In Indian Oil Corporation Ltd & Ors. vs. State of UP & Ors. the Allahabad High Court held that the Uttar Pradesh Tax on Entry of Goods into Local Area Act, 2007 was constitutionally valid. However, the Act was repealed by the Uttar Pradesh Goods & Services Tax Act,2017.
A number of petitions were filed questioning the vires of the Uttar Pradesh Tax on Entry of Goods into Local Area Act, 2007 before the High Court on the basis of the liberty granted by the Supreme Court while disposing a batch of Civil Appeals. When the appeals were taken up for hearing by regular Bench, it found that the necessary factual foundation to answer the questions left open had not been laid in the petitions nor there was discussion regarding the same in the impugned judgements of the High Courts. Consequently, with the consent of counsel for the parties, the regular Bench allowed the parties to file fresh petitions in High Court by 31 May 2017 raising those issues with necessary factual background or any other constitutional/statutory issue which arise for consideration.
The petitioner is a Government of India undertaking engaged in the business of import, storage, transportation and refining of crude oil and in the manufacture and sale of petroleum products. It has a refinery in Mathura. The crude oil is unloaded from the bulk tanker ships into the SBM (single buoy mooring) which is a crude oil unloading facility located in high seas near Vadinar in the Gulf of Kutch and is transported by underground pipeline directly to Mathura refinery. The IOC exclusively owns, operates, controls, ensures and safeguards the underground pipelines. By the Uttar Pradesh Tax on Entry of Goods into Local Area Act, 2007 and the relevant notifications, the entry tax at the rate of four percent / five percent ad valorum was levied, on crude oil, directly transported through the Salaya-Mathura underground pipeline to Mathura refinery.
The Counsels for the petitioners challenged the Act on the ground that it extends to areas in respect of which the State Legislature does not have power to legislate. It was urged that under List I Entry 3 of the 7th Schedule of the Constitution, it is only the Central Government which can make legislation for cantonment areas. The impugned legislation, particularly Section 2(d), in so far as it seeks to include cantonment areas governed by Cantonments Act, 1994 within the purview of the Act is beyond the legislative competence of the State Government. The other argument was that the Act has its source of power from Entry 52, List II, whereunder the State Government is competent to levy taxes on entry of goods into a local area for consumption, use or sale therein. Under the said entry, the State Government is empowered to enact a law for the benefit of the local area wherein the goods are to be consumed, used or sold. The word ‘local area’ has to be understood as an area administered by a local body, like a municipality, a panchayat or like. The use of the word ‘a’ before ‘local area’ is of immense significance. The taxable event is not the entry of goods in any area of the State, but in a local area.
The bench comprising of Justice Dilip B. Bhosale and Justice M. K. Gupta observed that the issue raised by the petitioners are no more res-integra and that a two-judge bench of the Supreme Court in the case of State of Kerala vs. Fr. Williams had already dealt with the issue. The bench noted that the judgement proceeds by making a specific reference to Article 366 (28) and by holding that the provision thereof does not, in any manner, support the contention that tax under Entry 52 is only a local tax which is to be collected through local bodies. Whether a tax is collected as a general tax or as local tax, is held to be a matter of legislative policy. Regarding the issue of legislative competence of the State the Bench observed “No doubt, the Union is invested with the power to enact law providing for the local self-government, delimitation and other matters connected with the administration of the cantonment area but it does not mean that a cantonment area is beyond the bounds of the State in which that cantonment lies. It continues to be territory of the State in respect of which State legislature has power to frame laws in respect of items enumerated in List II. The impugned legislation providing for imposition of a levy on entry of goods into a cantonment area, in no manner, infringes upon the field reserved for the Union legislature under Entry 3 of List I.”