Goods And Service Tax India

The Kerala High Court has now declared that the Kerala Entry Tax Act violates Article 301 in Thressiamma Chirayil vs State of Kerala decided on 18 Dec 2006.

Earlier, in Rajan vs State of Kerala, the Kerala High Court had upheld the Act. Subsequently, in, Fr William Fernandez vs State of Kerala, the High Court had held that Entry Tax cannot be imposed on goods imported from outside the country.

But in the latest decision in Thressiamma’s case, the High Court held that

a) the enactment failed the test of “compensatory tax” as enunciated by the Supreme Court in Jindal Stainless Steel Ltd vs State of Haryana;

Having noted the position in Gujarat, where the Gujarat High Court upheld the constitutional validity of the Entry Tax Act in Eagle Corporation Pvt Ltd vs State of Gujarat and Others, I will examine the status of the Entry Tax Act in Jharkhand.

Tata Iron & Steel Co Ltd was aggrieved by a demand for entry tax on coal imported by them and challenged the levy. The Jharkhand High Court, in Tata Iron & Steel Co Ltd vs State of Jharkhand and Others, has held that:

a) The State government is not authorised to levy entry tax on imported goods as contended by TISCO.

The State Governments have introduced Entry Tax to be paid by actual users who bring goods from outside the state for use or consumption inside the State. The principal reason for this levy was that the States were losing revenue when goods were brought from other states.

However, in the recent past, these Acts have been challenged in various High Courts with varying results.

In Peekay Re-rolling Mills (P) Ltd vs The Assistant Commissioner & Anr decided on 20th March 2007, the Supreme Court had to decide whether the assessing officer is justified in seeking to invoke Sec 5A of the Kerala General sales Tax Act, 1963 and levy tax on the dealer in cases where the goods had not suffered tax at the earlier point of sale on account of exemption enjoyed by the seller.

Sec 5A of the KGST Act, 1963 seeks to tax purchases in the hands of the purchaser where the goods have not suffered tax and such goods are consumed in manufacture of other goods by the purchasing dealer.

A number of goods including cereals, coal, cotton, certain cotton fabrics, crude oil, iron and steel, etc are declared to be of special importance in Inter State trade or commerce by Sec 14 of the Central Sales Tax Act, 1956. Collectively these goods are called Declared Goods.

Sec 15 of the CST Act, 1956 imposes certain restrictions on the powers of the states to levy tax on declared goods.

The restrictions are :

01) The tax payable under the local law shall not exceed 4% and the tax shall not be levied at more than one stage.

The High Court of Andhra Predesh, in L&T vs State of Andhra Predesh, has held that where a contractor sub-contracts a part of the contract to a sub-contractor, there is only one taxable event.

The commercial tax authorities contended that there is no provision to deduct the turnover of the sub-contractor, on which value added tax has been paid by the sub-contractor, from the turnover of the main contractor. They also refused to give credit for the tax paid by the sub-contractor in computing the tax payable by the main contractor.

The SC, in Assistant Commissioner Anti Evasion Commercial Taxes, Bharatpur vs Amtek India Limited, has passed strictures on commercial tax officers who pass arbitrary and unreasonable orders.

The SC said, “…the action of the concerned assessing officer, in overlooking the documents produced coming to the conclusion about manipulation appears to be totally uncalled for and without any reasonable basis. This is a case where the officer should have been more careful and should not have acted in a manner as if he was a bloodhound and not a watchdog of revenue. It is unfortunate that in large number of cases, orders totally bereft of rationality are being passed. They do not in any manner serve public interest, much less the interest of revenue.

This was the question before the West Bengal Taxation Tribunal in Dabur India Ltd vs Asst Commissioner of Commercial Taxes, Corporate Division.

The WBTT rejected the contention of the petitioner that this is an ayurvedic medicine. While the WBTT accepted the fact that this product is produced using ingredients specified in ayurveda texts, it rejected the claim that these be assessed as drugs and medicines. the WBTT accepted the arguments of the Department that in common parlance this is considered to be confectionery.