The Telegraph
Tuesday , June 25 , 2013
CIMA Gallary

Court strikes down state entry tax
Blow to Amit cash cushion

Calcutta, June 24: Calcutta High Court today declared as “unconstitutional” an entry tax introduced by the Mamata Banerjee government last year.

Finance minister Amit Mitra, who introduced the tax in the 2012-13 budget, has been banking on the levy to raise revenue at a time the state is struggling to cope with a financial mess.

The operation of the judgment has been stayed for six weeks to give time to the state to appeal — an option it is certain to use.

Justice Indira Banerjee struck down the tax as the state did not take the President’s assent before imposing it. The court also found that the tax was not compensatory in nature.

The full picture will be clear only when the detailed judgment is made public on Wednesday. Usually, the proceeds from such a levy are set aside for specific purposes and not used to make good shortfalls elsewhere.

Officials in the state finance department said the government would challenge the order before a division bench of the high court. “We cannot let this crucial chunk of revenue go. We will certainly take it up before the division bench,” he said.

The official said the government’s assessment earlier was that such a tax did not require presidential assent — the absence of which had also tripped the Singur land reclaim law.

“We can appeal to the division bench. If it is held that presidential assent is mandatory, we could consider a new bill which will be sent for assent,” the official added.

The introduction of entry tax had drawn fire from a number of companies and chambers of commerce. Bengal had such a tax earlier but the Left Front scrapped it in 1995 as the levy choked check posts and fed corruption. The Left Front had mooted another version of the tax but did not pursue it.

Today’s judgment followed petitions by around 30 companies, including Tata Steel, Bharti Airtel, Usha Martin, Hindalco and Emami Biotech, in August, challenging the constitutional validity of the tax.

One of the biggest payers of the tax was the state’s own Haldia Petrochemicals Ltd, which is estimated to have coughed up Rs 300 crore as the levy for importing naphtha.

Lawyers representing some petitioners said the court took note of the manner in which the tax proceeds were to be spent.

“According to a Supreme Court judgment, the money has to be spent on developing infrastructure of the local area. In this case, the companies contended that the state legislature seemed to have the final say on how the collections would be sent. This went against the state government,” a lawyer said.

During the hearing, the West Bengal Tax on Entry of Goods into Local Areas Act, 2012, was challenged primarily on three grounds.

First, entry tax on goods imported to India was held to be Parliament’s prerogative. Some items being taxed in Bengal are imported.

Second, the imposition of both intra-state and inter-state taxes at the same rate was discriminatory and it created disincentives for companies to produce goods in the state. Third, freedom to trade was being affected by the tax.