In season of GST, states go to apex court over crores due in entry tax

The states fear that the GST would abolish a lot of taxes and that the apex court should lay down laws related to their authority to impose taxes.

AMID the ongoing debate over the Goods and Services Tax (GST) Bill, a nine-member Constitution bench of the Supreme Court has begun hearings on a dispute related to the power and authority of states to impose an indirect tax that is set to be abolished once a new cess regime comes into force.

Headed by Chief Justice of India T S Thakur, the bench proceeded with the hearing this week, following a plea by the states, although Attorney General Mukul Rohatgi argued against the matter being heard because the introduction of the GST would abolish the tax in question completely.

The matter involves legal disputes between several states — BJP-ruled Madhya Pradesh, Chhattisgarh, Haryana and Punjab, and non-BJP states like Odisha, Uttar Pradesh and West Bengal — and public and private corporations over the pending recovery of crores in Entry Tax.

Madhya Pradesh has claimed that around Rs 4,000 crore is pending recovery and Chhattisgarh Rs 2,000 crore from companies, including PSUs such as Steel Authority of India Limited (SAIL) and Indian Oil Corporation (IOC).

“Irrespective of the passage of the GST Bill, this case needs to be resolved for the wider interests of the states as thousands of crores are to be recovered. It is also important because the Constitutional issue pertaining to taxation power and authority of states is involved. The GST might abolish the tax in dispute and some other taxes, but the issue about the legality of other taxes that can be imposed by states needs to be decided,” said Chhattisgarh Advocate General J K Gilda.

The states fear that the GST would abolish a lot of taxes and that the apex court should lay down laws related to their authority to impose taxes.

Chhattisgarh, for instance, is locked in a dispute with SAIL on which it imposed a six per cent Entry Tax — the PSU’s flagship Bhilai steel plant is located in the state.

Over a decade ago, SAIL approached the Chhattisgarh High Court, claiming that the tax was discriminatory as the state imposed just three per cent of this tax on others. It also said that the tax violated freedom of trade under Article 301 of the Constitution.

The court rejected SAIL’s plea in 2006 following which the PSU approached Supreme Court and obtained a stay on paying 50 per cent of the tax until the matter was decided. In 2010, Chhattisgarh filed an application for a modification of that order and this March, CJI Thakur directed the hearing of the application.

Contending that similar issues from several other states were pending before it, Chhattisgarh Advocate General Gilda requested the Supreme Court to expedite the hearing following which all the cases were clubbed.

The questions that the court formulated last Wednesday include:

* Can the levy of a non-discriminatory tax per se constitute infraction of Article 301?

* Is the Entry Tax in the present instance valid?

* Can its validity be determined with reference to Article 304 (a) and 304 (b)?

On Tuesday, when the bench held the first hearing, Rohatgi told the court that “the question to be decided is academic in nature.” He contended that that since the GST Bill is likely to be passed in Parliament soon, it will lead to the abolition of Entry 52 of List II ( under Schedule VII of Constitution) on which this tax is based.

Senior advocate Harish Salve, appearing for IOC, concurred with Rohatgi.

However, the court ruled that it would hear the matter as it involves pending recovery of thousands of crores by various states and has several repercussions — it will hear the matter again on Tuesday.


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