Jindal Stainless Hisar LTD. vs. State Of Gujarat

Held

The Court held that the notification dated February 15, 2010, insofar as it prescribes a four percent entry tax rate on stainless steel flats, sheets, and coils, is illegal and bad in law. The Court reasoned that the Entry Tax Act is intended to ensure a level playing field and prevent discrimination. When the State Government reduced the VAT rate on stainless steel goods to one percent through the notification dated October 3, 2012, it was incumbent upon the State to correspondingly reduce the entry tax rate. Failing to do so, and continuing with the higher entry tax rate, rendered the action discriminatory and violative of Article 304(a) of the Constitution of India. The Court found no justifiable reason presented by the State for maintaining the higher entry tax rate. Consequently, the consequential notices issued by the Deputy Commissioner demanding entry tax were also held to be unsustainable. The Court rejected the revenue's contention regarding tax credit and refund, stating that if the original notification prescribing the higher rate is illegal, there is no basis for demanding payment and then seeking a refund. The ratio decidendi is that a higher entry tax rate on goods cannot be maintained when the corresponding VAT rate on the same goods has been reduced, as this constitutes discrimination and violates Article 304(a) of the Constitution.

Facts

The petitioners, Jindal Stainless Hisar Ltd. and another, challenged a notification dated February 15, 2010, issued by the State Government under the Gujarat Tax on Entry of Specified Goods into Local Areas Act, 2001 (Entry Tax Act). This notification added 'stainless steel plates, flats, sheets and coils' to the schedule, specifying a maximum entry tax rate of four percent. The petitioners, manufacturers of stainless steel flats and sheets, dispatch goods from Haryana to their Gujarat branches for local sale. They pay VAT under the Gujarat Value Added Tax Act, 2003 (VAT Act). The Deputy Commissioner of Commercial Tax issued notices alleging non-payment of entry tax and demanding deposit of the tax amount. The petitioners contended that while the VAT Act rate on these goods was reduced to 1% by a notification dated October 3, 2012, the entry tax rate remained at four percent, creating a disparity.

Key Issues

1. Whether the notification dated February 15, 2010, issued under Section 3(1A) of the Entry Tax Act, prescribing a four percent entry tax rate on stainless steel flats, sheets, and coils, is illegal and bad in law, particularly in light of the subsequent reduction of the VAT rate on the same goods to one percent by the notification dated October 3, 2012, issued under Section 5(2)(a) of the VAT Act? 2. Whether the consequential notices issued by the Deputy Commissioner of Commercial Tax demanding payment of entry tax are sustainable? Petitioner's Arguments: The petitioners argued that the Entry Tax Act contains a self-contained mechanism for adjusting tax rates. They contended that when the VAT Act rate was reduced, the entry tax rate should have been correspondingly reduced. They relied on the principle that the Entry Tax Act aims to create a level playing field and prevent discrimination. They argued that continuing a higher entry tax rate after reducing the VAT rate on the same goods is discriminatory and violates Article 304(a) of the Constitution of India. Revenue's Arguments: The State Government contended that under Section 11(1)(a)(iii) of the VAT Act, registered dealers can claim tax credit for entry tax paid, and any excess amount is refundable under Section 37 of the VAT Act. They argued that legitimate tax calculated would not be discriminatory, and dealers would be eligible for a refund of excess tax paid.