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Entry tax on goods from other states constitutional: Supreme Court

A nine-judge bench led by Chief Justice of India T S Thakur held by majority that state governments could impose taxes on good imported from other states even if similar goods are manufactured within its territory.

Supreme court, entry tax, inter-state trade, goods, taxable, entry tax constitutional, constitutional, state government, legislative powers, india news, indian express Supreme Court on Friday held the levying of entry tax by states on goods imported from other states as constitutional. (Express Photo by Amit Mehra/File)

Asserting that state governments are well-within their rights to design their fiscal legislation, the Supreme Court Friday upheld the Constitutional validity of entry tax levied by various states on goods entering their territories.

By a majority verdict of 7:2, a Constitution Bench headed by Chief Justice of India T S Thakur declared that that a non-discriminatory tax does not per se constitute a restriction on the right to free trade, commerce and intercourse guaranteed under Article 301 of the Constitution and entry tax, despite being a restriction of trade, could be validly levied.

The majority decision, with concurring decisions by Justices A K Sikri, S A Bobde, Shiva Kirti Singh, N V Ramana, R Banumathi and A M Khanwilkar, further held that a distinction between “discrimination” and “differentiation” must also be acknowledged that not all laws could be held to be discriminatory only on the ground of certain differentiation in the taxation it sought to make between goods imported from other states and those produced within the state.

According to the bench, the court ought to examine whether the differentiation made is intended or inspired by an element of unfavourable bias in favour of the goods produced or manufactured in the State as against those imported from outside or whether the differentiation would be supported by valid reasons.

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“Economic unity from the point of view of such underdeveloped or developing states will be an illusion if they do not have the opportunity or the legal entitlement to promote industries within their respective territories by granting incentives and exemptions necessary for such growth and development,” it noted.

Ruling in favour of the sovereign power of the state government to legislate on matters under Entry 52 List II of the Constitution, the bench, however, underlined that validity of state laws would have to be adjudicated separately on the principles evolved by the nine-judge bench in its decision.

“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,” it said, meaning thereby a batch of 2000 petitions involving tax liability of around Rs 30,000 will be heard by regular benches in the court to rule upon validity of the laws framed by different state governments.


It also left to be determined in individual cases as to whether the entire state can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country.

First published on: 12-11-2016 at 12:00:46 am
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