II of the 7th Schedule of the Constitution of India.

The subject matter of taxation under the Entry Tax Act was only goods that were imported from outside the state of West Bengal. The Act's constitutionality was challenged, and the Single Bench of the Calcutta High Court struck it down on June 24, 2013, primarily on two grounds: it violated Articles 301 and 304(a) of the Constitution because the levy was not in the nature of a compensatory tax, and presidential sanction, as contemplated by Article 304(b) of the Constitution, was not obtained.

The verdict of the single bench was challenged by the state before the Division Bench of the Calcutta High Court, which is still pending. The Constitution (One Hundred and First Amendment) Act 2016 came into force with effect from 16.09.16. Parliament has removed Entry No. 52 from the State List II of the Constitution's Seventh Schedule under Section 17(b) of the Constitution Amendment Act.

The Supreme Court in the case of Jindal Stainless Steel and Anr. Vs. State of Haryana has held that the judicially evolved compensatory tax theory in the automobile transport case and subsequently modified in the Jindal case has no juristic basis. It was also observed that "a tax on the entry of goods into local areas for use, sale, or consumption therein is permissible, although similar goods are not produced within the taxing state."

Section 19 of the 101st Constitution Amendment Act empowers a state to amend or repeal any provision of any liability relating to tax on goods or services or both in force immediately before the commencement of the Act which is inconsistent with the provisions of the Constitution as amended by this Act within one year from such commencement.

The State of West Bengal has introduced the West Bengal Finance Act 2017 with effect from March 6, 2017. Section 5 of this Amending Act of 2017 has made some amendments to the Entry Tax Act with retrospective effect, and Section 6 of the Amending Act 2017 purported to validate the Entry Tax Act. The Amending Act has also amended Rules 6, 7 and 11 of the West Bengal Tax on Entry of Goods into Local Areas Rules 2012 retrospectively.

The petitioners challenged the vires of the amending Act 2017 on various grounds, including lack of legislative competency, discriminatory grounds, the impossibility of its successful implementation and so on. From time to time, petitions were filed before the High Court at Calcutta from time to time seeking instructions on various situations that had arisen after the verdict of the Single Bench declaring the Entry Tax Act ultra vires was passed on 24.06.13.

Counsel for the petitioner submitted that the Entry Tax Act was enacted under Entry 52 of List II of the 7th Schedule of the Constitution and since this Entry 52 has been deleted in the 101st Constitution Amendment Act 2016 w.e.f. 16.09.16, the State legislature has lost its legislative competence and such an absolute loss cannot be revived or revalidated in a detour way under any circumstances. Section 19 of the 101st Constitution Amendment Act, a transitional provision, cannot be used as a source of power to enact the Amending Act 2017.

Counsel for the petitioner contended that the Entry Tax Act, the source of which was Entry No. 52 of List II, was quashed in lock, stock, and barrel after the promulgation of the 101st Amendment Act, and therefore, the State Legislature has lost all power to reintroduce the Entry Tax Act by way of amendment.

On the other hand, counsel for the state urged that the power of the legislature to repeal is co-extensive with the power to enact. Section 19 of the Constitution Amendment Act 2016 empowered the Legislature to amend the Entry Tax Act at any time before the expiry of one year, and since the Amending Act 2017 was promulgated on June 3, 2017 prior to the expiry of one year, it is valid.

The issue raised was whether, after the deletion of Entry No. 52 from the State list of the 7th Schedule of the Constitution, the State Legislature had absolutely lost its legislative competency to amend the Entry Tax Act with a view to making it non- discriminatory with retrospective effect.

The Tribunal found that in order to promote GST, both the Central Government and State Governments had to surrender some of their fields of taxation. Like Entry 52 of the State List, entries 92 and 92C of the Union List were entirely dropped. Some areas of Entry 54 of the State list have been truncated. In this way, there were many changes to various entries in both the Union and State lists in order to make the tax structure smoother, transparenter, and more effective. The States have sacrificed some financial power along with the Union government to make the joint venture successful.

"Entry 52 was dropped permanently so that the State Legislature can not make any laws in the field of entry of goods into local areas for consumption, use, and sale therein. The State Legislature has exclusive power to make laws with respect to any matters enumerated in list II of the 7th schedule. Entry 52 having been omitted, there is no vestige of power left with the State Legislature to legislate or amend the law in this entry tax matter and this loss is absolute and final. This window, in our opinion, is shut forever, "the Tribunal said.

Case Title: Tata Steel Ltd. & Ors. Versus The State of West Bengal & Ors.

Citation: RN-08 of 2018

Dated: 25.03.2022

Counsel For Appellant: Advocates Kavin Gulati, Ld., Ajay Aggarwal, Sumeet Gadodia, Avra Mazumder, Ananda Sen, Boudhayan Bhattacharyya, Jaweid Ahmed Khan, Puneet Agarawal, Sandip Choraria, Anil Kumar Dugar, Somak Basu, Samir Chakraborty, Sujit Ghosh, Atish Chakroborty, Pujon Chatterjee, Piyal Gupta

Counsel For Respondent: Advocate Soumendra Nath Mookerjee

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