In a significant Judgment, the division bench of Patna High Court ruled that, levy of entry tax on online purchases is illegal and unconstitutional. Tax cannot be levied on entry of goods into local areas, in terms of the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Act, 1993, over the transactions, made on e-commerce portals, for personal use or consumption of individual consumer.
The petition was filed by Instakart Services Private Limited challenging the levy and collection of entry tax on goods brought by the petitioners to the State of Bihar for individual consumers, who reside in the State of Bihar, and which are transacted using electronic commerce portal.
The petitioners are Private Limited Company and are engaged in the business of providing logistics and delivery services to various individual buyers, who undertake purchase transactions through technology platform of M/s Flipkart Internet Private Limited.
The bench comprising of Chief Justice I.A Ansari and Justice Chakradhari Sharan Singh struck down the provisions of the Bihar Finance Act, 2015, amending the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Act, 1993 and the Rules made thereunder and Notifications S.O. 176 & 18 both, dated 20.01.2016 and are declared as ultra vires to the Constitution and are accordingly quashed.
While allowing the petition, the bench observed that, “When Article 304(a) ensures only equal rate for incoming goods, if such goods are taxed at a higher rate or where they are taxed at any rate, when indigenous goods enjoy concessional rate of tax, Article 304(a) gets attracted. These are simple cases of hostile discrimination. However, one has to determine whether a particular tax is discriminatory or not within the meaning of Article 304(a), the effect of the tax, on the flow of goods from outside the taxing State, has to be taken into consideration and if the overall effect of rebate of tax is such that they fall within the meaning of concessional rates of tax so as to discriminate between imported goods and local goods, the same would amount to discrimination within the meaning of 304(a) of the Constitution. The set off, as given in Section 3(2) of the 1993 Act, cannot be used as a device or weapon so as to make a discrimination in the rate of tax by repaying or by allowing set off to one class of local dealers of the entry tax paid against the VAT payable and not allowing the benefit of set off to outside dealers. Such a situation squarely falls within the ambit of Article 304(a) of the Constitution of India”.
“By giving set off under second Proviso to Section 3(2) of the 1993 Act, a favourable treatment is given to one class of dealers within the State, barring the dealers, similarly placed outside the State, supplying goods to the State of Bihar in course of inter-State trade and commerce, the effect whereof is that no entry tax is payable by a dealer making resale of the said goods inside the State, but, on the other hand, the dealers, who are supplying goods from outside the State to consumers, have to pay full entry tax as well as central sales tax. The net effect of the impugned provisions is that the cumulative burden of taxes, on goods imported from outside the State, is higher than the said goods produced within the State. This is what is known as fiscal barrier and such fiscal barrier has a direct and immediate effect of ensuring that goods are brought in from outside the State of Bihar for personal use or consumption on payment of CST and thereby making a discrimination between the dealers of one State and another, which is clearly violative of Article 304(a) of the Constitution”, the bench also said.
While rejecting the submissions of the Principal Additional Advocate General, the bench said that, “Even if the levy is compensatory in nature, the compensation cannot be demanded more from an outside dealer than a local dealer. There cannot be any discrimination between an outside dealer and a local dealer. Since the impugned provisions clearly discriminate between an outside dealer and local dealer by imposing higher burden of tax on goods supplied by outside dealer than a local dealer, the same is clearly hit by Article 304(a) of the Constitution of India”.
Read the full text of the Judgment below.
