Supreme Court Upholds Entry Tax on Imported Goods: State of Kerala vs. Fr. William Fernandez (2017)

Can states levy entry tax on goods imported from outside India? The Supreme Court of India addressed this crucial question in a batch of appeals, including State of Kerala vs. Fr. William Fernandez. This judgment clarifies the legislative powers of states regarding entry tax on imported goods. The court held that states have the authority to impose such taxes.

LEGAL ISSUE: Whether states have the legislative competence to impose entry tax on goods imported from outside the country.

CASE TYPE: Tax Law

Case Name: State of Kerala and Others vs. Fr. William Fernandez Etc. Etc.

Judgment Date: 9 October 2017

Introduction

The Supreme Court of India, in a significant judgment, addressed the long-standing dispute regarding the imposition of entry tax on goods imported from outside the country. This case, State of Kerala and Others vs. Fr. William Fernandez Etc. Etc., with citation 2017 INSC 893, involved a batch of appeals from various High Courts. The bench comprised Justices A.K. Sikri and Ashok Bhushan, with Justice Ashok Bhushan authoring the judgment. The core issue was whether state legislatures have the power to impose entry tax on goods brought into their territories from outside India.

Case Background

The case involved multiple appeals from different High Courts, primarily concerning the entry tax legislations of the States of Orissa, Bihar, Kerala, and Jharkhand. The primary question revolved around the legislative competence of state legislatures to impose entry tax on goods imported from outside the country. The appeals arose from various judgments of the Orissa High Court, Patna High Court, Kerala High Court, and Jharkhand High Court.

The appellants included the State of Kerala and other state entities, while the respondents were various individuals and companies that had imported goods. The relief sought was primarily related to challenging the imposition of entry tax on imported goods.

Timeline

Course of Proceedings

The High Courts of Orissa, Patna, Kerala, and Jharkhand delivered various judgments on the matter of entry tax. The Orissa High Court initially upheld the validity of the Orissa Entry Tax Act, 1999, but later dismissed petitions challenging the levy on imported goods. The Kerala High Court ruled against the levy on vehicles imported from outside the country and also termed the levy as discriminatory. The Patna High Court disposed of cases based on earlier decisions. The Jharkhand High Court ruled against the levy by the State. These differing views led to the matter being brought before the Supreme Court.

The Supreme Court noted that a nine-judge bench in Jindal Stainless vs. State of Haryana had previously settled several issues regarding entry tax, but the specific issue of entry tax on imported goods was left to be determined by a regular bench.

Legal Framework

The judgment primarily revolves around the interpretation of the following legal provisions:

• Orissa Entry Tax Act, 1999: Section 2(d) defines “entry of goods” as entry into a local area from any place outside that local area or outside the state. Section 3 provides for the levy of tax on the entry of scheduled goods.
• Kerala Tax on Entry of Goods into Local Areas Act, 1994: Section 2(d) defines “entry of goods” as entry into a local area from any place outside the state. Section 3 provides for the levy of tax on the entry of goods.
• Bihar Tax on Entry of Goods into Local Areas Act, 1993: Section 2(c) defines “entry of goods”, Section 3 provides for the charge of tax.
• Constitution of India:
  • Article 246: Deals with the distribution of legislative powers between the Union and the States.
  • Article 286: Restricts the imposition of taxes on the sale or purchase of goods during import or export.
  • Entry 52, List II: Grants states the power to levy taxes on the entry of goods into a local area for consumption, use, or sale.
  • Entry 41, List I: Grants the Union the power to legislate on trade and commerce with foreign countries, import and export across customs frontiers.
  • Entry 83, List I: Grants the Union the power to legislate on duties of customs, including export duties.

The court examined how these provisions fit within the constitutional framework, particularly concerning the balance of legislative powers between the Union and the States.

Arguments

The petitioners argued that the state legislatures did not intend to levy entry tax on goods imported from outside the country. They contended that the definition of “entry of goods” in the respective state acts does not explicitly include goods from outside India. They argued that the power to regulate trade and commerce with foreign countries and impose customs duties lies exclusively with the Parliament. The petitioners also relied on Article 286(1)(b) of the Constitution, which restricts state power to tax goods in the course of import.

The states, on the other hand, argued that the entry tax is within their legislative competence under Entry 52 of List II. They contended that the definition of “entry of goods” is broad enough to include goods from outside the country. They also argued that Article 286 applies only to sales tax and not to entry tax. The states asserted that the levy is on the destination of the goods and not on the transaction of import.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

1. Whether the Entry Tax Acts of Orissa, Kerala, and Bihar intended to levy tax on goods entering from outside India.
2. Whether the Entry Tax Acts intrude into the legislative domain of Parliament under Entries 41 and 83 of List I.
3. Whether the levy of entry tax on imported goods trenches upon “import and export” and “duties of custom”.
4. Whether the importation of goods continues until they reach the importer’s premises, during which time states cannot impose tax.
5. Whether the doctrine of unbroken package applies to imported goods, prohibiting state tax until the first sale.
6. Whether the non-inclusion of custom duty in the definition of purchase value indicates that the legislature did not intend to tax imported goods.
7. Whether Entry Tax Acts are not covered by Entry 52 of List II, as Entry 52 is essentially for octroi levied by local authorities.
8. Whether a plant imported in knocked-out condition is covered by Part II of the Schedule of the Orissa Act, 1999.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on various cases and legal provisions, categorized by the legal point they supported:

Judgment

The Supreme Court, after considering all arguments and authorities, ruled that the state legislatures have the legislative competence to impose entry tax on goods imported from outside the country. The court held that the definition of “entry of goods” is wide enough to include goods from outside India. The court also held that the import of goods ends when the goods cross the customs barrier and are released for home consumption.

Treatment of Submissions

Treatment of Authorities

What Weighed in the Mind of the Court?

The Supreme Court’s reasoning was heavily influenced by the constitutional scheme of distribution of legislative powers between the Union and the States. The court emphasized the mutual exclusivity of taxing powers and the need to interpret the entries in the Seventh Schedule broadly to give effect to the legislative intent. The court also focused on the distinct nature of customs duty and entry tax, holding that they operate in different fields and at different stages.

Sentiment Analysis

Fact:Law Ratio

Logical Reasoning

Conclusion

The Supreme Court, in its judgment, upheld the legislative competence of states to impose entry tax on goods imported from outside the country. The court clarified that the definition of “entry of goods” is broad enough to include goods from outside India and that the import of goods ends when the goods cross the customs barrier. The court also rejected the application of the doctrine of unbroken package in India. This judgment provides clarity on the taxing powers of states concerning imported goods and settles a long-standing dispute.

The Supreme Court held that the states have the legislative competence to impose entry tax on goods imported from outside the country. This decision clarifies the legislative powers of states and provides a definitive answer to the question of whether states can impose entry tax on imported goods.